Static Quiz 01 February 2024 (Economy) 

Consumption and Capital goods: A particular good can be consumption as well as capital good. For example washing machine. When a person is using washing machine at his home for washing of his own clothes then it will act as consumption good. But, if the same washing machine is purchased by a businessman for providing laundry services then it is acting as a capital good. Because in the latter case, washing machine is being used to produce washed clothes for the market and not for own consumption.

Intermediate and Final good: A particular good can be final as well as intermediate. For example, “tea leaves”. When a person is purchasing the “tea leaves” for his home consumption purpose then the “tea leaves” will be a final good. But when a tea seller is purchasing the “tea leaves” to prepare “tea” and sell it in the market then “tea leaves” is intermediate good and the “tea” is the final good. The distinguishing characteristic whether a good is final or intermediate is “the last transaction in the market”. In case of tea seller, the last transaction in the market is of tea, so “tea” is final good. But in case of the person purchasing tea leaves for home purpose, “tea leaves” is the last transacted good in the market, so “tea leaves” will be final good.

GNP = GDP + Net factor income from abroad (NFIA)
Gross Domestic Product (GDP) + NFIA = Gross National Product (GNP)
Gross Domestic Product (GDP) – Depreciation = Net Domestic Product (NDP)
Gross National Product (GNP) – Depreciation = Net National Product (NNP)
“Gross National Product (GNP) is also called Gross National Income; and Net National Product (NNP) is also called Net National Income or just National Income.”

Marginal productivity of labour = change in output /labour Change in labour.
Higher is the productivity of capital, it is good for the economy.
The inverse of “productivity of capital” is Capital/Output ratio.
Capital output ratio is the ratio of capital to output. It measures how much of capital is required per unit of output. So, if more capital is required per unit of output, then the capital is less efficient. Hence, it also measures (average) efficiency of capital (but it is inverse).
Higher the capital/output ratio, it is bad for economy. If Capital/Output ratio is 3/1, that means Rs. 1 unit of output is produced from Rs. 3 units of capital. And if Capital/Output ratio is 4/1, that means to produce Rs. 1 unit of output, Rs. 4 units of capital is required. So, 3/1 is better than 4/1 for the economy.

Price Cap Coalition
• A coalition of G7 countries, the European Union and Australia have agreed to prohibit the import of crude oil and petroleum products of Russian origin, supported by a broad range of companies involved in the transport of oil.
• The G7 Oil Price Cap for crude oil of US$60 per barrel came into effect 5 December 2022
• India’s stand is to remain non-committal on any such pricing cap arrangement.

Marginal standing facility (MSF) is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely. With the increase of MSF Rate, cost of borrowing increases for banks resulting in reduced available resources to lend.

Bank rate
• In simplest of terms, the rate at which commercial banks can borrow from the RBI without providing any security.
• Lending under bank rate is done for a long period of time