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Generate QuizEconomics – Medium Level – GK Questions
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Fiat money possesses high intrinsic value because it is fully backed by gold reserves held by the central bank.
- True
- False
Answer: False
Fiat money, such as modern paper currency, has zero intrinsic value and is not backed by any physical commodity like gold or silver. Its value derives entirely from government decree (fiat) and the public's trust that it will be accepted as a medium of exchange for goods and taxes.
The 'Demographic Dividend' in India refers to the economic growth potential arising from a shift in the population structure where:
- The elderly population exceeds the youth population
- The working-age population is larger than the non-working-age dependent population
- The female workforce participation reaches 100%
- The rural population exceeds the urban population
Answer: The working-age population is larger than the non-working-age dependent population
India is currently experiencing a demographic dividend because its working-age population (15-59 years) is growing faster than its dependent population (children and elderly). To actually reap this dividend, however, the country must invest heavily in education, health, and job creation.
In national income accounting, GFCF stands for Gross Fixed ___ Formation, which is a key measure of investment in an economy.
- Green
- 2011-12
- Capital
- Current
Answer: Capital
GFCF represents the net increase in physical assets (like machinery, buildings, and infrastructure) within the economy during a specific period, minus depreciation. It is a crucial component of GDP and a primary indicator of a nation's investment climate and future productive capacity.
The Production Linked Incentive (PLI) scheme provides financial incentives to companies based on their total historical investments rather than their incremental sales from products manufactured in India.
- True
- False
Answer: False
The PLI scheme is specifically designed to reward incremental sales from goods manufactured within domestic borders over a defined base year. It aims to boost domestic manufacturing, attract foreign direct investment, and integrate Indian firms into global supply chains by making them globally competitive.
Among the eight core industries, ___ holds the highest weightage in the Index of Industrial Production (IIP).
- Refinery Products
- social
- 1998
- substitutes
Answer: Refinery Products
Petroleum refinery products hold the highest weight (approximately 28%) among the core industries, followed by electricity and steel. This reflects the critical dependence of the Indian economy and transportation sector on refined petroleum products.
A tax imposed by the government to correct a negative externality, such as pollution from a factory, is called a ___ tax.
- Pigouvian
- health and education
- notice
- interest
Answer: Pigouvian
Named after economist Arthur Pigou, a Pigouvian tax is levied on any market activity that generates negative externalities (costs borne by third parties). The tax aims to internalize the externality, aligning the private cost of production with the true social cost.
The 'Free Rider Problem' is most commonly associated with private goods sold in competitive markets.
- True
- False
Answer: False
The free-rider problem occurs with public goods, where individuals have no incentive to pay for the good because they can consume it without paying, relying on others to foot the bill. This leads to the under-provision of the good by the free market, necessitating government intervention and taxation.
Goods that are both non-rivalrous in consumption and non-excludable are classified as ___ goods.
- public
- Refinery Products
- Okun's
- short
Answer: public
Public goods, like national defense or street lighting, can be consumed by one person without reducing availability to others (non-rival), and no one can be effectively excluded from using them (non-excludable). Because private markets cannot easily charge users, these goods are typically provided by the government.
The TRIPS agreement administered by the WTO primarily deals with:
- Trade in Services
- Trade-Related Investment Measures
- Trade-Related Aspects of Intellectual Property Rights
- Technical Barriers to Trade
Answer: Trade-Related Aspects of Intellectual Property Rights
TRIPS establishes minimum standards for the regulation of various forms of intellectual property (IP) rights, including patents, copyrights, and trademarks, as they apply to global trade. It has been a contentious issue, particularly regarding access to affordable pharmaceuticals in developing nations.
The 'Most Favoured Nation' (MFN) principle under the WTO mandates that a country must give preferential trade treatment to its closest political allies over other WTO members.
- True
- False
Answer: False
The MFN principle actually requires non-discrimination; if a WTO member grants a special trade favor (like a lower tariff) to one country, it must immediately extend the exact same favor to all other WTO members. Exceptions exist only for Free Trade Agreements or special concessions for developing nations.
The largest component of India's Foreign Exchange Reserves is ___.
- quantitative
- health and education
- inflation
- Foreign Currency Assets (FCA)
Answer: Foreign Currency Assets (FCA)
India's forex reserves comprise Foreign Currency Assets, Gold, Special Drawing Rights (SDRs), and the Reserve Tranche Position (RTP) with the IMF. The FCA, which includes investments in US Treasuries and other sovereign bonds, constitutes the vast majority (over 85%) of the total reserves.
A deficit in the Current Account of the Balance of Payments (BOP) implies that:
- Foreign exchange reserves are increasing
- The country's exports of goods and services exceed its imports
- The country's imports of goods and services exceed its exports
- FDI inflows are higher than FDI outflows
Answer: The country's imports of goods and services exceed its exports
The Current Account records trade in goods and services, plus transfer payments. A deficit means the nation is spending more foreign currency on imports and remittances than it is earning through exports. This deficit must be financed by a surplus in the Capital/Financial Account (e.g., borrowing or FDI).
The ___ Curve illustrates the theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue, suggesting an optimal tax rate.
- Laffer
- TRIMs (or Trade-Related Investment Measures)
- John Maynard Keynes
- Nominal
Answer: Laffer
The Laffer Curve posits that increasing tax rates beyond a certain point will actually decrease total tax revenue due to disincentives to work, tax evasion, and capital flight. It is frequently cited in debates regarding supply-side economics and tax cuts.
Okun's Law establishes an empirical relationship between which two macroeconomic variables?
- Inflation and Interest Rates
- Tax Rates and Tax Revenue
- GDP Growth and Unemployment
- Money Supply and Price Level
Answer: GDP Growth and Unemployment
Proposed by Arthur Okun, this law states that for every 1% increase in the unemployment rate, a country's GDP will be roughly 2% lower than its potential GDP. It highlights the severe economic cost of joblessness in terms of lost national output.
The Phillips Curve illustrates an inverse relationship between the rate of inflation and the rate of unemployment in the short run.
- True
- False
Answer: True
A.W. Phillips observed that when unemployment is low, wages tend to rise faster, leading to higher inflation. Conversely, high unemployment suppresses wage growth and inflation. However, Milton Friedman later argued this trade-off only exists in the short run, becoming vertical in the long run.
In the Consumer Price Index (CPI) for Rural Labourers, which category holds the highest weightage?
- Housing
- Fuel and Light
- Food and Beverages
- Clothing and Footwear
Answer: Food and Beverages
In India's CPI indices, particularly for rural areas, the 'Food and Beverages' category holds the highest weightage (over 54% in CPI-Rural). This reflects the Engel's Law principle, where lower-income rural households spend a disproportionately large share of their income on basic sustenance.
Headline inflation includes the prices of highly volatile items like food and fuel, whereas core inflation excludes them to show the underlying trend.
- True
- False
Answer: True
Headline inflation represents the raw, overall inflation rate in the economy, which can be skewed by temporary supply shocks in food or energy. Central banks often focus on core inflation (CPI excluding food and fuel) to make long-term monetary policy decisions, as it reflects sustained demand pressures.
According to the recommendations of the 15th Finance Commission, the vertical devolution (states' share) in the divisible pool of central taxes is kept at ___%.
- 41
- NDTL
- low (or zero / no)
- Countercyclical
Answer: 41
The 15th Finance Commission, chaired by N.K. Singh, recommended a 41% share for the states. This is 1% lower than the 42% recommended by the 14th FC, with the adjustment made to account for the creation of the new Union Territories of Jammu & Kashmir and Ladakh.
The recommendations of the Finance Commission regarding the distribution of tax proceeds between the Centre and States are binding on the Government of India.
- True
- False
Answer: False
The Finance Commission is an advisory constitutional body under Article 280. While its recommendations carry immense weight and are generally accepted by the government, they are technically advisory in nature and not legally binding on the Parliament or the Executive.
The Goods and Services Tax (GST) Council, which makes recommendations on GST rates and thresholds, is constituted under Article ___ of the Constitution.
- dividend (or window of opportunity)
- 279A
- quantitative
- final
Answer: 279A
Article 279A empowers the President to constitute the GST Council, a federal forum comprising the Union Finance Minister (as Chairperson) and state finance ministers. It ensures cooperative federalism by requiring a 3/4th majority for decisions, balancing central and state interests.