Which one of the following is a good statistic to evaluate where an economy stands in the financial cycle ?
- A.Tax/GDP Ratio
- B.Fiscal Deficit/GDP Ratio
- C.Household Consumption/GDP Ratio
- D.Credit/GDP Ratio
Correct answer
Explanation
The correct answer is D, Credit/GDP Ratio. The financial cycle is the rise and fall of credit and asset prices, and the ratio of credit to GDP shows how far borrowing has run ahead of the economy.
Economists at the Bank for International Settlements found that the gap between the credit-to-GDP ratio and its long-term trend is one of the best early signs of a credit boom and of later banking stress. Under the Basel III rules this credit-to-GDP gap guides the countercyclical capital buffer that banks must build in good times. The Economic Survey of India also uses it to judge the phase of the financial cycle.
A is wrong because the tax-to-GDP ratio measures the government's revenue effort, not credit conditions. B is wrong because the fiscal deficit ratio describes the state of public finances. C is wrong because household consumption relative to GDP reflects spending patterns, not the build-up of debt and leverage.
Exam tip: financial cycle means credit and asset prices; track it with the credit-to-GDP gap used for Basel III buffers.
Practice Questions
View allWhich one of the following canons of taxation was not advocated by Adam Smith?
- A.Canon of equality
- B.Canon of certainty
- C.Canon of convenience
- D.Canon of fiscal adequacy
Show answer
Adam Smith laid down four canons of taxation, and fiscal adequacy was not one of them; it was added by later economists.
Read the full explanation →According to John Maynard Keynes, employment depends upon
- A.aggregate demand
- B.aggregate supply
- C.effective demand
- D.rate of interest
Show answer
In Keynes's theory the level of employment in an economy is fixed by effective demand, the level of total spending at which aggregate demand equals aggregate supply.
Read the full explanation →Which one of the following statements about Mission Indradhanush, launched by the Government of India in 2014, is correct ?
- A.It relates to provisions for Child Health Screening and Early Intervention Services.
- B.It meets the diverse health needs of adolescents.
- C.It aims to increase the full immunisation coverage for children.
- D.Its objective is to achieve universal access to equitable, affordable, and quality healthcare services.
Show answer
Mission Indradhanush aims to raise full immunisation coverage among children, and it also covers pregnant women. The Ministry of Health and Family Welfare launched it on 25 December 2014 to reach children who had been left out or only partly vaccinated under the routine Universal Immunisation Programme.
Read the full explanation →Which one of the following hypotheses postulates that individual's consumption in any time period depends upon resources available to the individual, rate of return on his capital and age of the individual?
- A.Absolute Income Hypothesis
- B.Relative Income Hypothesis
- C.Life Cycle Hypothesis
- D.Permanent Income Hypothesis
Show answer
Proposed by Franco Modigliani with Richard Brumberg and Albert Ando, it holds that a person plans consumption over a whole lifetime, using available resources, the return on wealth and age.
Read the full explanation →Which of the following statements about 'Saansad Adarsh Gram Yojana' (SAGY) is/are correct?
1. It comes under the Ministry of Parliamentary Affairs, Government of India.
2. It was launched in 2014 on the birth anniversary of Jayaprakash Narayan.
3. Mahatma Gandhi's vision of Gram Swaraj is the inspiration behind this scheme.
Select the answer using the codes given below :
- A.1 and 2 only
- B.2 and 3 only
- C.1, 2 and 3
- D.1 only
Show answer
SAGY is run by the Ministry of Rural Development, not the Ministry of Parliamentary Affairs, so statement 1 is wrong.
Read the full explanation →