Economics Mock Test - 9

The correct answer is 100.

Key Points

• MGNREGA: 
  • It was launched in 2005 by Govt. of India.
  • It is one of the largest work guarantee programs in the world.
  • Under this scheme, One-third of the proposed jobs have been reserved for women.
  • Panchayati Raj Institution is responsible for planning, implementing, and monitoring MGNREGA works.
  • It aims to provide 100 days of wage employment in a financial year to every rural household.​

Additional Information

• Mahatma Gandhi Employment Guarantee Act 2005 which later given a new name, the "Mahatma Gandhi National Rural Employment Guarantee Act" or MGNREGA is Indian labor law and social safeguard measure that aims to guarantee the 'right to work'.
• This act was permitted in September 2005 under the UPA government of Prime Minister Dr Manmohan Singh.
• Its objective was to intensify the livelihood security in rural areas by providing at least 100 days of wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.

• The act was first proposed in 1991 by then Prime Minister P.V. Narasimha Rao.
• It was finally acknowledged in the parliament and commenced implementation in 625 districts of India.
• Based on this pilot involvement, NREGA was scoped up to cover all the districts of India from 1 April 2008.
• The statute was called out by the government as "the largest and most ambitious social security and public works programme in the world".
• In its World Development Report 2014, the World Bank mentioned it as a "stellar example of rural development".

Functions of money:

• Medium of exchange
• Unit of acounting
• Difficulty of barter system resolved with money
• Ease of liquidity of transfer

Option 3 is NOT correct.

Key Points

• It is Personal Income which includes Transfer Payments.
  • It measures the purchasing power of consumers.
  • It consists of all the income either earned or unearned by households. 
  • Personal Income = National Income – Indirect business taxes – Corporate income taxes – Undistributed corporate profits + Transfer payments.
  Personal income refers to the broad measure of household income.
• Personal disposable income refers to personal income minus taxes at a personal level.
  • ​It measures the amount of net income that remains after households pay all their tax levies.
  • It also represents the amount households will spend on goods and services or will save to invest.

The correct answer is option 1.

Key Points

• Transfer payments 
  • It is one-way payments made to people or organizations for which no goods or services were given or exchanged. Hence, Statement 4 is not correct.
  • These payments are viewed as a wealth redistribution from the well-compensated to the poorly compensated. Hence, Statement 1 is correct.
  • They are created for humanitarian reasons as well as to help stimulate the economy by putting more money in people's hands during times of economic distress.
  • A transfer payment is a monetary payment for which no goods or services are exchanged.
  • The term "transfer payment" refers to government payments made to individuals through social programs such as welfare, student grants, and even Social Security. Hence, Statement 2 is not correct.
  • Government payments to corporations, however, are not commonly referred to as transfer payments. Hence, Statement 3 is not correct.

The correct answer is Commodity Money

• In the Commodity Money the resources such as gold coins, beads, shells, and spices act as a medium of exchange, store of value or mode of payment in the market.
• It is the system where goods and services are directly exchanged for other goods and services.
• In the past, ordinary commodities, such as seashells, rice, cocoa, precious metals, etc., served as money.
• The important thing to note about commodity money is that its value is defined by the intrinsic value of the commodity itself.
  Although these items are used as commodity money, they also have a value from use as something other than money. 
• Gold, for example, has been used throughout the ages as money although today it is not used as money but rather is valued for its other attributes. 
• Gold is a good conductor of electricity and is used in the electronics and aerospace industry. 
• Gold is also used in the manufacturing of energy-efficient reflective glass for skyscrapers and is used in the medical industry as well. '
• Of course, gold also has value because of its beauty and malleability in the creation of jewelry.
• As commodity money, gold has historically served its purpose as a medium of exchange, a store of value, and as a unit of account.
• Commodity-backed currencies are dollar bills or other currencies with values backed up by gold or other commodity held at a bank.

The correct answer is Statutory Liquidity Ratio.

Key Points

• SLR- Statutory Liquidity Ratio
  • It is a kind of reserve that the commercial banks need to maintain before crediting their money to the borrowers.
  • Regulating the SLR rates is a component of RBI's monetary policy.
  • Reserve Bank of India sets the limit for banks (under Banking Regulation Act, 1949) to hold a certain proportion of their assets as SLR.
  • The following types of assets can be reserved by banks as SLR:
    • Cash or gold (highly liquid assets)
    • RBI approved government securities
    • Any other asset as specified by RBI
  • It is mandatory for all the Scheduled Commercial banks, Central and State cooperative banks, and deposit accepting Non-Banking Financial Companies (NBFCs).
  • NBFCs (which do not accept deposits), Primary Agricultural Credit Society (PACS), and Regional Rural Banks (RRBs) don't fall under the mandate of SLR.

The correct answer is High powered money.

Key Points

• High powered money consists of :
  • Notes and coins in circulation with the public and vault cash of commercial banks.
  • Deposits held by the government of India and commercial banks with RBI.
  • From the point of view of money supply, currency issued by the central bank can be held by the public or by commercial banks.
  • It is called the ‘high-powered money’ or ‘reserve money’ or ‘monetary base’ as it acts as a basis for credit creation.

Additional Information

• Supply of Money- 
  • In a modern economy, money comprises cash and bank deposits. Depending on what types of bank deposits are being included, there are many measures of money.
  • These are created by a system comprising two types of institutions: the central bank of the economy and the commercial banking system.

Profit is a residual income. It is the residue left from the sale of goods after the deduction of all wages, interest, and rent.

Key Points:

• Profit, in business usage, the excess of total revenue over total cost during a specific period of time.
• Profit simply means a positive gain generated from business operations or investment after subtracting all expenses or costs.
• In economics, profit is the excess over the returns to capital, land, and labor (interest, rent, and wages).
• To the economist, much of what is classified in business usage as profit consists of the implicit wages of manager-owners, the implicit rent on land owned by the firm, and the implicit interest on the capital invested by the firm’s owners.
• Profit = Total Income - Total Expenses. Tax is a certain percentage paid on the amount of profit.

To increase the production of goods and services, the producers have to adopt new technology.

Key Points

Production is a process of integrating the different factors of production in a strategic way. Producers are given the responsibility of making use of the factors in an efficient way so as to expand the economic growth of the firm.. Each of these factors of production is discussed below:

1. Land:
   • The land is the only fixed factor of production. It is the primary factor because without proper land none of the activities of the organization can be fulfilled. It is a natural resource so it can not be increased or decreased according to the needs, it can only change its way of use. In economics, the land is said to include natural resources like air, soil, sunlight, and others. The cost of using land is the rent paid for it.
2. Labour:
   • It includes all the physical and mental efforts that are used in the process of production. It includes right from the upper-level management like Board of Directors, Directors to the lower level management of clerks and service providers. The cost of labor is the salary or wages paid to the employees.
3. Capital:
   • Capital refers to the amount of money invested into the business, it may also include the heavy goods that are used for the purpose of production. Goods like machinery, equipment or even trucks for example can be considered as capital for the firm.
4. Entrepreneurship:
   • The binding force for all the non-human factors of production is entrepreneurship. An entrepreneur is a person who tries to integrate all the forces in order to achieve the production of goods and services for ultimately selling to the customers. The entrepreneur combines these forces and creates goods and services for the purpose of maximizing profits.
   • Apart from all the above factors, the most important factor that is used in the production process is technology. Today, technology is the most important factor being used in the firm in every step of production. Technology helps in increasing the efficiency of the factors of production and is the most used resource today. Automation has helped in removing most of the manual work done by the employees in the firms. This proves that technology has become a crucial factor. A change in technology alters the combinations of inputs or the types of inputs required in the production process. An improvement in technology usually means that fewer and/or less costly inputs are needed.

The factors of production are those factors that are used in the production of goods and services like land, labor, capital, and organization. All of them contribute to production. For their contribution, they are paid remuneration in the form of rent, wages, interest, and profits respectively. These payments are called factor incomes.

Key Points

• Land: 
  • The land has a broad definition as a factor of production and can take on various forms, from agricultural land to commercial real estate to the resources available from a particular piece of land.
  • Natural resources, such as oil and gold, can be extracted and refined for human consumption from the land.
  • Cultivation of crops on land by farmers increases its value and utility.
• Labor: 
  • Labor refers to the effort expended by an individual to bring a product or service to the market. Again, it can take on various forms.
  • For example, the construction worker at a hotel site is part of labor as is the waiter who serves guests or the receptionist who enrolls them into the hotel.
  • Within the software industry, labor refers to the work done by project managers and developers in building the final product.
  • Even an artist involved in making art, whether it is a painting or a symphony, is considered labor.
  • For the early political economists, labor was the primary driver of economic value.
• Capital: 
  • In economics, capital typically refers to money.
  • But money is not a factor of production because it is not directly involved in producing a good or service. Instead, it facilitates the processes used in production by enabling entrepreneurs and company owners to purchase capital goods or land or pay wages.
  • For modern mainstream (neoclassical) economists, capital is the primary driver of value.
• Organization:
  • A business organization is defined as a firm established and run to earn profit by producing and selling commodities.
  • The organization is the management body of any company which controls, supervise, monitor, and formulates policy and strategy to obtain targeted goals.
  • An organization employs all the factors of production.

The correct answer is Option 2.

Key Points

Inflationary gap

• An inflationary gap exists when the demand for goods and services exceeds production due to factors such as higher levels of overall employment, increased trade activities, or elevated government expenditure.
• Against this backdrop, the real GDP can exceed the potential GDP, resulting in an inflationary gap.
• The amount by which the equilibrium level of real GDP exceeds the full employment level of GDP is called the Inflationary gap.

Recessionary Gap 

• It can be defined as the difference between the real GDP and potential GDP at the full employment level. 
• This is also known as the contractionary gap.
• Real GDP is always outweighed by potential GDP because the economy’s aggregate output is always lower than the aggregate output that would be obtained at full employment.

The correct answer is 1 only.

Key Points

• GDP deflator is an index number which measures inflation.Hence, statement 1 is correct.
• When GDP is calculated in a country, it is measured at current years prices called Nominal GDP, which includes inflation. To remove this anomaly and to find the real growth according to the base year, Nominal GDP is divided by GDP deflator to get the value of Real GDP.
• It is used to get the value of Real GDP from Nominal GDP. Hence, statement 2 is NOT correct.

Additional Information

• The GDP deflator, also known as the implicit price deflator, is used to measure inflation. It is used to determine the levels of prices of the new, domestically produced final goods and services in a country in a year.
• GDP deflector shows the changes in the average price levels in the economy, and therefore, it is used in conjunction with the Consumer Price Index (CPI) for measuring inflation.
• GDP deflator consists of two important components which are nominal GDP and real GDP
• Nominal GDP is the monetary value of all the goods and services produced in an economy and is valued at current prices, while the real GDP shows the monetary value of all the finished goods and services in an economy calculated at constant prices.

For calculating GDP deflator, the following steps are necessary

• Determine the nominal GDP
• Determine the real GDP
• Find the GDP Deflator
• GDP deflator formula can be represented as
• GDP deflator = Nominal GDP / Real GDP × 100
• Like other price indices such as CPI, GDP deflector is not formed on a fixed basket of goods and services. The basket is altered every year depending on people’s investment and consumption patterns for that year.

The correct answer is Option 4.

Key Points

• The exchange rate
  • The exchange rate of any currency is determined by the supply and demand for the country’s currency in the international foreign exchange market. Hence, Statement 1 is correct.
  • For example, the value of the Indian rupee concerning the dollar is determined by the demand of the dollar against the Indian rupee. If the demand for the dollar increases, its value increases, and the dollar appreciates while the Indian rupee depreciates concerning the dollar.
  • The price of one currency in terms of the other currency is called the exchange rate. E.g. $1 = ₹ 70. Meaning, it costs ₹ 70 to buy one dollar. Hence, Statement 2 is correct.
  • This is also called Nominal Exchange Rate because it does not take into consideration inflation or purchasing power in the respective countries.
  • Foreign Exchange Market is a place where currencies are exchanged is called. Their dealers are called Authorized (Forex) Dealers (AD). They can be banks or non-banks. They have to get registered with RBI under the Foreign Exchange Management Act (FEMA).
  • These dealers keep separate prices for buying and selling, to make a profit in between e.g. ICICI: 1 Dollar buying price ₹ 67.95 and $1 selling price is ₹ 72.76.
  • Such currency transaction service is also subjected to GST, however, the rate depends on the quantum of currency exchanged. (e.g. up to ₹ 10 lakh exchanged in foreign currency then only about ₹ 3000 of that 10 lakh will be taxable in GST → 18% of 3000 → ₹ 540 GST Tax.)
  • In floating or flexible exchange rate is determined by the market forces of demand and supply.
  • Under the floating exchange rate regime, the market forces determine the value of the domestic currency based on the forces of demand and supply of the domestic currency.
  • In this system, neither the government nor the central bank intervenes and the market functions freely to determine the real value of the domestic currency.
  • The floating exchange rate regime establishes trust among the foreign investors which can help in the increase in foreign investment in the domestic economy.
  • IMF would decide the Fixed Exchange rate for each country. Hence, Statement 4 is not correct.
  • Floating Exchange rate- Fixed exchange rate system has an inherent risk of a Payment crisis. Hence many countries started shifting to Floating Exchange Rate, first being the UK in 1973

Additional Information

• Mixed Exchange Rate
  • Where the central bank interferes whenever a crisis occurs. Otherwise, the exchange rate is market-driven on day to day basis
• Objectives Of Exchange Rate Management In India
  • To ensure that the economic fundamentals of the Indian economy are correctly reflected in the external value of the Indian rupee. Hence, Statement 3 is correct.
  • To reduce the volatility in exchange rates by ensuring that changes in the exchange rates take place in a smooth and orderly manner.
  • To maintain a sufficient level of foreign exchange reserves to deal with any external currency shocks.
  • To help in the elimination of market constraints for ensuring the growth of a healthy foreign exchange market.
  • To help in the prevention of the emergence of any destabilizing and speculative activities in the foreign exchange market.
  • The exchange rate system in India has undergone a systematic change since Independence. From the system of the pegged exchange rate to the present form of market-determined exchange rate after liberalisation in 1993.

• The Purchasing Power Parity (PPP) Theory can make long term predictions about exchange rates in a flexible exchange rate system.
• Basically PPP compares the economic productivity and standards of living of countries to predict exchange rates between different currencies.
• A simple formula for PPP is S = (P₁ / P₂) where 
  • S is the exchange rate between two currencies 1 and 2
  • P₁ is price of good X in country 1
  • P₂ is price of good X in country 2 
• For an accurate prediction a range of goods should be compared with the PPP theory.

The Human Development Index (HDI) is a composite index that measures the average achievements in a country in three basic dimensions of human development. These basic dimensions are long and healthy life, knowledge and a decent standard of living. The above-mentioned dimensions are measured by the following indicators.

• Long and healthy life is measured by life expectancy at birth
• Knowledge is measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary gross enrollment ratio (with one-third weight)
• A decent standard of living is measured by GDP per capita in purchasing Power Parity (PPP) US Dollars

Key Points 

• But we should know that the purpose of its construction is not to give a complete picture of human development rather provide a measure that goes beyond the traditional measurement of development i.e income. Therefore, HDI is a barometer for changes in human well-being and for comparing progress in different regions.

Thus from the above-mentioned points, it is clear that Health and wellness education interventions are likely to raise the human development index.

Key Points

Public Goods:​

• Public goods are provided as a whole to the members of society by the government.
• The consumption of these goods by an individual doesn’t reduce its availability or doesn’t exclude others from consuming it.
• They are non-rival (can be consumed by everyone at the same time) and non-excludable (no one can be easily excluded from consuming the good) in nature.
• Public goods are useful for the population as a whole. 
• These services are administered by the government and paid through taxation.
• Examples: Law enforcement, national defence, the rule of law, access to clean air and drinking water, education, infrastructure, public parks, lighthouses, flood control systems, knowledge, fresh air, official statistics, etc.

Note: Telephone service, city-owned bus, electricity generated by a city-owned public utility are not public goods.

Additional Information

• Private Goods:
  • It is rivalrous in nature as the consumption of one unit of private goods by one person does decrease the available units for consumption by another person. 
  • It is an excludable good as it prevents a person from enjoying the benefits of the good if they have not paid their share on that good.

The correct answer is Cars.

Key Points

• Public Goods :
  • The government provides certain goods and services which cannot be provided by the market mechanism i.e. by the exchange between individual consumers and producers. which are referred to as public goods.
  • Examples - National defence, Roads, Government administration, etc. 
  • Hence Cars are NOT public goods. 

Additional Information

The correct answer is unplanned decumulation of inventory.

Key Points

• Inventories are the unused raw materials or unfinished goods and unsold goods, that a firm carries from a year to the next year.
• Change in inventories may be planned or unplanned.
• An unexpected decrease in the stock of goods due to the rise in sales is called unplanned decumulation of inventory.

​Additional Information 

• An unexpected increase in the stock of goods due to a fall in sales is called the unplanned accumulation of inventories.
• The planned accumulation of inventories based on the anticipated sales for a particular period or year is called planned accumulation of inventories.
• Similarly, the planned decumulation of inventories based on the anticipated sales for a particular period or year is called planned decumulation of inventories.
• Final inventory is calculated as:
  • Final Inventory = Opening Inventory + Production - Sale.

The correct answer is NNP = GNP - Depreciation.

• Net National Product (NNP) is NNP = GNP - Depreciation.

Key Points

• Net National Product (NNP):
  • NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.

Additional Information

• Gross Domestic Product (GDP):
  • It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.
  • GDP = C + G + I
    • C = Consumption expenditure
    • G = Government expenditure
    • I = Investment expenditure
• Gross National Product (GNP):
  • It refers to the money value of the total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.
• National Income (NI):
  • When NNP is calculated at factor cost (FC) it is called National Income.
  • The measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).
  • In India, the Wholesale Price Index (WPI) is the weighted average price of 676 items with the base year 2017-18.

The correct answer is option 2, i.e. CU + DD + saving deposits with post office savings banks.

The total stock of money in circulation among the public at a particular point of time is called money supply. Its types are:

M1 is the most liquid and easiest for transactions whereas, M4 is the least liquid of all.

Note 1: M1 Exclude India's deposits with IMF, World Bank, Foreign Government etc. and interbank deposits

Note 2: The interbank Deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply.

The correct answer is The money which a creditor is under compulsion to accept in settlement of his claims.

• Legal tender is defined as “any official medium of payment recognized by law, that can extinguish public or private debt, or meet a financial obligation.”
• It is the national currency, such as paper money and coins, that is declared by law to be valid payment for debts and financial obligations.
• Cheques are not legal tenders since they can be refused as a mode of payment settlement by a party. 

The correct answer is Paper currency.

Key Points

• Only paper currency and coins form the legal tender in India. 
• Non-Legal Tender-Money: It is a form of money, which is generally accepted, but legally is not bound to accept it.
• Such as cheques, bank drafts, bills of exchange,  postal orders, etc. are not legal tenders and are accepted only at the option of the creditor, lender, or seller.
• It is also called optional money because it does not have legal backing and their acceptance is optional.
• Gold can be exchanged as per understanding between two parties, but it is not considered a legal tender in India.
• Legal tender
  • Limited Legal Tender Money: This is a form of money, which can be paid in discharge of debt up to a certain limit, and beyond this limit, a person may refuse to accept the payment and no legal action can be taken against it.
    • Coins are limited legal tender in India.
  • Unlimited Legal Tender Money: In this form of money, which can be paid in discharge of a debt of any amount.
    • A person who refuses to accept this money legal action can be taken against. 
    • Paper notes/currency are unlimited legal tender in India.
  • The ‘Legal tender’ is the money that is recognized by the law of the land, as valid for payment of debt.
    • It must be accepted for discharge of debt.
  • The RBI Act of 1934, which gives the Central Bank the sole right to issue banknotes, states that “Every banknote shall be legal tender at any place in 
  • India in payment for the amount expressed therein”.
  • The recognition or cancellation of the legal tender status is important because paper money derives all its value from the Government’s recognition of it.
  • Also, for a piece of paper to function as a: medium of exchange and store of value, it needs to enjoy unquestioning acceptance from the public.
  • This can only be ensured by declaring such paper currency notes as ‘legal tender through a fiat, with the RBI or the Centre promising to ‘pay the bearer’ an equivalent sum if the currency note is presented to them.

The correct answer is Option 2.

Key Points

• Fiat money is a currency that lacks intrinsic value.
  • It is a promise from a government or central bank that the currency is capable of being exchanged for its value in goods.
• It is established as a legal tender by government regulation.
• Unlike traditional money, it is not supported by any physical commodity like gold and silver, but by the faith of its holders and the credibility of the issuing government.
• For its success, the government must protect it against counterfeiting and manage the money supply responsibly.
• The value of fiat money depends on supply and demand.
  • It also depends on how a country’s economy is performing, how the country is governing its economic policies. 

Demonetization:

• Demonetization is an intervention into the economy that refers to the process of stripping the legal tender status of a currency.
• It occurs when there is a change in the national currency where the current form of money is retired and replaced by a new form of money.
• It is a tool used to stabilize the currency and fight inflation and to push informal economic activity into more transparency and far away from the black and grey market.

Therefore, Demonetization refers to the process of removing or stripping the legal status of a currency.

Digitization:

• Digitization is a process of collecting information and converting it into a digital format that can result in an object, image, document, sound, etc.
• It is used to enable automation, increase data quality, and collection and structure of data so that advanced technology can be applied.
• In short, it is a process of converting analog data into a digital format. 

Financial inclusion:

• Financial inclusion is a process that aims to provide financial goods and services to vulnerable groups of society.
• It refers to delivering banking services at an affordable cost to the vast sections of disadvantaged and low-income groups.

Micro Finance:

• Micro Finance is a financial service provided to low-income or unemployed individuals or groups who would not have any other access to financial services.
• It allows small businessmen people to reasonable loans safely and in a manner that is ethical and acceptable.
• It encourages social and banking inclusion by enabling poor people to benefit from productive loans.  

The correct answer is Option 3 i.e. Intermediate goods ​

• Intermediate goods are the goods sold between industries for the resale or production of other goods.
• These products are also called semi-finished products because they are used as inputs to become part of the finished products.
• Examples of intermediate goods are Salt, Sugar, etc.

The correct answer is Pension

The total value of goods and services produced by a country in a financial year is known as the National Income of that country.

The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest, and profit for their productive services in an accounting year.

Key facts about National income in India-

• The first attempt to calculate the national income of India was made by Dadabhai Naoroji.
• The first scientific method for calculating national income was made by Prof. V.K.R.V. Rao in 1931 but was not satisfactory.
• The first official attempt was made by National Income Committee headed by Prof. P.C. Mahalanobis in 1949.
• Central Statistical Organization (CSO) is responsible for calculating National income in India.

Central Statistical Organization (CSO) comes under the Ministry of Statistics and Programme Implementation (MoSPI). The Central Statistics Office coordinates the statistical activities in the country and evolves statistical standards.

Minister for Statistics and Programme Implementation is Rao Inderjit Singh, (Minister of State, Independent Charge).

• The aggregate value of goods and services produced in an economy can be calculated by three methods: income method, expenditure method and product / value-added method.
• National income or Gross Domestic Product (GDP) refers to the money value of all final goods and services produced in an economy in an accounting year.
• The Central Statistics Office (CSO) (Ministry of Statistics and Program Implementation) publishes GDP/GVA figures.

Additional information about the Ministry of Statistics and Programme Implementation (MoSPI):

Key Points

National income is the total market value of production in a country’s economy during a year. The national income of a country can be measured by three alternative methods: (i) Product Method (ii) Income Method, and (iii) Expenditure Method.

Additional Information

Production method

• In the product method, we calculate the aggregate annual value of goods and services produced (if a year is the unit of time). For example -Let us suppose that there are only two kinds of producers in the economy. They are the wheat producers (or the farmers) and the bread makers (the bakers). The wheat producers grow wheat and they do not need any input other than human labour. They sell a part of the wheat to the bakers. The bakers do not need any other raw materials besides wheat to produce bread. Let us suppose that in a year the total value of wheat that the farmers have produced is Rs 100.
• Out of this, they have sold Rs 50 worth of wheat to the bakers. The bakers have used this amount of wheat completely during the year and have produced Rs 200 worth of bread. What is the value of total production in the economy?
• If we follow the simple way of aggregating the values of production of the sectors, we would add Rs 200 (value of production of the bakers) to Rs 100 (value of production of farmers). The result will be Rs 300. A little reflection will tell us that the value of aggregate production is not Rs 300.
• The farmers had produced Rs 100 worth of wheat for which it did not need the assistance of any inputs. Therefore the entire Rs 100 is rightfully the contribution of the farmers. But the same is not true for the bakers. The bakers had to buy Rs 50 worth of wheat to produce their bread.
• The Rs 200 worth of bread that they have produced is not entirely their own contribution. To calculate the net contribution of the bakers, we need to subtract the value of the wheat that they have bought from the farmers. If we do not do this we shall commit the mistake of ‘double counting’. This is because Rs 50 worth of wheat will be counted twice. First, it will be counted as part of the output produced by the farmers. Second time, it will be counted as the imputed value of wheat in the bread produced by the bakers.
• Therefore, the net contribution made by the bakers is, Rs 200 – Rs 50 = Rs 150. Hence, aggregate value of goods produced by this simple economy is Rs 100 (net contribution by the farmers) + Rs 150 (net contribution by the bakers) = Rs 250.

Income Method

• Under this method, national income is measured as a flow of factor incomes. There are generally four factors of production labour, capital, land and entrepreneurship. Labour gets wages and salaries, capital gets interest, land gets rent and entrepreneurship gets profit as their remuneration.
• The sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interest earnings and rents.

Expenditure method

• An alternative way to calculate the GDP is by looking at the demand side of the products. In this method, we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes. The Rs X worth of wheat which the bakers buy from the farmers counts as intermediate goods, hence it does not fall under the category of final expenditure. Therefore the aggregate value of the output of the economy is Rs Y (final expenditure received by the baker) + Rs Z (final expenditure received by the farmer) = Rs X+Z per year.

The Central Statistical Organisation (CSO) which has the responsibility of preparing national income estimates has divided the economy into 13 sectors, grouped under five main headings. It prepares the estimate of net domestic product. During the post-independence period, the estimate of national income was primarily conducted by the National Income Committee. Later on, it was carried over by the Central Statistical Organisation. For the estimation of national income in India, the National Income Committee applied a mixture of ‘Product Method’, ‘Income Method’ and 'Expenditure method'.

The correct answer is  V K R V Rao. 

Key Points

• Professor VKRV Rao in 1931-32, used a scientific method to calculate the national income of India for the first time but was not very satisfactory.
• His full name is Vijayendra Kasturi Ranga Varadaraja Rao. V K R V Rao, in his book, the National Income of British India, 1932 wrote about his methods.
• He served as a Union Minister of Education in 1971. He was awarded Padma Vibhushan in 1974. 

Additional Information

• Dadabhai Naoroji:  The first attempt to calculate the national income of India was made by Dadabhai Naoroji in 1867-68, who estimated per capita income to be ₹ 20. 
• ​P C Mahalanobis: PC Mahalanobis in 1949, was head of the National Income Committee which made the first official attempt to calculate National Income.
  • ​He was a member of the first planning commission of India.
  • He established the Indian Statistical Institute (ISI) in Calcutta and for the same reason.
  • He is known as the father of Indian Statistics.
  • He was a member of the first Planning Commission of free India.
• M Visveswaraiya: In India, the first systematic attempt at economic planning was made in 1934 when M. Visvesvaraya published his book Planned Economy of India.
• For this reason, he is called the father of Indian planning.
• In this book, he presented a constructive framework for the development of India in the next ten years.

• The first attempt to calculate the national income of India was made by Dadabhai Naoroji in 1867-68, however, the first scientific approach to calculate the national income of India was used by Professor VKRV Rao for the first time in 1931-32.

The correct answer is Cheque.

Key Points

• Money is defined as a thing that is commonly accepted as a medium of exchange. It is an intermediate good that is acceptable to both parties i.e. buyer and seller.
• A cheque is an example of optional money.
• Optional money refers to that form of money, which is generally accepted, but legally, one is not bound to accept it.
• Optional Money is non-legal tender but is generally accepted by the people in final payments.
• It consists of credit instruments like bills of exchange, cheques, handiest, etc.,
• It is also called Fiduciary Money (on the basis of trust).

Additional Information

• Money is divided into the following types:
  • Fiat Money - The money issued by the legal authority of an economy, such as coins and currency notes are termed fiat money.
  • Plastic money - It is the term used for the plastic cards which were used in the day to day life in place of the banknotes that are debit cards, credit cards, etc.
  • Hard money - It is the form of currency that has more demand in the market is termed as the hard currency like the dollar.
  • Soft money - It is the form of currency that has less demand in the market is termed soft currency.
  • Commodity money- It is the form of money that was used as a medium of exchange between buyer and seller as a commodity like agriculture products etc.
  • Reserve money - It is the type of money that was maintained by the central banks of the country for the foreign exchange and investments in the nation, it also covers the money of the government of the country maintained and reserve under the central banks of the country. It is called high powered money.

The correct answer is RBI.

 Key Points

• Deficit financing is the budgetary situation where expenditure is higher than revenue.
• It is a practice adopted for financing the excess expenditure with outside resources.
• The expenditure revenue gap is financed by either printing of currency or through borrowing.
• This is borrowing by the government from RBI to finance the budget.

 Important Points

Methods of Bridging the Fiscal Deficit

• Borrowing from the market
• Monetization of the Deficit:
  • Monetizing deficit means RBI purchases government bonds in the primary market and prints more money to finance the debt.
  • This is resorted to only when the government cannot borrow from the market (Banks and other Financial Institutions like LIC).
  • The money printed by the RBI is called high-powered money or reserve money or monetary base.

 Additional Information 

• World Bank Group comprises of 5 institutions managed by their member countries
• These 5 institutions are
  • International Bank for Reconstruction and Development (IBRD)- Commonly known as the world bank. It is the single largest provider of development loans
  • International Development Association (IDA) – assists the poorest countries.
  • International Finance Corporation (IFC) – supports private enterprise in developing countries.
  • Multilateral Investment Guarantee Agency (MIGA) – offers investors insurance against non-commercial risk and helps developing country governments attract foreign investment non-commercial risks such as political instability, govt deciding to nationalize a private business, etc.
  • International Centre for the Settlement of Investment Disputes (ICSID).

The correct answer is 1, 2 and 3.

Key Points

• Reserve money is also called central bank money, monetary base, base money, or high-powered money.
• It is the base level for the money supply or the high-powered component of the money supply. 
• The gross amount of the following six segments of money at any point in time is the Reserve Money-
  • RBI's net credit to the Government
  • RBI's net credit to the banks
  • RBI's net credit to the commercial banks
  • Net forex with the RBI
  • Government's currency liabilities to the public
  • New non-monetary liabilities of the RBI
• Among these components, the most important one is the currency in circulation. It includes notes in circulation, rupee coins and small coins.
• Reserve money holds the topmost position in the RBI’s monetary policy. Reserve money decides the level of liquidity and price level in the economy.
• Hence, all are correct.

The correct answer is Creation of new money to finance a budget deficit.

Key Points

• When the government finances its budget deficit through the creation of new high powered money and in the process causes inflation, the purchasing power of old money balances held by the public falls.
• The monetary base (or M0) is the total amount of a currency that is either in general circulation in the hands of the public or in the form of commercial bank deposits held in the central bank's reserves.
• The creation of new money will increase the monetary base which in turn increase the money supply that ultimately increases inflation.

The correct answer is Higher inflation.

Key Points

•  The monetisation of Fiscal deficit 
  • Monetising deficit means RBI purchases government bonds in the primary market and prints more money to finance the debt.
  • It is resorted to only when the government cannot borrow from the market (banks and other financial institutions like LIC).
  • The money printed by the RBI is called high powered money or reserve money or monetary base.
  • RBI decided to infuse Rs. 10,000 crore liquidity in the banking system by buying government securities through OMOs.
  • The monetization of fiscal deficits – that is, budget expenses in excess of revenues – involves the financing of such extra expenses with money, instead of debt to be repaid at some future dates
  • It is different from monetization as it is controlled by RBI instead of the government as it is not as inflationary as deficit monetization.
  • The monetisation of deficit was in practice in India till 1997, whereby the central bank automatically monetised government deficit through the issuance of ad-hoc treasury bills.

The correct answer is option 4.

Key Points

The money multiplier

• It is the amount of money created by commercial banks for a given fixed amount of base money and reserve ratio.
• An increase in the cash reserve ratio prevents the banks from lending more money and reduces the money multiplier. 
• The Central Bank increases the reserve requirements for the Commercial banks. It will lead to a decrease in the money multiplier. Hence, Statement 2 is not correct.
• An increase in the banking habit of the population will increase the lending, thereby will lead to more deposits in the banking system, hence increasing the money multiplier. Hence, Statement 3 is not correct.
• Even if there is an increase in the population of the country, the money multiplier in an economy does not necessarily increase.
• The money created by the Federal Reserve is the monetary base, also known as high-powered money. Banks create money by making loans.
• A bank loans or invests its excess reserves to earn more interest.
• A one-dollar increase in the monetary base causes the money supply to increase by more than one dollar.
• The increase in the money supply is the money multiplier.
• The money multiplier increases with increasing capability with the banks to provide loans and this depends on the number of deposits available with the banks.
• More bank accounts and an increase in minimum balance requirement provide more deposits to the banks while more withdrawals and increase in reserve requirements reduce such deposits to be used for providing loans. Hence, Statement 1 is not correct, and Statement 4 is correct.

Money supply is defined as currency in circulation plus deposits in commercial banks in the most basic sense.

Key Points

• ​The total stock of money circulating in an economy is referred to as the money supply.
• In short, there are two types of money: 
  • Central bank money (M0) 
  • Commercial bank money (M1 and M3)
• Central bank money is designated as M0 in money supply data, whereas commercial bank money is separated into M1 and M3 components. Post-office deposits are also included in the M2 and M4 components.

The formula for measuring the money supply in India economy: 

Thus, M1 = Currency held by the people + deposit of public demand is the correct option to measure money supply in the economy. 

Additional Information

• M3 is known as broad money since it comprises both liquid and time deposits, making it a broad category of money.
• M1 is referred to as narrow money since it only comprises 100% liquid deposits, which is a relatively limited definition of the money supply.
• Reserve Money (M0) is also known as central bank money, monetary base money, base money, or high-powered money.

The correct answer is Gross Domestic Product.

Key Points

• Gross Domestic Product (GDP)
  • It is the single standard indicator used across the globe to indicate the health of a nation's economy. 
  • It is the total money value of final goods and services produced in the economic territories of a country in a given year. 
  • It is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade (difference between exports and imports).
  • Economic Survey 2021-22 estimates that the Indian economy (GDP) may grow by 9.2 per cent in real terms in 2021-22 

Additional Information 

1. Gross National Product (GNP): It is the total value of final goods and services produced during a given period by the citizens of the country no matter where they live.
   • The goods and services are produced by the nationals of the country. 
2. Balance of Payment (BoP): Balance of Payment of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.
   • It indicates whether the country has a surplus or a deficit on trade.

The correct answer is Option 1, i.e 1 only.

• GNP = GDP + Net factor income from abroad.
• GNP is NOT always greater than GDP.
• Gross national product (GNP) is an economic statistic that includes GDP, plus any income earned by a residents from overseas investments, minus income earned within the domestic economy by foreign residents.
• So, the net factor income from abroad may either be positive or negative, depending on the production being carried out in the country.
• Hence, GNP might be greater than GDP, or lower than GDP.
• Gross national product (GNP) is an estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country's residents.
• Gross domestic product (GDP) is the value of a nation's finished domestic goods and services during a specific time period. 
• While GDP limits its interpretation of the economy to the geographical borders of the country, GNP extends it to include the net overseas economic activities performed by its nationals.
• When there is large foreign investment in the country then GDP is greater than GNP, as many factors of production in the country are owned by foreign nationals.

The correct answer is Gross National Product.

• Gross National Product measures the market value of all final goods and services produced by a country’s citizens or residents.

Key Points

• Gross National Product (GNP):
  • GNP refers to the money value of the total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.
  • It is calculated using the formula:
    • GNP= Consumption + Gross Private Investment + Government Expenditure + Net Exports + Net Factor Income from Abroad.

Additional Information

• Net domestic product (NDP):
  • It is an annual measure of a nation's economic output that is calculated by subtracting depreciation from the gross domestic product (GDP).
• Gross Domestic Product:
  • It is the total money value of all final goods and services produced within the country's geographical boundaries during a given period of time.
  • GDP = C + G + I
  • C = Consumption expenditure, G = Government expenditure and I = Investment expenditure
• Net National Product (NNP):
  • NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.

The correct answer is option 2.

Key Points

• The cotton textile industry is the fastest-growing sector in the textile industry. The cotton textile industry occupies a significant role in the Indian economy.
• The establishment of the cotton textile industry at a location depends on many factors such as the availability of raw cotton, demand, transportation, etc.
• Maharashtra is the leading producer of cotton textiles in India. Mumbai is called as 'cotton polos' of India'
• Gujarat is the second-largest producer of cotton textiles after Maharashtra. Ahmedabad is called 'Mthe anchester of India' and it is also the second-largest center of the cotton textile industry after Mumbai.
• In Tamil Nadu state Coimbatore is called 'Manchester of South India' because it is the most important cotton textile center.
• Kanpur is called 'Manchester of Uttar Pradesh'.

The correct answer is Bangalore.

Key Points

• Bangalore  is popularly known as the Silicon Valley of India.
• It is considered the centre of India's high-tech industry.
• ISRO, Infosys, Wipro, HAL and other Indian technological organisations have their headquarters in this city.
• Don Hoefler a journalist for the publication had titled a three-part series examining the history of the semiconductor “Silicon Valley U.S.A.” The term rapidly became associated with technology.
• Additionally, Silicon Valley is a region in Northern California that serves as a global center for high technology and innovation.
• It is located in the southern part of the San Francisco Bay Area.

Concept:-

• Neonatal morbidity: "The risk of death during the newborn period - the first 28 days of life."
• Severe neonatal morbidity was defined as a composite measure of cystic periventricular leukomalacia, intraventricular hemorrhage, surgical necrotizing enterocolitis, or retinopathy of prematurity.

Causes:-

• The major cause of neonatal morbidity is prematurity and birth defects. it generally occurs in pregnancies free of antecedent complications.
• Sepsis
• Congenital anomalies
• Diarrhoeal disease.
• Acute respiratory disease
• Tetanus 

The correct answer is the LPG connection.

Key Points

Pradhan Mantri Ujjwala yojna:

• The PMUY was launched on May 1^st, 2016 in Ballia, Uttar Pradesh.
• It was to provide a free LPG connection to women belonging to BPL.
• It is one of the best ways to create smokeless cooking and to make women's life healthy.

Additional Information

Skill India 

• It was launched by BJP led government on 15 July 2015.
• Rural Skill India is also a part of this scheme.
• It has started to impart skill and vocation to the individual so as to become self-reliant and to increase the economic growth of the country.

Pradhan Mantri Jan Dhan yojana:

• The PMJDY was launched in the year 2014, on 28 August.
• To provide financial inclusion to the people of the country.
• It provides accidental and life insurance also.

Pradhan Mantri sahaj bijli yojna:

• SAUBHAGYA was launched in September 2017.
• It was to provide free electricity connection at an unelectrified place of rural and urban areas.

The correct answer is Option 1.

Key Points

Explanation:

Build operate transfer system:

• Build–operate–transfer (BOT)  is a form of project delivery method, usually for large-scale infrastructure projects, wherein a private entity receives a concession from the public sector (or the private sector on rare occasions) to finance, design, construct, own, and operate a facility stated in the concession contract. This enables the project proponent to recover its investment, operating and maintenance expenses in the project.
• BOT is usually a model used in public-private partnerships. Due to the long-term nature of the arrangement, the fees are usually raised during the concession period. The rate of increase is often tied to a combination of internal and external variables, allowing the proponent to reach a satisfactory internal rate of return for its investment.

Key Points

Great Depression:

• In 1929 the worldwide great depression took place.
• The Great Depression was a worldwide downturn in economic activity.
• It began in the United States with a sharp drop in stock prices, and it quickly spread throughout the world.
• By 1933, unemployment had reached 25%, and almost 5,000 banks had closed their doors.
• Although President Herbert Hoover tried to stimulate the economy with initiatives such as the Reconstruction Finance Corporation, these efforts failed to alleviate the situation.
• In the eighteen months leading up to the crash on "Black Thursday," October 24, 1929, the value of the US stock market nearly doubled in a frenzy of speculative buying.
• On that day, as well as on October 29, known as "Black Tuesday," panic broke out as millions of shares of stock moved at ever-lower prices.

​​Thus, the Great Depression began in 1929.

​Additional Information

About Depression:

• A severe and sustained recession is classified as depression.
• A recession is characterized by a drop in economic activity.
• Falling output and employment levels are indicators of declining economic activity.
• Depression is the term used when an economy has been in recession for two or more quarters.

Concept:

• Poliomyelitis in the scientific term or synonym of the disease Polio. 
• It is a viral disease that destroys the nerve cells present in the spinal cord, causing paralysis or muscle weakness to some parts of the body.
• The virus is transmitted by person-to-person through the following ways – Through the faecal-oral route and By contaminated water or food.

Explanation:

• India was declared Polio free on 27th March 2014 by the WHO
• Indian started a program named ''pulse polio'' to completely eradicate polio from the country.
• In involved vaccinating all children under the age of five years against the polio virus. 

Important Points 

• Tamil Nadu became the first polio free state in India

Concept:-

• The full form of NRHM is National Rural Health Mission.
• NRHM is the unit of the National health mission which focuses on the improvement of health and wellness in the rural parts of India.

Additional Information The National Health Mission (NHM) encompasses its two Sub-Missions,

• The National Rural Health Mission (NRHM)  
• National Urban Health Mission (NUHM). 

The main programmatic components include Health System Strengthening, Reproductive-Maternal- Neonatal-Child and Adolescent Health (RMNCH+A), and Communicable and Non-Communicable Diseases.

The goals of NHM in the current plan are as follows:

1. Reduce MMR to 1/1000 live births
2. Reduce IMR to 25/1000 live births
3. Reduce TFR to 2.1
4. Prevention and reduction of anemia in women aged 15–49 years
5. Prevent and reduce mortality & morbidity from communicable, non-communicable; injuries and emerging diseases
6. Reduce household out-of-pocket expenditure on total health care expenditure
7. Reduce annual incidence and mortality from Tuberculosis by half
8. Reduce the prevalence of Leprosy to <1/10000 population and incidence to zero in all districts
9. Annual Malaria Incidence to be <1/1000
10. Less than 1 percent microfilaria prevalence in all districts
11. Kala-azar Elimination by 2015, <1 case per 10000 population in all blocks

Concept:-

• Ayush means bringing all medical systems under one roof.
• AYUSH Stand for
• A- Ayurveda
• Y- Yoga and Naturopathy
• U- Unani
• S- Siddha
• H- homeopathy

Additional InformationAims on Ayush

• Upgradation of AYUSH educational standards
• quality control and standardization of drugs
• improving the availability of medicinal plant material
• Research and development
• awareness development of efficacy of systems.

Objectives 

• Integrate AYUSH into the Healthcare delivery system and national programs
• Provide opportunities for the growth and development of all systems.

The correct answer is option 1 i.e., Factors of production

• The four factors of production are the inputs used in various combinations for the production of goods and services to make an economic profit.
• The factors of production are land, labor, capital, and entrepreneurship.
• 'Land' is quite a broad category as a factor of production in that it refers to all-natural resources.
• 'Labor', as a factor of production, involves any human input. The quality of labor depends on the workforce's skills, education, and motivation.
• 'Capital' refers to manufactured resources such as factories and machines.
• 'Entrepreneurship' - An entrepreneur is someone who takes on the economic risk involved in bringing the other three factors of production together.