Daily Static MCQs for UPSC & State PSC Exams - Economy (7 December 2023)

   

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

Subject : Economy (7 December 2023)

1. Consider the following statements regarding the Marginal Standing Facility (MSF):

1. MSF functions as the last resort for banks to borrow short-term funds over and above that available under the Liquidity Adjustment Facility Window (LAF).
2. MSF is an extraordinary rate at which banks can borrow money from the central bank at a much cheaper rate than repo rate.

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: (A)

Explanation: Marginal Standing Facility (MSF) was announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window. MSF, being a penal rate, is always fixed above the repo rate. Hence, statement 2 is not correct.


2. Consider the following statements regarding Incremental Capital-Output Ratio (ICOR):

1. The incremental capital output ratio (ICOR) denotes the relationship between the level of investment made in the economy and the consequent increase in the gross domestic product (GDP).
2. The higher the ICOR, the lower the productivity of capital.

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: (C)

Explanation:The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used. Hence, both statements are correct.


3. Consider the following statements:

1. Disinvestment involves Selling minority shares of Public Enterprises, to public or private entity.
2. When the government sells majority shares in a public sector entity, that is strategic disinvestment.
3. Under strategic disinvestment, the government transfers the ownership and control of a public sector entity to another public entity and the private sector is not involved here.

How many of the above statements is/are correct?

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

Answer: (B)

Explanation: When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment. Selling minority shares of Public Enterprises, to another entity be it public or private is disinvestment. In this the government retains ownership of the enterprise. On the other hand, when the government sells majority shares in an enterprise that is strategic disinvestment/sale. Here, the government gives up the ownership of the entity as well. Hence, statement 3 is not correct.


4. Consider the following statements with reference to Nominal GDP and Real GDP:

1. Nominal GDP is the money value of all goods and services used in calculating GDP at the current price.
2. The value of all goods and services used in calculating GDP at the base year price is called Real GDP.
3. Nominal GDP is considered as a true indicator of a country's economic growth.
4. Real GDP can never be more than the nominal GDP.

How many of the above statements is/are correct?

(a) Only one
(b) Only two
(c) Only three
(d) All four

Answer: (B)

Explanation: Nominal GDP is the monetary value of the economic output produced during the current year at current year prices. Hence, statement 1 is correct. Real GDP reflects the economic output at constant price. In other words, Real GDP is the money value of all the goods and services used in calculating GDP at the base year price. Hence, statement 2 is correct.
Real GDP is considered as a true indicator of a country's economic growth because it exclusively considers the rise in production of goods and services as the reason for increase in GDP. Hence, statement 3 is incorrect.
Nominal GDP can be less than real GDP if prices in the current year are less than the prices in the base year. Hence, statement 4 is incorrect.


5. Choose the incorrect statement from the following statements:

(a) Consumer Price Index (CPI) is the index of prices of a given basket of commodities which are bought by the representative consumer.
(b) The weights of representative goods are constant in GDP Deflator-but they differ according to the production level of each good in CPI.
(c) The index for wholesale prices is called the Wholesale Price Index (CPI), in the USA it is referred to as Producer Price Index (PPI)
(d) CPI includes prices of goods consumed by the representative consumer; hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.

Answer: (B)

Explanation: In GDP deflator, the 'basket' in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good. Hence, statement (b) is incorrect.