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Question 1 of 5
1. Question
Which of the following may lead to Inflation?
- A reduction in the total productive capacity of the economy even as more and more people are employed
- Oversupply of goods in the economy.
Select the correct answer code:
Correct
Solution: a)
Inflation is basically too much money chasing too few goods, or excess demand chasing limited supply. If income rises faster, demand for goods and services will also rise. On the other hand, if the economy is unable to satisfy the increased demand, for e.g. due to poor infrastructure, lack of production etc, the higher income will spiral the prices upwards and lead to high inflation.
Excess supply is likely to bring prices down.
Incorrect
Solution: a)
Inflation is basically too much money chasing too few goods, or excess demand chasing limited supply. If income rises faster, demand for goods and services will also rise. On the other hand, if the economy is unable to satisfy the increased demand, for e.g. due to poor infrastructure, lack of production etc, the higher income will spiral the prices upwards and lead to high inflation.
Excess supply is likely to bring prices down.
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Question 2 of 5
2. Question
In some of the five-year plans, the Gadgil – Mukharjee Formula was used to
Correct
Solution: b)
The Gadgil formula was evolved in 1969 for determining the allocation of central assistance for state plans in India. It was adopted for distribution of plan assistance during Fourth and Fifth Five Year Plans.
Incorrect
Solution: b)
The Gadgil formula was evolved in 1969 for determining the allocation of central assistance for state plans in India. It was adopted for distribution of plan assistance during Fourth and Fifth Five Year Plans.
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Question 3 of 5
3. Question
Which of the following is/are part of the Personal Disposable Income?
- Personal Tax Payments.
- Corporate Tax.
- Non-tax Payments such as fines
- Net Interest payments made by households
How many of the above options is/are correct?
Correct
Solution: d)
None of them are part of Personal Disposable Income.
In economics, personal income (PI) refers to an individual’s total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period.
If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income.
Personal Disposable Income (PDI) ≡ PI – Personal tax payments – Non-tax payments.
Incorrect
Solution: d)
None of them are part of Personal Disposable Income.
In economics, personal income (PI) refers to an individual’s total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period.
If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income.
Personal Disposable Income (PDI) ≡ PI – Personal tax payments – Non-tax payments.
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Question 4 of 5
4. 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.
- Unlike the CPI, the GDP deflator is not 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 is/are correct?
Correct
Solution: b)
Statement 3 is incorrect.
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: b)
Statement 3 is incorrect.
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 5 of 5
5. Question
With reference to the government expenditure in India, which of the following constitutes Transfer Payments?
- The Interest payments made to foreign countries on loans taken.
- The payments which are made by the government to its employees.
- The payments which are made as financial aid in a social welfare programme.
How many of the above statements is/are correct?
Correct
Solution: a)
Only Statement 3 is correct.
In macroeconomics and finance, a transfer payment is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government subsidies for certain businesses.
Incorrect
Solution: a)
Only Statement 3 is correct.
In macroeconomics and finance, a transfer payment is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government subsidies for certain businesses.
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