Static Quiz 27 May 2023 (Indian Economy)

Solution: d)
Justification: It is the ratio of the value of goods and services an economy produces in a particular year at current prices to that at prices prevailing during any other reference (base) year. This ratio basically shows to what extent an increase in GDP or gross value added (GVA) in an economy has happened on account of higher prices, rather than increased output. Since the deflator covers the entire range of goods and services produced in the economy — as against the limited commodity baskets for the wholesale or consumer price indices — it is seen as a more comprehensive measure of inflation.

Solution: c)
Justification: Every economy meets with certain challenges. One, to ascertain the availability of the goods and services required by the population and second, the presence of the supply network. Every economy has to, at first, guarantee the required level of goods and services out of its production process. For this, a proper level of production capacity should be built which requires a particular level of capital formation or investment. From where the investible funds will be managed is altogether a separate question.
Whether the investment will come from the government, the domestic private sector or the foreigners? Once these details are cleared and selected as per the socio-economic condition of the economy, a proper distribution network for goods and services produced is assured.
Statement 3: But, in a State Economy the private sector does not play any role and is nationalized by the government.

Solution: a) Justification: Statement 1: Currency is not considered as fixed capital, it is liquid capital. Fixed capital is the assets
used in the productive process. Other examples include Building or expanding existing factories, Purchase of transport equipment and all other machinery used in the productive process. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels.

Solution: d)
Justification: Optimal allocation happens when goods and services are distributed according to consumer
preferences and needs of corporations.

Statement 1: It is possible that by employing all resources, we may reach a stage of disguised unemployment, for
e.g. as common in rural areas.

Statement 2: This is a distribution based on equity and welfare concerns, which may not be efficient from an
economic point of view.

Solution: b)
Justification: A few banks assume systemic importance due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness. The disorderly failure of these banks has the propensity to cause significant disruption to the essential services provided by the banking system, and in turn, to the overall economic activity. These banks are considered Systemically Important Banks (SIBs) as their continued functioning is critical for the uninterrupted availability of essential banking services to the real economy. After adding the State Bank of India and private lender ICICI, the Reserve Bank of India has listed HDFC to systemically important banks list.
Statement 1: Since 2015, RBI has been identifying banks whose failure would impact the whole financial system. These banks are subject to more rigorous regulation and capital requirements. This perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets. The indicators the RBI uses for identifying Domestic-SIBs are size, interconnectedness, substitutability, and complexity.