Question 1

What is the primary difference between GDP and GNP?

Accepted Answer

GDP measures the total economic output produced within a country's borders, regardless of who owns the resources. GNP measures the total economic output produced by a country's residents, regardless of where the production occurs.

Question 2

Which of the following best describes inflation in an economy?

Accepted Answer

Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time, leading to a decrease in the purchasing power of money.

Question 3

As per the latest RBI data (2024), what is the primary tool used by the Reserve Bank of India to control inflation?

Accepted Answer

The RBI primarily uses the Repo Rate (repurchase rate) as its main policy instrument to control inflation and manage liquidity in the economy.

Question 4

Which of the following correctly defines Gross Domestic Product (GDP) at constant prices?

Accepted Answer

GDP at constant prices (also called real GDP) measures the value of goods and services produced in an economy using prices from a base year, eliminating the effect of inflation.

Question 5

If a country's inflation rate is 6% and the nominal interest rate offered by banks is 8%, what is the approximate real interest rate?

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Real Interest Rate ≈ Nominal Interest Rate − Inflation Rate.

Question 6

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

GDP measures the total monetary value of all final goods and services produced within a country's borders during a specific period, regardless of the nationality of the producers. It is the primary indicator of a nation's economic health and is calculated using the expenditure approach (C + I + G + NX) or income approach.

Question 7

Which of the following best describes the difference between GDP and GNP in the context of India's national income accounting?

Accepted Answer

GDP (Gross Domestic Product) measures the total value of goods and services produced within India's geographical boundaries, regardless of ownership. GNP (Gross National Product) measures the total value of goods and services produced by Indian nationals, whether within or outside India. The key difference is territorial vs. national ownership.

Question 8

Inflation in India is primarily measured using which index, and what was the inflation target set by the RBI for the period 2022-2025?

Accepted Answer

India uses the Consumer Price Index (CPI) as the primary measure of inflation. The RBI's inflation target, as per the Monetary Policy Framework, is 4% with a tolerance band of ±2% (i.e., 2-6% range) for the period 2022-2025.

Question 9

What is the relationship between Fiscal Deficit and Revenue Deficit in government budgeting, and which statement correctly describes their difference?

Accepted Answer

Fiscal Deficit = Total Expenditure - Total Revenue (includes both revenue and capital expenditure). Revenue Deficit = Revenue Expenditure - Revenue Receipt (excludes capital expenditure). Revenue Deficit is always smaller than or equal to Fiscal Deficit.

Question 10

Which of the following statements about the relationship between inflation and GDP growth is most accurate in the context of Indian economics?

Accepted Answer

High inflation can erode real GDP growth (nominal GDP growth minus inflation rate). The RBI uses inflation targeting to maintain price stability, which supports sustainable long-term GDP growth. Moderate inflation (2-4%) is considered healthy for an economy.

Question 11

Which of the following best describes the relationship between Gross Domestic Product (GDP) and Gross National Product (GNP)?

Accepted Answer

GDP measures the total monetary value of all final goods and services produced within a country's borders in a specific period, regardless of who produces them. GNP measures the total monetary value of all final goods and services produced by a country's residents, regardless of where production occurs. The key difference is that GDP is territory-based while GNP is citizenship/residency-based.

Question 12

If nominal GDP of India grows at 12% while real GDP grows at 8%, what is the approximate inflation rate reflected in this difference?

Accepted Answer

The difference between nominal GDP growth and real GDP growth represents the inflation rate. Nominal GDP = Real GDP × Price Level. When nominal grows faster than real, the gap indicates inflation.

Question 13

As per the latest RBI monetary policy framework (2024), what is the relationship between the Repo Rate and Reverse Repo Rate in terms of corridor width?

Accepted Answer

The RBI maintains an asymmetric corridor around the policy repo rate. The reverse repo rate is typically 50 basis points below the repo rate, while the marginal standing facility (MSF) rate is 50 basis points above.

Question 14

Which of the following correctly distinguishes between GNP and GDP in the context of India's national income accounting?

Accepted Answer

GNP measures income earned by residents regardless of location; GDP measures output produced within borders regardless of ownership. The difference is Net Factor Income from Abroad (NFIA).

Question 15

If India's inflation rate is 6.5% and the real interest rate is 2%, what is the nominal interest rate according to the Fisher Equation?

Accepted Answer

The Fisher Equation relates nominal rate, real rate, and inflation: (1 + Nominal Rate) = (1 + Real Rate) × (1 + Inflation Rate). For precise calculation, the approximation is: Nominal ≈ Real + Inflation (for small values).

Question 16

In India's national income accounting, which component is subtracted from GNP to arrive at Net National Product (NNP)?

Accepted Answer

NNP accounts for depreciation of capital stock. NNP = GNP - Depreciation (Capital Consumption Allowance). This is also called Net National Income (NNI) at factor cost.

Question 17

If a country's Nominal GDP is ₹300 lakh crore and Real GDP is ₹250 lakh crore (both measured in the same base year prices), what is the implicit GDP deflator index for that year?

Accepted Answer

The implicit GDP deflator is calculated as (Nominal GDP / Real GDP) × 100. Here: (300/250) × 100 = 120. A deflator of 120 means prices have risen 20% compared to the base year, indicating cumulative inflation of 20% since the base year.

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