Explore topic-wise InterviewSolutions in Current Affairs.

(A) Capital Expenditure

Interest on public debt is part of Transfer payments by the government.

(C) (A) and (B) Both

1. S = I

-100 + 0.6 Y = 1100

0.6 Y = 1200

Y = 1200/0.6 = 2000

2. Y = C + S

C = Y - S

= 2000 - 1100

= 900

d. All the above  

c. Both a and b 

Distinction between ‘Normal Goods’ and ‘Giffin Goods’:- 

1. Law of demand is applicable in case of Normal Goods and incapable in case of Giffin Goods. 

2. Demand curve in case of normal goods is negatively sloped from left to right and positively sloped in case of Giffen Goods and rises from left to right. 

3. Income effect of normal goods is positive i.e. increase in income increases demand of normal goods and income effect in case of Giffin Goods is negative i.e. increases in income decreases demand of Giffin Goods. 

(b) Positive

Production Possibility Curve is Concave to the origin which signifies that if we want to increase production of one goods (goods-X) then we have to sacrifice production of second goods (goods-Y) and the sacrifice of Y goods for every additional x-goods will continuously increase. Due to this reason, the production possibility curve become concave to the origin.

Giffin goods are those inferior goods whose income effect is negative and price effect is positive. Law of demand is not applicable in case of Giffin goods. 

Real cost- This concept was propounded by Marshall. Efforts and sacrifices made in the production process create real cost. Real costs are also termed as social costs because the society faces a number of difficulties during the production process Money cost – cost of production measured in terms of money is called the ‘Money Cost’ Money cost is the monetary expenditure made by the producer for hiring various factors of Production. Money cost is therefore the payment made for the factor in terms of money.

Perfect competition:- Perfect competition is that market situation in which a large number of buyers and sellers are found for homogeneous product. Single buyer or the seller are not capable of affecting the prevailing price and hence in a perfectly competition market, a single market price prevails for the commodity. 

According to left witch, “perfect competition is a market in which there are many firms selling identical products with no firm large enough relative to the entire market to be able to influence market price.”

Pure competition- the concept of ‘Pure competition’ is more real than the concept of ‘perfect competition’ chamberlin has made a distinction between ‘perfect competition’ and ‘Pure competition.’ 

In the words of Chamberlin, “ Pure competition means competition unallowed by monopoly elements. It is a much simpler and less exclusive concept than perfect competition for the latter may be interpretated to involve perfection in many other respects than in the absence of monopoly.”

Correct option is A) thin

NNP = GNP – Depreciation NNP 

= 81388 – 3205 = Rs. 781833 crores.

Correct option is A) guilty

(i) NDP_mp = GNP_mp – Net income from abroad – consumption of fixed capital NDPmp 

= 97503 – (-201) – 5699 = Rs. 92005 crores.

(ii) NDP_fc = NDP_mp – Net indirect taxes

= 92005 – 10576 = Rs. 81429 crores

NDPfc:- Net Domestic Income or Net Domestic Product at factor Cost 

(NDPfc) is the sum total of factor incomes (rent + profit + wages + interest) generated within the domestic territory of a country during a year. 

NDPfc = NDP mp – Net Indirect taxes 

        Or 

NDPfc = NDPmp - Indirect tax + subsidy 

GDPfc: Gross Domestic product at factor cost (GDPfc) is the sum total of factor incomes (rent + interest + profit + Wages) generated within the domestic territory of a country, along with consumption of fixed capital during a year. 

GDPfc = NDPfc + Depreciation 

Or 

NDPfc = GDPfc – Depreciation

Correct option is D) empty

Correct option is B) dangerous

Correct option is A) terrible

Correct option is B) private

Correct option is A) private

Correct option is E) Usually all big stores employ plainclothes detectives.

Correct option is A) terms

Correct option is D) Peter and I had agreed to meet at the bus stop.

Correct option is B) compulsory

Correct option is C) may

Sports should be optional in schools:

Counterview: Sports are important in shaping up the overall personality of a pupil. The reasons for which sports should be made compulsory at school level are as follows:

• Sports make children more active and help in their physical fitness and we all know a healthy body gives rise to a healthy mind

• There are many children who might be excellent in sports but do not get the opportunity to enhance those skills. Making sports mandatory in schools will help those children prove themselves as sportsmen or sportswomen

• Having separate periods for sports removes boredom from their mundane studies and rejuvenates their mind and body

Correct option is C) mark

(c) Appreciation and encouragement

Two indicators that help to measure the health status of a country are: 

a) Infant Mortality Rate - Infant Mortality Rate (or IMR) indicates the number of children that survive first year of their life. 

b) Literacy Rate – Literacy rate measures the proportion of literate population in the age group of seven years or above. 

Or

The data in the given table reveals that:

a) Women constitute 16.5% of the total worker population in the economy. 

b) The number of women workers in rural areas (17.5%) are relatively higher than the women workers in urban areas (14.2%). Due to the abject poverty in rural areas, rural women are compelled to work more than their urban counterparts.

At a lower level of income, a consumer spends a larger proportion of his/her income on consumption expenditure (basic survival requirements). As the income increases, owing to the psychological behavior of a consumer (rational), people tend to consume less and save more for future uncertainty.

C) How old is he?

C) What did the teacher ask us to do?

Domestic Factor Income will be less than the National Income when Factor income earned from Abroad is more than Factor income paid Abroad.  

Domestic Factor Income, on the other hand, will be greater than the National Income when Factor income paid Abroad is more than the Factor income earned from Abroad. 

D) Why did you go to the library?

National Income – The money value of all the final goods and services produced by normal residents of a country during a financial year is called national income.

Features of National Income –

• National Income always takes the monetary value which can be obtained by multiplying quantity of commodity by their respective prices. 
• It includes only the value of final good. The value of intermediate goods is not taken into consideration. 
• It includes only factor income, transfer income is not included in it. 
• It is a flow variable as it is measured during a period of one year. 
• It is always measured during a financial year i.e. from 1 April to 31 March.

Consumption Goods- The goods which are purchased by consumer to satisfy their wants are called consumption goods. These goods satisfy human wants directly such as pen, pencil, bread, butter etc.

These goods can be further divided into following categories-

Durable Goods: These are the goods which can be used again and again in consumption over a long period of time. Such as T.V., Computer, Fan etc.

Semi-durable Goods: The goods which can be use for limited period of time are known as Semi durable Goods. These goods have a life span of around one year. Such as clothes, crockery, shoes etc.

Non-durable Goods: The goods which are used up in a single act of consumption are called non durable Goods or perishable good.

Services –Services are produced and consumed simultaneously; it means there is no time gap between their production and consumption. These are rendered for direct consumption. Such as services of doctor, teacher etc.

Capital goods - The goods which help in production of other goods and services and added in the capital stock of a country at the end of an accounting year are called capital goods. It includes durable goods like car, fridge, road etc. Stock of semi finished, finished goods and raw material are also part of it.

Demonetisation was a new step taken by the Government of India on 8^th November 2016. It was introduced to tackle the problem of corruption, black money, terrorism and circulation of fake currency in the economy. Old currency notes of Rs.500 and Rs. 1000 were no longer legal tender.

New currency notes in denomination of Rs.500 and Rs.2000 were introduced. The public were advised to deposit old currency notes in their bank account till 31^st of March 2017 without any declaration and after 31^st March 2017 with the RBI with declaration.

In order to avoid a complete Breakdown and scarcity of Cash, government allowed exchange of Rs.4000 old currency notes with new currency restricting to a person per day. Further, till 12^th December 2016, old currency notes were acceptable as legal tender at petrol pumps, government hospitals and for payment of government dues like taxes, power bills, etc.

This initiative had both appreciation and criticism. There were long queues outside banks and ATM centres. There was acute shortage of currency notes and had adverse effect on economic activities. But now, normalcy has returned.

The demonetization also has positive effects. It improved tax compliance as a large number of people were bought in the tax ambit. The savings of individual were channelized into the formal financial system. As a result, banks have more resources at their disposal which can be used to provide more loans at low rate of interest.

Demonetisation helps in curbing black money, reducing tax evasion and corruption will decrease. It also helps in tax administration in another way, by shifting transaction out of the cash economy into the formal payment system. Nowadays, households and “firms have started to shift from cash payment to electronic payments.

Gross domestic product (GDP) is the sum total of value of goods and services created within the geographical boundary of a country in a particular year, dt gets distributed among’the people as incomes except retained earnings. So we consider that higher level of GDP of a country is an index of greater well being of the people of that country.

Welfare of a country means the well being of entire population of the country. But there are certain limitations of using GDP as an index of welfare of a country. 

They are as follows:

a. Distribution of gross domestic product (GDP): Generally, the rise in GDP will not represent increase in the welfare of the country. If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in gross domestic product may be concentrated in the hands of only a few individuals or firms. For the remaining, the income may in fact might have decreased. In such a situation, the welfare of the entire country cannot be said to have improved.

b. Non-monetary exchanges: Some of the activities in a country are not evaluated in terms of. money. For instance, the domestic services of housewife are pot paid for. The-exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges, goods are directly exchanged against each other.

As money is not used here, these exchanges are not registered as part of economic activity. In India, because of many remote areas, these kinds of exchanges still take place and they are generally not counted in the GDP. Therefore, gross domestic product calculated in the standard manner may not give us a clear indication of welfare of a country.

c. Externalities: An externality is a cost or benefit conferred upon second or third parties as a result of acts of individual production and consumption. In other words, externalities refer to the benefits or harms, a firm or an individual causes to another for which they are not paid or penalized.

These do not have any market in which they can be bought and sold. But the cost or benefit of an externality cannot be measured in money terms because it is not included in market activities. For example, the pleasure one gets from his neighbour’s garden is an external benefit and external cost is environmental pollution caused by industries. Both are excluded from national income estimates.

d. Leisure and work: One of the important things that affect the welfare of a society is leisure. But this is not included in GDP. For example, longer working hours may make people unhappy because their leisure is reduced. On the contrary, shorter working hours per week may increase leisure and make people happy.

e. Manner of production: The economic welfare also depends on the manner of production of goods and services. If goods are produced by child labour or by exploitation of workers, then the economic welfare cannot increase.

Difference between domestic product and national product .

Difference between domestic product and national product:

Tips to save energy while using a washing machine:

• ​Use Cold Water with equated quantity
• Use hot water for woolen and bacterial-infected clothes.
• Use Quick Wash 
• Use Eco Mode or Speed Perfect 
• Use Proper Detergent 
• Avoid Dryers 
• Buy Energy Efficient Machine 
• Recover greywater from the washing machine
• Use machine efficiently i.e. use with full capacity.

a) Different sectors of economy - There are three sectors of the economy

i) Primary sector- It includes all those production units which exploit natural resources for production. Such as Agriculture, mining, quarrying etc. 

ii) Secondary sector- It includes all those production units which transform one good in to another. Such as Industries, construction etc. 

iii)Tertiary sector- It includes all those production units which provide services. Such as banking, insurance, transport, communication etc. 

b) Injection: The amount of money which is added in the circular flow of income is called injection. Injections increase the speed of flow of income. Some examples of injections are investment (I), government expenditure (G) and export (X).

c) Withdrawal: The amount of money which is taken out from the circular flow of income is called withdrawal. Withdrawals decrease the speed of flow of income. Some examples of withdrawals are savings (S), taxes (T) and import (M).

d) Double Counting – If the value of an item is estimated more than one time in estimation of national income is called double counting. It leads to over estimation of national income.

It can be avoided by two ways-

i) By taking the value added by each enterprise 

ii) By taking the value of final product

e) Depreciation: The reduction in the value of capital assets due to normal wear and tear is called depreciation. These are the foreseen losses so cannot be insured. It is also called consumption of fixed capital.

Whenever we subtract net value from the gross value we get depreciation. Depreciation = Gross – Net

Gross domestic product (GDP) is the sum total of value of goods and services created within the geographical boundary of a country in a particular year. It gets distributed among the people as incomes except retained earnings.

So, we consider that higher level of GDP of a country is an index of greater well being of the people of that country. Welfare of a country means well being of entire population of the country. But there are certain limitations of using GDP as an index of welfare of a country. 

They are as follows:

1. Distribution of gross domestic product (GDP): Generally, the rise in GDP will not represent increase in the welfare of the country. If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in gross domestic product may be concentrated in the hands of very few individuals or firms. For the remaining, the income may, in fact, might have decreased. In such a situation, the welfare of the entire country cannot be said to have improved.

2. Non-monetary exchanges: Some of the activities in a country are not evaluated in terms of money. For instance, the domestic services of housewife are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges, goods are directly exchanged against each other.

As money is not used here, these exchanges are not registered as part of economic activity. In India, because of many remote areas, these kinds of exchanges still take place and they are generally not counted in the GDP. Therefore, gross domestic product calculated in the standard manner may not give us a clear indication of welfare of a country.

3. Externalities: An externality is a cost or benefit conferred upon second or third parties as a result of acts of individual production and consumption. In other words, externalities refer to the benefits or harms, a firm or an individual causes to another for which they are not paid or penalized. These do not have any market in which they can be bought and sold.

But the cost or benefit of an externality cannot be measured in money terms because it is not included in market activities. For example, the pleasure one gets from his neighbour’s garden is an external benefit and external cost is environmental pollution caused by industries. Both are excluded from national income estimates.

4. Leisure and work: One of the important things that affect the welfare of a society is leisure. But is not included in GDP. For example, longer working hours may make people unhappy because their leisure is reduced. On the contrary, shorter working hours per week may increase leisure and make people happy.

5. Manner of production: The economic welfare also depends on the manner of production of goods and services. If goods are produced by child labour or by exploitation of workers, then the economic welfare cannot increase.

Production Method: This method measures the national income by taking the value of final goods and services produced by the different industrial sectors of the economy.

Steps of Measurement:

i) Classify all the production units- It means grouping production units into different sectors in the domestic (or economic) territory. The production units are classified into primary, secondary and tertiary sectors.

ii) Estimate NVA_FC of each industrial sector by taking the following sub-steps-

(A) Estimate gross value of output: Gross value of output (GVO) is the total worth of goods produced .It can be estimated in two ways:

(a) As sum of sales and net addition to stocks

Value of output = Sales + change in stock

Where, Change in stock = Closing stock – Opening stock

(b) Quantity of output multiplied by price.

Value of output = Price × Quantity

(B) Estimate value of intermediate consumption and deduct the same from gross value of output (GVO) to arrive at GVA_MP.

Gross value added (GVA_MP) = GVO - Intermediate consumption

(C) Estimate consumption of fixed capital (depreciation) and deduct it from GVA_MP to arrive at NVA_MP .

NVA_MP = GVA_MP - consumption of fixed capital (depreciation)

(D) Find out net indirect tax by subtracting subsidies from indirect taxes (NIT= indirect tax – Subsidies) and deduct it from NVA_MP to arrive at NVA_FC of an industrial sector.

NVA _FC = NVA_MP – Net Indirect Tax (NIT)

iii)Take the sum of NVA _FC of all the production units of all the industrial sectors of the economy to get NDP_FC.

NDP_FC =Σ NVA _FC 

iv) Estimate net factor income from abroad and add the same to NDP_FC to get the NNP _FC or national income.

NNP _FC (N.I) = NDP FC + Net factor income from abroad (NFIFA)

Precautions: While estimating national income by the production method / value added method the following precautions must be taken:

i) Avoid double counting of output.

ii) Value of own-account production should be included in total output. 

iii) The value of intermediate goods should not be included. 

iv) Do not include sale of second hand goods.

There are two main kinds of wages- 

(1) Nominal wages and (2) Real wages. The term ‘nominal wages’ refers to money wages. But the term ‘real wages’ refers to the commodities and services that the money wages can provide. The standard of living of workers relies on real wages and not on money wages. Real wages depend on many things like the purchasing power of money, additional benefits the workers get such as free boarding and lodging, regularity of employment, working conditions and so on. Real wage do not always raise with the money wages.