Indian Economy MCQs

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When the market is in equilibrium, and when the demand and supply of a commodity increase by an equal absolute amount, the market price will not increase, rather it will remain stable.

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Stagflation refers to persistent high inflation coupled with high unemployment and stagnant demand /growth in economy.
High Inflation + Low Economic Growth {or conditions of recession} + Low Employment Generation = Stagflation

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Investment rises when both output and capital stock increase. According to investment theory, higher output raises firms’ desired capital stock, and greater actual capital stock often results from increased investment activity. The investment function states that investment depends positively on output levels. Firms expand productive capacity by investing when higher output raises desired capital stock beyond the existing level.

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Deflation increases the real value of money, allowing salary earners with stable employment to purchase more goods and services with unchanged nominal wages. Since their income remains steady while prices fall, their purchasing power temporarily rises. The Reserve Bank of India has identified deflation’s short-term impact on employed individuals as increased real wages due to price drops. Deflation generally reduces income for most others.

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Low liquidity in the economy reduces available funds for investment and lending. Reduced lending causes a drop in demand for assets such as stocks and real estate. Historical episodes, including the 2008 Global Financial Crisis, showed falling liquidity preceded asset price declines. Central bank policies that tighten liquidity often cause comparatively lower market activity and asset devaluation.

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A “Hot card” in the context of credit cards in India refers to a “Lost Credit Card.” When a card is reported lost or stolen, it is immediately flagged as hot to prevent unauthorized transactions. This term is crucial for fraud prevention in the banking sector. In India, the Reserve Bank of India (RBI) mandates that banks must have robust systems to handle such cases efficiently.

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The P/E ratio, or Price to Earnings ratio, is a key financial metric used to evaluate a company’s valuation. It is calculated by dividing the market price per share by the earnings per share (EPS). A high P/E ratio may indicate that a stock is overvalued or that investors expect high growth rates in the future, while a low P/E may suggest undervaluation or poor growth prospects. The P/E ratio is widely used by investors to compare the relative value of companies within the same industry.

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M3 consists of currency with the public, demand deposits, and time deposits with banks. The Reserve Bank of India identifies M3 as broad money. Since 1977, the RBI uses M3 as the main monetary aggregate. The RBI publishes weekly data on M3 in its statistical supplements as of 2023.

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The Public Distribution System distributes subsidized foodgrains to eligible households under the National Food Security Act, 2013. The Food Corporation of India receives government funding for procurement and distribution of grains. Central Issue Prices are set by the government for affordable supply. As of January 2024, free foodgrains are provided to beneficiary households, impacting over 81 crore people.

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World Economic Outlook is a survey conducted and published by the International Monetary Fund.