UPSC Static Quiz – Economy : 12 November 2024
Kartavya Desk Staff
UPSC Static Quiz – Economy : 12 November 2024 We will post 5 questions daily on static topics mentioned in the UPSC civil services preliminary examination syllabus. Each week will focus on a specific topic from the syllabus, such as History of India and Indian National Movement, Indian and World Geography, and more.We are excited to bring you our daily UPSC Static Quiz, designed to help you prepare for the UPSC Civil Services Preliminary Examination. Each day, we will post 5 questions on static topics mentioned in the UPSC syllabus. This week, we are focusing on Indian and World Geography.
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• Question 1 of 5 1. Question Consider the following statements. Inflation can never be good for a growing economy. Only a nation that has a positive trade balance can become a developed country. High public debt is always bad for an economy. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: d) High public debt is not a problem when it is being used for creation of infrastructure, employment and other productive areas. Inflation is needed for any economy to grow because inflation suggests that the demand for goods has outstripped the supply. In this case more production is required which leads to higher growth. A positive trade balance has little relation with a criterion of development. USA has a large trade deficit, yet it is a developed country. However, having a positive trade balance is good for the economy because it means we are competitive in the world export market. Incorrect Solution: d) High public debt is not a problem when it is being used for creation of infrastructure, employment and other productive areas. Inflation is needed for any economy to grow because inflation suggests that the demand for goods has outstripped the supply. In this case more production is required which leads to higher growth. A positive trade balance has little relation with a criterion of development. USA has a large trade deficit, yet it is a developed country. However, having a positive trade balance is good for the economy because it means we are competitive in the world export market.
#### 1. Question
Consider the following statements.
• Inflation can never be good for a growing economy.
• Only a nation that has a positive trade balance can become a developed country.
• High public debt is always bad for an economy.
How many of the above statements is/are correct?
• a) Only one
• b) Only two
• c) All three
Solution: d)
High public debt is not a problem when it is being used for creation of infrastructure, employment and other productive areas. Inflation is needed for any economy to grow because inflation suggests that the demand for goods has outstripped the supply. In this case more production is required which leads to higher growth. A positive trade balance has little relation with a criterion of development. USA has a large trade deficit, yet it is a developed country. However, having a positive trade balance is good for the economy because it means we are competitive in the world export market.
Solution: d)
High public debt is not a problem when it is being used for creation of infrastructure, employment and other productive areas. Inflation is needed for any economy to grow because inflation suggests that the demand for goods has outstripped the supply. In this case more production is required which leads to higher growth. A positive trade balance has little relation with a criterion of development. USA has a large trade deficit, yet it is a developed country. However, having a positive trade balance is good for the economy because it means we are competitive in the world export market.
• Question 2 of 5 2. Question Consider the following statements. Nominal GDP is the total market value of all the goods and services produced in India in a financial year. The nominal GDP is derived from the real GDP by removing the effect of inflation. The Fiscal responsibility and Budget Management (FRBM) Act, 2003 stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP. How many of the above statements is/are incorrect? a) Only one b) Only two c) All three d) None Correct Solution: a) Statement 2 is incorrect. Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation. Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made. Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP. Incorrect Solution: a) Statement 2 is incorrect. Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation. Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made. Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP.
#### 2. Question
Consider the following statements.
• Nominal GDP is the total market value of all the goods and services produced in India in a financial year.
• The nominal GDP is derived from the real GDP by removing the effect of inflation.
• The Fiscal responsibility and Budget Management (FRBM) Act, 2003 stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP.
How many of the above statements is/are incorrect?
• a) Only one
• b) Only two
• c) All three
Solution: a)
Statement 2 is incorrect.
Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation.
Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made.
Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP.
Solution: a)
Statement 2 is incorrect.
Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation.
Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made.
Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP.
• Question 3 of 5 3. Question Consider the following statements. Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year. Gross domestic capital formation includes all expenses made by households, businesses, people and government, adding new durable goods to the fixed capital stock of a country. Which of the above statements is/are incorrect? a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2 Correct Solution: d) Capital is the produced means of production, or it is called produced wealth by which more wealth is possible in the economy directly and indirectly. Capital formation means the creation of physical assets and non- physical capital consisting of public health efficiency, visible and no visible capital. Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year. Gross domestic capital formation includes all expenses made by households, business people and Govt, adding new durable goods to the fixed capital stock of a country. These assets are in the form of infrastructure such as buildings, roads canals, bridges, means of transport, machinery and other equipment. Incorrect Solution: d) Capital is the produced means of production, or it is called produced wealth by which more wealth is possible in the economy directly and indirectly. Capital formation means the creation of physical assets and non- physical capital consisting of public health efficiency, visible and no visible capital. Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year. Gross domestic capital formation includes all expenses made by households, business people and Govt, adding new durable goods to the fixed capital stock of a country. These assets are in the form of infrastructure such as buildings, roads canals, bridges, means of transport, machinery and other equipment.
#### 3. Question
Consider the following statements.
• Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year.
• Gross domestic capital formation includes all expenses made by households, businesses, people and government, adding new durable goods to the fixed capital stock of a country.
Which of the above statements is/are incorrect?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: d)
• Capital is the produced means of production, or it is called produced wealth by which more wealth is possible in the economy directly and indirectly.
• Capital formation means the creation of physical assets and non- physical capital consisting of public health efficiency, visible and no visible capital.
• Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year.
• Gross domestic capital formation includes all expenses made by households, business people and Govt, adding new durable goods to the fixed capital stock of a country.
These assets are in the form of infrastructure such as buildings, roads canals, bridges, means of transport, machinery and other equipment.
Solution: d)
• Capital is the produced means of production, or it is called produced wealth by which more wealth is possible in the economy directly and indirectly.
• Capital formation means the creation of physical assets and non- physical capital consisting of public health efficiency, visible and no visible capital.
• Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year.
• Gross domestic capital formation includes all expenses made by households, business people and Govt, adding new durable goods to the fixed capital stock of a country.
These assets are in the form of infrastructure such as buildings, roads canals, bridges, means of transport, machinery and other equipment.
• Question 4 of 5 4. Question In Economy, Kuznets’ theory is related to a) Fiscal deficit b) Population growth c) GDP per capita d) Inequality Correct Solution: d) While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory. Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita. Incorrect Solution: d) While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory. Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita.
#### 4. Question
In Economy, Kuznets’ theory is related to
• a) Fiscal deficit
• b) Population growth
• c) GDP per capita
• d) Inequality
Solution: d)
While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory.
Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita.
Solution: d)
While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory.
Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita.
• Question 5 of 5 5. Question Consider the following statements. National income is the sum of all incomes earned by all citizens of India. Gross Value Added (GVA) is the sum of a country’s GDP and net of subsidies and taxes in the economy. GVA calculates the national income from the supply side by looking at the value added in each sector of the economy. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) Statement 1 is incorrect. National income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process. Gross Value Added (GVA): GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy. It calculates the national income from the supply side by looking at the value added in each sector of the economy. GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector. It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services. Gross Value Added = GDP + subsidies on products – taxes on products. Incorrect Solution: b) Statement 1 is incorrect. National income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process. Gross Value Added (GVA): GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy. It calculates the national income from the supply side by looking at the value added in each sector of the economy. GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector. It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services. Gross Value Added = GDP + subsidies on products – taxes on products.
#### 5. Question
Consider the following statements.
• National income is the sum of all incomes earned by all citizens of India.
• Gross Value Added (GVA) is the sum of a country’s GDP and net of subsidies and taxes in the economy.
• GVA calculates the national income from the supply side by looking at the value added in each sector of the economy.
How many of the above statements is/are correct?
• a) Only one
• b) Only two
• c) All three
Solution: b)
Statement 1 is incorrect.
National income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process.
Gross Value Added (GVA):
GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.
It calculates the national income from the supply side by looking at the value added in each sector of the economy.
GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
Gross Value Added = GDP + subsidies on products – taxes on products.
Solution: b)
Statement 1 is incorrect.
National income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process.
Gross Value Added (GVA):
GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.
It calculates the national income from the supply side by looking at the value added in each sector of the economy.
GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
Gross Value Added = GDP + subsidies on products – taxes on products.
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