Economics – Medium Level – GK Questions

Fractional reserve banking is the exact opposite; banks are only required to hold a small 'fraction' of their total deposits as reserves (dictated by the CRR and SLR). They are legally permitted to lend out the remaining vast majority of the deposits to borrowers. This lending process creates new money in the economy through the 'money multiplier' effect, which is the foundational mechanism of modern credit creation and economic expansion.

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.

Conventional GDP treats the extraction and sale of natural resources as pure income, ignoring the destruction of natural capital. Green GDP accounts for the 'bads' alongside the 'goods' by deducting the monetary value of pollution, deforestation, and loss of biodiversity. While conceptually superior for measuring sustainable development, it remains difficult to implement globally due to the complexities of accurately pricing ecological damage.

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.

While its rural counterpart (NRLM) operates in villages, DAY-NULM specifically targets the urban poor, including street vendors, ragpickers, and slum dwellers. It provides capital subsidies, skill training, and access to institutional credit to help them establish sustainable micro-enterprises, thereby facilitating their transition from informal, precarious daily-wage labor to stable, self-employed entrepreneurs.

NSAP represents a significant commitment to social security for the most vulnerable demographics who lack any other means of subsistence. It comprises schemes like the Indira Gandhi National Old Age Pension Scheme (IGNOAPS) and the National Family Benefit Scheme. Eligibility is strictly tied to the deprivation criteria defined by the government (historically BPL, now aligned with SECC parameters), ensuring the safety net reaches the absolute poorest.

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.

High logistics costs (driven by fragmented transport networks, complex regulatory check-posts, and poor warehousing) make Indian exports uncompetitive globally. The NLP, complemented by the PM Gati Shakti National Master Plan, seeks to create a trusted, seamless, and cost-efficient logistics ecosystem through digitization (like the Unified Logistics Interface Platform) and multi-modal connectivity, targeting a reduction in costs to match developed nations.

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.

Established in 1958, NAFED acts as the central nodal agency for implementing the Price Support Scheme (PSS) under PM-AASHA. When market prices for pulses, oilseeds, and copra fall below the Minimum Support Price (MSP), NAFED steps in to procure these commodities directly from farmers, thereby protecting them from distress sales and ensuring food security buffer stocks.

PM-KMY is a co-contributory pension scheme. While the Central Government matches the farmer's contribution to the pension fund, the farmer is still required to make a nominal monthly contribution (ranging from Rs. 55 to Rs. 200 depending on their age of entry) until they reach the age of 60. This shared responsibility ensures active participation and financial discipline among the beneficiaries.

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.

Dr. Kalam envisioned PURA as a strategic solution to curb distress migration from villages to overcrowded cities. By establishing high-quality healthcare, education, and digital infrastructure in rural hubs, the model aimed to create local economic opportunities and transform rural landscapes into self-sustaining growth centers, a vision that later influenced schemes like the Shyama Prasad Mukherji Rurban Mission.

The 'Hindu Rate of Growth' referred to the sluggish 3.5% average annual GDP growth India experienced from the 1950s to the 1980s. Because the population was growing at roughly 2% per year, the per capita income growth was a mere 1.5%. The term was used critically to highlight the failure of the highly regulated, state-controlled 'License Raj' to generate rapid economic prosperity.

The Rolling Plan was designed to provide flexibility and adapt to changing economic realities, avoiding the rigidities of a fixed five-year horizon. It involved three parallel plans: an annual plan, a fixed five-year plan, and a perspective 15-year plan. However, it was short-lived and was discarded when the Congress party returned to power in 1980, reverting to the traditional Five-Year Plan model.

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.

Automatic stabilizers are built-in, non-discretionary features of the tax and welfare system that operate automatically without any new legislative action. For example, during a recession, corporate profits and incomes fall, causing tax revenues to automatically drop, while unemployment claims rise, causing welfare spending to automatically increase. This naturally injects demand into the economy, softening the blow of the recession.

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.

Green Bonds are identical to standard corporate or sovereign bonds in terms of their financial structure, but they carry a 'use of proceeds' covenant. Issuers must undergo rigorous third-party verification to ensure the raised capital is exclusively funding sustainable, eco-friendly projects, allowing environmentally conscious institutional investors to align their portfolios with global ESG (Environmental, Social, and Governance) goals.

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.