Economics – Fill in the Blank – GK Questions

The BOP follows the double-entry bookkeeping system. Therefore, the sum of the Current Account, the Capital Account, and the Financial Account, along with changes in official foreign exchange reserves, must mathematically equal zero. A deficit in the current account must be perfectly offset by a surplus in the capital/financial accounts or by drawing down forex reserves.

Following the recommendations of the R.N. Malhotra Committee, the IRDA was constituted in 1999 and later given statutory status through the IRDA Act, 1999. Its mandate includes issuing licenses to private and foreign insurers, protecting policyholder interests, and ensuring the orderly growth of the insurance sector in India.

The inter-bank money market is highly segmented by maturity. 'Call money' refers to overnight borrowing (1 day) to meet immediate reserve requirements. 'Notice money' covers short-term borrowing from 2 to 14 days, where the borrower must give a short 'notice' before repaying the funds.

Prior to the IBC, defaulting promoters retained control of their companies while restructuring debts, often leading to endless delays. The IBC empowers the Committee of Creditors (CoC) to take control of the defaulting entity, allowing them to either approve a resolution plan to revive the company or liquidate its assets within a strict 330-day timeline.

When the RBI purchases government bonds from the open market, it pays for them by crediting the reserves of commercial banks. This infusion of permanent cash increases the banks' lendable resources, expands the money supply, and drives down bond yields, thereby lowering long-term borrowing costs for the economy.

GST is a destination-based consumption tax, meaning the tax revenue accrues to the state where the goods or services are ultimately consumed, rather than the state where they are manufactured. This shift from an origin-based tax system fundamentally altered the fiscal dynamics between manufacturing-heavy states and consumption-heavy states in India.

The Fiscal Deficit represents the total borrowing needs of the government. However, a large portion of this borrowing is often just to pay the interest on accumulated past debts. By subtracting interest payments, the Primary Deficit reveals how much the government is borrowing purely to fund its current fiscal year's expenditures.

Arthur Okun's empirical law highlights the severe macroeconomic cost of unemployment. It quantifies the loss in national output resulting from idle labor resources, demonstrating that high unemployment not only causes social distress but also creates a massive negative output gap relative to the economy's full-employment potential.

Skewflation poses a unique challenge for central banks because standard monetary tightening (raising interest rates) might successfully curb general demand but fail to address supply-side bottlenecks in specific sectors like agriculture. This can lead to a situation where raising rates unnecessarily stifles overall economic growth without solving the targeted inflation.

The GDP Deflator reflects the price changes of all domestically produced goods and services, making it a broader and more comprehensive measure of inflation than the CPI or WPI. By dividing Nominal GDP (calculated at current year prices) by Real GDP (calculated at base year prices), it isolates the exact impact of inflation on economic growth.

While GDP measures the value of goods and services produced within a country's geographical boundaries regardless of nationality, GNP measures the total value produced by the residents of a country, both domestically and abroad. Therefore, GNP = GDP + (Factor income earned by domestic residents abroad - Factor income earned by foreign residents domestically).

The base year for the IIP was updated from 2004-05 to 2011-12 in May 2017 to align it with the base years of other major macroeconomic indicators like the GDP and WPI. This update also revised the item basket to better reflect the current structure of the Indian manufacturing and industrial sectors.

The NFSA, 2013, marks a paradigm shift from a welfare approach to a rights-based approach to food security. It mandates coverage of up to 75% of the rural population and 50% of the urban population (averaging about 67% of India's total population), providing them with 5 kg of food grains per person per month at heavily subsidized prices.

The C2 cost is the most comprehensive measure of production costs, including imputed rent on owned land and interest on owned capital assets, in addition to actual paid-out costs (A2) and family labor (FL). While the government currently uses the A2+FL formula for MSP, the Swaminathan Commission advocated for the C2+50% formula to ensure true economic viability for farmers.

The KCC scheme was launched in 1998 based on the recommendations of the R.V. Gupta Committee. It revolutionized rural credit by providing flexible, low-cost working capital loans to farmers, reducing their dependence on exploitative informal moneylenders and ensuring timely availability of seeds, fertilizers, and pesticides.

Coined by Garrett Hardin, this concept applies to common-pool resources like fisheries or grazing land, which are rivalrous (one's use reduces another's) but non-excludable. Without property rights or regulation, individuals overconsume, leading to the eventual destruction of the resource for everyone.

The S.S. Tarapore Committee (1997 and 2006) outlined the prerequisites and timeline for moving towards fuller capital account convertibility (FCAC). It recommended building adequate forex reserves, lowering the fiscal deficit, and reducing inflation before fully opening the capital account to global markets.

Currency depreciation means it takes fewer units of foreign currency to buy the domestic currency. Consequently, domestic goods become cheaper in international markets, boosting export volumes. However, this relies on the Marshall-Lerner condition, which requires the sum of export and import elasticities to be greater than one.

The IBRD raises funds on international capital markets by issuing AAA-rated bonds and lends to middle-income and creditworthy poorer countries for specific development projects. The poorest nations, who cannot afford IBRD rates, rely on the concessional loans from the International Development Association (IDA).

Prior to this, the RBI used the Wholesale Price Index (WPI) to gauge inflation. The Urjit Patel Committee argued that CPI better reflects the actual cost of living for consumers and recommended shifting the monetary policy focus entirely to CPI, leading to the formalization of the inflation-targeting framework.