Economics – MCQ – GK Questions

Fiat money (like modern currency notes) has no intrinsic value and is legally mandated as tender by the state. Fiduciary money, however, depends entirely on the mutual trust of the parties involved, without a strict legal mandate or commodity backing. Examples of fiduciary money include cheques, bank drafts, and promissory notes; they are accepted only because the receiver trusts the issuer's bank will honor the underlying value.

In 2015, India aligned its national accounts with the UN's System of National Accounts (SNA) 2008. It shifted from GDP at Factor Cost to GVA at Basic Prices. GVA at basic prices includes 'production taxes' (taxes paid irrespective of the volume of production, like land revenue or stamp duty) but excludes 'product taxes' (taxes proportional to output, like GST). This provides a purer measure of the producer's actual value addition.

APY was launched to provide a social security net for the vast unorganized workforce, which lacks employer-sponsored pensions. Subscribers must join between the ages of 18 and 40 to ensure a minimum contribution period of 20 years. Upon turning 60, they are guaranteed a fixed monthly pension ranging from Rs. 1,000 to Rs. 5,000, depending on their chosen contribution tier.

State DISCOMs were drowning in massive debt due to high Aggregate Technical & Commercial (AT&C) losses and the provision of heavily subsidized or free power. UDAY aimed to financially restructure them by having state governments take over their debt (which carries lower interest rates than private bank loans) in exchange for strict commitments to reduce power theft, improve operational efficiency, and align tariffs with actual costs.

PKVY aims to shift Indian agriculture away from the heavy chemical dependence of the Green Revolution. It encourages farmers to form clusters and adopt traditional, organic farming practices. The scheme provides financial assistance for certification, marketing, and capacity building, ultimately aiming to improve soil health, reduce environmental degradation, and fetch premium prices for organic produce.

In a defining moment of economic history, India airlifted 67 tonnes of gold to the Bank of England and the Union Bank of Switzerland in May-July 1991. This desperate measure secured a $600 million emergency loan from the IMF, preventing a sovereign default and setting the stage for the historic LPG (Liberalization, Privatization, Globalization) reforms spearheaded by Dr. Manmohan Singh.

The Gadgil-Mukherjee formula was the cornerstone of federal resource distribution during the Planning Commission era. It assigned a massive 60% weightage to the state's population (based on the 1971 census) to ensure that resources flowed to states with the highest absolute number of people needing development, while the remaining weight was distributed among per capita income, fiscal management, and special problems.

Prior to 2010, the HDI used an arithmetic mean, which allowed a massive surplus in one dimension (like income) to perfectly compensate for a severe deficit in another (like life expectancy). By shifting to the Geometric Mean, the UNDP ensured that poor performance in any single dimension (e.g., terrible health outcomes) cannot be mathematically masked by high income, strictly penalizing unbalanced development.

When a central bank aggressively hikes interest rates to crush inflation, it deliberately depresses aggregate demand, which inevitably causes a slowdown in output and a rise in unemployment. The Sacrifice Ratio quantifies the exact macroeconomic 'pain' or lost economic output a nation must endure to achieve a permanent reduction in the underlying rate of inflation.

Historically, crop cutting experiments (CCEs) were manual, delayed, and prone to local corruption, causing massive delays in insurance payouts. PMFBY now mandates the use of drones, satellite imagery, and smartphone apps to capture geo-tagged, real-time data of crop damage due to localized calamities like hailstorms or floods, ensuring transparent and rapid direct benefit transfers to farmers.

Masala Bonds allow Indian corporations or the government to raise foreign capital without taking on currency risk. Because the bond is issued and redeemed strictly in Indian Rupees, the foreign investor bears the risk of Rupee depreciation. This makes it an attractive hedging tool for Indian borrowers who want access to deep global capital markets but fear volatile exchange rates.

Because firms in monopolistic competition sell differentiated products, their demand curves are downward sloping. In long-run equilibrium, the firm's demand curve is tangent to the Average Cost curve on its downward-sloping portion, before it reaches the minimum point. This means the firm produces less and charges more than a perfectly competitive firm, resulting in structural 'excess capacity' or inefficiency.

A lower dependency ratio indicates that there are more productive workers available to support the dependent segments of society (children and the elderly). As a nation transitions through the demographic dividend, the dependency ratio falls, freeing up household savings and government resources that can be redirected from basic sustenance towards long-term capital investments and wealth creation.

The DGTR, operating under the Ministry of Commerce and Industry, is the apex national authority for trade defense. It conducts rigorous, quasi-judicial investigations to determine if domestic industries are suffering 'material injury' due to dumped imports or sudden surges. While DGTR recommends the duties, the actual legal imposition and collection are executed by the Ministry of Finance (CBIC).

Mode 2 (Consumption Abroad) covers scenarios where the buyer moves to the seller's territory to receive the service, such as an Indian patient traveling to the US for surgery, or a student studying at a foreign university. Mode 1 is remote delivery (telemedicine), Mode 3 is setting up a foreign branch (FDI in hospitals), and Mode 4 is the professional traveling to the client (IT consultants flying abroad).

A direct tax is levied directly on the income or wealth of the person or entity that ultimately bears the burden of the tax; it cannot be passed on to someone else. Corporation tax is paid directly by the company out of its profits. GST, Customs, and Excise are indirect taxes, where the initial payer (the business) shifts the tax burden to the final consumer via higher prices.

Unlike Keynesian models that blame recessions on drops in demand or sticky wages, RBC theory assumes markets are always perfectly competitive and clear. It posits that booms and busts are simply the efficient, rational responses of workers and firms to real external shocks (like a massive oil price spike or a breakthrough in AI technology) altering the economy's productive capacity.

The CSF acts as a mandatory sinking reserve. States are required to contribute a small percentage of their outstanding debt to this fund annually, which is then invested in safe government securities. When a state's bond matures, it uses the accumulated corpus in the CSF to repay the principal, preventing sudden, massive spikes in the state's fiscal deficit in a single year.

The most critical structural difference is that the WPI completely ignores the services sector, which constitutes over 50% of India's GDP. The CPI captures retail price changes for both goods and services (like healthcare, education, and housing). Furthermore, since 2014, the RBI uses CPI (Combined), not WPI, as the official anchor for its inflation-targeting mandate.

The BCBS was founded in 1974 by central bank governors of the G10 countries. Operating from Basel, Switzerland, it serves as the primary global standard-setter for the prudential regulation of banks, aiming to enhance financial stability worldwide by ensuring that banks maintain adequate capital buffers to absorb unexpected shocks.