Indian Economy MCQs

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Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial Borrowings. The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.

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Adam smith is considered as father of Modern Economics. In his book “The nature & causes of wealth of the Nation’s 1776, he has described economics as science of wealth. According to him economy is the study of wealth only and it deals with its production and consumption. Only material goods which are scarce and useful are wealth.

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The Reserve Bank of India starts selling the Government Securities, on behalf of the Government. Either the commercial banks or retail investors buy the securities, resulting in decrease of cash resources at the disposal of the commercial banks.

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The stock market primarily deals in long-term securities, specifically stocks and shares of companies. Stocks represent ownership in a company and are typically held for longer periods, allowing investors to benefit from capital appreciation and dividends. While some markets may also facilitate short-term trading, the core function of the stock market is to provide a platform for long-term investment. Historically, the stock market has been a key driver of economic growth, with the New York Stock Exchange (NYSE) being one of the largest and oldest stock exchanges, established in 1817.

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The largest stake in the National Securities Depository Limited (NSDL) is held by IDBI Bank. NSDL, established in 1996, was the first depository in India and plays a crucial role in the Indian capital market by facilitating the holding and transfer of securities in electronic form. IDBI Bank, a major financial institution, has been a important player in the Indian banking sector since its establishment in 1964.

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Deflation benefits salary earners because it increases the purchasing power of money. When prices fall, the real value of wages rises, allowing consumers to buy more with the same income. In contrast, pensioners may suffer if their fixed incomes do not adjust for deflation, equity holders may see asset values decline, and debtors face higher real debt burdens. Historically, deflation has been linked to economic downturns, such as the Great Depression, where falling prices led to reduced consumer spending.

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The Reserve Bank of India (RBI) sells government securities in the open market primarily to manage liquidity and control inflation. When there is enormous foreign funds inflow, it can lead to excess liquidity in the banking system. To absorb this liquidity and prevent inflationary pressures, the RBI may sell government securities. This action helps stabilize the economy by regulating the money supply. In contrast, selling securities is not typically a response to meek foreign inflows, low bank liquidity, or direct government requests.

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Prasantha Chandra Mahalanobis or P. C. Mahalanobis (1893-1972) was the first Indian statistician to receive world recognition. In 1933, Mahalanobis founded the first Indian statistical journal Sankhya, along the lines of Biometrika, which had inspired him greatly. He was architect of India’s second five year plan and due to this second plan is known as Mahalanobis model.

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The Trade and Economic Relations Committee (TERC) in India is headed by the Prime Minister. This committee was established to enhance India’s trade relations and economic policies, reflecting the government’s focus on international trade as a key driver of economic growth. The Prime Minister’s leadership underscores the importance of trade in India’s economic strategy.

Notes:
Short Term Funds – Indian Money Market,
Medium and Long Term Funds- Indian Capital Market