19th January, 2022 – Static Quiz

Answer:(a)
Higher economic growth comes from
• Additional investment, or
• Increase in capacity utilization of the capital stock (factory)
When economic growth comes from new investment then generally more jobs are created but when economic growth comes from better utilization of the existing capacity (which was earlier not utilized properly) then jobs may not get created in the economy.

Answer: c)
Marginal productivity of labour =
Change in output
Change in labour
Marginal productivity of labour means how much extra production will increase by adding one extra labour. When a factory is running at peak production, then its production cannot be increased even by adding more labourers. So, marginal productivity of labour will be zero.

Answer:(c)
Investment in the economy means production of capital goods.
When the economy produces all consumption goods and no capital goods (investment) then its GDP shall remain constant i.e. it will not grow. But till the time there is net production of capital goods i.e. investment in the economy, the production of goods and services (GDP) will keep on increasing.
Capital formation means production of capital goods. So, if there is capital formation, it will necessarily lead to increase in GDP i.e. economic growth.

Answer:(d)
When a country goes through industrialization, it uses more capital and less labour comparatively or we can say labours are replaced by capital (machinery). That means ratio of capital to labour increases sharply. So, statement (a) is true. Industrialization also leads to increase in production of goods and services (with the same amount of labour or may be less labour). So, production per labour also increases which means increase in labour productivity. So, statement (b) is also true.
Total factor productivity means productivity of all factors of production i.e. labour, capital, land etc. During industrialization, since overall production increases, production per unit of inputs i.e. labour, capital, land etc also increases. So, statement © is also true.
Productivity of labour = Output Labour
Productivity of land = Output Land
We all know that because of industrialization output increased. Now if output increased (with the same land and labour), then as per the above formula, productivity of land and productivity of labour, both will increase. So, in case of industrialization, productivity of all the factors of production increases.

Answer. (c)
GDP deflator is an index of price and measures the price changes quarterly. GDP deflator = nominal GDP/real GDP
CPI and WPI indices are calculated by fixing the weights of different goods and services but in case of GDP deflator, it varies as per actual production level.

Answer:
(D)

Answer:
(d)
Services are not traded/transacted in the wholesale markets. So, WPI data does not include the inflation due to services.
So, (i) statement is true
When goods are imported in India, first they move to the wholesale mandis and then they come in the retail markets. So, wholesale prices and retail prices both get impacted because of the imported goods.
So, (iii) statement is true.
As the formula of GDP Deflator (is) = Nominal GDP
Real GDP
Since, GDP includes only domestic goods and services, hence, GDP Deflator does not include the inflation due to imported goods and services.
So, (iv) statement is true.

Answer:
d)
Wholesale Price Index (WPI) is released by Office of Economic Advisor, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry. The Base year has been revised to 2011-12 and includes 697 items. WPI inflation measures the average change in prices of commodities for bulk sale at the level of early stage of transactions pertaining to four sectors namely agriculture, mining, manufacturing and electricity. WPI does not cover services. WPI covers commodities falling under three Major Groups namely:
• “Primary Articles” (weight 22.62%) like agricultural commodities and minerals
• “Fuel and Power” (weight 13.15%) like coal and electricity and
• “Manufactured Products” (weight 64.23%) like textiles, leather, machine tools
The prices tracked are agri-market (mandi) prices for agricultural commodities, ex-factory prices for manufactured products and ex-mines prices for minerals. The prices used for compilation do not include indirect taxes in order to remove the impact of fiscal policy. This is in consonance with best international practices and makes the new WPI conceptually closer to “Produce Price Index” used internationally.
Weight given to each commodity covered in the WPI basked is based on the net traded value of the item in the year 2011-12. The net traded value is the value of output in the year 2011-12 adjusted for net imports. Thus, net traded value represents the total transactions of each product in the economy during the base year

Answer : (a)
CPI includes indirect taxes. So, when government increases GST rate, it is captured in the CPI data. But in the new series of WPI (2011-12), government has excluded indirect
Taxes while measuring WPI. This is in consonance with international practices and will make the new WPI conceptually closer to Producer Price Index (PPI).

Answer:
(C)
Income elasticity of demand is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income. It measures the responsiveness of the quantity demanded for a good or service to a change in income.
If income elasticity of demand of a commodity is less than 1 that means that with change in income, demand is not changing much, that means, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good