Economics – GK Questions

Answer: False

The NMP is strictly about monetizing *brownfield infrastructure assets* (like operational toll roads, power grids, and railway stations), not privatizing corporate PSUs. Under the NMP, the government retains ownership of the core asset but transfers the revenue rights and operational responsibilities to private players for a fixed concession period. The upfront capital raised is then recycled to build new, greenfield infrastructure projects.

Answer: e-Rupee is a centralized liability of the RBI and legal tender, while Bitcoin is a decentralized, private asset with no sovereign backing

The e-Rupee (CBDC) is issued, regulated, and fully backed by the central bank, making it risk-free and legally recognized for settling all debts. It operates on a centralized or permissioned ledger. Bitcoin, conversely, operates on a decentralized, public blockchain without any central authority, lacks legal tender status, and is subject to extreme price volatility, functioning more as a speculative asset than a stable currency.

Answer: structural

Structural unemployment is a severe, long-term issue caused by fundamental mismatches in the labor market. For example, the invention of AI or automated manufacturing might permanently eliminate thousands of routine clerical or assembly-line jobs. These displaced workers cannot simply apply for new jobs in the emerging tech sectors without acquiring entirely new skill sets, leading to prolonged periods of joblessness.

Answer: False

A CAD is not inherently bad; its impact depends on how the borrowed foreign capital is utilized. If a developing nation runs a CAD to import heavy machinery, technology, and capital goods that will boost future productive capacity and export earnings, the deficit is sustainable and beneficial. It only becomes a crisis if the CAD is driven by excessive consumption of imported luxuries or if it is financed by volatile, short-term 'hot money' rather than stable FDI.

Answer: The tax rate decreases as the taxpayer's income increases, placing a heavier relative burden on the poor

In a regressive tax system, lower-income individuals pay a higher percentage of their total income in taxes compared to the wealthy. Indirect taxes like GST or sales tax are inherently regressive because a poor person and a billionaire pay the exact same absolute tax amount on a loaf of bread, but that tax constitutes a much larger slice of the poor person's total income.

Answer: 1992

SEBI was initially set up in 1988 as a non-statutory executive body with no real enforcement teeth to curb rampant market manipulation and insider trading. It was only after the massive Harshad Mehta stock market scam that the government rushed through the SEBI Act in 1992, granting it sweeping statutory powers to penalize offenders, regulate stock exchanges, and enforce strict disclosure norms.

Answer: False

Perfectly inelastic demand (Ed = 0) means that consumers will purchase the exact same quantity of the good regardless of any price change, typically because the good is an absolute necessity with no substitutes (like insulin for a diabetic). Therefore, a 50% price hike will result in a 0% change in the quantity demanded, allowing the monopolistic pharmaceutical company to extract massive revenues at the expense of consumers.

Answer: Recognize, Recapitalize, Resolve, and Reform

To cure the banking sector's NPA crisis, the government adopted the 4R strategy: *Recognize* the true extent of bad loans (via Asset Quality Reviews), *Recapitalize* the public sector banks to meet capital adequacy norms, *Resolve* the stressed assets through the Insolvency and Bankruptcy Code (IBC), and *Reform* the banking governance structure to prevent future reckless lending.

Answer: Capital

ICOR is a crucial indicator of an economy's structural health and technological progress. A high ICOR indicates inefficiency, poor infrastructure, and bureaucratic delays (meaning massive investments yield little growth). Conversely, a low ICOR signifies high capital productivity, advanced technology, and efficient resource allocation, allowing the economy to grow rapidly without requiring unsustainably high savings rates.

Answer: False

The demographic dividend is merely a 'window of opportunity,' not a guarantee. If the expanding working-age population lacks quality education, healthcare, and vocational skills, or if the economy fails to generate sufficient labor-intensive jobs, the dividend will turn into a 'demographic disaster.' This results in massive youth unemployment, social unrest, and wasted human capital, as seen in several struggling developing nations.

Answer: Developing nations' public stockholding programs for food security from being challenged under the Amber Box subsidy limits

India and other developing nations procure food grains at Minimum Support Prices (MSP) to feed their poor. When the MSP exceeds the fixed external reference price (based on 1986-88 prices), the subsidy breaches the WTO's 10% 'de minimis' Amber Box limit. The Bali Peace Clause temporarily shields these vital food security programs from legal challenges by developed nations, provided the developing country meets strict transparency and anti-diversion conditions.

Answer: Vote on Account

A Vote on Account is a constitutional provision (Article 116) that allows the government to withdraw funds from the Consolidated Fund of India for a limited period (usually two months) to keep the administrative machinery running. It only covers the estimated expenditure side and strictly excludes any new taxation proposals or major policy shifts, which are reserved for the full budget debate.

Answer: False

Commercial Papers are issued by highly rated *corporate entities*, primary dealers, and financial institutions to meet their short-term working capital needs. The Government of India does not issue CPs; instead, it issues Treasury Bills (T-bills) for its short-term borrowing requirements. Because CPs are unsecured, only companies with pristine credit ratings can access this market.

Answer: Increase their private savings to pay for the anticipated future taxes required to repay the government debt

David Ricardo theorized that forward-looking, rational consumers understand that government borrowing today must be repaid with interest via higher taxes tomorrow. Therefore, they will not treat a debt-financed tax cut as an increase in their permanent wealth. Instead, they will save the extra income to pay those future taxes, completely neutralizing the government's attempt to stimulate aggregate demand through deficit spending.

Answer: Mobile

The JAM (Jan Dhan-Aadhaar-Mobile) architecture is the technological backbone of India's welfare delivery revolution. By linking the beneficiary's bank account (Jan Dhan) with their unique biometric identity (Aadhaar) and their registered mobile number, the government can transfer subsidies directly into the intended recipient's account, bypassing leaky bureaucratic intermediaries and saving thousands of crores in public funds.

Answer: False

Akerlof's 'Market for Lemons' specifically addresses *adverse selection*, which occurs *before* a transaction takes place. Because the seller knows the true quality of the used car (whether it's a 'peach' or a 'lemon') and the buyer does not, the buyer will only offer an average, low price. This drives sellers of high-quality cars out of the market, leaving only lemons, and potentially causing the entire market to collapse. Moral hazard occurs *after* the transaction.

Answer: The phenomenon where a country's trade balance initially worsens following a currency depreciation before eventually improving

When a country's currency depreciates, its imports immediately become more expensive in domestic currency terms, worsening the trade deficit in the short run because import/export volumes are locked in by pre-existing contracts. Over time (the upward slope of the 'J'), as new contracts are signed, foreign buyers purchase more of the now-cheaper exports, and domestic consumers switch away from expensive imports, ultimately improving the trade balance.

Answer: durable (or capital / physical)

Standard Revenue Deficit treats all grants given to states for building rural infrastructure as mere 'consumption' expenditure, which artificially inflates the deficit and makes the government look fiscally undisciplined. The Effective Revenue Deficit corrects this by subtracting grants used for creating durable capital assets. This provides a more accurate picture of the government's truly unproductive, consumption-driven borrowing.

Answer: True

Prior to the SDF, the RBI had to use the Reverse Repo rate to absorb liquidity, which required banks to pledge government securities as collateral. When the system was flush with massive excess liquidity, banks ran out of collateral to pledge. The SDF was introduced as a collateral-free absorption tool, typically set 25 basis points below the Repo Rate, effectively establishing the absolute lower bound (floor) for short-term interbank interest rates.

Answer: Rewards companies based on their incremental sales from goods manufactured in India, rather than just capital investment

Traditional subsidies often rewarded mere capacity creation (building a factory), which sometimes led to idle plants. The PLI scheme is strictly output-oriented; it provides a financial incentive (typically 4-6%) on the *incremental sales* over a base year. This ensures that government funds only flow when a company successfully scales up production, achieves economies of scale, and actually sells goods in the market, making Indian manufacturing globally competitive.