Daily Static MCQs Quiz for UPSC, IAS, UPPSC/UPPCS, MPPSC. BPSC, RPSC & All State PSC Exams
Subject : Economy
1. Consider the following statements regarding International Finance Corporation (IFC):
1. It is an arm of the International Monetary Fund (IMF) that
offers investment, advisory, and asset-management services.
2. It encourages private-sector development in developing countries.
3. IFC also focuses on sustainable agriculture, healthcare and education.
How many of the above statements is/are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Answer: (B)
Explanation: The International Finance Corporation (IFC) is an international financial institution that offers investment, advisory, and asset-management services to encourage private-sector development in developing countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States. It was established in 1956, as the private-sector arm of the World Bank Group, to advance economic development by investing in for-profit and commercial projects for poverty reduction and promoting development. Since 2009, the IFC has focused on a set of development goals that its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve healthcare and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health. Hence, statement 1 is incorrect.
2. Which of the following factors can lead to cyclical slowdown in the Indian Economy?
1. Over-investment in capital assets and in inventory.
2. The production of final goods is not absorbed leading to lower prices and
lower economic activity.
3. Changing demographics and change in consumer behaviour.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Answer: (B)
Explanation: Typically, a cyclical slowdown is caused by an excess of investment demand—over-investment in capital assets (residential and non-residential) and in inventory. The production of final goods generated by excess investment is not absorbed, leading to inventory reduction, lower prices, lower economic activity, and some loss in employment. When this is accompanied by excess debt, the cyclical slowdown can be prolonged or it may become structural. A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.
3. The general rise in Gini Coefficient may indicate:
(a) Government policies are not inclusive and benefitting
rich more than poor.
(b) Increasing foreign exchange reserves due to high export potential.
(c) Budget surplus in consecutive financial years.
(d) Government policies are inclusive and benefitting the disadvantaged groups.
Answer: (A)
Explanation: Gini Coefficient is a popular statistical measure to gauge the rich-poor income or wealth divide. It measures inequality of a distribution — be it of income or wealth — within nations or States. Its value varies anywhere from zero to 1; zero indicating perfect equality and one indicating the perfect inequality. Gini Coefficients can be used to compare income distribution of a country over time as well. An increasing trend indicates that income inequality is rising independent of absolute incomes. A general rise in Gini Coefficient indicates that government policies are not inclusive and may be benefiting the rich more than the poor.
4. Consider the following statements regarding Opportunity cost:
1. Opportunity costs represent the potential benefits that an
individual, investor, or business misses out on when choosing one alternative
over another.
2. For companies, opportunity costs do not show up in the financial statements
but are useful in planning by management.
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: Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others. Opportunity cost is a strictly internal cost used for strategic contemplation; it is not included in accounting profit and is excluded from external financial reporting. For example, a company decides to buy a new piece of manufacturing equipment rather than lease it. The opportunity cost would be the difference between the cost of the cash outlay for the equipment and the improved productivity vs. how much money could have been saved in interest expense had the money been used to pay down debt. Hence, both statements are correct.
5. Consider the following statements regarding GDP deflator:
1. It shows the increase in gross domestic product has
happened on account of higher prices rather than increase in output.
2. The GDP deflator contains only those goods and services which households
purchase for consumption.
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: The GDP deflator, also called implicit price deflator, is a measure of inflation. It is the ratio of the value of goods and services an economy produces in a particular year at current prices to that of prices that prevailed during the base year. This ratio helps show the extent to which the increase in gross domestic product has happened on account of higher prices rather than increase in output. Since the deflator covers the entire range of goods and services produced in the economy — as against the limited commodity baskets for the wholesale or consumer price indices — it is seen as a more comprehensive measure of inflation. Hence, statement 2 is incorrect.
