Daily Quiz: UPSC Prelims Marathon (Economy) – May 17, 2020

The J-curve effect is often cited in economics to describe, for instance, the way that a country’s balance of trade initially worsens following a devaluation of its currency, then quickly recovers and finally surpasses its previous performance.

Indian Depository Receipts (IDR).

Statement 1 is correct: An IDR is a mechanism that allows investors in India to invest in listed foreign companies, including multinational companies, in Indian rupees. IDRs give the holder the opportunity to hold an interest in equity shares in an overseas company.

Statement 2 is correct: IDRs are denominated in Indian Rupees and issued by a Domestic Depository in India. They can be listed on any Indian stock exchange. Anybody who can invest in an IPO (Initial Public Offer) is/are eligible to invest in IDRs.

The PCP is UNIDO’s innovative model for accelerating inclusive and sustainable industrial development in Member States. Aligned with the national development agenda and focused on sectors with high growth potential, the programme supports a country in achieving its industrial development goals. The PCP rests on a multi-stakeholder partnership led by the host government. It builds synergies with ongoing government and partner interventions relevant to industrial development. The PCP is also designed to leverage additional investment in selected priority sectors. As such, it is a model that facilitates the mobilization of partners and resources to achieve larger development impact. For UNIDO, the PCP serves to operationalize the Organization’s mandate and SDG 9. At the same time, it is a model that can be used to implement other SDGs too.

The Global Manufacturing and Industrialization Summit (GMIS) was established in 2015 to build bridges between manufacturers, governments and NGOs, technologists, and investors and to harness the Fourth Industrial Revolution’s transformation of manufacturing to enable the regeneration of the global economy. A joint initiative of the United Nations Industrial Development Organization (UNIDO) and the United Arab Emirates (UAE), GMIS is a platform that presents the manufacturing sector with an opportunity to contribute towards global good.

The External Sector Report, produced annually since 2012, is a key part of the IMF’s surveillance. External assessments are arrived at by integrating multilateral and country-specific perspectives, while ensuring individual economy assessments add up to a coherent, multilaterally consistent view.

Inflation erodes the value of money and the people who hold currency suffer in this process. As the governments have authority of printing currency and circulating it into the economy (as they do in the case of deficit financing), this act functions as an income to the governments. This is a situation of sustaining government expenditure at the cost of people’s income. This looks as if inflation is working as a tax. That is how the term inflation tax is also known as seigniorage. It means, inflation is always the level to which the government may go for deficit financing—level of deficit financing is directly reflected by the rate of inflation.

Phillips curve is a graphic curve which advocates a relationship between inflation and unemployment in an economy. As per the curve there is a ‘trade off’ between inflation and unemployment, i.e., an inverse relationship between them. The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower the unemployment. During the 1960s, this idea was among the most important theories of the modern economists. This concept is known after the economists who developed it—Alban William Housego Phillips (1914–75).

There are multi-dimensional effects of inflation on an economy both at the micro and macro levels. It redistributes income, distorts relative prices, destabilizes employment, tax, saving and investment policies, and finally it may bring in recession and depression in an economy.

Statement 1 is correct: Inflation redistributes wealth from creditors to debtors, i.e., lenders suffer and borrowers benefit out of inflation.

Statement 2 is correct: Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers.

Named after the American economist Thorstein Bunde Veblen (1857–1929), this is a theory of consumption which suggests that consumers may have an ‘upward-sloping demand curve’ as opposed to a ‘downward-sloping demand curve’ because they practice conspicuous consumption (a downward – sloping demand curve means that the quantity demanded varies inversely to the price i.e. demand falls with price rise).

Small finance banks.

Statement 1 is incorrect: Differentiated Banks (niche banks) are banks that serve the needs of a certain demographic segment of the population. Small Finance Banks and Payment Banks are examples of differentiated banks in India.

Statement 2 is correct: Small Finance Banks was recommended by the Nachiket Mor committee on financial inclusion.