Daily Static Quiz – 18th January, 2023

Solution: D
•The states committee was headed by Jawaharlal Nehru himself.

Ans(c)
Justification:
•The relationship between the executive and the legislature in a parliamentary system is called responsible government.
•Here, the executive branch derives its democratic legitimacy from its ability to command the confidence of the legislative branch. Legislature also holds the executive accountable.
•option (a) is valid in the Presidential system as in USA. A Parliament may not be based on democratic elections or even adult franchise. It can be an entirely nominated body as it largely used to be in the colonial rule. So, (b) and (d) are incorrect.
•In India, executive is a part of the legislature, and the legislature is led by the executive. So, (c) is the most appropriate option.

Ans (b)
•In presidential system, the president cannot be removed by the Congress except by impeachment for a grave unconstitutional act.
•Rest are features of parliamentary government.

Correct Answer : C
Gross National Income (GNI)
GNI is the total amount of money earned by a nation’s people and businesses. It is used to
measure and track a nation’s wealth from year to year. The number includes the nation’s gross
domestic product plus the income it receives from overseas sources.
GNI is an alternative to gross domestic product (GDP) as a means of measuring and tracking a
nation’s wealth and is considered a more accurate indicator for some nations.
Understanding GNI
GNI calculates the total income earned by a nation’s people and businesses, including
investment income, regardless of where it was earned. It also covers money received from
abroad such as foreign investment and economic development aid.
GDP is the total market value of all finished goods and services produced within
a country in a set time period. Hence, option (c) is correct.
GNI is the total income received by the country from its residents and businesses
regardless of whether they are located in the country or abroad.
GNP includes the income of all of a country’s residents and businesses whether it flows
back to the country or is spent abroad. It also adds subsidies and taxes from foreign
sources.
Converting GDP to GNI
To convert a nation’s GDP to GNI, three terms need to be added to the former:
1) Foreign income paid to resident employees,
2) Foreign income paid to residential property owners and investors, and
3) net taxes minus subsidies receivable on production and imports.

Correct Answer : D
Washington consensus
The term ‘Washington Consensus’ was coined by the US economist John Williamson (in 1989)
under which he had suggested a set of policy reforms which most of the official in Washington
(i.e., International Monetary Fund and World Bank) thought would be good for the crisis-
driven Latin American countries of the time.
The policy reforms included ten propositions:
(i) Fiscal discipline
(ii) A redirection of public expenditure priorities toward fields offering both high
economic returns and the potential to improve income distribution, such as primary
health care, primary education, and infrastructure.
(iii) Tax reform (to lower marginal rates and broaden the tax base)
(iv) Interest rate liberalisation
(v) A competitive exchange rate
(vi) Trade liberalisation
(vii) Liberalisation of FDI inflows
(viii) Privatisation
(ix) Deregulation (in the sense of abolishing barriers to entry and exit)
(x) Secure property rights
All the above are correct.
However, in coming times, the term became synonymous to neo-liberalism (in Latin America),
market fundamentalism (as George Soros told in 1998) and even globalization across the
world. It has often been used to describe an extreme and dogmatic commitment to the belief
that markets can handle everything

Correct Answer : B
Answer Justification :
Of the final goods, we can distinguish between consumption goods and capital goods. Goods
like food and clothing, and services like recreation that are consumed when
purchased by their ultimate consumers are called consumption goods or consumer
goods. Hence, statement 1 is incorrect.
(This also includes services which are consumed but for convenience we may refer to them as
consumer goods.) Then there are other goods that are of durable character which are used in
the production process. These are tools, implements and machines.

While they make production of other commodities feasible, they themselves don’t get
transformed in the production process. They are also final goods yet they are not final goods to
be ultimately consumed. Unlike the final goods that we have considered above, they are the
crucial backbone of any production process, in aiding and enabling the production to take
place. These goods form a part of capital, one of the crucial factors of production in which a
productive enterprise has invested, and they continue to enable the production process to go
on for continuous cycles of production. These are capital goods and they gradually undergo
wear and tear, and thus are repaired or gradually replaced over time. The stock of capital that
an economy possesses is thus preserved, maintained and renewed partially or wholly over time
and this is of some importance in the discussion that will follow.

We may note here that some commodities like television sets, automobiles or home
computers, although they are for ultimate consumption, have one characteristic in
common with capital goods – they are also durable. That is, they are not extinguished
by immediate or even short period consumption; they have a relatively long life as
compared to articles such as food or even clothing. They also undergo wear and tear
with gradual use and often need repairs and replacements of parts, i.e., like machines
they also need to be preserved, maintained and renewed. That is why we call these
goods consumer durables.
Of the total production taking place in the economy a large number of products don’t end up in
final consumption and are not capital goods either. Such goods may be used by other
producers as material inputs. Examples are steel sheets used for making automobiles and
copper used for making utensils.
These are intermediate goods, mostly used as raw material or inputs for production of other
commodities. These are not final goods.

Correct Answer : D
Goods and Service Tax (GST) is the single comprehensive indirect tax, operational from 1 July
2017, on supply of goods and services, right from the manufacturer/ service provider to the
consumer. It is a destination-based consumption tax with facility of Input Tax Credit in the
supply chain. It is applicable throughout the country with one rate for one type of
goods/service. It has amalgamated a large number of Central and State taxes and cesses. It
has replaced large number of taxes on goods and services levied on production/sale of goods
or provision of service.
GST has simplified the multiplicity of taxes on goods and services.
The laws, procedures and rates of taxes across the country are standardized. It
has facilitated the freedom of movement of goods and services and created a
common market in the country.

It is aimed at reducing the cost of business operations and cascading effect of
various taxes on consumers. It has also reduced the overall cost of production,
which will make Indian products/services more competitive in the domestic and
international markets.
It will also result into higher economic growth as GDP is expected to rise by
about 2%.
Compliance will also be easier as all tax payment related services like
registration, returns, payments are available online through a common portal
http://www.gst.gov.in.
It has expanded the tax base, introduced higher transparency in the taxation
system, reduced human interface between Taxpayer and Government and is
furthering ease of doing business.
All the above statements are correct.

Correct Answer : A
Answer Justification :
In India, the most highlighted measure of national income has been the GDP at factor cost. The
Central Statistics Office (CSO) of the Government of India has been reporting the GDP at
factor cost and at market prices. In its revision in January 2015 the CSO replaced GDP at
factor cost with the GVA at basic prices, and the GDP at market prices, which is now called
only GDP, is now the most highlighted measure.
Here we discuss the concept of basic prices. The distinction between factor cost, basic prices
and market prices is based on the distinction between net production taxes (production taxes
less production subsidies) and net product taxes (product taxes less product subsidies).
Production taxes and subsidies are paid or received in relation to production and are
independent of the volume of production such as land revenues, stamp and
registration fee. Product taxes and subsidies, on the other hand, are paid or received

per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor
cost includes only the payment to factors of production, it does not include any tax.
Hence, statement 3 is incorrect.
In order to arrive at the market prices, we have to add to the factor cost the total indirect
taxes less total subsidies. The basic prices lie in between: they include the production taxes
(less production subsidies) but not product taxes (less product subsidies). Therefore, in order
to arrive at market prices we have to add product taxes (less product subsidies) to the basic
prices.
As stated above, now the CSO releases GVA at basic prices. Thus, it includes the net
production taxes but not net product taxes. In order to arrive at the GDP (at market prices) we
need to add net product taxes to GVA at basic prices.
Thus,
GVA at factor costs + Net production taxes = GVA at basic prices
GVA at basic prices + Net product taxes = GVA at market prices

Correct Answer : D
NNP at factor cost o National Income (NI) = NNP at market prices – (Indirect taxes –
Subsidies) = NNP at market prices – Net indirect taxes (Net indirect taxes o Indirect taxes –
Subsidies)
We can further subdivide the National Income into smaller categories. Let us try to find the
expression for the part of NI which is received by households. We shall call this Personal
Income (PI). First, let us note that out of NI, which is earned by the firms and government
enterprises, a part of profit is not distributed among the factors of production. This is called Undistributed Profits (UP).
Personal Income (PI) = NI – Undistributed profits – Net interest payments made by
households – Corporate tax + Transfer payments to the households from the
government and firms.
All the above are correct.
However, even PI is not the income over which the households have complete say. They have
to pay taxes from PI. If we deduct the Personal Tax Payments (income tax, for example) and
Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable
Income. Thus Personal Disposable Income (PDI) = PI – Personal tax payments – Non-tax
payments.
Personal Disposable Income is the part of the aggregate income which belongs to the
households. They may decide to consume a part of it, and save the rest.
Notice that the ratio of nominal GDP to real GDP gives us an idea of how the prices
have moved from the base year (the year whose prices are being used to calculate the
real GDP) to the current year. Hence, statement 2 is incorrect.
In the calculation of real and nominal GDP of the current year, the volume of production is
fixed. Therefore, if these measures differ it is only due to change in the price level between the
base year and the current year. The ratio of nominal to real GDP is a well-known index of
prices. This is called GDP Deflator.

Correct Answer : B
CPI (and analogously WPI) may differ from GDP deflator because
The goods purchased by consumers do not represent all the goods which are
produced in a country. GDP deflator takes into account all such goods and services.
Hence, statement 2 is correct.
CPI includes prices of goods consumed by the representative consumer; hence it
includes prices of imported goods. GDP deflator does not include prices of imported goods.
The weights are constant in CPI – but they differ according to production level of each good in GDP deflator.