True/False – GK Questions

The PCA framework imposes both mandatory and non-mandatory restrictions depending on the severity of the bank's financial breach. Mandatory restrictions explicitly include capping or halting the expansion of the bank's risk-weighted assets (effectively restricting aggressive lending), stopping dividend payouts, and freezing branch expansion. The goal is to force the bank to conserve capital and focus entirely on recovering bad loans and improving asset quality.

First articulated by Alexander Hamilton and Friedrich List, this argument posits that developing nations cannot compete with the entrenched, highly efficient industries of developed nations. Temporary protection allows domestic firms to learn by doing, adopt new technologies, and scale up production. However, economists warn that 'temporary' protection often becomes permanent due to corporate lobbying, leading to perpetual inefficiency.

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.

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.

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.

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.

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.

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.

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.

The NFSA marked a paradigm shift from a welfare-based approach to a rights-based approach to food security. It mandates the government to provide 5 kg of food grains per person per month at highly subsidized prices (Rs. 1-3 per kg) through the Targeted Public Distribution System (TPDS). It also includes specific nutritional entitlements for pregnant women, lactating mothers, and children.

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.