Daily Quiz: UPSC Prelims Marathon – November 21

Headcount ratio is a measure of  all the people below a poverty line, in a given population, and considers them equally poor.

The poverty gap index is a measure of the intensity of poverty. The poverty gap index is an improvement over the poverty measure headcount ratio. Poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line.

Credit control is most important function of Reserve Bank of India. Credit control in the economy is required for the smooth functioning of the economy. By using credit control methods RBI tries to maintain monetary stability. There are two types of methods:

Quantitative control to regulates the volume of total credit.

Qualitative Control to regulates the flow of credit.

Quantitative measures

Bank Rate Policy

The bank rate is the Official interest rate at which RBI rediscounts the approved bills held by commercial banks. For controlling the credit, inflation and money supply, RBI will increase the Bank Rate.

Open Market Operations

Open Market Operations refer to direct sales and purchase of securities and bills in the open market by Reserve bank of India. The aim is to control volume of credit. Thus statement 2 is correct

Cash Reserve Ratio

Cash reserve ratio refers to that portion of total deposits in commercial Bank which it has to keep with RBI as cash reserves.

Statutory Liquidity Ratio

SLR refers to that portion of deposits with the banks which it has to keep with itself as liquid assets(Gold, approved govt. securities etc.) If RBI wishes to control credit and discourage credit it would increase CRR & SLR. Thus statement 4 is correct

Qualitative Measures

Qualitative measures are used by the RBI for selective purposes. Some of them are

Margin requirements

This refers to difference between the securities offered and amount borrowed by the banks. Thus statement 3 is incorrect

Consumer Credit Regulation

This refers to issuing rules regarding down payments and maximum maturities of installment credit for purchase of goods. Thus statement 1 is incorrect

RBI Guidelines

RBI issues oral, written statements, appeals, guidelines, warnings etc. to the banks.

Rationing of credit

The RBI controls the Credit granted / allocated by commercial banks.

Moral Suasion

Psychological means and informal means of selective credit control.

Direct Action

This step is taken by the RBI against banks that don’t fulfil conditions and requirements. RBI may refuse to rediscount their papers or may give excess credits or charge a penal rate of interest over and above the Bank rate, for credit demanded beyond a limit.

Statement 1 is incorrect. GNP can be greater than, equal to or lesser than the GDP depending on the magnitude of Net Income from abroad

Statement 2 is correct. Depreciation is deducted from gross value to get the net value.

Statement 3 is incorrect. Real GDP is calculated at some constant set of prices (or constant prices). Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.

The Gross Budgetary Support (GBS) is an important component of the Central Plan of the Government of India. The Government’s support to the Central plan is called the Gross Budgetary Support. The GBS includes the tax receipts and other sources of revenue raised by the Government.

The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money. Currency with the Public, Other Deposits with the RBI, Cash Reserves of the banks held with themselves, Cash Reserves of the Banks held with RBI etc

Due to non-availability of the data, no single method can solely be used in India. Our country uses a mixture of all the three methods.

More learning:

IncomeMethod

By this National Income is calculated compiling income of factors of production viz., land, labour, capital and entrepreneur.

ProductionMethod

It is used by economists to calculate GDP at market prices, which are the total values of outputs produced at different stages of production.

ExpenditureMethod

It measures all spending on currently-produced final goods and services only in an economy.

Cash Deposit ratio (CDR) is the ratio of how much a bank lends out of the deposits it has mobilised. It indicates how much of a banks core funds are being used for lending, the main banking activity. Cash Deposit Ratio (cdr) increases during the festive season as people convert deposits to cash balance for meeting extra expenditure during such periods