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Daily Quiz: January 16, 2018
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- Question 1 of 7
1. Question
1 pointsCategory: EconomyConsider the following statements regarding Gross Domestic Product accounting of a country:
- The ownership status of goods and services does not play role while accounting for GDP.
- Recent Chennai oil spill in Ocean causing the damage to economy, such cost of damage is accounted in GDP calculation.
- GDP accounts for the opportunity cost.
Which of the above given statement(s) is/are correct?
Correct
Statement 1 is correct. GDP is the total value of final goods and services produced within a country’s border in a year, regardless of ownership.
Statement 2 is incorrect. The failure of GDP to incorporate environmental costs of development is one its major drawback. So it does incorporate environmental damage caused by oil spills etc.
Statement 3 is incorrect. GDP does not account for the opportunity cost.
Incorrect
Statement 1 is correct. GDP is the total value of final goods and services produced within a country’s border in a year, regardless of ownership.
Statement 2 is incorrect. The failure of GDP to incorporate environmental costs of development is one its major drawback. So it does incorporate environmental damage caused by oil spills etc.
Statement 3 is incorrect. GDP does not account for the opportunity cost.
- Question 2 of 7
2. Question
1 pointsCategory: EconomyWhen there is a fall in the prices of oil in an economy, it may lead to which of the following?
1. Increase in the demand for consumption goods
2. Rise in the interest rates
3. Increase in net exports
Select the correct answer using the code given below.
Correct
Statement 1 is correct. Effects of low oil prices: A lower price level raises the real value of households’ money holdings, which stimulates consumer spending.
Statement 2 is incorrect. The second is the interest-rate effect: A lower price level reduces the quantity of money households demand; as households try to convert money into interest-bearing assets then interest rates fall, which stimulates investment spending.
Statement 3 is correct. The third is the exchange-rate effect: As a lower price level reduces interest rates, the dollar depreciates in the market for foreign-currency exchange, which stimulates net exports.
Incorrect
Statement 1 is correct. Effects of low oil prices: A lower price level raises the real value of households’ money holdings, which stimulates consumer spending.
Statement 2 is incorrect. The second is the interest-rate effect: A lower price level reduces the quantity of money households demand; as households try to convert money into interest-bearing assets then interest rates fall, which stimulates investment spending.
Statement 3 is correct. The third is the exchange-rate effect: As a lower price level reduces interest rates, the dollar depreciates in the market for foreign-currency exchange, which stimulates net exports.
- Question 3 of 7
3. Question
1 pointsCategory: EconomyConsider following statements regarding inflation:
- Inflation favors debtors
- Aggregate demand may increase.
- Purchasing power of money increases if there is inflation in the market.
Which of the above given statement(s) is/are correct?
Correct
Statement 1 is correct. Inflation favors the debtors as the amount which the debtor actually pays is less due to inflation.
Statement 3 is incorrect. Purchasing power of money decreases if there is inflation in the market as inflation makes things costly.
Statement 2 is correct. Inflation may signify higher aggregate demand and less supply. With inflation investors may invest more because of higher demand.
Incorrect
Statement 1 is correct. Inflation favors the debtors as the amount which the debtor actually pays is less due to inflation.
Statement 3 is incorrect. Purchasing power of money decreases if there is inflation in the market as inflation makes things costly.
Statement 2 is correct. Inflation may signify higher aggregate demand and less supply. With inflation investors may invest more because of higher demand.
- Question 4 of 7
4. Question
1 pointsCategory: EconomyWith reference to currency depreciation, consider the following statements:
1. It may lead to increase in exports.
2. Increase in NRI deposits leads to currency depreciation.
3. Due to flexible exchange rate regime RBI can not intervene in the foreign currency market to counter depreciation.
Which of the statements given above is/are correct?
Correct
Statement 1 is correct. Currency depreciation makes exports cheaper and hence can increase export.
Statement 2 is incorrect. Increase in NRI deposits leads to currency appreciation.
Statement 3 is correct. RBI can intervene in foreign exchange market by selling dollars to prevent depreciation of rupee.
Incorrect
Statement 1 is correct. Currency depreciation makes exports cheaper and hence can increase export.
Statement 2 is incorrect. Increase in NRI deposits leads to currency appreciation.
Statement 3 is correct. RBI can intervene in foreign exchange market by selling dollars to prevent depreciation of rupee.
- Question 5 of 7
5. Question
1 pointsCategory: EconomyWhich of the following is/are possibly a reason/reasons for ‘Crowding out effect’ in an economy?
1. Expansionary fiscal policy
2. Large scale borrowing by government.
3. Higher interest rate.
Which of the statements given above is/are correct?
Correct
All of the above are reason for crowding out effect.
The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending.
One of the most common forms of crowding out takes place when a large government increases its borrowing. The sheer scale of this borrowing can lead to substantial rises in the real interest rate, which has the effect of absorbing the economy’s lending capacity and of discouraging businesses from making capital investments.
Other reason is expansionary fiscal policy reduces investment spending by the private sector.
Incorrect
All of the above are reason for crowding out effect.
The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending.
One of the most common forms of crowding out takes place when a large government increases its borrowing. The sheer scale of this borrowing can lead to substantial rises in the real interest rate, which has the effect of absorbing the economy’s lending capacity and of discouraging businesses from making capital investments.
Other reason is expansionary fiscal policy reduces investment spending by the private sector.
- Question 6 of 7
6. Question
1 pointsCategory: EconomyWith reference to ‘Public Debt’, consider the following statements:
- Public Debt includes only Internal and External Debt but not Public account liabilities.
- Internal Debt includes liabilities incurred by resident units in the Indian economy to other resident units.
- External Debt includes liabilities incurred by residents to non-residents.
Which of the statements given above is/are correct?
Correct
All the statements are correct. In India, total Central Government Liabilities constitutes the following three categories;
[i] Internal Debt.
[ii] External Debt.
[iii] Public Account Liabilities.
Public Debt in India includes only Internal and External Debt incurred by the Central Government. Internal Debt includes liabilities incurred by resident units in the Indian economy to other resident units, while External Debt includes liabilities incurred by residents to non-residents.
Incorrect
All the statements are correct. In India, total Central Government Liabilities constitutes the following three categories;
[i] Internal Debt.
[ii] External Debt.
[iii] Public Account Liabilities.
Public Debt in India includes only Internal and External Debt incurred by the Central Government. Internal Debt includes liabilities incurred by resident units in the Indian economy to other resident units, while External Debt includes liabilities incurred by residents to non-residents.
- Question 7 of 7
7. Question
1 pointsCategory: EconomyConsider the following statements:
1. Fiscal deficit is the Market borrowings and other liabilities added to budget deficit
2. Monetized deficit is the part that is financed through borrowings from RBI.
Which of the above given statement(s) is/are correct?
Correct
Both statements are correct. Fiscal deficit is the Market borrowings and other liabilities added to budget deficit .Monetized deficit indicates the level of support extended by the Reserve Bank of India to the government’s borrowing programme. Since borrowings from Reserve Bank of India directly add to money supply, this measure is termed monetized deficit. It is obvious that monetized deficit is only a part of fiscal deficit.
Incorrect
Both statements are correct. Fiscal deficit is the Market borrowings and other liabilities added to budget deficit .Monetized deficit indicates the level of support extended by the Reserve Bank of India to the government’s borrowing programme. Since borrowings from Reserve Bank of India directly add to money supply, this measure is termed monetized deficit. It is obvious that monetized deficit is only a part of fiscal deficit.
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