Daily Static MCQs for UPSC & State PSC Exams - Economy (19 October 2023)

   

Daily Static MCQs Quiz for UPSC, IAS, UPPSC/UPPCS, MPPSC. BPSC, RPSC & All State PSC Exams

Subject : Economy

1. Consider the following statements:

1. Headline inflation is a measure of inflation within an economy, including commodities which tend to be more volatile and prone to inflationary spikes.
2. Headline inflation present an accurate picture of an economy’s inflationary trend since sector-specific inflationary spikes persist.

Which of the above statements is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (A)

Explanation:

  • Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes. Hence, statement 1 is correct.
  • Headline inflation may not present an accurate picture of an economy’s inflationary trend since sector-specific inflationary spikes are unlikely to persist. Hence, statement 2 is not correct.

2. Consider the following statements regarding Fiscal Responsibility and Budget Management (FRBM) Act, 2003:

1. The Act envisages the setting of limits on the Central government’s debt and deficits.
2. The Act made Central government responsible for ensuring inter-generational equity in fiscal management and long-term macro-economic stability.
3. The law contains an ‘escape clause’ under which Centre can exceed the annual fiscal deficit target.

How many of the above statements is/are correct?

(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (C)

Explanation: Enacted in August 2003, the legislation is aimed at making the Central government responsible for ensuring “inter-generational equity in fiscal management and long-term macro-economic stability”. To achieve this, the Act envisages the setting of limits on the Central government’s debt and deficits as well as mandating greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework. The rules for implementing the Act were notified in July 2004 and since then every Budget of the Union government has included a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon. Hence, all statements are correct.

3. Consider the following statements regarding difference between Consumer Price Index (CPI) and GDP deflator:

1. GDP deflator includes prices of imported goods but they are not included in CPI.
2. While CPI is released by Central Statistics Office (CSO), the data on GDP deflator is released by Labour Bureau.
3. The weights are constant in CPI, but they differ according to production level of each good in GDP deflator.

How many of the above options is/are correct?

(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (A)

Explanation:

CPI may differ from GDP deflator because:

  1. The goods purchased by consumers do not represent all the goods which are produced in a country. GDP deflator takes into account all such goods and services.
  2. CPI includes prices of goods consumed by the representative consumer; hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.
  3. The weights are constant in CPI – but they differ according to production level of each good in GDP deflator.

Ministry of Statistics and Programme Implementation (MOSPI) comes out with GDP deflator in National Accounts Statistics as price indices. Hence, only statement 3 is correct.

4. Which of the following is/are included in the calculation of National Income in India?

1. Salary of employees
2. Exports of the IT sector
3. Sale of Land

How many of the above options is/are correct?

(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (B)

Explanation: National Income is defined as the total monetary value of all goods and services produced within a country during a given period of time. Gains on sale of land will not be included in the estimation of National Income. Capital gains will not be included in the national income as they do not add to the current flow of goods and services in the economy. Hence, statement 3 is not correct.

5. Which of the following situations can lead to inflation?

(a) Sluggish growth of aggregate demand
(b) Higher levels of unemployment
(c) Reduction in the money supply
(d) Rapid growth of aggregate demand outweighing supply

Answer: (D)

Explanation: Demand-pull inflation is a period of inflation which arises from rapid growth in aggregate demand. It occurs when economic growth is too fast. If aggregate demand (AD) rises faster than productive capacity (LRAS), then firms will respond by putting up prices, creating inflation. Hence, option (d) is correct.