Economics – True/False – GK Questions

A.W. Phillips observed that when unemployment is low, wages tend to rise faster, leading to higher inflation. Conversely, high unemployment suppresses wage growth and inflation. However, Milton Friedman later argued this trade-off only exists in the short run, becoming vertical in the long run.

Headline inflation represents the raw, overall inflation rate in the economy, which can be skewed by temporary supply shocks in food or energy. Central banks often focus on core inflation (CPI excluding food and fuel) to make long-term monetary policy decisions, as it reflects sustained demand pressures.

The Finance Commission is an advisory constitutional body under Article 280. While its recommendations carry immense weight and are generally accepted by the government, they are technically advisory in nature and not legally binding on the Parliament or the Executive.

NBFCs primarily engage in lending and investment activities but cannot accept demand deposits from the public. Furthermore, they are not part of the payment and settlement system and cannot issue cheques drawn on themselves, distinguishing them fundamentally from commercial banks.

Commercial Papers are issued by large, highly-rated corporate entities, primary dealers, and financial institutions to meet their short-term working capital needs. The government issues Treasury Bills (T-bills), not CPs, for its short-term borrowing requirements.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act empowers banks and financial institutions to enforce their security interest directly. This bypasses the lengthy judicial process, enabling faster recovery of bad loans from defaulting borrowers.

The line of perfect equality is a 45-degree diagonal line on the Lorenz curve graph. If the actual Lorenz curve perfectly overlaps this diagonal line, it means income is distributed absolutely equally among the population. The further the curve bows away from the diagonal, the higher the inequality.

Structural unemployment arises due to fundamental shifts in the economy, such as technological advancements or changes in consumer demand, which render certain skills obsolete. It is a long-term issue that often requires retraining and education to resolve.

MSP is an administrative policy decision taken by the Government of India based on the recommendations of the CACP. It does not have statutory or constitutional backing, meaning farmers cannot legally force the government or private buyers to purchase their produce at the announced MSP.

Used primarily to protect domestic industries from foreign competition.

FDI and FII flows are recorded in the Capital account.

IMF provides short/medium term Balance of Payments support.

Components are Health (life expectancy), Education, and Standard of living.

Primarily focused on high-yielding varieties of wheat and rice.

The First Five Year Plan covered the period 1951-1956.

Shows the borrowing requirement excluding past interest obligations.

It is directly levied on the net profits of corporations.

The incidence and impact fall on the exact same person.

Open Market Operations are used to manage system liquidity.

Reverse repo rate is always kept lower than the repo rate.