GDP & National Income — Set 9

Correct Answer: C. C. Difference between actual GDP and potential GDP

The output gap is the difference between an economy's actual GDP and its potential GDP (what it could produce at full employment of resources). A positive output gap (overheating) causes inflation; a negative output gap (recession) indicates underemployed resources. The RBI uses the output gap concept in monetary policy decisions.

Correct Answer: D. D. Rangarajan Committee on statistical reforms

The National Statistical Commission (NSC) was established in 2006 based on recommendations of the Rangarajan Commission on Statistics (2001). The NSC is a permanent body that advises the government on statistical matters and ensures quality of official statistics. It functions under MOSPI.

Correct Answer: B. B. 4.7% to 6.9%

When India revised the GDP base year from 2004-05 to 2011-12 in 2015, India's FY 2013-14 GDP growth was revised upward from 4.7% to 6.9%. This significant revision sparked considerable debate about the accuracy of the new methodology. The revisions reflected better coverage of the corporate sector and service industries.

Correct Answer: B. B. Maximum GDP if all resources employed at natural rate

Potential GDP is the maximum level of output an economy can produce sustainably when all resources (labour and capital) are employed at their natural (non-inflationary) rate. It represents the economy's long-run supply capacity. Actual GDP fluctuates around potential GDP through economic cycles.

Correct Answer: B. B. Quarterly and annually

India's GDP data is released on both quarterly and annual bases. NSO releases quarterly GDP estimates with a two-month lag (Q1 April-June released in August). Annual estimates are released in multiple rounds (Advance Estimates in January/February, followed by revised estimates). Quarterly data allows more timely tracking of economic performance.

Correct Answer: B. B. Inclusive of depreciation (before deducting capital consumption)

The term 'Gross' in GDP means that depreciation (Capital Consumption Allowance) has NOT been subtracted. When depreciation is deducted from Gross measures, we get 'Net' measures (GNP - Depreciation = NNP). Net measures represent true additions to economic wealth after replacing worn-out capital.

Correct Answer: D. D. 5

The UN System of National Accounts (SNA) classifies economic activities into five main institutional sectors: Non-financial corporations, Financial corporations, General government, Households, and Non-profit institutions serving households (NPISHs). These sectors collectively cover all economic units in an economy and their transactions.

Correct Answer: A. A. Trade deficit and budget deficit occurring simultaneously

India's 'twin deficit' problem refers to the simultaneous occurrence of fiscal deficit (government spending exceeding revenue) and current account deficit (imports exceeding exports). Both deficits can be macroeconomically destabilising: fiscal deficit raises government borrowing needs while current account deficit requires foreign capital to finance it.

Correct Answer: D. D. US GDP and India's GNP

Income earned by TCS from US operations is counted in US GDP (produced in US territory) and India's GNP (earned by an Indian-resident company abroad). This is the essence of the GDP vs GNP distinction: GDP is territory-based while GNP is nationality/residence-based. Such overseas earnings form part of India's positive NFIA.

Correct Answer: B. B. Savings rate and capital-output ratio

The Harrod-Domar model links economic growth to the savings rate and the capital-output ratio. Growth rate = Savings Rate ÷ Capital-Output Ratio (ICOR). This model was influential in India's early Five Year Plans, which emphasised high savings and investment for rapid industrialisation. The Mahalanobis model extended this framework for India.