[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 4 March 2022 – Economy – INSIGHTSIAS

Solution: d)

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship.

• Higher inflation is associated with lower unemployment and vice versa.

The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer’s argument that sometimes-cutting tax rates can increase total tax revenue.

Solution: d)

Factor income is the flow of income that is derived from the factors of production—the general inputs required to produce goods and services.

Factor income on the use of land is called rent, income generated from labor is called wages, and income generated from capital is called profit. The factor income of all normal residents of a country is referred to as the national income, while factor income and current transfers together are referred to as private income.

• Factor income is most commonly used in macroeconomic analysis, helping governments to determine the difference between gross domestic product (GDP) and gross national product (GNP).
• It can also be used to expose disparities in income distribution.

Solution: c)

A U-shaped recovery is a scenario in which the economy, after falling, struggles and muddles around a low growth rate for some time, before rising gradually to usual levels.

In V-shaped recovery the economy quickly recoups lost ground and gets back to the normal growth trend-line.

The Z-shaped recovery is the most-optimistic scenario in which the economy quickly rises like a phoenix after a crash.

Solution: a)

Expansionary fiscal policy is a form of fiscal policy that involves decreasing taxes, increasing government expenditures or both, in order to fight recessionary pressures.

Tax rebate to companies increase the profit to companies. This further helps in reducing the prices of goods and services. Thus, increase the demand in the economy.

Increasing the subsidies decreases the out of pocket expenditure. Thus, increases the spending capacity.

Providing loans at higher interest rate decreases the demand for the loans. Thus, it decreases the liquidity in the market and leads to decreases the spending capacity.

Solution: c)

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more narrowly calculated—for certain goods, such as food, or for services.

Increasing SLR and Increasing repo rate leads to lessened money supply in the market, thus leading to decreased inflation in the market.