RBI Grade B General / DEPR Macroeconomics & Policy: practice questions

D. 980

GDP at market prices = GVA at basic prices + product taxes - product subsidies = 900 + 120 - 40 = 980. Adding subsidies gives 1060; reversing both signs gives 820; ignoring subsidies gives 1020.

A. GNP is less than GDP

GNP = GDP + net factor income from abroad. Profits paid to foreign owners are an outflow of factor income, and with little inward remittance of factor income, NFIA is negative, so GNP < GDP. GNP exceeds GDP in countries whose residents earn large incomes abroad. NNP is always below GNP by depreciation, so it cannot exceed GDP here.

C. Nominal rises by 3.5%; real falls by 10%

Nominal value changes by (1 - 0.10) x (1 + 0.15) - 1 = 3.5%, while real GVA at constant prices tracks quantity and falls by 10%. Adding percentages (15 - 10 = 5) is only an approximation and ignores the interaction term. This is why nominal farm GDP can rise in a bad year even as real output and farmers' welfare in deficit regions fall.

A. raise output and employment with little or no rise in the price level

The horizontal range represents idle capacity and unemployed labour, so extra demand is met by more output at existing prices. A pure price rise happens on the vertical (classical) range. Crowding out requires a rising interest rate, which the simple AS-AD horizontal case does not model.

B. from lenders to borrowers on fixed nominal-rate loans, such as indebted farmers

If inflation is higher than expected when a nominal interest rate was fixed, the real value of repayments falls, benefiting debtors at the expense of creditors. Governments, as large debtors, also gain relative to bondholders. Pensioners on fixed nominal pensions lose.

D. 4% CPI inflation, with a tolerance band of 2% to 6%

The target is set by the government in consultation with the RBI, is defined on the all-India consumer price index (combined) and has been 4% with a band of 2 to 6%, reviewed every five years; check the current notification. WPI is not the target index.

C. 12.5

Fiscal deficit = total expenditure - revenue receipts - non-debt capital receipts = (26 + 8) - 20 - 1.5 = 12.5. 6 is the revenue deficit; 14 forgets non-debt capital receipts; 7.5 is the primary deficit.

C. State governments

Taxes on agricultural income are in the State List (Seventh Schedule), and the Union income-tax law exempts agricultural income. The RBI has no taxing power.

A. the decline of other traded sectors, such as agriculture, after a resource boom appreciates the real exchange rate

The term comes from the Netherlands after its natural gas discoveries. The resource boom raises the real exchange rate and draws resources into the booming and non-traded sectors, squeezing other exporters. Declines in export agriculture in some oil-exporting economies are often analysed in this way.

D. a permanently rising share of agriculture in national output

Johnston and Mellor listed food, labour, capital, foreign exchange and a market for industrial goods. Agriculture's share of output normally falls as development proceeds, so a rising share is not one of its contributions.