All questions of Nature of Indian Economy for BPSC (Bihar) Exam

The correct answer is option C - Discretionary fiscal policy.

Explanation:
Discretionary fiscal policy refers to the deliberate actions taken by the government to adjust its spending levels and tax rates with the goal of stabilizing the economy. Unlike automatic stabilizers, which are built into the fiscal system and automatically respond to changes in economic conditions, discretionary fiscal policy requires conscious decisions and actions by policymakers.

Here is a detailed explanation of discretionary fiscal policy:

1. Definition:
- Discretionary fiscal policy refers to the use of government spending and taxation measures to influence the overall state of the economy.
- It involves active decision-making and policy implementation by the government to counteract economic fluctuations.

2. Purpose:
- The primary goal of discretionary fiscal policy is to stabilize the economy during periods of recession or inflation.
- It aims to influence aggregate demand, employment levels, and overall economic growth.

3. Tools of Discretionary Fiscal Policy:
- Government spending: The government can increase or decrease its spending on various sectors, such as infrastructure, healthcare, education, etc., to stimulate or restrain economic activity.
- Taxation: The government can adjust tax rates, exemptions, and deductions to encourage or discourage consumer spending and business investment.

4. Expansionary Fiscal Policy:
- During a recession or economic downturn, the government can implement expansionary fiscal policy.
- This involves increasing government spending and/or reducing taxes to boost aggregate demand and stimulate economic growth.
- By increasing spending, the government creates jobs, increases consumer purchasing power, and encourages investment.

5. Contractionary Fiscal Policy:
- During periods of high inflation or economic overheating, the government can implement contractionary fiscal policy.
- This involves reducing government spending and/or increasing taxes to reduce aggregate demand and control inflationary pressures.
- By reducing spending and increasing taxes, the government aims to slow down the economy and reduce inflationary pressures.

6. Limitations of Discretionary Fiscal Policy:
- Time lags: Implementing discretionary fiscal policy measures takes time, and their impact may not be immediate.
- Political constraints: The effectiveness of discretionary fiscal policy can be influenced by political considerations and the ability to gain consensus.
- Economic forecasting challenges: Accurately predicting the state of the economy and determining the appropriate policy measures can be challenging.

In conclusion, discretionary fiscal policy refers to the deliberate actions taken by the government to stabilize the economy by adjusting its spending levels and tax rates. It is an active approach that requires conscious decision-making and policy implementation to counteract economic fluctuations.

The correct answer is option 'B': Nominal exchange rate.

Explanation:
Exchange rates refer to the value of one currency in terms of another currency. They are used to determine the relative value of different currencies in international trade and investment. Exchange rates fluctuate constantly due to various factors such as supply and demand, interest rates, inflation, and government policies.

There are two types of exchange rates:
1. Nominal Exchange Rate: The nominal exchange rate is the rate at which one currency can be exchanged for another currency. It represents the current market value of one currency in terms of another. For example, if the nominal exchange rate between the US dollar and the euro is 1.20, it means that 1 US dollar can be exchanged for 1.20 euros.

2. Real Exchange Rate: The real exchange rate takes into account the differences in inflation rates between two countries. It is calculated by adjusting the nominal exchange rate for the relative price levels of the two countries. The real exchange rate reflects the purchasing power of a currency in terms of another currency. It is used to compare the cost of goods and services between countries.

The real exchange rate is influenced by factors such as inflation differentials, productivity levels, terms of trade, and non-tradable goods. It is an important indicator of a country's competitiveness in international trade. A higher real exchange rate indicates a relatively higher cost of goods and services in a country compared to its trading partners, making its exports more expensive and imports cheaper.

In summary, exchange rates for one currency against another currency are known as nominal exchange rates. Real exchange rates, on the other hand, take into account differences in inflation rates and reflect the purchasing power of a currency. Both nominal and real exchange rates play a crucial role in international trade and investment.

 

• GNP is the 'national income' according to which the IMF ranks the nations of the world in terms of the volumes—at purchasing power parity (PPP). 
• India is ranked as the 3rd largest economy of the world (after China and the USA), while as per the nominal/ prevailing exchange rate of the rupee, India is the 7th largest economy (IMF, April 2016). Now such comparisons are done using the GDP, too.

A

Incorrect Statements about Capitalism and Communism

Capitalism and communism are two different economic systems that have been widely debated and compared. They have different principles and objectives that affect the way businesses and individuals operate within the economy. The incorrect statements about capitalism and communism are:

2. Communism allows for free market
3. Capitalism, in theory, spreads wealth evenly
4. Communism encourages entrepreneurship

Explanation:

1. Capitalism allows private property:
- Private property is the foundation of capitalism. In a capitalist economy, individuals have the right to own and control property, including businesses, factories, and land. This right to private property is protected by law and is essential for the functioning of a market economy.

2. Communism allows for free market:
- This statement is incorrect. Communism is a type of economic system where the government owns and controls all property and resources. There is no private ownership, and the government decides what gets produced and how it is distributed. There is no free market in communism.

3. Capitalism, in theory, spreads wealth evenly:
- This statement is incorrect. Capitalism is based on the principle of individualism, where the pursuit of self-interest drives economic activity. While capitalism can generate wealth, it does not guarantee that this wealth will be distributed evenly. In fact, capitalism often results in income inequality, where a small percentage of the population holds a significant portion of the wealth.

4. Communism encourages entrepreneurship:
- This statement is incorrect. In communism, the government controls all economic activity, including entrepreneurship. There is no incentive for individuals to start their own businesses or innovate since the government controls all resources and production.

Conclusion:

In conclusion, while capitalism and communism are two different economic systems, they both have their strengths and weaknesses. It is essential to understand the fundamental principles of both systems to make informed decisions about economic policies and strategies.

Ascending order of countries of HDI ranking 2019 are as follows:
Pakistan(152 rank)-Nepal(147 rank)-Myanmar(145rank)-Bhutan(134rank)-China(85rank)-Sri Lanka(71 rank)

Correct answer is option 'A'

Correct option d hai toh mera test mai wrong kyu kiya....?

Private Goods and Military

Private goods are those that are both excludable and rivalrous in consumption. Excludable means that the good can be restricted to a particular group of people. Rivalrous means that the consumption of the good by one person reduces the availability of the same good for others. Here, military is not an example of a private good because it is a public good. Public goods are those goods that are non-excludable and non-rivalrous.

Explanatory Points

- Private goods are those goods that are both excludable and rivalrous in consumption.
- Excludable means that the good can be restricted to a particular group of people.
- Rivalrous means that the consumption of the good by one person reduces the availability of the same good for others.
- Examples of private goods include clothes, cars, and food items.
- Military is not an example of a private good because it is a public good.
- Public goods are those goods that are non-excludable and non-rivalrous.
- Examples of public goods include national defense, public parks, and street lighting.

Conclusion

In conclusion, military is not an example of a private good because it is a public good. Private goods are excludable and rivalrous, while public goods are non-excludable and non-rivalrous. It is important to understand the distinction between private and public goods in order to make informed decisions about resource allocation and public policy.

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. It is characterized by features such as limited role of the government in economic activities, freedom of competition, efficiency, innovation, and creativity. However, a classless society is not a feature of capitalism as it is characterized by a hierarchical social structure based on income and wealth.

Features of Capitalism:

1. Limited role of the government in economic activities: In a capitalist economy, the government's role is limited to providing a legal framework, protecting property rights, and enforcing contracts. The government does not intervene in economic activities such as production, distribution, and pricing.

2. Freedom of competition: Capitalism is characterized by the freedom of competition, which means that businesses are free to operate in a competitive market, and consumers have the freedom to choose the products and services they want to buy.

3. Efficiency, innovation, and creativity: Capitalism encourages efficiency, innovation, and creativity as businesses compete to produce goods and services that are better and cheaper than their competitors. This competition drives innovation and efficiency, leading to economic growth and development.

4. Private ownership of the means of production: In a capitalist economy, the means of production are owned and controlled by private individuals or businesses. This includes land, factories, and other resources used to produce goods and services.

Conclusion:

In conclusion, a classless society is not a feature of capitalism, as it is characterized by income and wealth inequality. Capitalism is an economic system based on the private ownership of the means of production, limited role of the government in economic activities, freedom of competition, and efficiency, innovation, and creativity.

Overview of the Statements
The question revolves around the emergence of mixed economies and the evolving stance of the World Bank regarding state intervention in the economy.

Statement-I Analysis
- **Mixed Economic System**:
- The late 1930s saw the rise of mixed economic systems, primarily as a response to the Great Depression.
- Market economies adopted various policies inspired by non-market economies (e.g., socialism) to stabilize and recover from severe economic downturns.
- This blend aimed to combine the efficiency of market mechanisms with social welfare principles.

Statement-II Analysis
- **World Bank's Shift**:
- The World Bank initially promoted free market principles as the primary means for economic development.
- However, recognizing the complexities of economic realities, it gradually acknowledged the necessity of state intervention.
- This shift reflected an understanding that government involvement could play a crucial role in economic stabilization and growth, especially in developing nations.

Conclusion
- **Correctness of Statements**:
- Both statements are accurate. Statement-I describes the historical context of mixed economies emerging to address the Great Depression.
- Statement-II explains the World Bank's evolving perspective, which aligns with the trends in economic policy during that era.
- **Explanation Link**:
- Statement-II elucidates the rationale behind the emergence of mixed economies in Statement-I, as both reflect a broader recognition of the need for state intervention in economic affairs to ensure recovery and stability.
In summary, the correct answer is option 'A' as both statements are correct, and Statement-II effectively explains the context of Statement-I.

Explanation:

Statement-I:
- GDP serves as a widely-used metric for comparing global economies.
- The IMF ranks nations based on GDP sizes.
- It is a commonly accepted practice to use GDP as a measure of economic size and strength.

Statement-II:
- India presently ranks as the world's fifth-largest economy at exchange rates and third-largest at purchasing power parity (PPP).
- This indicates that India's economic size and strength are significant on a global scale.
- The ranking based on GDP at exchange rates and PPP provides different perspectives on India's economic standing.

Conclusion:
- Both Statement-I and Statement-II are correct, as they provide insights into the significance of GDP in comparing global economies and India's current economic ranking.
- However, Statement-II does not directly explain Statement-I, as it focuses on India's specific position in the global economy rather than the general use of GDP as a metric.

The Economist who developed Human Development Index (HDI) is Mahbub Ul Haq.

Mahbub Ul Haq was a Pakistani economist who served as the Finance Minister of Pakistan in the 1980s. He was a strong advocate of human development and believed that GDP alone was not a sufficient measure of development. He developed the Human Development Index (HDI) in collaboration with Amartya Sen, an Indian economist, in 1990.

What is Human Development Index (HDI)?

The Human Development Index (HDI) is a composite statistic of life expectancy, education, and per capita income indicators, which are used to rank countries into four tiers of human development. It was developed as an alternative to the traditional economic measures of Gross Domestic Product (GDP) and Gross National Product (GNP), which only measure economic progress and do not take into account the social and human aspects of development.

How is HDI calculated?

The HDI is calculated using three dimensions of human development: health, education, and income. It takes into account the following indicators:

1. Life expectancy at birth
2. Mean years of schooling
3. Expected years of schooling
4. Gross national income (GNI) per capita

These indicators are combined to create a single index value ranging from 0 to 1, with a higher value indicating higher human development.

Conclusion:

Mahbub Ul Haq's contribution to the field of economics and development is significant. His work on human development and the creation of HDI has helped shift the focus of development policies from economic growth to a more holistic approach that considers the social and human aspects of development. The HDI is now widely used by governments, international organizations, and researchers as a measure of development and progress.

Distribution Function of Government

The distribution function of government refers to the role of a government to fairly share the public's resources among its citizens. It is a fundamental responsibility of a government to ensure that its citizens have access to the basic necessities of life such as food, shelter, clothing, and healthcare.

Importance of Distribution Function

The distribution function is important for ensuring social justice and reducing inequality in society. It ensures that the benefits of economic growth are shared by all citizens, not just a privileged few. It also helps to reduce poverty and improve the standard of living of the most vulnerable sections of society.

Methods of Distribution Function

The government can perform the distribution function through various methods such as:

1. Progressive taxation: The government can use a progressive tax system, where those with higher incomes pay a higher percentage of their income in taxes. The revenue generated from taxes can be used to fund social welfare programs that benefit the less fortunate members of society.

2. Subsidies: The government can provide subsidies to support low-income households with basic necessities such as food, housing, and healthcare.

3. Public services: The government can provide free or subsidized public services such as education, healthcare, and transportation to ensure that everyone has access to these services regardless of their income.

4. Social welfare programs: The government can implement social welfare programs such as unemployment benefits, old-age pensions, and disability allowances to support those who are unable to work or earn a livelihood.

Conclusion

In conclusion, the distribution function of government is a crucial role that ensures the equitable distribution of resources among its citizens. It is important for reducing poverty, promoting social justice, and improving the standard of living of the most vulnerable members of society.

"concept" refers to a general idea or understanding of something, often in the form of an abstract or mental construct. It can be a theoretical or practical notion that helps people to categorize, understand, or explain different aspects of the world around them. Concepts can be used to create models, theories, or frameworks that describe the relationships among different phenomena or objects. They can be applied in various fields such as philosophy, psychology, linguistics, biology, mathematics, and many others. Overall, the concept of "concept" plays a crucial role in human cognition and communication by providing a shared language and understanding of the world.

Explanation:
1. Statement 1:
- When national income is calculated at 'Factor Cost', it means that indirect taxes are not included in the calculation.
- Therefore, there is no need to deduct indirect taxes from the national income as they are not a part of it.
2. Statement 2:
- Since the national income is being derived at 'Factor Cost', the government's income from indirect taxes is not added to the national income.
- This is because indirect taxes are not considered as a part of the national income when calculated at 'Factor Cost'.
Therefore, Statement 2 is correct. The government does not have to add their income accruing from indirect taxes to the national income when it is being derived at 'Factor Cost'.

GDP at market cost in constant prices is considered as the official GDP of India

Explanation:

Gross Domestic Product (GDP) is the total value of all final goods and services produced within the domestic territory of a country in a given period of time. GDP is an important indicator of the economic health of a country. In India, the Central Statistical Office (CSO) under the Ministry of Statistics and Programme Implementation (MOSPI) is responsible for estimating GDP.

There are two methods of calculating GDP - the factor cost method and the market cost method. The factor cost method measures the value of goods and services at the production stage, while the market cost method measures the value of goods and services at the market prices.

In India, the official GDP is calculated using the market cost method in constant prices. Constant prices refer to a base year, against which the prices of goods and services in the current year are compared. This is done to remove the effect of inflation on GDP.

The use of market cost method in constant prices gives a more accurate picture of the real growth of the economy, as it takes into account the changes in both prices and production levels. This method also allows for international comparisons of GDP, as it provides a standard measure of economic output across countries.

In conclusion, the official GDP of India is calculated using the market cost method in constant prices. This method provides a more accurate picture of the real growth of the economy and allows for international comparisons of GDP.

The Human Development Index (HDI) is a composite index developed by the United Nations Development Programme (UNDP). It measures the average achievements of countries in three dimensions of human development: a long and healthy life, access to education, and a decent standard of living. The HDI is released annually, with the latest report being the 2019 edition.

The number of countries covered in the HDI of 2019 is 189. This means that the HDI covers a vast majority of the world's nations. The report provides a snapshot of the state of human development across the globe and highlights areas where progress has been made and where more work is needed.

The HDI is a valuable tool for policymakers, researchers, and development practitioners as it provides insights into the factors that contribute to human development and helps identify areas where interventions can be most effective. The index also serves as a benchmark against which countries can measure their progress over time.

In conclusion, the HDI of 2019 covers 189 countries and provides a comprehensive picture of human development across the globe. It is an important tool for shaping policies and interventions aimed at improving the lives of people around the world.

Capitalism is the economic system that led to an increase in inequality, class conflicts, and economic depressions.

Explanation:

Capitalism is an economic system in which private individuals or businesses own and control the means of production and distribution of goods and services. The main goal of capitalism is to maximize profits and accumulate wealth. This system has been criticized for its negative effects on society, including the following:

1. Inequality: Capitalism often leads to a widening gap between the rich and the poor. The wealthy individuals or businesses have more resources and opportunities to accumulate wealth, while the poor struggle to make ends meet. This results in unequal access to resources, education, healthcare, and other basic needs.

2. Class conflicts: The unequal distribution of wealth and resources often leads to class conflicts between the rich and the poor. The rich use their power and influence to maintain their position and protect their interests, while the poor struggle to gain equal rights and opportunities.

3. Economic depressions: Capitalism is prone to economic cycles of growth and recession. During economic booms, businesses and individuals accumulate wealth and invest in new projects. However, during economic downturns, businesses may fail, jobs may be lost, and the economy may contract. This results in economic depressions that can have severe impacts on society.

In conclusion, capitalism is an economic system that has led to an increase in inequality, class conflicts, and economic depressions. While it has some benefits, such as promoting innovation and entrepreneurship, it also has negative effects on society that need to be addressed.

From 1870 till 1st world war.