Vajiram & Ravi IAS Prelims GS Test 03 Economics Answer Key
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Questions and Answers

What does Gross Domestic Product (GDP) measure?

  • The total consumer spending within the country
  • The total value of imports and exports
  • The total government spending and investments
  • The monetary value of all final goods and services produced within the country (correct)

    • Which of the following is included in the calculation of Gross Domestic Product (GDP)?

  • The value of all imports
  • The value of all government spending
  • The value of all consumer spending (correct)
  • The value of all exports

    • What does the Gross Domestic Product (GDP) reflect?

  • The total value of consumer and government spending, investments, and exports minus imports (correct)
  • Only the total government spending
  • The total value of all imports and exports
  • The total value of investments

    • How is Gross Domestic Product (GDP) defined?

    <p>The total monetary value of all final goods and services produced within a country within a specific time period</p> Signup and view all the answers

    What is NOT subtracted from the calculation of Gross Domestic Product (GDP)?

    <p>Value of all exports</p> Signup and view all the answers

    Which of the following is NOT a component of Gross Domestic Product (GDP)?

    <p>Value of all imports</p> Signup and view all the answers

    What does Nominal GDP reflect?

    <p>The total value of goods and services produced at current year prices</p> Signup and view all the answers

    What does Real GDP track?

    <p>The total value of goods and services produced at constant prices</p> Signup and view all the answers

    Why is Real GDP considered a more accurate indicator of economic performance?

    <p>Because it adjusts for changes in the price level, providing a measure of the economy's output in constant or inflation-adjusted terms</p> Signup and view all the answers

    In periods of positive inflation, what is the relationship between Real GDP and Nominal GDP?

    <p>Real GDP will always be less than Nominal GDP</p> Signup and view all the answers

    What is the Currency Deposit Ratio (CDR)?

    <p>The ratio of money held by the public in a currency to that they hold in bank deposits</p> Signup and view all the answers

    How does CDR affect inflation?

    <p>It increases inflation as people convert deposits to cash balances</p> Signup and view all the answers

    What does Reserve Deposit Ratio (RDR) represent?

    <p>The proportion of the total deposits that banks keep as reserves</p> Signup and view all the answers

    What is Reserve money composed of?

    <p>Vault cash in banks and deposits of commercial banks with RBI</p> Signup and view all the answers

    Study Notes

    Gross Domestic Product (GDP)

    • Measures the total economic output of a country within a specific time frame.
    • Includes consumption, investment, government spending, and net exports in its calculation.
    • Reflects the economic health and performance of a nation, providing insight into the standard of living.
    • Defined as the monetary value of all finished goods and services produced within a country's borders.
    • Imports are not subtracted in GDP calculations, but exports are added.

    Components of GDP

    • Does NOT include transfer payments like social security or welfare in GDP calculations.
    • Main components consist of consumer spending, business investments, government expenditures, and net exports.

    Types of GDP

    • Nominal GDP reflects the current market prices and does not adjust for inflation.
    • Real GDP tracks the value of goods and services after adjusting for price changes over time.
    • Considered more accurate as it accounts for inflation and provides a clearer view of economic growth.

    Real vs. Nominal GDP

    • In periods of positive inflation, Real GDP typically grows at a slower rate than Nominal GDP, as Nominal GDP may increase more due to rising prices.

    Currency Deposit Ratio (CDR)

    • Represents the proportion of a bank's deposits that customers choose to hold as currency rather than in the bank.
    • Higher CDR can lead to increased inflation, as less money is available for banks to lend.

    Reserve Deposit Ratio (RDR)

    • Indicates the percentage of deposits that banks are required to hold as reserves and not lend out.
    • Reserve money is composed of the total currency in circulation and the reserves held by banks, influencing the money supply in the economy.

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    Check your answers for Vajiram & Ravi Institute's Prelims GS Test 03 Economics with this answer key. Detailed explanations are provided to help you understand the solutions.

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