Indian Economy GK Questions with Answers – Page 34

Engel's law, named after the nineteenth century statistician Ernst Engel, says that the share of a household's spending that goes on food falls as its income rises, even though the amount spent on food may well go up.

The cash reserve ratio is the proportion of a bank's net demand and time liabilities that it must keep as cash with the Reserve Bank of India, on which it earns no interest, and the statutory liquidity ratio is the proportion it must maintain in its own hands in the…

The Lorenz curve plots the cumulative share of income against the cumulative share of population, so a straight diagonal would mean perfect equality and the more the curve sags away from that line the greater the inequality.

It is the hardest condition for policy to handle, because the remedy for inflation is to squeeze demand while the remedy for unemployment is to expand it, so no single step cures both; the classic episode followed the oil price shocks of the nineteen seventies.

The fiscal deficit of a year contains the cost of servicing past borrowing as well as fresh spending, so taking out interest payments leaves the primary deficit, which shows how far the present year's expenditure exceeds its receipts on its own account.

Gross domestic product counts what is produced inside the domestic territory, whoever produces it, while gross national product counts what is produced by the normal residents of the country, wherever they are; the bridge between them is net factor income from abroad, which is the income Indians earn abroad minus…

Indian statistical practice treats persons aged fifteen to fifty-nine years as the working age population, and the labour force is made up of those among them who are either working or seeking and available for work.

The repo rate is the rate at which the Reserve Bank of India lends short-term money to commercial banks against the collateral of government securities under a repurchase agreement, which is where the name repo comes from; it is the policy rate announced by the Monetary Policy Committee and the…

It arises when the structure of the economy changes, so that the jobs being created need skills different from those the available workers possess; it lasts long and is cured by retraining and education rather than by a revival of demand.

Disguised unemployment, also called hidden unemployment, exists where more persons are engaged in a job than are actually needed, so withdrawing one of them would not reduce output at all; that worker's marginal contribution is therefore zero.

In his Principles of Economics he defined consumer surplus as the difference between what a buyer is willing to pay for a good and what he actually pays, and he also gave the standard measure of elasticity of demand, which is why his name attaches to both ideas.

A duopoly is the limiting case of oligopoly in which only two firms supply the whole market, so each one frames its price and output with a direct eye on the other.

A monopoly is a market with one seller whose product has no close substitute, so the firm is the industry and is a price maker: it chooses the price and lets the market decide the quantity, or the reverse.

The market clears where the demand and supply curves cut each other, that is where the quantity buyers wish to buy is exactly the quantity sellers wish to sell; the price there is the equilibrium price and the quantity the equilibrium quantity.

A higher price covers the rising cost of producing extra units and promises a larger profit, so sellers offer more, and the supply curve therefore rises from left to right.

Elasticity is the percentage change in quantity divided by the percentage change in price; if the numerator is zero the whole value is zero, and the demand curve becomes a vertical straight line.

When only the price of the good itself changes, the buyer simply moves to another point on the same demand curve, and a move to a larger quantity at a lower price is called an extension of demand, while the reverse is a contraction.

The law of demand records an inverse relationship: at a higher price buyers take less of a good and at a lower price they take more, which is why the demand curve slopes downward from left to right.

Robert Giffen observed that when the price of a cheap staple such as coarse bread fell, poor families did not buy more of it but less, because the saving let them shift to a better food; such inferior goods are therefore called Giffen goods and their demand curve slopes upward.

This form, analysed by Edward Chamberlin, keeps two features of perfect competition, a large number of firms and free entry and exit, but drops the third: each firm sells a differentiated or branded product, so it faces a downward sloping demand curve and has a little control over its own…