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Question 1 of 5
1. Question
Consider the following statements.
- Factor cost refer to the price arrived after deducting from the market price the government subsidy and adding the indirect taxes.
- GDP at factor cost is useful to see how competitive market forces are and how distortionary indirect taxes are.
Which of the above statements is/are incorrect?
Correct
Solution: a)
Factor costs are the actual production costs at which goods and services are produced in an economy.
Factor cost refer to the price arrived after deducting from the market price the indirect taxes and adding to the resulting number government subsidies if any.
Incorrect
Solution: a)
Factor costs are the actual production costs at which goods and services are produced in an economy.
Factor cost refer to the price arrived after deducting from the market price the indirect taxes and adding to the resulting number government subsidies if any.
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Question 2 of 5
2. Question
Which of the following are the factors considered behind the market determined exchange rates?
- Net foreign currency inflows
- Growth rate of the economy
- Commodity dependence of the economy on global supplies
- Forex reserves
How many of the above statements are correct?
Correct
Solution: d)
Markets decide the exchange rate based on a variety of factors like:
- Net foreign currency inflows
- Commodity dependence of the country on global supplies
- Forex reserves
- Growth rate of the economy
If these factors are favourable, the currency strengthens.
Incorrect
Solution: d)
Markets decide the exchange rate based on a variety of factors like:
- Net foreign currency inflows
- Commodity dependence of the country on global supplies
- Forex reserves
- Growth rate of the economy
If these factors are favourable, the currency strengthens.
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Question 3 of 5
3. Question
Consider the following statements regarding GDP deflator.
- GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
- Like CPI, the GDP deflator is based on a fixed basket of goods and services.
- When GDP deflator is negative, it necessarily means that there is inflation in the economy.
How many of the above statements are correct?
Correct
Solution: a)
Only statement 1 is correct.
In economics, the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.
The GDP deflator is a more comprehensive inflation measure than the CPI index because it isn’t based on a fixed basket of goods.
When GDP deflator is negative, nominal GDP is less than real DP. It means that there is deflation in the economy.
Incorrect
Solution: a)
Only statement 1 is correct.
In economics, the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.
The GDP deflator is a more comprehensive inflation measure than the CPI index because it isn’t based on a fixed basket of goods.
When GDP deflator is negative, nominal GDP is less than real DP. It means that there is deflation in the economy.
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Question 4 of 5
4. Question
Core Inflation does not indicate a price rise in which of these commodities?
- Consumer goods
- Hydrocarbon fuel
- Food products
- IT products
Select the correct answer code:
Correct
Solution: c)
Core Inflation is also known as underlying inflation, is a measure of inflation which excludes items that face volatile price movement, notably food and energy. In other words, Core Inflation is nothing but Headline Inflation minus inflation that is contributed by food and energy commodities.
Incorrect
Solution: c)
Core Inflation is also known as underlying inflation, is a measure of inflation which excludes items that face volatile price movement, notably food and energy. In other words, Core Inflation is nothing but Headline Inflation minus inflation that is contributed by food and energy commodities.
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Question 5 of 5
5. Question
Laffer curve is a relationship between
Correct
Solution: d)
In economics, the Laffer curve, developed by supply-side economist Arthur Laffer, illustrates a theoretical relationship between rates of taxation and the resulting levels of the government’s tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and 100%, and that there is a tax rate between 0% and 100% that maximizes government tax revenue.
The shape of the curve is a function of taxable income elasticity – i.e., taxable income changes in response to changes in the rate of taxation.
The Laffer curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate.
Incorrect
Solution: d)
In economics, the Laffer curve, developed by supply-side economist Arthur Laffer, illustrates a theoretical relationship between rates of taxation and the resulting levels of the government’s tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and 100%, and that there is a tax rate between 0% and 100% that maximizes government tax revenue.
The shape of the curve is a function of taxable income elasticity – i.e., taxable income changes in response to changes in the rate of taxation.
The Laffer curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate.
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