Indian Economy Quiz: Day: 109

Answer: (c)

• Nominal GDP, or nominal gross domestic product, is a measure of the value of all final goods and services produced within a country’s borders at current market price.
• The real GDP, is a measure of the value of all final goods and services produced within a country’s borders at Constant market price.

Hence statements 1 & 2 are incorrect.

• Real GDP is better for measuring long-term economic performance and comparison across countries.

Answer: (b)

• Primary function of Money: it helps to measure value of goods and services in terms of price.
• The use of money has completely removed the confusion regarding value of one good/service vis-a-vis the other.
• The value of a good is determined by multiplying its price with the quantity purchased.
• Secondary function of Money: Transfer of Value
• Money is used to transfer value from one place to another or from one person to another.

Hence the 1st and 3rd pairs are correct.

Fiat money gets its value from a government order (i.e., fiat). That means, the government declares fiat money to be legal tender, which requires all people and firms within the country to accept it as a means of payment.

Fiat money is a type of currency that is not backed by any commodity such as gold or silver.

Hence the 2nd pair is incorrect.

Answer: (b)

• The current account is a record of all trade between one nation and other nations. It includes payments for imports and exports of both goods and services. It also includes monetary gifts or transfer payments to and from other nations.

Hence statement 1 is correct.

• The current account of the balance of payments is record of the flow of payments between one country and other countries that result from: (1) the exchange of goods (exports and imports), which is the balance of trade, (2) the exchange of services, summarized as the balance of invisibles, and (3) any gifts or transfer payments that do not involve the exchange of goods and services, which is unilateral transfers.

Hence statement 2 is incorrect.

Answer: (d)

• Monetary policy is concerned with the management of interest rates and the total supply of money in circulation. It is generally carried out by the RBI.
• Fiscal policy, on the other hand, estimates taxation and government spending.
• It should ideally be in line with the monetary policy, but since it is created by lawmakers, people’s interest often takes precedence over growth.

Answer: (a)

• United Nations Development Programme (UNDP) released its latest Human Development Report (HDR).

Hence statement 1 is incorrect.

• This year’s HDR is quite different because for the first time in its history — the HDR has been compiled since 1990 — the global HDI value has declined two years in a row, erasing the gains of the preceding five years.

Hence statement 2 is correct.

• That India is behind Switzerland is hardly surprising but the more worrisome insight is that India is significantly behind the world average as well.

Hence statement 3 is correct.

Answer: (c)

• International economic transactions are called Autonomous when transactions are made due to some reason other than to bridge the gap in the balance of payments, that is, when they are independent of the state of BoP.
• These items are called ‘above the line’ items in the BoP. The balance of payments is said to be in surplus (deficit) if autonomous receipts are greater (less) than autonomous payments.
• Accommodating transactions (termed ‘below the line’ items), on the other hand, are determined by the gap in the balance of payments, that is, whether there is a deficit or surplus in the balance of payments.
• In other words, they are determined by the net consequences of the autonomous transactions.
• Since the official reserve transactions are made to bridge the gap in the BoP, they are seen as the accommodating item in the BoP

Answer: (d)

• A flexible exchange rate is a “hands off,” non-intervening policy that allows the foreign exchange market to adjust to equilibrium through the balance of demand and supply with no explicit government actions.

Hence statement 1 is correct.

• When imports increase, the demand for foreign exchange will increase. There is a depreciation of the domestic currency (due to an appreciation in foreign currency).

Hence statement 2 is correct.

Answer: (c)

• Cashless economy means an economic system where digital transactions like net banking, mobile banking, digital wallets, payment through debit cards and credit cards are used to replace the traditional method of payments made via cash or coins.
• Economic Inequality – In a country like India, where a huge part of the citizens strives to arrange their daily food, buying a smartphone is definitely a luxury which not all can afford.

Answer: (c)

Answer: (c)

• GDP deflator, also known as the implicit price deflator, is used to measure inflation.
• It is used to determine the levels of prices of the new, domestically produced final goods and services in a country in a year.
• GDP deflector shows the changes in the average price levels in the economy, and therefore, it is used in conjunction with the Consumer Price Index (CPI) for measuring inflation.
• GDP deflator = Nominal GDP / Real GDP * 100