Recently RBI Governor has warned that Indian economy might be facing Cobra effect. What do you understand by Cobra effect?a)It is the impact of drastic decrease in economic growth due to decline in consumption expenditure in the economy.b)It refers to a situation where an economic program with good intentions only manages to worsen it due to unintended consequences.c)It refers to condition where increasing protectionist policies at global level lead to decline in global trade and exports of a country.d)It refers to the impact of the declining market price levels on the agricultural economy which snowballs into economic slowdown.Correct answer is option 'B'. Can you explain this answer?

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Recently RBI Governor has warned that Indian economy might be facing Cobra effect. What do you understand by Cobra effect?

a)
It is the impact of drastic decrease in economic growth due to decline in consumption expenditure in the economy.
b)
It refers to a situation where an economic program with good intentions only manages to worsen it due to unintended consequences.
c)
It refers to condition where increasing protectionist policies at global level lead to decline in global trade and exports of a country.
d)
It refers to the impact of the declining market price levels on the agricultural economy which snowballs into economic slowdown.

Correct answer is option 'B'. Can you explain this answer?

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Recently RBI Governor has warned that Indian economy might be facing C...

The 'Cobra Effect,‘ was a phenomenon observed in India during the British colonial rule, which is often reckoned as a classic example of perverse incentives. The British were over whelmed by a rising number of poisonous cobras and had to devise a policy to check this problem.

Correspondingly, the government decided to reward any individual who was able to slay a cobra. Although this measure was an outright success, it gradually augmented the breeding and rearing of serpents with the sole motive of killing them for getting a reward.

• A major implication of this effect is the unsolicited outcome of a scheme that was initially proposed with the objective of dealing with a problem plaguing the society. Thus, any policy which is premeditated with a desirable outcome to contend with a difficulty may make things even worse.

• From a macroeconomic perspective this can be explained by using tax amnesty scheme. A tax amnesty scheme involves comprehensive guiding principles concerning the immunity enjoyed by past tax evadersupon truthful reporting of incomes in the present period. Tax amnesty is likely to discourage the public from paying taxes in the present period in anticipation of the next amnesty, which is a moral hazard.

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In a poor country like India, as income rises people first concentrate on increasing their consumption of what they regard as basic or more essential consumer goods. For the poor, these goods would primarily include cereals and for people at successive levels of higher income protective foods, simple non-food consumer goods, more modern, better quality non-food consumer goods and simple consumer durables, better quality consumer goods, and so on. When the demand for basic and more essential consumer goods is more or less met, demand for the next higher level of consumer goods begins to impinge on consumer decision making and their consumption increases. There is thus a hierarchy of income levels and a hierarchy of consumer goods. As incomes rise and one approaches the turning point referred to, there is an upward movement along the hierarchy in the demand for consumer goods which exhibits itself in a relative increase in the demand for these goods. If one examines the past consumption behaviour of households in India, one finds confirmation of the proposition just made. Until the mid seventies one notices a rise in the proportion of consumption expenditure on cereals, and thereafter, a steady decline reflecting a progressive increase in the relative expenditure on non-cereal or protective foods. About the same time the rising trend in the share of food in total consumption expenditure also begins to decline, raising the proportion of expenditure on non-food consumer goods. Simultaneously one also notices a sharper rise in the proportion of expenditure on consumer durables. Thus, what one sees is an upward movement in consumer demand along the hierarchy of consumer goods which amounts to a major change in consumer behaviour.Prices of protective food have risen because

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In a poor country like India, as income rises people first concentrate on increasing their consumption of what they regard as basic or more essential consumer goods. For the poor, these goods would primarily include cereals and for people at successive levels of higher income protective foods, simple non-food consumer goods, more modern, better quality non-food consumer goods and simple consumer durables, better quality consumer goods, and so on. When the demand for basic and more essential consumer goods is more or less met, demand for the next higher level of consumer goods begins to impinge on consumer decision making and their consumption increases. There is thus a hierarchy of income levels and a hierarchy of consumer goods. As incomes rise and one approaches the turning point referred to, there is an upward movement along the hierarchy in the demand for consumer goods which exhibits itself in a relative increase in the demand for these goods. If one examines the past consumption behaviour of households in India, one finds confirmation of the proposition just made. Until the mid seventies one notices a rise in the proportion of consumption expenditure on cereals, and thereafter, a steady decline reflecting a progressive increase in the relative expenditure on non-cereal or protective foods. About the same time the rising trend in the share of food in total consumption expenditure also begins to decline, raising the proportion of expenditure on non-food consumer goods. Simultaneously one also notices a sharper rise in the proportion of expenditure on consumer durables. Thus, what one sees is an upward movement in consumer demand along the hierarchy of consumer goods which amounts to a major change in consumer behaviour.Whenever there is a decline in the proportion of consumption expenditure on cereals

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Recently RBI Governor has warned that Indian economy might be facing Cobra effect. What do you understand by Cobra effect?a)It is the impact of drastic decrease in economic growth due to decline in consumption expenditure in the economy.b)It refers to a situation where an economic program with good intentions only manages to worsen it due to unintended consequences.c)It refers to condition where increasing protectionist policies at global level lead to decline in global trade and exports of a country.d)It refers to the impact of the declining market price levels on the agricultural economy which snowballs into economic slowdown.Correct answer is option 'B'. Can you explain this answer?

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Recently RBI Governor has warned that Indian economy might be facing Cobra effect. What do you understand by Cobra effect?a)It is the impact of drastic decrease in economic growth due to decline in consumption expenditure in the economy.b)It refers to a situation where an economic program with good intentions only manages to worsen it due to unintended consequences.c)It refers to condition where increasing protectionist policies at global level lead to decline in global trade and exports of a country.d)It refers to the impact of the declining market price levels on the agricultural economy which snowballs into economic slowdown.Correct answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Recently RBI Governor has warned that Indian economy might be facing Cobra effect. What do you understand by Cobra effect?a)It is the impact of drastic decrease in economic growth due to decline in consumption expenditure in the economy.b)It refers to a situation where an economic program with good intentions only manages to worsen it due to unintended consequences.c)It refers to condition where increasing protectionist policies at global level lead to decline in global trade and exports of a country.d)It refers to the impact of the declining market price levels on the agricultural economy which snowballs into economic slowdown.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Recently RBI Governor has warned that Indian economy might be facing Cobra effect. What do you understand by Cobra effect?a)It is the impact of drastic decrease in economic growth due to decline in consumption expenditure in the economy.b)It refers to a situation where an economic program with good intentions only manages to worsen it due to unintended consequences.c)It refers to condition where increasing protectionist policies at global level lead to decline in global trade and exports of a country.d)It refers to the impact of the declining market price levels on the agricultural economy which snowballs into economic slowdown.Correct answer is option 'B'. Can you explain this answer?.

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