UPSC STATIC QUIZ – Economy : 13 March 2024
Kartavya Desk Staff
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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.
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• Question 1 of 5 1. Question Consider the following statements The Phillips curve is an economic concept developed to show the relationship between tax rates and the amount of tax revenue collected by governments. The Laffer Curve is an economic concept that stats that inflation and unemployment have a stable and inverse relationship. 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: c) What is the Phillips Curve? The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment. What is the Laffer Curve? The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer’s argument that sometimes-cutting tax rates can increase total tax revenue. Incorrect Solution: c) What is the Phillips Curve? The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment. What is the Laffer Curve? The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer’s argument that sometimes-cutting tax rates can increase total tax revenue.
#### 1. Question
Consider the following statements
• The Phillips curve is an economic concept developed to show the relationship between tax rates and the amount of tax revenue collected by governments.
• The Laffer Curve is an economic concept that stats that inflation and unemployment have a stable and inverse relationship.
Which of the above statements is/are incorrect?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: c)
What is the Phillips Curve?
The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship.
The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
What is the Laffer Curve?
The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer’s argument that sometimes-cutting tax rates can increase total tax revenue.
Solution: c)
What is the Phillips Curve?
The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship.
The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
What is the Laffer Curve?
The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer’s argument that sometimes-cutting tax rates can increase total tax revenue.
• Question 2 of 5 2. Question Which of the following is/are the major traits of Recovery phase business cycle? An upturn in aggregate (total) demand. Inflation moves upward making borrowing cheaper for investors. Unemployment rate starts declining. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: c) Recovery An economy tries to come out of the low production phase to survive. The low production phase might be depression, recession or slowdown with the former being the worst and rare, governments take many new fiscal and monetary measures to boost demand and production and ultimately a recovery in an economy is managed. The business cycle of recovery may show the following *major economy traits: (i) an upturn in aggregate (total) demand which has to be accompanied by increase in the level of production; (ii) production process expands and new investments become attractive; (iii) as demand goes upward, inflation also moves upward making borrowing cheaper for investors; (iv) with an upturn in production, new employment avenues are created and unemployment rate starts declining; etc. Incorrect Solution: c) Recovery An economy tries to come out of the low production phase to survive. The low production phase might be depression, recession or slowdown with the former being the worst and rare, governments take many new fiscal and monetary measures to boost demand and production and ultimately a recovery in an economy is managed. The business cycle of recovery may show the following major economy traits: (i) an upturn in aggregate (total) demand which has to be accompanied by increase in the level of production; (ii) production process expands and new investments become attractive; (iii) as demand goes upward, inflation also moves upward making borrowing cheaper for investors; (iv) with an upturn in production, new employment avenues are created and unemployment rate starts declining; etc.*
#### 2. Question
Which of the following is/are the major traits of Recovery phase business cycle?
• An upturn in aggregate (total) demand.
• Inflation moves upward making borrowing cheaper for investors.
• Unemployment rate starts declining.
How many of the above statements is/are correct?
• a) Only one
• b) Only two
• c) All three
Solution: c)
Recovery
An economy tries to come out of the low production phase to survive. The low production phase might be depression, recession or slowdown with the former being the worst and rare, governments take many new fiscal and monetary measures to boost demand and production and ultimately a recovery in an economy is managed. The business cycle of recovery may show the following *major* economy traits:
(i) an upturn in aggregate (total) demand which has to be accompanied by increase in the level of production;
(ii) production process expands and new investments become attractive;
(iii) as demand goes upward, inflation also moves upward making borrowing cheaper for investors;
(iv) with an upturn in production, new employment avenues are created and unemployment rate starts declining; etc.
Solution: c)
Recovery
An economy tries to come out of the low production phase to survive. The low production phase might be depression, recession or slowdown with the former being the worst and rare, governments take many new fiscal and monetary measures to boost demand and production and ultimately a recovery in an economy is managed. The business cycle of recovery may show the following *major* economy traits:
(i) an upturn in aggregate (total) demand which has to be accompanied by increase in the level of production;
(ii) production process expands and new investments become attractive;
(iii) as demand goes upward, inflation also moves upward making borrowing cheaper for investors;
(iv) with an upturn in production, new employment avenues are created and unemployment rate starts declining; etc.
• Question 3 of 5 3. Question Bond yield is the return an investor gets on that bond or on a particular government security. Which of the following factors can affect the bond yield in India? Inflation in the economy Fiscal position of the government 3. Global markets Monetary policy of the Reserve Bank of India How many of the above options is/are correct? (a) Only one (b) Only two c) Only three d) All four Correct Solution: d) Bond yield is the return an investor gets on that bond or on a particular government security. The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation. Incorrect Solution: d) Bond yield is the return an investor gets on that bond or on a particular government security. The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation.
#### 3. Question
Bond yield is the return an investor gets on that bond or on a particular government security. Which of the following factors can affect the bond yield in India?
• Inflation in the economy
• Fiscal position of the government 3. Global markets
• Monetary policy of the Reserve Bank of India
How many of the above options is/are correct?
• (a) Only one
• (b) Only two
• c) Only three
• d) All four
Solution: d)
Bond yield is the return an investor gets on that bond or on a particular government security. The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation.
Solution: d)
Bond yield is the return an investor gets on that bond or on a particular government security. The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation.
• Question 4 of 5 4. Question Skewflation is a situation when a) An episodic price rise pertaining to one or a small group of commodities b) A sustained, across-the-board price increase c) A price rise of one or a small group of commodities over a sustained period of time d) None of the above Correct Solution: c) Economists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation. ‘Skewflation’ describe this third category of price rise. Incorrect Solution: c) Economists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation. ‘Skewflation’ describe this third category of price rise.
#### 4. Question
Skewflation is a situation when
• a) An episodic price rise pertaining to one or a small group of commodities
• b) A sustained, across-the-board price increase
• c) A price rise of one or a small group of commodities over a sustained period of time
• d) None of the above
Solution: c)
Economists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation. ‘Skewflation’ describe this third category of price rise.
Solution: c)
Economists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation. ‘Skewflation’ describe this third category of price rise.
• Question 5 of 5 5. Question Which of following measures could be used by the government to control the sudden spike in specific food items? Imposition of stock limit under the Essential Commodities Act Temporary ban on the export of inflated item. Temporary prohibition on the import of inflated item. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) Statement 3 is incorrect. The Government reviews the price situation regularly and takes number of measures from time to time to stabilize prices of food items. These include: Banning the export of inflated item. Imposition of stock limit under the EC Act to prevent hoarding. iii. Easing of restrictions on imports, facilitating imports at integrated check-posts, issuance of licenses for imports and reduction in import duties. Incorrect Solution: b) Statement 3 is incorrect. The Government reviews the price situation regularly and takes number of measures from time to time to stabilize prices of food items. These include: Banning the export of inflated item. Imposition of stock limit under the EC Act to prevent hoarding. iii. Easing of restrictions on imports, facilitating imports at integrated check-posts, issuance of licenses for imports and reduction in import duties.
#### 5. Question
Which of following measures could be used by the government to control the sudden spike in specific food items?
• Imposition of stock limit under the Essential Commodities Act
• Temporary ban on the export of inflated item.
• Temporary prohibition on the import of inflated item.
How many of the above statements is/are correct?
• a) Only one
• b) Only two
• c) All three
Solution: b)
Statement 3 is incorrect.
The Government reviews the price situation regularly and takes number of measures from time to time to stabilize prices of food items.
These include:
• Banning the export of inflated item.
• Imposition of stock limit under the EC Act to prevent hoarding.
iii. Easing of restrictions on imports, facilitating imports at integrated check-posts, issuance of licenses for imports and reduction in import duties.
Solution: b)
Statement 3 is incorrect.
The Government reviews the price situation regularly and takes number of measures from time to time to stabilize prices of food items.
These include:
• Banning the export of inflated item.
• Imposition of stock limit under the EC Act to prevent hoarding.
iii. Easing of restrictions on imports, facilitating imports at integrated check-posts, issuance of licenses for imports and reduction in import duties.
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