Indian Economy Quiz: Day: 119

Answer: (b)

Factor Price and Market Price

• Factor Price is total cost of all factors of production (such as labour, capital, land etc.) used in producing goods or services. It is the price of the commodity from the producers side.
• Market Price – It is the price at which a product is sold in the market.
• It includes the cost of production in the form of wages, rent, interest, input prices, profit etc.
• It also includes the taxes imposed by the government.
• It excludes Government subsidy.
• Thus relationship between Factor price and Market price is
• Market Price = Factor Price + Indirect Taxes – Subsidies

Hence statement 2 is incorrect.

Answer: (a)

• Cost-Push Inflation– when prices increase due to the rising cost of inputs like wage increase, high transport price, unavailability of raw materials. With an increase in prices, the output level of the economy also falls.

Cost-Push Inflation is caused due to various reasons:

• Increase in price of inputs
• Hoarding and Speculation of commodities
• Defective Supply chain
• Increase in indirect taxes
• Depreciation of Currency

Hence pair 1 is incorrect.

Built in Inflation:

• Firms pass the higher labour costs on to their customers as higher prices.
• It becomes a vicious cycle of higher price-higher labour cost-higher price.

Hence pair 2 is correct.

Demand-Pull Inflation:

• This type of inflation is caused due to an increase in aggregate demand in the economy.

Causes of Demand-Pull Inflation:

• A growing economy or increase in the supply of money – When consumers feel confident, they spend more and take on more debt.
• This leads to a steady increase in demand, which means higher prices.

Hence pair 3 is correct.

Answer: (a)

• GATT was signed by 23 countries in 1947.
• India was one of the founder members of GATT.
• GATT’s primary purpose was to increase International Trade by reducing various tariffs, quotas and subsidies while maintaining meaningful regulations.

ØRounds of GATT

• First in Geneva (Switzerland) (1947)
• Second in Annecy (France) in 1949
• Third in Torquay (UK) in 1950 – 51
• Fourth, fifth, and Sixth in Geneva (Switzerland) in 1956, 1960-61, 1964 -67.
• Seventh in Tokyo (Japan) in 1973 – 79
• Eighth and final round at Punta del Este (Uruguay) in 1986 – 1994, known as ‘Uruguay Round’.

Answer: (b)

• Poverty Gap:
• The poverty gap measures the extent to which individuals fall below the poverty line.
• It reflects the intensity of poverty in a nation.

Answer: (d)

Objectives of NITI Aayog-

• To grant advice and encourage partnerships between important stakeholders and national-international Think Tanks, as well as educational and policy research institutions
• To construct methods to formulate a reliable strategy at the village level and aggregate these gradually at higher levels of government
• To promote cooperative federalism through well-ordered support initiatives and mechanisms with the States on an uninterrupted basis

Answer: (c)

• Disinvestment is aimed at reducing the financial burden on the government due to inefficient PSUs and to improve public finances.
• It introduces competition and market discipline and helps to depoliticise non-essential services.

Hence statement both the statements are correct.

Answer: (c)

• Public debt is the total amount, including total liabilities, borrowed by the government to meet its development budget.
• External Debt’
• It refers to money borrowed from a source outside the country.
• External debt has to be paid back in the currency in which it is borrowed.

Hence statement both the statements are incorrect.

Answer: (d)

Gross National Happiness (GNH)

• The term Gross National Happiness was coined in 1972 during an interview by a British journalist for the Financial Times at Bombay airport when the then king of Bhutan, Jigme Singye Wangchuck, said “Gross National Happiness is more important than Gross National Product.
• In 2011, UNGA passed Resolution “Happiness: towards a holistic approach to development” urging member nations to follow the example of Bhutan and measure happiness and well-being and calling happiness a “fundamental human goal.“

The 4 pillars of GNH are:

1.Sustainable and equitable socio-economic development

2.Environmental conservation

3.Preservation and promotion of culture

4.Good governance

Answer: (d)

• Money market refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded.
• It deals with borrowing and lending of short term credit/loan generally with a time period of less than or equal to 1 year.

INSTRUMENTS OF MONEY MARKET

1.Call Money–  is also referred to as the money at call. It deals with very short term funds, and is demanded extremely short durations from a few hours to 1 day

2.Notice Money– for borrowing and lending operations of 2 to 14 days.

3.Term Money– Lending and borrowing of funds beyond 14 days

Answer: (a)

Repo Rate:

• The rate at which the RBI is willing to lend short-term loans to commercial banks is called Repo Rate.
• Whenever commercial banks have any shortage of funds they can borrow from the RBI, against securities.
• If the RBI increases the Repo Rate, it makes borrowing expensive for commercial banks and vice versa.
• As a tool to control inflation, RBI increases the Repo Rate, making it more expensive for the banks to borrow from the RBI with a view to restrict the availability of money.

Hence statement 1 is correct.

Reverse Repo Rate:

• The rate at which the RBI is willing to borrow from the commercial banks is called reverse repo rate.
• If the RBI increases the reverse repo rate, it means that the RBI is willing to offer lucrative interest rate to commercial banks to park their money with the RBI.
• This results in a reduction in the amount of money available for the bank’s customers as banks prefer to park their money with the RBI as it involves higher safety.
• This naturally leads to a higher rate of interest which the banks will demand from their customers for lending money to them

Hence statement 2 is incorrect.