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 (B)</p> Signup and view all the answers

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

<p>Value of all exports (A)</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 (B)</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 (D)</p> Signup and view all the answers

What does Real GDP track?

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

How does CDR affect inflation?

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

Flashcards

Gross Domestic Product (GDP)

The monetary value of all final goods and services produced within a country.

Components of GDP

Includes consumer spending, government spending, investments, and exports minus imports.

Nominal GDP

The total value of goods and services produced at current year prices.

Real GDP

The total value of goods and services produced at constant prices.

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Inflation and GDP Relationship

In positive inflation, Real GDP is always less than Nominal GDP.

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Currency Deposit Ratio (CDR)

The ratio of money held by the public in a currency to that held in bank deposits.

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Effect of CDR on Inflation

Increases inflation as people convert deposits to cash balances.

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Reserve Deposit Ratio (RDR)

The proportion of total deposits banks keep as reserves.

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Reserve Money

Composed of vault cash in banks and deposits of commercial banks with the RBI.

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GDP Definition

Total monetary value of all final goods and services produced within a country in a specific time period.

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Consumer Spending

The value of all expenditures made by households on goods and services.

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Government Spending

Expenses made by the government to purchase goods and services.

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Exports vs Imports in GDP

Value of all exports is included; value of imports is not subtracted from GDP.

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Economic Performance Indicator

Real GDP is a more accurate measure as it adjusts for price level changes.

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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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