Daily Static MCQs for UPSC & State PSC Exams - Economy (20 July 2023)

   

Daily Static MCQs Quiz for UPSC, IAS, UPPSC/UPPCS, MPPSC. BPSC, RPSC & All State PSC Exams

Subject : Economy

1. Which of the following statements best describes the ‘Seed Capital’?

(a) Essential capital required to procure seeds for cultivation in monsoon season.
(b) It is a capital required to make initial investments in stock market.
(c) Bail out capital given by the government for public sector enterprises.
(d) It is an early capital required to start a new business.

Answer: (D)

Explanation: Seed capital is the funding required to get a new business started. This initial funding, which usually comes from the business owner(s) and perhaps friends and family, supports preliminary activities such as market research, product research and development (R&D) and business plan development. Hence, option (d) is correct.Seed capital is the funding required to get a new business started. This initial funding, which usually comes from the business owner(s) and perhaps friends and family, supports preliminary activities such as market research, product research and development (R&D) and business plan development. Hence, option (d) is correct.

2. Which of the following action/actions can be taken by the Government to reduce the deficit budget?

1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Reducing import duty

Select the correct answer using the code given below:

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (C)

Explanation:

  • Statement 1: Unnecessary revenue expenditure bloats the fiscal deficit, and since it forms the majority of government spending, its reduction has a very large effect on the fiscal deficit.
  • Statement 2: It will further increase the fiscal deficit.
  • Statement 3: Subsidies are a major component of government spending, and its reduction will cut down fiscal deficit.
  • Statement 4: It reduces tax revenue and thus increases fiscal deficit.

3. Consider the following statements regarding stabilisation measures and structural reform measures:

1. Stabilisation measures are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy.
2. Structural reform measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control.

Which of the above statements is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (D)

Explanation: Stabilisation measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy. Hence, both statements are incorrect.

4. Gross capital formation will necessarily increase if:

1. Gross domestic savings increases
2. Gross domestic consumption increases
3. GDP increases

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) None of the above

Answer: (D)

Explanation: Gross capital formation, in simple terms is equivalent to investment made. It was earlier called gross domestic investment. The part of GDP that is used is called gross domestic consumption, while the part that is saved is gross domestic savings (GDS). Some part of this GDS will be re-invested back, and that is called gross capital formation. Now, an increase in GDP or GDS will not necessarily lead to an increase in capital formation because how much is invested back will depend on many other factors.

5. Consider the following statements:

1. GDP is the total market value of all goods and services produced in the economy during a particular year, excluding taxes and subsidies on products.
2. Real GDP growth measures how much the production of goods and services in the economy has increased in actual physical terms during a year.
3. Nominal GDP growth helps to measure the increase in incomes resulting from rise in both production and prices.

Which of the above statements is/are correct?

(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (B)

Explanation:

  • GDP is the total market value of all goods and services produced in the economy during a particular year, inclusive of all taxes and subsidies on products. The market value taken at current prices is the nominal GDP. The value taken at constant prices — that is prices for all products taken at an unchanged base year — is the real GDP. Hence, statement 1 is incorrect.
  • In simple terms, real GDP is nominal GDP stripped of inflation. Real GDP growth thus measures how much the production of goods and services in the economy has increased in actual physical terms during a year. Nominal GDP growth, on the other hand, is a measure of the increase in incomes resulting from rise in both production and prices. Hence, statement 2 and 3 are correct.