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Questions and Answers
What does pro-cyclical quitting imply about job turnover?
In which phase of the business cycle does countercyclical firing typically occur?
How does Cyclical Unemployment relate to the business cycle?
What might cause a reduction in demand-pull inflation in the long run?
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What external factor is most likely to contribute to increased unemployment rates?
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What is the relationship between the demand for higher education and economic conditions according to the content?
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Which method of measuring unemployment is considered the most liberal?
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What action is commonly associated with government responses to high unemployment rates?
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What is the unemployment rate associated with frictional and structural unemployment called?
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During times of economic expansion, the unemployment rate may fall below what is described as the natural rate due to which aspect?
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What type of unemployment occurs when there is a skills mismatch due to structural changes in the economy?
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What economic phenomenon occurs when demand for goods increases, leading to potential overheating of the economy?
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Which of the following events is NOT associated with increasing business confidence during economic difficulties?
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What is the usual rule of thumb for what percentage of unemployment is considered natural in the Western world?
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What is the term for unemployment that arises when individuals are temporarily between jobs?
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Which of the following would be a likely outcome of an increase in 'animal spirits' in the economy?
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What is the primary function of monetary policy as adopted by a central bank?
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What is contractionary monetary policy primarily aimed at achieving?
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How can the RBI stimulate the economy during recessionary periods?
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Which of the following is NOT a method by which the RBI can address a recession?
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What can result from unrestrained use of a central bank's monetary policy?
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What happens to cyclical unemployment when the economy is in a recession?
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Which action would NOT enable banks to generate more loans during a recession?
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Which country is NOT part of the European PIIGS group?
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What is the primary effect of the RBI purchasing government securities through OMO?
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How does the increase in the price of government securities from Rs 100 to Rs 120 affect the interest rate for new buyers?
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What role does the liquidity adjustment facility (LAF) play for commercial banks?
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What occurs when the RBI engages in an open market operation (OMO) to buy government securities?
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What does the 'repo rate' signify in the context of RBI's interactions with commercial banks?
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Why do commercial banks engage in the repurchase agreement (Repo) with RBI?
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What happens to the availability of loans in the market when the RBI increases the money supply?
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What is the consequence of a fallen market interest rate due to RBI's OMO?
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What was one of the primary goals of the RBI's expansionary monetary policy?
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What economic condition did India experience in 2011 as described in the content?
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Which policy was implemented when the economy experienced high GDP growth but also high inflation?
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What factor was NOT mentioned as contributing to the loss of business confidence in India?
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What was the consequence of the RBI increasing the repo rate multiple times?
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What do cost-push inflation and deficient demand indicate in an economy?
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What was the change in India's GDP growth rate from 2008 to 2009?
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What economic issue arises when price rises are not concerning due to deficient demand?
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Study Notes
The Socio-Economic and Political Environment in India
- Corruption scandals like the 2G spectrum case, the Radia phonetapping episode, and the multi-brand FDI in retail bill negatively impacted India's socio-economic and political environment.
- The government needs to reassure industry stakeholders, provide good governance, create a favorable environment, and boost business confidence.
Unemployment
- A higher GDP leads to more employment.
- The unemployment rate is the percentage of the workforce involuntarily unemployed.
- Frictional Unemployment: Occurs when people are between jobs or are recent graduates.
- Structural Unemployment: Occurs due to mismatches between skills required for vacancies and the available workforce, leading to a need for retraining or relocating workers.
- Natural Rate of Unemployment: The unemployment rate associated with frictional and structural unemployment. Full employment of resources is achieved at this rate (generally 4-5% in Western economies).
Demand-Pull Inflation
- Demand-Pull Inflation: Occurs when demand for goods and services outpaces supply, leading to rising prices.
- This can happen during an economic boom, leading to overworking factors of production and potentially exceeding the natural rate of unemployment.
- Higher turnover and job switching can also occur during this period.
- While this can initially boost economic growth, it can lead to rapid inflation.
- In the long run, production capacities may expand, technology may improve, and inflation may subside.
- The government and the Reserve Bank of India (RBI) can implement policies to curb demand-pull inflation.
The Downswing of the Business Cycle
- During economic downturns, business confidence decreases, leading to reduced demand for goods and services.
- Unemployment increases beyond the natural rate as firms cut back on production and lay off employees.
- Cyclical Unemployment: Unemployment associated with economic booms and busts.
- Job terminations are often countercyclical, occurring primarily during economic downturns.
- The demand for higher education may be countercyclical, as individuals with lost jobs may pursue skill-enhancement during economic recessions due to lower opportunity costs.
- Government intervention through fiscal and monetary policies is needed to address unemployment.
Unemployment Data in India
- Unlike the US, which has monthly unemployment data since 1940, India provides unemployment data only every five years.
- The data is based on three methods: Usual Principal Status (UPS), Current Weekly Status (CWS), and Current Daily Status (CDS). UPS is the most inclusive, followed by CWS and CDS.
Government Debt and Economic Hardship
- European countries designated as PIIGS (Portugal, Italy, Ireland, Greece, and Spain) face challenges in repaying their debts.
- Greece’s public debt exceeded 142 percent in 2010, leading to economic hardship both domestically and globally.
- Governments may struggle to reduce spending even during economic booms, highlighting the challenges of managing public finances.
The Role of the Reserve Bank of India (RBI)
- The RBI, India's central bank, strives to prevent extreme economic booms and busts through its independent monetary policies.
- Monetary Policy: The RBI uses monetary policy tools to influence money supply, GDP, employment, and inflation.
- Expansionary Monetary Policy: Implemented to stimulate economic growth and reduce unemployment during recessions.
- Contractionary Monetary Policy: Implemented to control inflation during economic booms.
Tools of Monetary Policy
- CRR and SLR: The RBI can adjust the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) to influence bank lending capacity. Lowering these ratios increases readily available cash for banks, leading to more lending and a higher money supply.
- Open Market Operations (OMO): The RBI can buy or sell government securities to alter the money supply and influence interest rates. Buying securities injects money into the system, while selling securities withdraws money from the system.
- Repo Rate: The RBI uses the Repo Rate (Repurchase Agreement Rate) as a tool to influence short-term borrowing costs for commercial banks. A lower repo rate encourages borrowing and increases liquidity in the market.
Stagflation in India (2011)
- Stagflation: A situation characterized by simultaneous inflation and unemployment.
- In 2011, India experienced stagflation due to a combination of cost-push inflation, weak demand, and economic slowdown.
- The RBI increased the repo rate multiple times to curb spending and inflation.
- The 2G spectrum scam and other corruption scandals further weakened business confidence, contributing to the economic slowdown.
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Description
Test your knowledge on the socio-economic and political environment in India, including key issues like corruption, unemployment, and economic policies. Explore the different types of unemployment and their impact on the workforce. This quiz will help you understand the challenges and the necessity for good governance in India.
