Economics – True/False – GK Questions

The proliferation of private cryptocurrencies poses risks to monetary policy transmission, financial stability, and capital flight. By offering a safe, sovereign-backed digital alternative that leverages modern payment technologies, the central bank can satisfy public demand for digital assets while retaining control over the money supply and the domestic payment ecosystem.

Coined in the mid-2010s, the Twin Balance Sheet problem severely stalled private investment and credit growth in India. Corporates were burdened with heavy debt from past infrastructure booms and could not invest further, while banks, choked by bad loans from these same corporates, became risk-averse and stopped lending, creating a severe macroeconomic bottleneck.

The Velocity of Money is a macroeconomic metric that measures the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a specific time period. A high velocity indicates a booming, active economy where money changes hands rapidly, while a low velocity suggests hoarding and economic stagnation.

The Income Distance criterion is designed to promote equity and reduce regional disparities. It measures the distance of a state's per capita income from the state with the highest per capita income. Therefore, poorer states with a larger 'distance' receive a higher weightage and a larger share of funds to help them catch up with the richer states.

SFBs were conceptualized specifically to further financial inclusion by supplying credit to small business units, small and marginal farmers, micro and small industries, and unorganized sector entities. To ensure they stay true to this mandate, the RBI imposes a stringent 75% Priority Sector Lending target, which is significantly higher than the 40% mandated for universal commercial banks.

The Mahalanobis strategy actually prioritized the rapid development of the capital goods and heavy industries (like steel, machinery, and power). The logic was that building a strong domestic capital goods base would eventually enable the mass production of consumer goods, ensuring long-term self-reliance and industrialization, albeit at the cost of short-term consumer shortages.

Total Revenue is calculated as Price multiplied by Quantity. When demand is unitary elastic, a 10% increase in price causes exactly a 10% drop in quantity demanded. The mathematical effects perfectly cancel each other out, meaning the total revenue generated by the seller remains at its maximum, constant level regardless of price movements.

ICOR measures the additional unit of capital required to produce one additional unit of output. Therefore, a low ICOR signifies high efficiency, advanced technology, and good infrastructure. Conversely, a high ICOR indicates inefficiency, structural bottlenecks, and poor capital utilization, meaning massive investments yield relatively little economic growth.

The WTO categorizes agricultural subsidies into colored boxes. 'Amber Box' subsidies (like Minimum Support Price linked to production) are considered highly trade-distorting and are subject to strict reduction commitments and limits (the 'de minimis' ceiling). It is the 'Green Box' subsidies (like general research or decoupled income support) that are permitted without limits.

The reverse is true. NEER is simply an unadjusted, weighted average of a country's currency relative to a basket of its major trading partners' currencies. REER adjusts the NEER for the inflation differentials between the home country and its trading partners, making REER the true measure of a nation's export competitiveness in global markets.

While NBFCs are indeed regulated by the RBI and perform bank-like functions such as lending and asset financing, they are fundamentally different from banks. They cannot accept demand deposits (savings/current accounts), do not form part of the payment and settlement system, and consequently, cannot issue cheques drawn on themselves.

The term 'gilt-edged' historically referred to the gilded edges of paper certificates issued by the government. Today, Gilt-edged securities represent the highest grade, safest debt instruments issued by the Central or State Governments (like Treasury Bills and Dated Securities). They carry virtually zero default risk, though they are subject to interest rate risk.

Prime Minister Indira Gandhi nationalized 14 major private banks in July 1969. The primary objective was to align the banking sector with the socialist goals of the state, ensure credit flow to neglected sectors like agriculture and small-scale industries, and expand banking penetration into unbanked rural areas.

The PCA framework acts as an early intervention mechanism. When a bank's financial health deteriorates (e.g., high Net NPAs, low Capital to Risk-Weighted Assets Ratio, or negative Return on Assets), the RBI invokes PCA to restrict risky activities and force the bank to focus on recapitalization, provisioning, and cleaning up its balance sheet.

The MPC was established under the amended RBI Act to bring transparency and collective wisdom to interest rate decisions. It comprises three officials from the RBI (including the Governor as the ex-officio Chairperson) and three external experts nominated by the Government of India. The Governor has a second or casting vote if the committee is evenly split.

Both Cesses and Surcharges are levied by the Centre for specific purposes or on high-income groups, respectively. Crucially, the Constitution dictates that the proceeds from both Cesses and Surcharges are retained entirely by the Central Government and do not form part of the divisible pool of taxes shared with the States.

Revenue Deficit occurs when the government's net revenue expenditure exceeds its net revenue receipts. Since this deficit is used to fund current consumption (like salaries, subsidies, and pensions) rather than capital formation, it is considered highly undesirable as it adds to the debt burden without generating future income streams to repay it.

The short-run Phillips Curve demonstrates an inverse (negative) relationship between inflation and unemployment. It suggests that policymakers face a trade-off: stimulating the economy to lower unemployment will inevitably lead to higher inflation, while contracting the economy to fight inflation will cause unemployment to rise.

This structural difference reflects the target audience of each index. The CPI measures retail inflation affecting the common man, for whom food constitutes the largest share of the household budget (over 45% weight). Conversely, the WPI tracks wholesale transaction prices, where manufactured goods dominate the basket (over 64% weight).

Transfer payments are unilateral, one-way payments where no current productive service or good is rendered in return. Since National Income only accounts for the value of newly produced goods and services (factor incomes), including transfer payments would result in double counting and misrepresent the actual productive capacity of the economy.