23 December Static Quiz 2021 (Economy)

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.

Devaluation, reduction in the exchange value of a country’s monetary unit in terms of gold, silver, or foreign monetary units. Devaluation is employed to eliminate persistent balance-of-payments deficits. For example, a devaluation of currency will decrease prices of the home country’s exports that are purchased in the import country’s currency. While making the exported goods cheaper for other countries, devaluation also increases the prices of imports purchased in the home country. Devaluation will not be effective if the balance-of payments disequilibrium is a result of basic structural flaws in a country’s economy.

The Gross Domestic Product (GDP) deflator is a measure of general price inflation. It is calculated by dividing nominal GDP by real GDP and then multiplying by 100.
There are other measures of inflation too like Consumer Price Index (CPI) and Wholesale Price Index (or WPI); however, GDP deflator is a much broader and comprehensive measure. Since Gross Domestic Product is an aggregate measure of production, being the sum of all final uses of goods and services (less imports), GDP deflator reflects the prices of all domestically produced goods and services in the economy whereas, other measures like CPI and WPI are based on a limited basket of goods and services, thereby not representing the entire economy.

The GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of imports.

While WPI and CPI are available on monthly basis whereas deflator comes with a lag (yearly or quarterly, after quarterly GDP data is released). Hence, monthly change in inflation cannot be tracked using GDP deflator, limiting its usefulness.

The all India index of Industrial Production (IIP) is compiled and published monthly by the Central Statistical Organization (CSO).

Default means non-payment of a loan availed by a borrower. A willful defaulter is an entity or a person that has not paid the loan back despite the ability to repay it.
A ‘wilful default’ would be deemed to have occurred if any of the following events is noted:
(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to repay.
(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
(d) The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank / lender.