[Mission 2024] STATIC QUIZ, 22 December 2023 – Economy

Solution: c)

Opportunity cost is the benefits of an alternative given up when one decision is made over another. This cost is, therefore, most relevant for two mutually exclusive events. In investing, it’s the difference in return between a chosen investment and one that is passed up.

For companies, opportunity costs do not show up in the financial statements but are useful in planning by management.

For example, a company decides to buy a new piece of manufacturing equipment rather than lease it. The opportunity cost would be the difference between the cost of the cash outlay for the equipment and the improved productivity vs. how much money could have been saved in interest expense had the money been used to pay down debt.

Solution: d)

Personal loans refer to loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).

Solution: c)

Structural change represents the fundamental changes that occurring in the basic features of the economy over a long period.

Development is described as growth plus structural changes. Structural changes constitute to the most important part of development.

Structural changes refer to long term and persistent shifts in the sectoral composition of economic systems.

Structure of an economy refers to the fundamental features of the economy like the size of the primary, secondary and tertiary sectors in terms of their contribution to GDP and employment. Other important elements of structure are trade composition (the items that we export and import), saving GDP ratio (level of savings as a percent of GDP) etc.

Solution: b)

Option 3 is incorrect.

National Income is defined as the total monetary value of all goods and services produced within a country during a given period of time. Gains on sale of land will not be included in the estimation of National Income. Capital gains will not be included in the national income as they do not add to the current flow of goods and services in the economy.

Solution: a)

Only statement 3 is correct.

Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month.

Deflation is the exact opposite of inflation. Imagine if the general prices level in June was 5% lower than what it was in June last year. That’s deflation.

Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.