True/False – GK Questions

By buying long-term bonds, the RBI increases their price and lowers their yield (interest rate), making long-term borrowing cheaper for infrastructure and housing. Simultaneously selling short-term paper prevents excess overall liquidity from building up in the system.

As the government's banker, the RBI receives and makes payments on behalf of the government, facilitates the transfer of funds, and crucially, manages the issuance of new government bonds and treasury bills to finance the fiscal deficit.

The money multiplier is inversely related to the reserve ratio (including CRR). When banks are required to hold a higher percentage of deposits as reserves, they have less money available to lend out. This reduces the credit creation capacity of the banking system, thereby shrinking the overall money multiplier.

Fiat money, such as modern paper currency, has zero intrinsic value and is not backed by any physical commodity like gold or silver. Its value derives entirely from government decree (fiat) and the public's trust that it will be accepted as a medium of exchange for goods and taxes.

The reverse is true. The Harrod-Domar model posits that economic growth depends heavily on the national savings rate and the capital-output ratio, assuming fixed technology. The Solow-Swan model introduced exogenous technological progress as the critical factor for sustaining long-term per capita growth beyond mere capital accumulation.

The PLI scheme is specifically designed to reward incremental sales from goods manufactured within domestic borders over a defined base year. It aims to boost domestic manufacturing, attract foreign direct investment, and integrate Indian firms into global supply chains by making them globally competitive.

The reverse is true. Adverse selection happens before the transaction (e.g., high-risk individuals are more likely to buy insurance). Moral hazard occurs after the transaction, when one party changes their behavior and takes more risks because they are protected from the consequences (e.g., driving recklessly after buying full-coverage insurance).

The free-rider problem occurs with public goods, where individuals have no incentive to pay for the good because they can consume it without paying, relying on others to foot the bill. This leads to the under-provision of the good by the free market, necessitating government intervention and taxation.

The MFN principle actually requires non-discrimination; if a WTO member grants a special trade favor (like a lower tariff) to one country, it must immediately extend the exact same favor to all other WTO members. Exceptions exist only for Free Trade Agreements or special concessions for developing nations.

While NEER measures the weighted average of a currency relative to a basket of others, REER adjusts this for relative inflation rates. REER is a superior indicator of a country's actual trade competitiveness, as high domestic inflation can erode the benefits of a nominally depreciated currency.

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.