Nature of Indian Economy
- Which of the following are correct in regard to the austerity measures taken by a country going through adverse economy conditions:
1 These measures include a reduction in spending .
2 These measures include increasing in tax
3 These measures include reduction in budget deficit.
Select the correct answer using the codes given below :
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Austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increase. This is done in economic crisis situation to improve the credit rating of the countries going through adverse economic condition.
Correct Option: D
Austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increase. This is done in economic crisis situation to improve the credit rating of the countries going through adverse economic condition.
- Consider the following statements in regard to Headline inflation :
(1) It provides an accurate picture of the inflation in the country.
(2) It is affected by short term transitory effect on prices of products.
Which of the statements given above is/are correct?
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Headline inflation also called as WPI inflation is a measure of the total inflation within an economy and is affected by areas of the market which may experience sudden inflationary spikes such as food or energy . As a result, headline inflation may not present an accurate picture of the current state of the economy as it doesn't take account of service sectorHeadline inflation also called as WPI inflation is a measure of the total inflation within an economy and is affected by areas of the market which may experience sudden inflationary spikes such as food or energy . As a result, headline inflation may not present an accurate picture of the current state of the economy as it doesn't take account of service sector.
Correct Option: B
Headline inflation also called as WPI inflation is a measure of the total inflation within an economy and is affected by areas of the market which may experience sudden inflationary spikes such as food or energy . As a result, headline inflation may not present an accurate picture of the current state of the economy as it doesn't take account of service sector.
- Consider the following statement in regard to reserve currency :
(1) Reserve currency acts at the international pricing currency in the global market for commodities like oil and gold.
(2) The country whose local currency is accepted as reserve currency gets an added advantage in terms of lower commodity rates in the international market.
Which of the statements given above is / are correct
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A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and that is commonly used in international transactions for commodities like oil and gold.
Correct Option: C
A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and that is commonly used in international transactions for commodities like oil and gold. Persons who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than persons in other nations because they need not exchange their currency to do so.
- When the RBI wants to inject liquidity int economy it may adopt the following :
1. Buy the government securities from the banks .
2. Enter into reverse Operations
3. Raises cash Reserve Ration
4 Reduce SLR.
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By Buying the government securities from the banks and reducing SLR may inject money into the system. However Raising cash Reserve Ratio may take away liquidity from the market as the banks. will have to deposite more money with the RBI and similarly entering the revers repo operations may also take away liquidity from the market .
Correct Option: B
By Buying the government securities from the banks and reducing SLR may inject money into the system. However Raising cash Reserve Ratio may take away liquidity from the market as the banks. will have to deposite more money with the RBI and similarly entering the revers repo operations may also take away liquidity from the market .
- Consider the following statements in regard to devaluation and depreciation of a currency:
(1) Devaluation is an activity conducted by central government whereas depreciation happens due to market forces.
(2) In both the devaluation and depreciation currency loses value against other currencies in a floating currency exchange market:
Which of the statements given above is/are correct?
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Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that other countries. The exchange rate can change only when the government decide to change it. If a government decide to make its currency less valuable, the change is called devaluation. Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country's currency.
Correct Option: A
Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that other countries. The exchange rate can change only when the government decide to change it. If a government decide to make its currency less valuable, the change is called devaluation. Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country's currency.
