Economics – True/False – GK Questions

Natural monopolies arise in industries with massive fixed infrastructure costs and very low marginal costs, such as municipal water supply, electricity transmission grids, or railway tracks. Duplicating these networks for multiple competitors would be wildly inefficient and socially wasteful. Consequently, these markets naturally consolidate into a single provider, which is why they are typically state-owned or heavily regulated to prevent price gouging.

These two ratios were introduced to prevent the liquidity crises that caused bank failures in 2008. The LCR is a short-term survival metric, ensuring banks have enough cash or easily sellable government bonds to withstand a sudden 30-day run on deposits. The NSFR is a long-term structural metric, forcing banks to fund long-term illiquid assets (like 20-year mortgages) with stable, long-term liabilities (like equity or long-term bonds), rather than relying on volatile short-term wholesale borrowing.

The description provided actually defines the Environmental Kuznets Curve (EKC). The original, standard Kuznets Curve (proposed by Simon Kuznets in 1955) hypothesizes an inverted-U shaped relationship between per capita income and income inequality. It suggests that as an economy develops from agrarian to industrial, inequality first increases, but as it matures and welfare states emerge, inequality eventually decreases.

The Tragedy of the Commons specifically applies to 'Common-Pool Resources,' which are non-excludable (it is difficult to stop people from using them) but rivalrous (one person's use diminishes another's ability to use it). Examples include open-ocean fisheries, public grazing lands, and clean air. Because individuals act in their own self-interest to extract as much as possible before others do, the shared resource is inevitably depleted or destroyed.

As a consumer moves down an indifference curve, they possess an abundance of Good X and very little of Good Y. Consequently, Good Y becomes relatively more valuable to them, and they are less willing to sacrifice it for yet another unit of Good X. This diminishing willingness to trade (MRS) mathematically forces the curve to bow inward (convex) toward the origin.

Rational economic theory dictates that sunk costs are entirely irrelevant to future decisions because they cannot be changed regardless of what action is taken next. Decisions should be based solely on marginal costs and marginal benefits going forward. The 'Sunk Cost Fallacy' occurs when individuals or firms irrationally continue a failing project simply because they have already invested heavily in it.

The National Treatment principle (Article III of GATT) strictly prohibits such discrimination. Once foreign goods have cleared customs and entered the domestic market, they must be treated exactly the same as 'like' domestic products regarding internal taxes, regulations, and standards. Imposing a higher internal sales tax on imports to shield local producers is a direct violation of WTO rules and can invite retaliatory trade sanctions.

Depreciation means the Rupee loses value relative to the Dollar (e.g., moving from Rs. 70 to Rs. 80 per USD). For an American client paying in Dollars, Indian services actually become cheaper in dollar terms. Therefore, currency depreciation generally boosts the competitiveness of a country's exports (both goods and services) in the global market, while simultaneously making imports (like crude oil) more expensive for domestic consumers.

The 15th Finance Commission assigned a massive 45% weightage to the 'Income Distance' criterion (the gap between a state's per capita GSDP and that of the richest state). This heavily progressive weighting ensures that states with lower fiscal capacity and higher developmental needs (like Bihar or UP) receive significantly more funds per capita than wealthier, industrialized states (like Maharashtra or Tamil Nadu), promoting national equity and balanced regional growth.

To protect the federal structure and ensure that neither the Centre nor the States can unilaterally force a decision, the GST Council requires a special majority of not less than three-fourths (75%) of the weighted votes cast. The Centre holds one-third of the total votes, while all the States combined hold two-thirds, meaning both the Centre and a significant consensus of States must agree for any resolution to pass.

Even if the receiving state uses the funds to build a highway, from the perspective of the Central Government's accounting, Grants-in-Aid are classified as 'Revenue Expenditure.' This is because these grants do not result in the creation of any physical or financial assets for the Centre, nor do they reduce any of the Centre's liabilities; they are simply unconditional or conditional transfers of current income.

The Base Effect is a purely mathematical and statistical phenomenon related to the year-on-year comparison of price indices. If the price index in the corresponding month of the previous year (the base) was unusually low due to a temporary shock, the current year's inflation rate will mathematically appear exceptionally high, even if current prices are rising at a normal, steady pace. It has nothing to do with current repo rate actions.

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.

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.

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.

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.

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.

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 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.

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.