Indian Economy MCQs

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While estimating the national income, the problem of double counting occurs when the value of some goods and services are counted more than once. Cotton output and cotton cloth output both the raw material and the final result are counted.

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The Targeted Public Distribution System (TPDS) replaced the erstwhile PDS from June 1997. Under the new system a two tier subsidized pricing system was introduced to benefit the poor.

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The correct answer is Frictional unemployment. This type occurs when individuals are temporarily unemployed while transitioning between jobs or searching for new employment. It reflects the time taken for job seekers to find a position that matches their skills and preferences. Frictional unemployment is a natural part of a healthy economy, as it indicates mobility in the labor market. According to the U.S. Bureau of Labor Statistics, frictional unemployment typically accounts for about 2-3% of the total unemployment rate.

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An account becomes a Non-Performing Asset (NPA) when it is classified as such due to the borrower’s failure to meet repayment obligations. Specifically, a cash credit account is considered out of order if it remains overdrawn for more than 90 days. According to the Reserve Bank of India (RBI) guidelines, an account is classified as NPA when interest or principal payments are overdue for 90 days or more. This classification helps banks manage risk and maintain financial stability.

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An increase in external commercial borrowings leads to a corresponding rise in the country’s external debt. External commercial borrowings are essentially loans acquired by Indian entities from foreign sources. Any rise in such borrowings inflates the external debt directly. It is because, these borrowings add up to the total owed amount by the country to external or foreign entities, thereby increasing the external debt.

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A reverse mortgage is a type of financial product that allows seniors to access the equity in their homes without having to sell their property or make monthly loan payments. In a reverse mortgage, the lender makes payments to the borrower based on a percentage of the value of their home. The borrower retains ownership of their home and can continue to live there for as long as they wish. However, the loan must be repaid when the borrower dies, sells the property, or moves out of the home. Reverse mortgages can be a useful financial tool for seniors who need additional income but want to remain in their homes. However, they can also be risky and may not be suitable for everyone.

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There are two major determinants of the potential rate at which an economy can grow in the long run. One is the rate of increase in key inputs such as labour and capital, while the other is the rise in productivity. Within the two key inputs, labour has a bigger say in determining the potential growth rate. The increase in labour supply – through an increase in number of workers or the numbers of hours put by a given number of workers – and an increase in labour productivity will result in an increase in the long-term potential growth rate. Anything that aids productivity increases can help boost potential growth rate. Infrastructure investments and skilling of labour can raise India’s potential growth rate because the country has ample labour supply. The overall demand in the economy picks up due to fast growth and more resources are used to meet higher demand. After a point, the economy may not find enough inputs to meet the demand, leading to an increase in prices. If there is surplus capacity in the economy then it can grow above the potential rate for a while. But for an economy already working at full capacity, excessive demand results in increase in the price level.

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Arbitrage is the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference. While getting into an arbitrage trade, the quantity of the underlying asset bought and sold should be the same. Only the price difference is captured as the net pay-off from the trade.

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The “Inclusive Growth and Development Report” is published by the World Economic Forum. It covers 109 economies, and tries to improve our understanding of how various economies around the world can use diverse spectrum of policies and institutional mechanisms to make economic growth. The Report presents a new global index, the Inclusive Development Index (IDI), providing a richer and more nuanced assessment of countries’ level (and recent performance) of economic development than the conventional one based on GDP per capita alone. It also provides a policy framework showing the many factors that can drive a more inclusive growth process.

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Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.