[Mission 2024] STATIC QUIZ, 14 September 2023 – Economy

Solution: d)

Disposable income refers to the money that can be used for personal tasks and saved as your savings. At the same time, disposable income is usually lower than nominal. This is explained by the need to deduct mandatory payments and taxes from the total amount.

DPI = PI (personal income) – personal tax (income tax) – non tax payment (fine)

Solution: b)

Statement 3 is incorrect.

In the forex market, the supply of rupees is determined by the demand for imports and various foreign assets. So, if there is high demand to import oil, it can lead to an increase in the supply of rupees in the forex market and cause the rupee’s value to drop. The demand for rupees in the forex market, on the other hand, depends on foreign demand for Indian exports and other domestic assets. So, for instance, when there is great enthusiasm among foreign investors to invest in India, it can lead to an increase in the supply of dollars in the forex market which in turn causes the rupee’s value to rise against the dollar.

Appreciation Vs Depreciation:

• In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
• Currency Appreciation: It is an increase in the value of one currency in relation to another currency.
• Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
• Currency appreciation discourages a country’s export activity as its products and services become costlier to buy.

Solution: c)

Fiscal profligacy is opposite of fiscal prudence. It is the act of spending money or using something in a way that wastes it and is not wise. The costs of fiscal profligacy at the State level can be huge.

Solution: d)

India imports nearly 85% of its crude requirement. The rise in import bill not only leads to inflation and rise in current account deficit and fiscal deficit, but also weakens the rupee against the dollar and hurts stock market sentiment.

A rise in crude oil price also has an indirect impact on India as it leads to a rise in edible oil prices, coal prices and also that of fertiliser as they use gas as the feedstock. Gas accounts for 80% of all fertiliser production costs.

So if a rise in crude oil prices could lead to a much enhanced import burden, it also leads to reduction in demand in the economy which hurts growth. It could also lead to higher fiscal deficit if the government chooses to bear the burden by way of subsidies.

Solution: b)

Statement 3 is incorrect.

In India, the most highlighted measure of national income has been the GDP at factor cost. The Central Statistics Office (CSO) of the Government of India has been reporting the GDP at factor cost and at market prices.

The distinction between factor cost, basic prices and market prices is based on the distinction between net production taxes (production taxes less production subsidies) and net product taxes (product taxes less product subsidies). Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax.