Daily Quiz: UPSC Prelims Marathon (Economy) – May 5, 2020

“Quantitative Easing”.

Statement 1 is incorrect: Quantitative easing (QE) is a form of unconventional monetary policy of a central bank.

Statement 2 is incorrect: In Quantitative Easing central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities.

Financial Stability Development Council.

Statement 1 is correct: The Financial Stability and Development Council (FSDC) were set up by the Government as the apex level forum in December 2010.

Statement 2 is incorrect: The Chairman of the Council is the Finance Minister and its members include Minister of State, in charge of Department of Economic Affairs (DEA), the heads of all Financial Sector Regulators [Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Pension Fund Regulatory and Development Authority (PFRDA), Insurance Regulatory and Development Authority of India (IRDAI) and Insolvency and Bankruptcy Board of India (IBBI)], Finance Secretary and/or Secretary, Department of Economic Affairs (DEA), Secretary, Department of Revenue (DoR), Secretary, Department of Financial Services (DFS), Secretary, Ministry of Corporate Affairs (MCA), Secretary, Ministry of Electronics and Information Technology (MeitY) and Chief Economic Adviser. Adviser, Ministry of Finance, Department of Economic Affairs, in-charge-of Financial Stability & Development Council, is the Secretary of the Council.

Statement 3 is correct: Without prejudice to the autonomy of Regulators, the Council monitors macro prudential supervision of the economy, including functioning of large financial conglomerates, and addresses inter-regulatory coordination and financial sector development issues. It also focuses on financial literacy and financial inclusion.

The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices (Cereal, Vegetable oil, Dairy Price, Meat and Sugar indices), weighted with the average export shares of each of the groups for 2002-2004.

Blue Chip Stocks.

• Blue chip stocks are shares of very large and well-recognised companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions.
• Blue chip stocks generally cost high, as they have good reputation and are often market leaders in their respective industries.
• Oliver Gingold, who worked at Dow Jones, coined the phrase ‘Blue Chip’ in 1923. This term came into vogue after Gingold, while standing near the stock ticker at a brokerage firm, noticed that several stocks traded at $200 or more per share. He called them ‘Blue Chip Stocks’ and wrote an article on them.
• Since then the term has been used to refer to highly-priced stocks, but now it is used more commonly to refer to high-quality stocks. These are stocks that generally deliver superior returns in the long run.

As per market capitalisation, India’s leading blue chip companies today are State Bank of India (SBI), Bharti Airtel, Tata Consultancy Services (TCS), Coal India, Reliance Industries, HDFC Bank, ONGC, ITC, Sun Pharma, GAIL (India), Infosys, and ICICI Bank.

Pigovian Tax.

Statement 1 is correct: A Pigovian tax is a tax placed on any good which creates negative externalities. The aim of a Pigovian tax is to make the price of the good equal to the social marginal cost and create a more socially efficient allocation of resources. It is named after the economist Arthur Pigou who developed the concept of externalities in the 1920s.

Statement 2 is correct: A carbon tax aims to make individuals and firms pay the full social cost of carbon pollution. In theory, the tax will reduce pollution and encourage more environmentally friendly alternatives.