Daily Static Quiz (Economy) Oct 17, 2025
Daily Static Quiz (Economy) Oct 17, 2025
Question 1: Consider the following statements regarding GDP Deflator:
GDP Deflator is calculated by dividing Nominal GDP by Real GDP and multiplying by 100.
Unlike CPI and WPI, GDP Deflator automatically reflects changes in consumption pattern and structural transformations in the economy.
GDP Deflator covers only consumer goods while CPI covers all goods and services produced in the economy.
Which of the statements given above is/are correct?
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) 1, 2 and 3
Question 2: Which of the following equations correctly represents the relationship between national income aggregates?
A) NNP at Factor Cost = NNP at Market Price + Indirect Taxes – Subsidies
B) NNP at Factor Cost = NNP at Market Price – Net Indirect Taxes
C) GNP at Market Price = GDP at Market Price – Net Factor Income from Abroad
D) Real GDP = Nominal GDP × GDP Deflator
Question 3: Consider the following statements about Real GDP and Nominal GDP:
Real GDP is equal to economic output adjusted for the effects of inflation.
Nominal GDP is usually higher than Real GDP in an inflationary economy.
When comparing GDP of two or more years, Nominal GDP is preferred because it shows actual market values.
Which of the statements given above is/are correct?
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) 1, 2 and 3
Question 4: If the Nominal GDP of a country is ₹10,000 crores and the GDP Deflator is 125, what is the Real GDP?
A) ₹8,000 crores
B) ₹10,000 crores
C) ₹12,500 crores
D) ₹80,000 crores
Question 5: With reference to India’s Five Year Plans, consider the following statements:
The First Five Year Plan focused on agricultural development and was based on the Harrod-Domar Model.
The Second Five Year Plan emphasized rapid industrialization and development of heavy industries based on the Mahalanobis Model.
The Third Five Year Plan aimed to achieve self-sufficiency in foodgrains and expansion of basic industries.
Which of the statements given above is/are correct?
A) 1 and 2 only
B) 2 and 3 only
C) 1 and 3 only
D) 1, 2 and 3
Question 6: Arrange the following objectives of India’s Five Year Plans in chronological order:
Garibi Hatao (Poverty Removal)
Growth with stability and progressive achievement of self-reliance
Faster, sustainable and more inclusive growth
Modernization of industrial sector and technical development
Select the correct answer using the code given below:
A) 2-1-4-3
B) 1-2-4-3
C) 2-4-1-3
D) 4-2-1-3
Question 7: Consider the following pairs of Five Year Plans and their key features:
Sixth Five Year Plan : Emphasis on employment generation through poverty alleviation programs like IRDP and NREP
Eighth Five Year Plan : Shift in pattern of industrialization with lower emphasis on heavy industries and more on infrastructure
Eleventh Five Year Plan : Target of 9% annual GDP growth with focus on inclusive growth
Which of the pairs given above is/are correctly matched?
A) 1 only
B) 1 and 2 only
C) 1 and 3 only
D) 1, 2 and 3
Question 8: Consider the following statements regarding different types of inflation:
Creeping inflation refers to price rise of 3% or less per year and is considered conducive to economic growth.
Galloping inflation occurs when price rise is between 10% to 50% annually and can trigger economic downturn.
Hyperinflation is characterized by price rise exceeding 50% per month leading to complete collapse of currency value.
Which of the statements given above is/are correct?
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) 1, 2 and 3
Question 9: With reference to the Fisher Effect, consider the following statements:
The Fisher Effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
According to the Fisher Effect, when inflation expectations increase, nominal interest rates decrease to keep real interest rates stable.
The Fisher Effect assumes that financial markets are efficient and people have rational expectations.
Which of the statements given above is/are correct?
A) 1 only
B) 1 and 3 only
C) 2 and 3 only
D) 1, 2 and 3
Question 10: With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?
Expansionary monetary and fiscal policies
Fiscal stimulus packages
Higher purchasing power of consumers
Rising interest rates
Inflation-indexing of wages
Select the correct answer using the code given below:
A) 1, 2 and 3 only
B) 3, 4 and 5 only
C) 1, 2, 3 and 5 only
D) 1, 2, 3, 4 and 5
ANSWER KEY AND DETAILED EXPLANATIONS
Answer 1: B) 1 and 2 only
Explanation:
Statement 1 is correct: GDP Deflator = (Nominal GDP / Real GDP) × 100. It measures the ratio of the value of goods and services produced in a particular year at current prices to their value at base year prices.
Statement 2 is correct: The GDP deflator automatically incorporates changes in the consumption pattern and structural transformations in the economy because it covers all goods and services produced domestically. Unlike fixed-basket price indices (like CPI or WPI), the GDP deflator adjusts to changes in the economy’s production mix.
Statement 3 is incorrect: This statement reverses the actual coverage. GDP Deflator covers ALL final goods and services produced in an economy (comprehensive measure), while CPI measures only a fixed basket of consumer goods and services. GDP Deflator is more comprehensive than CPI.
Key Point: GDP Deflator is considered a more comprehensive measure of inflation as it covers the entire range of goods and services produced in the economy.
Answer 2: B) NNP at Factor Cost = NNP at Market Price – Net Indirect Taxes
Explanation:
Option A is incorrect: The formula is reversed. To convert from Market Price to Factor Cost, we need to subtract indirect taxes and add subsidies (not add indirect taxes and subtract subsidies).
Option B is correct: NNP at Factor Cost = NNP at Market Price – Net Indirect Taxes (where Net Indirect Taxes = Indirect Taxes – Subsidies). This is also known as National Income. The difference between market price and factor cost arises due to indirect taxes and subsidies.
Option C is incorrect: GNP at Market Price = GDP at Market Price + Net Factor Income from Abroad (not minus). GNP includes income earned by nationals abroad and excludes income earned by foreigners domestically.
Option D is incorrect: Real GDP = (Nominal GDP / GDP Deflator) × 100 (we divide, not multiply). Real GDP adjusts nominal GDP for inflation to show the actual volume of production.
Key Relationships:
Market Price to Factor Cost: Subtract Net Indirect Taxes
GDP to GNP: Add Net Factor Income from Abroad
Gross to Net: Subtract Depreciation
Answer 3: B) 1 and 2 only
Explanation:
Statement 1 is correct: Real GDP equals economic output adjusted for the effects of inflation, measured at constant base year prices. It removes the effect of price changes to reflect only changes in production volume.
Statement 2 is correct: Nominal GDP is usually higher than Real GDP in an inflationary economy because inflation is typically positive. Nominal GDP is calculated at current market prices which include the effect of price increases. Only in periods of deflation would Real GDP exceed Nominal GDP.
Statement 3 is incorrect: When comparing GDP of two or more years, Real GDP is preferred (not Nominal GDP) because it removes the effects of inflation. By focusing on constant prices, Real GDP allows for meaningful comparison of actual production volumes across different years. Nominal GDP comparison can be misleading as it includes price changes.
Key Understanding:
Nominal GDP: Current prices (includes inflation effect)
Real GDP: Constant prices (excludes inflation effect)
For inter-temporal comparisons: Always use Real GDP
Answer 4: A) ₹8,000 crores
Explanation:
The formula to calculate Real GDP from Nominal GDP and GDP Deflator is:
Real GDP = (Nominal GDP / GDP Deflator) × 100
Given:
Nominal GDP = ₹10,000 crores
GDP Deflator = 125
Calculation:
Real GDP = (10,000 / 125) × 100
Real GDP = 80 × 100
Real GDP = ₹8,000 crores
Understanding the Result:
Since the GDP Deflator (125) is greater than 100, it indicates that prices have increased compared to the base year. Therefore, Real GDP (₹8,000 crores) is less than Nominal GDP (₹10,000 crores). This shows that a portion of the nominal increase is due to inflation rather than actual increase in production.
Key Formula to Remember:
GDP Deflator = (Nominal GDP / Real GDP) × 100
Real GDP = (Nominal GDP / GDP Deflator) × 100
A GDP Deflator > 100 indicates inflation since base year
A GDP Deflator < 100 indicates deflation since base year
Answer 5: D) 1, 2 and 3
Explanation:
Statement 1 is correct: The First Five Year Plan (1951-56) was based on the Harrod-Domar Model and focused primarily on agricultural development, particularly to address severe food shortage and mounting inflation. The target growth was 2.1% but actual growth achieved was 3.6%. Infrastructure development in power and transport was also emphasized.
Statement 2 is correct: The Second Five Year Plan (1956-61) was based on the P.C. Mahalanobis Model (also called Mahalanobis Plan). It emphasized rapid industrialization with focus on heavy and basic industries like steel, machinery, and capital goods. This plan adopted the USSR model of planned development adapted for India. Target growth was 4.5% and actual growth achieved was 4.3%.
Statement 3 is correct: The Third Five Year Plan (1961-66) aimed to make India self-reliant and self-sufficient. Its main objectives included achievement of self-sufficiency in foodgrains, increase in agricultural production, and expansion of basic industries so that within 10 years nearly all requirements of further industrialization could be met from domestic resources. However, this plan failed to achieve its target growth of 5.6% (achieved only 2.8%) due to the Indo-China war (1962), Indo-Pak war (1965), and severe droughts (1965-66).
Key Chronology:
First Plan (1951-56): Agriculture focus, Harrod-Domar Model
Second Plan (1956-61): Industrialization focus, Mahalanobis Model
Third Plan (1961-66): Self-reliance and self-sufficiency
Answer 6: A) 2-1-4-3
Explanation:
The correct chronological sequence of these objectives is:
2. Growth with stability and progressive achievement of self-reliance – This was the main objective of the Fourth Five Year Plan (1969-74). This plan emphasized growth with stability after the failures of the Third Plan.
1. Garibi Hatao (Poverty Removal) – This was the slogan and main objective of the Fifth Five Year Plan (1974-78) under Prime Minister Indira Gandhi. The plan aimed at removal of poverty and achievement of self-reliance.
4. Modernization of industrial sector and technical development – This was the main objective of the Eighth Five Year Plan (1992-97), which commenced during the period of economic reforms and liberalization initiated in 1991.
3. Faster, sustainable and more inclusive growth – This was the subtitle and objective of the Twelfth Five Year Plan (2012-17), which was India’s last official Five Year Plan before the Planning Commission was replaced by NITI Aayog in 2015.
Important Plans to Remember:
First (1951-56): Agriculture and infrastructure
Second (1956-61): Heavy industrialization
Fourth (1969-74): Growth with stability, self-reliance
Fifth (1974-78): Garibi Hatao
Eighth (1992-97): Modernization and liberalization
Eleventh (2007-12): Inclusive growth (9% GDP target)
Twelfth (2012-17): Faster, sustainable, and more inclusive growth (Last FYP)
Answer 7: D) 1, 2 and 3
Explanation:
Pair 1 is correctly matched: The Sixth Five Year Plan (1980-85) marked a significant shift in India’s economic strategy. It emphasized poverty and unemployment eradication through several poverty alleviation programs including IRDP (Integrated Rural Development Programme) and NREP (National Rural Employment Programme). The plan also focused on sectoral integration, boosting the secondary sector, and increasing exports.
Pair 2 is correctly matched: The Eighth Five Year Plan (1992-97) saw a shift in the pattern of industrialization with lower emphasis on heavy industries and more on infrastructure development. This was aligned with the economic liberalization that began in 1991. The plan’s key objectives included modernization of the industrial sector, technical development, increasing employment, and becoming self-reliant through domestic resources.
Pair 3 is correctly matched: The Eleventh Five Year Plan (2007-12) set a target for 9% annual GDP growth with acceleration to reach 10% by the end of the plan period. The plan’s theme emphasized making growth both faster AND more inclusive, identifying 26 monitorable targets relating to poverty, education, health, women and children, infrastructure, and environment.
Additional Information:
Tenth Plan (2002-07): Achieved 7.7% annual growth
Twelfth Plan (2012-17): Last official FYP, subtitle was “Faster, Sustainable and More Inclusive Growth”
Planning Commission replaced by NITI Aayog in 2015
Answer 8: D) 1, 2 and 3
Explanation:
Statement 1 is correct: Creeping inflation (also called mild inflation or low inflation) refers to a situation where price rise is 3% or less per year. This type of inflation is considered healthy and conducive to stable economic growth. Creeping inflation is what governments need to maintain a stable economy as it encourages spending and investment without causing economic distortions.
Statement 2 is correct: Galloping inflation (also called jumping inflation or running inflation) occurs when price rise is rapid, typically at double-digit rates between 10% to 50% annually. This type of inflation is harmful to the economy and mainly affects middle and lower-income groups. Galloping inflation has the potential to trigger an economic downturn, though it can sometimes be accompanied by substantial economic expansion.
Statement 3 is correct: Hyperinflation is an extreme form of inflation where prices rise at an alarmingly high rate, typically exceeding 50% per month. In hyperinflation, the value of domestic currency reduces to almost zero, and money almost ceases to be a store of value as well as medium of exchange. Recent examples include Zimbabwe (2004-09) and Venezuela (2019).
Classification by Speed:
Creeping: ≤3% per year (Healthy)
Walking/Trotting: 3-10% per year (Moderate)
Galloping: 10-50% per year (Harmful)
Hyperinflation: >50% per month (Catastrophic)
Answer 9: B) 1 and 3 only
Explanation:
Statement 1 is correct: The Fisher Effect, proposed by economist Irving Fisher, states that the real interest rate equals the nominal interest rate minus the expected inflation rate. The basic equation is:
Real Interest Rate = Nominal Interest Rate – Expected Inflation Rate
This relationship explains that the nominal interest rate reflects both the real cost of borrowing and compensation for expected inflation.
Statement 2 is incorrect: According to the Fisher Effect, when inflation expectations increase, nominal interest rates increase (not decrease) to keep real interest rates stable. The nominal rate adjusts upward to reflect the anticipated loss in purchasing power due to inflation. This is the core of the Fisher Effect – nominal rates rise to compensate lenders for expected inflation, keeping the real interest rate constant. When inflation expectations fall, nominal rates decrease.
Statement 3 is correct: The Fisher Effect assumes that financial markets are efficient and that people have rational expectations about future inflation. These assumptions are necessary for the theory to work as it presumes that market participants will correctly anticipate inflation and adjust nominal rates accordingly.
Practical Application:
If real interest rate = 2% and expected inflation = 5%, then nominal rate = 7%
Lenders raise nominal rates when inflation is rising to protect real returns
Central banks use this principle in monetary policy formulation
When real interest rate is positive, lenders can beat inflation
When real interest rate is negative, the rate doesn’t beat inflation
Answer 10: A) 1, 2 and 3 only
Explanation:
Demand-pull inflation is the upward pressure on prices that follows a shortage in supply – described as “too many dollars chasing too few goods.” It occurs when aggregate demand exceeds aggregate supply.
Statement 1 is correct: Expansionary policies (both monetary and fiscal) increase demand-pull inflation. When the government or central bank pumps more money into the economy through lower interest rates or increased money supply, it makes borrowing cheaper and encourages spending and investment. This increases aggregate demand and can fuel inflation if supply doesn’t match up.
Statement 2 is correct: Fiscal stimulus packages increase government spending which boosts overall economic demand. When the government spends more, either directly or through subsidies, it increases aggregate demand, which can push prices up if it outpaces supply capabilities.
Statement 3 is correct: Higher purchasing power of consumers leads to increased demand for goods and services. When consumers earn higher income or feel confident, they spend more, leading to increased demand which fuels demand-pull inflation.
Statement 4 is incorrect: Rising interest rates decrease (not increase) demand-pull inflation. Higher interest rates make borrowing more expensive and decrease the money supply in the economy. This results in reduced consumer spending and investment, thereby reducing aggregate demand and controlling inflation. This is actually an anti-inflationary measure.
Statement 5 is incorrect: Inflation-indexing wages means wages are adjusted based on inflation rates to maintain purchasing power. While wages move with inflation, the effective change in real purchasing power is minimal. This practice is designed to respond to inflation rather than cause it. It doesn’t independently increase aggregate demand beyond maintaining existing consumption levels.
