UPSC Static Quiz – Economy : 15 April 2026

Solution: B

• Statement 1: Real GDP is calculated using constant (base year) prices, not current year prices. This removes the effect of inflation, making it a better measure of actual economic output. Hence, it is not sensitive to inflation.
• Statement 2: Real GDP is considered a better indicator of economic well-being because it reflects the true increase in goods and services produced, excluding price rise effects. Nominal GDP, being based on current prices, can be misleading during periods of high inflation.
• Statement 3: The ratio of Nominal GDP to Real GDP gives the GDP Deflator, which measures overall price changes in the economy:
  GDP Deflator = (Nominal GDP / Real GDP) × 100
• Statement 4: Approximate relation:
  Real GDP growth ≈ Nominal GDP growth − Inflation rate
  = 10% − 4% = 6%

Solution: A

• Statement 1: Correct. Net Factor Income from Abroad (NFIA) is defined as the difference between factor income earned by residents from the rest of the world and factor income earned by non-residents within the domestic territory. It is a key component in moving from GDP to GNP.
• Statement 2: Incorrect. A positive NFIA means that residents are earning more income from abroad than foreigners are earning domestically. Hence, Gross National Product (GNP) = GDP + NFIA, so GNP will be greater than GDP, not the other way around.
• Statement 3: Incorrect. In India, NFIA has historically been negative, not positive. This is because profits, interest, and dividends paid to foreign investors (due to significant foreign investment in India) generally exceed the factor income earned by Indians abroad. While remittances are large, they are classified under private transfers (current account), not factor income.

Solution: B

• Statement-I is correct. The MPC, established in 2016, is the statutory body that meets at least four times a year to decide the Repo Rate.
• Statement-II is correct. Under the Flexible Inflation Targeting (FIT) framework, the government sets the target (currently 4% with a band of +/- 2%) in consultation with the RBI.
• However, Statement-II is not the explanation for Statement-I. Statement-I describes the function of the MPC (what it does), while Statement-II describes the mandate given to it (what goal it must achieve).

Solution: A

• Frictional Unemployment (A-ii) is the temporary period of joblessness that occurs when individuals are between jobs or looking for their first job. It is often voluntary and reflects a healthy, dynamic labour market where people seek better opportunities.
• Structural Unemployment (B-i) occurs when there is a fundamental mismatch between the skills workers possess and the skills required by employers. This can be caused by technological shifts, globalization, or long-term industry declines.
• Cyclical Unemployment (C-iii) is directly tied to the business cycle. It rises during economic downturns or recessions when there is a deficiency in aggregate demand, leading firms to reduce their workforce.

Solution: B

• Statement 1 is correct. This is the primary definition of a Capital Market, as opposed to the Money Market which deals with short-term (less than one year) funds.
• Statement 2 is correct. By allowing companies to raise long-term funds via equity or bonds, the capital market facilitates capital formation and economic development.
• Statement 3 is incorrect. The NSE is a commercial, for-profit entity. While it was established with the support of government institutions to modernize the Indian market (using electronic trading), it is not a “tax-free entity”.