UPSC Static Quiz – Economy : 28 November 2024
Kartavya Desk Staff
UPSC Static Quiz – Economy : 28 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 The economic theory of wage-price spiral is mainly used in the context of a) Balance of Payments b) Current Account Deficit c) Gross Domestic Product (GDP) d) Inflation Correct Solution: d) What is the wage-price spiral? If prices go up, it is natural that workers will ask for higher wages. But if wages go up, it only fuels the overall demand, while doing nothing to boost the supply. End result: inflation surges further because while a worker has more money, so does his colleague. When they go to the market then the only thing that changes is the price of the good — in other words, inflation rises. Raising interest rates slows down overall economic activity and demand, often leading to job losses. Through this rather unjust and iniquitous method, the central banks prevent a wage-price spiral and consequent inflation. Incorrect Solution: d) What is the wage-price spiral? If prices go up, it is natural that workers will ask for higher wages. But if wages go up, it only fuels the overall demand, while doing nothing to boost the supply. End result: inflation surges further because while a worker has more money, so does his colleague. When they go to the market then the only thing that changes is the price of the good — in other words, inflation rises. Raising interest rates slows down overall economic activity and demand, often leading to job losses. Through this rather unjust and iniquitous method, the central banks prevent a wage-price spiral and consequent inflation.
#### 1. Question
The economic theory of wage-price spiral is mainly used in the context of
• a) Balance of Payments
• b) Current Account Deficit
• c) Gross Domestic Product (GDP)
• d) Inflation
Solution: d)
What is the wage-price spiral?
If prices go up, it is natural that workers will ask for higher wages. But if wages go up, it only fuels the overall demand, while doing nothing to boost the supply. End result: inflation surges further because while a worker has more money, so does his colleague. When they go to the market then the only thing that changes is the price of the good — in other words, inflation rises.
Raising interest rates slows down overall economic activity and demand, often leading to job losses. Through this rather unjust and iniquitous method, the central banks prevent a wage-price spiral and consequent inflation.
Solution: d)
What is the wage-price spiral?
If prices go up, it is natural that workers will ask for higher wages. But if wages go up, it only fuels the overall demand, while doing nothing to boost the supply. End result: inflation surges further because while a worker has more money, so does his colleague. When they go to the market then the only thing that changes is the price of the good — in other words, inflation rises.
Raising interest rates slows down overall economic activity and demand, often leading to job losses. Through this rather unjust and iniquitous method, the central banks prevent a wage-price spiral and consequent inflation.
• Question 2 of 5 2. Question Consider the following statements. Phillips Curve is an economic concept stating that inflation and unemployment have a stable and inverse relationship. Stagflation is an economic scenario where an economy faces high inflation and low growth and high unemployment at the same time. Which of the above statements is/are correct? a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2 Correct Solution: c) Stagflation is an economic scenario where an economy faces both high inflation and low growth (and high unemployment) at the same time. The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa. Incorrect Solution: c) Stagflation is an economic scenario where an economy faces both high inflation and low growth (and high unemployment) at the same time. The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.
#### 2. Question
Consider the following statements.
• Phillips Curve is an economic concept stating that inflation and unemployment have a stable and inverse relationship.
• Stagflation is an economic scenario where an economy faces high inflation and low growth and high unemployment at the same time.
Which of the above statements is/are correct?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: c)
Stagflation is an economic scenario where an economy faces both high inflation and low growth (and high unemployment) at the same time.
The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.
Solution: c)
Stagflation is an economic scenario where an economy faces both high inflation and low growth (and high unemployment) at the same time.
The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.
• Question 3 of 5 3. Question Which of the following statements best describe the ‘hawkish stance in RBI monetary policy’? a) RBI can either cut rate or increase rate. b) Cut in the interest rate by RBI is off the table. c) RBI’s top priority is to keep the inflation low. d) RBI is prepared to expand the money supply to boost economic growth. Correct Solution: c) A hawkish stance indicates that the central bank’s top priority is to keep the inflation low. During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand. A hawkish policy also indicates tight monetary policy. Incorrect Solution: c) A hawkish stance indicates that the central bank’s top priority is to keep the inflation low. During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand. A hawkish policy also indicates tight monetary policy.
#### 3. Question
Which of the following statements best describe the ‘hawkish stance in RBI monetary policy’?
• a) RBI can either cut rate or increase rate.
• b) Cut in the interest rate by RBI is off the table.
• c) RBI’s top priority is to keep the inflation low.
• d) RBI is prepared to expand the money supply to boost economic growth.
Solution: c)
A hawkish stance indicates that the central bank’s top priority is to keep the inflation low. During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand. A hawkish policy also indicates tight monetary policy.
Solution: c)
A hawkish stance indicates that the central bank’s top priority is to keep the inflation low. During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand. A hawkish policy also indicates tight monetary policy.
• Question 4 of 5 4. Question Consider the following statements. Deflationrefers to a period when even though prices are rising it is happening at a slower rate each passing month. Disinflation is the exact opposite of inflation. Reflationtypically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced. How many of the above statements are correct? a) Only one b) Only two c) All three d) None Correct Solution: a) Only statement 3 is correct. Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month. Deflation is the exact opposite of inflation. Imagine if the general prices level in June was 5% lower than what it was in June last year. That’s deflation. Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced. Incorrect Solution: a) Only statement 3 is correct. Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month. Deflation is the exact opposite of inflation. Imagine if the general prices level in June was 5% lower than what it was in June last year. That’s deflation. Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
#### 4. Question
Consider the following statements.
• Deflationrefers to a period when even though prices are rising it is happening at a slower rate each passing month.
• Disinflation is the exact opposite of inflation.
• Reflationtypically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
How many of the above statements are correct?
• a) Only one
• b) Only two
• c) All three
Solution: a)
Only statement 3 is correct.
Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month.
Deflation is the exact opposite of inflation. Imagine if the general prices level in June was 5% lower than what it was in June last year. That’s deflation.
Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
Solution: a)
Only statement 3 is correct.
Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month.
Deflation is the exact opposite of inflation. Imagine if the general prices level in June was 5% lower than what it was in June last year. That’s deflation.
Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
• Question 5 of 5 5. Question Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government Reasons for the failure to achieve the inflation target Remedial actions proposed to be taken An estimate of the time period within which the inflation target shall be achieved How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: c) Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government: reasons for the failure to achieve the inflation target; remedial actions proposed to be taken; and an estimate of the time period within which the inflation target shall be achieved pursuant to timely implementation of the proposed remedial actions. Incorrect Solution: c) Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government: reasons for the failure to achieve the inflation target; remedial actions proposed to be taken; and an estimate of the time period within which the inflation target shall be achieved pursuant to timely implementation of the proposed remedial actions.
#### 5. Question
Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government
• Reasons for the failure to achieve the inflation target
• Remedial actions proposed to be taken
• An estimate of the time period within which the inflation target shall be achieved
How many of the above statements is/are correct?
• a) Only one
• b) Only two
• c) All three
Solution: c)
Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government:
• reasons for the failure to achieve the inflation target;
• remedial actions proposed to be taken; and
• an estimate of the time period within which the inflation target shall be achieved pursuant to timely implementation of the proposed remedial actions.
Solution: c)
Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government:
• reasons for the failure to achieve the inflation target;
• remedial actions proposed to be taken; and
• an estimate of the time period within which the inflation target shall be achieved pursuant to timely implementation of the proposed remedial actions.
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