Daily Static Quiz – 19th January, 2023

Correct Answer : B
Answer Justification :
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 for
retained earnings). So we may be tempted to treat higher level of GDP of a country as an index
of greater well-being of the people of that country (to account for price changes, we may take
the value of real GDP instead of nominal GDP).
But there are at least three reasons why this may not be correct.
1. Distribution of GDP – how uniform is it: If the GDP of the country is rising, the welfare may not rise as a consequence. Hence, statement 1 is incorrect. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased.
2. Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home 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 (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity.
3. Externalities: Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalised). Externalities do not have any market in which they can be bought and sold.

Correct Answer : A
Banks can lend simply because they do not expect all the depositors to withdraw what they
have deposited at the same time. When the banks lend to any person, a new deposit is opened
in that person’s name. Thus money supply increases to old deposits plus new deposit (plus
currency.) Let us take an example. Assume that there is only one bank in the country. Let us
construct a fictional balance sheet for this bank. Balance sheet is a record of assets and
liabilities of any firm. Conventionally, the assets of the firm are recorded on the left-hand side
and liabilities on the right-hand side. Accounting rules say that both sides of the balance sheet
must be equal or total assets must be equal to the total liabilities. Assets are things a firm
owns or what a firm can claim from others. In case of a bank, apart from buildings, furniture,
etc., its assets are loans given to public. When the bank gives out loan of Rs 100 to a person,
this is the bank’s claim on that person for Rs 100. Another asset that a bank has is reserves.
Reserves are deposits which commercial banks keep with the Central bank, Reserve Bank of
India (RBI) and its cash. These reserves are kept partly as cash and partly in the form of
financial instruments (bonds and treasury bills) issued by the RBI. Reserves are similar to
deposits we keep with banks. We keep deposits and these deposits are our assets, they can be
withdrawn by us. Similarly, commercial banks like State Bank of India (SBI) keep their
deposits with RBI and these are called Reserves.
Assets = Reserves + Loans
Liabilities for any firm are its debts or what it owes to others. For a bank, the main
liability is the deposits which people keep with it. Hence, statement 3 is incorrect.
Liabilities = Deposits

Correct Answer : A
Answer Justification :
Open Market Operations refers to buying and selling of bonds issued by the
Government in the open market. This purchase and sale is entrusted to the Central bank on
behalf of the Government. When RBI buys a Government bond in the open market, it pays for it
by giving a cheque. This cheque increases the total amount of reserves in the economy and
thus increases the money supply. Selling of a bond by RBI (to private individuals or
institutions) leads to reduction in quantity of reserves and hence the money supply.
Hence, statement 2 is incorrect.
There are two types of open market operations: outright and repo. Outright open market
operations are permanent in nature: when the central bank buys these securities (thus
injecting money into the system), it is without any promise to sell them later. Similarly, when
the central bank sells these securities (thus withdrawing money from the system), it is without
any promise to buy them later. As a result, the injection/absorption of the money is of
permanent nature.
However, there is another type of operation in which when the central bank buys the security,
this agreement of purchase also has specification about date and price of resale of this
security. This type of agreement is called a repurchase agreement or repo. The interest rate at
which the money is lent in this way is called the repo rate. Similarly, instead of outright sale of
securities the central bank may sell the securities through an agreement which has a
specification about the date and price at which it will be repurchased. This type of agreement
is called a reverse repurchase agreement or reverse repo. The rate at which the money is
withdrawn in this manner is called the reverse repo rate.

Correct Answer : C
All the above statements are correct.
An individual may hold her wealth in the form of landed property, bullion, bonds, money etc.
For simplicity, let us club all forms of assets other than money together into a single category
called bonds. Typically, bonds are papers bearing the promise of a future stream of
monetary returns over a certain period of time. These papers are issued by governments
or firms for borrowing money from the public and they are tradable in the market.
When the interest rate is very high everyone expects it to fall in future and hence anticipates
capital gains from bond-holding. Hence people convert their money into bonds. Thus,
speculative demand for money is low. When interest rate comes down, more and more people
expect it to rise in the future and anticipate capital loss. Thus they convert their bonds into
money giving rise to a high speculative demand for money. Hence speculative demand for
money is inversely related to the rate of interest.

Correct Answer : C
Answer Justification :
National Crisis Management Committee(NCMC):
For effective implementation of relief measures in the wake of natural calamities, the
Government of India has set up a National Crisis Management Committee.
Cabinet Secretary is it’s Chairman. Hence, option (c) is correct.
Other members: Secretaries of all the concerned Ministries /Departments as well as
organizations are the members of the Committee.
The NCMC gives direction to the Crisis Management Group as deemed necessary.

Correct Answer : D
Answer Justification :
India- China Border:
India and China share a 3,488 km long boundary. Unfortunately, the entire boundary is
disputed. The line, which delineates the boundary between the two countries, is popularly
called the McMahon line, after its author Sir Henry McMahon. Hence, option (d) is
correct.
In 1913, the British-India government had called a tripartite conference, in which the
boundary between India and Tibet was formalized after a discussion between the Indian and
the Tibetans. A Convention was adopted, which resulted in the delimitation of the Indo-Tibetan
boundary. This boundary is, however, disputed by China which terms it as illegal.
In 1957, China occupied Aksai Chin and built a road through it. This episode was
followed by intermittent clashes along the border, which finally culminated in the border war
of 1962. The boundary, which came into existence after the war, came to be known as Line of
Actual Control (LAC). It is a military held line.

Correct Answer : A
Answer Justification :
ISRO’s Shukrayaan:
Context:
The Indian Space Research Organisation (ISRO) has short-listed 20 space-based
experiment proposals for its proposed Venus orbiter mission ‘Shukrayaan’.
About Shukrayaan:
It is a mission to study Venus for more than four years.
Scientific objectives: Investigation of the surface processes and shallow subsurface
stratigraphy; and solar wind interaction with Venusian Ionosphere, and studying the structure,
composition and dynamics of the atmosphere.
The satellite is planned to be launched onboard GSLV Mk II rocket. Hence, statement
3 is incorrect.
The proposed orbit is expected to be around 500 x 60,000 km around Venus. This orbit is
likely to be reduced gradually, over several months to a lower apoapsis (farthest point).
Why study Venus?
Venus is often described as the “twin sister” of the Earth because of the similarities in
size, mass, density, bulk composition and gravity.
It is believed that both planets share a common origin, forming at the same time out of a
condensing nebulosity around 4.5 billion years ago.
Venus is around 30 per cent closer to the Sun as compared to Earth resulting in
much higher solar flux.
The payload capability of the proposed 2500-kg satellite, planned to be launched
onboard GSLV Mk II rocket, is likely to be 175 kg with 500W of power.

Correct Answer : A
Answer Justification :
Every currency note bears on its face a promise from the Governor of RBI that if someone
produces the note to RBI, or any other commercial bank, RBI will be responsible for giving the
person purchasing power equal to the value printed on the note. The same is also true of coins.
Currency notes and coins are therefore called fiat money. They do not have intrinsic
value like a gold or silver coin. They are also called legal tenders as they cannot be
refused by any citizen of the country for settlement of any kind of transaction. Hence,
statement 2 is incorrect.
Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode
of payment. Hence, demand deposits are not legal tenders.

Correct Answer : A
Answer Justification :
Money supply, like money demand, is a stock variable. The total stock of money in
circulation among the public at a particular point of time is called money supply. RBI
publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
They are defined as follows
M1 = CU + DD
M2 = M1 + Savings deposits with Post Office savings banks
M3 = M1 + Net time deposits of commercial banks
M4 = M3 + Total deposits with Post Office savings organizations (excluding
National Savings Certificates)
where, CU is currency (notes plus coins) held by the public and DD is net demand deposits
held by commercial banks. The word ‘net’ implies that only deposits of the public held by the
banks are to be included in money supply. The interbank deposits, which a commercial bank
holds in other commercial banks, are not to be regarded as part of money supply.
M1 and M2 are known as narrow money. Hence, statement 2 is incorrect.
M3 and M4 are known as broad money. These measures are in decreasing order of liquidity.
M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most
commonly used measure of money supply. It is also known as aggregate monetary resources.

Correct Answer : A
Government provides certain goods and services which cannot be provided by the market
mechanism i.e. by exchange between individual consumers and producers. Examples of such
goods are national defence, roads, government administration etc. which are referred to as
public goods. To understand why public goods need to be provided by the government, we
must understand the difference between private goods such as clothes, cars, food items etc.
and public goods. There are two major differences. One, the benefits of public goods are
available to all and are not only restricted to one particular consumer. For example, if a person
eats a chocolate or wears a shirt, these will not be available to others. It is said that this
person’s consumption stands in rival relationship to the consumption of others. However, if we
consider a public park or measures to reduce air pollution, the benefits will be available to all.
One person’s consumption of a good does not reduce the amount available for consumption for
others and so several people can enjoy the benefits, that is, the consumption of many people is
not ‘rivalrous’.

Two, in case of private goods anyone who does not pay for the goods can be excluded from
enjoying its benefits. If you do not buy a ticket, you will not be allowed to watch a movie at a
local cinema hall. However, in case of public goods, there is no feasible way of excluding

anyone from enjoying the benefits of the good. That is why public goods are called non-
excludable. Even if some users do not pay, it is difficult and sometimes impossible to collect
fees for the public good. These nonpaying users are known as ‘free-riders’. Consumers will not
voluntarily pay for what they can get for free and for which there is no exclusive title to the
property being enjoyed. The link between the producer and consumer which occurs through
the payment process is broken and the government must step in to provide for such goods.
Public goods, as distinct from private goods, are collectively consumed. Two
important features of public goods are – they are non-rivalrous in that one person can
increase her satisfaction from the good without reducing that obtained by others and
they are non-excludable, and there is no feasible way of excluding anyone from
enjoying the benefits of the good. These make it difficult to collect fees for their use
and private enterprise will in general not provide these goods. Hence, they must be
provided by the government. Hence, statement 2 is incorrect.