Economics – True/False – GK Questions

Farmers base their planting decisions on current market prices. If prices are high today, they plant more, leading to a massive oversupply and price crash at harvest time. Seeing low prices, they plant less the next season, causing a shortage and price spike. This delayed supply response creates a continuous, spiraling 'cobweb' pattern of boom and bust in agricultural commodity prices.

India participated in the RCEP negotiations for years but ultimately decided to opt-out and did not sign the agreement in 2020. The primary concerns were that a massive reduction in tariffs would lead to a flood of cheap manufactured goods from China and dairy/agricultural products from Australia/New Zealand, which could severely damage domestic Indian industries and farmers.

The Alkire-Foster methodology does not require 100% deprivation. Instead, it assigns weights to various indicators and calculates a deprivation score. A household is classified as 'multidimensionally poor' if its weighted deprivation score crosses a specific threshold (usually 33.33%). This allows the index to capture the intensity and breadth of poverty simultaneously.

REITs are regulated by the Securities and Exchange Board of India (SEBI), not the RBI. Furthermore, SEBI guidelines mandate that REITs must invest at least 80% of their assets in completed, revenue-generating commercial real estate (like office parks and malls), strictly limiting their exposure to risky, under-construction projects to protect retail investors.

The AA ecosystem is fundamentally built on the principle of 'consent-based data sharing'. An AA acts merely as a blind pipe that transfers data from Financial Information Providers (FIPs, like banks) to Financial Information Users (FIUs, like lenders) only when the customer provides explicit, granular, and time-bound digital consent. The customer retains full control and can revoke this consent at any time.

While the Economic Survey is indeed prepared under the guidance of the Chief Economic Adviser (CEA) within the Ministry of Finance, it is formally tabled in Parliament by the Union Finance Minister, not the CEA. The Survey serves as the analytical prelude to the Budget, outlining the macroeconomic health, challenges, and policy outlook of the nation.

Historically, Finance Commissions used the 1971 census data for population, which penalized states that had successfully controlled their population since then. To address this, the 15th FC used the 2011 census but introduced the 'Demographic Performance' criterion, assigning higher weightage to states with lower fertility rates to ensure they are not financially disadvantaged for their progressive social policies.

Article 266(1) forms the bedrock of parliamentary financial control. It explicitly states that no money can be withdrawn from the Consolidated Fund of India except under appropriation made by law. Therefore, the executive cannot spend a single rupee without the prior approval and legislative sanction of the Parliament via an Appropriation Act.

Hysteresis implies that history matters; short-term economic shocks can have permanent, long-term effects. If workers remain unemployed for years, their skills become obsolete (human capital depreciation), and they become marginalized from the labor force. Thus, a severe recession can structurally damage the labor market, raising the NAIRU even after the economy recovers.

In a liquidity trap, interest rates are already at or near zero, and the public prefers to hoard cash rather than buy bonds, expecting rates to rise. Consequently, the LM curve becomes perfectly horizontal, meaning any increase in the money supply will be entirely absorbed by speculative balances, failing to lower interest rates further or stimulate investment and output.

Tier 1 capital represents the highest quality of capital because it is fully available to absorb losses without the bank being required to cease operations. It includes common equity, retained earnings, and certain disclosed reserves. In contrast, Tier 2 capital (supplementary capital like subordinated debt) is less secure and only absorbs losses on a 'gone-concern' (liquidation) basis.

Unlike the UN General Assembly, the IMF operates on a weighted voting system based on a country's financial quota, which reflects its relative size in the global economy. Consequently, advanced economies like the US and EU nations hold disproportionate voting power, while the US effectively holds veto power over major structural decisions that require an 85% supermajority.

Launched in July 2020, Udyam Registration replaced the older Udyog Aadhaar system. It is completely free, requires no document uploads (relying instead on PAN and GSTIN integration for automatic data fetching), and provides MSMEs with a permanent, verifiable identity that allows them to easily access priority sector credit, government subsidies, and delayed payment protections.

This problem is rooted in asymmetric information and misaligned incentives. Because shareholders (principals) cannot perfectly monitor the daily actions of the CEO (agent), the CEO might pursue empire-building, excessive perks, or short-term stock bumps that harm long-term company value. Corporate governance mechanisms, stock options, and audits are designed to mitigate this agency cost.

Unlike standard external commercial borrowings (ECBs) where an Indian company borrows in USD and bears the risk of Rupee depreciation, Masala Bonds are issued and redeemed strictly in Indian Rupees. If the Rupee depreciates against the dollar, the foreign investor absorbs the loss, making it a highly effective hedging tool for Indian corporate borrowers.

The National Treatment principle mandates the exact opposite: once foreign goods have cleared customs and entered the domestic market, they must be treated no less favorably than identical domestically produced goods. This means the government cannot impose internal taxes, regulations, or standards on imports that discriminate against them in favor of local products.

Automatic stabilizers are built-in features of the tax and transfer system that operate without any new legislative action. During a recession, tax revenues automatically fall (due to lower incomes) and welfare spending automatically rises (due to higher unemployment claims), naturally injecting demand into the economy. Conversely, they cool down an overheating economy without requiring active government intervention.

The National MPI, modeled after the Global MPI, deliberately moves away from purely income-based metrics. Instead, it assesses deprivations across three equally weighted dimensions: Health (nutrition, child mortality), Education (years of schooling, attendance), and Standard of Living (cooking fuel, sanitation, drinking water, electricity, housing, and assets).

CBAM is a landmark climate policy that forces importers to buy certificates corresponding to the carbon price they would have paid if the goods were produced under EU carbon pricing rules. It aims to prevent 'carbon leakage'—where EU companies move production to countries with lax climate laws—and forces global trading partners like India to decarbonize their export sectors.

The NIP is a massive, multi-year investment plan aimed at boosting economic growth and creating jobs. It comprehensively includes traditional economic assets like highways, railways, and power plants, but crucially also integrates social infrastructure like affordable housing, urban water supply, and healthcare facilities, recognizing their equal importance for holistic development.