introduction to indian economy section 4 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is an Indian job guarantee scheme, enacted by legislation on August 25, 2005.

The scheme provides a legal guarantee for one hundred days of employment in every financial year to adult members of any rural household willing to do public work-related unskilled manual work at the statutory minimum wage of Rs.120.

This act was introduced with an aim of improving the purchasing power of the rural people, primarily semi or un-skilled work to people living in rural India, whether or not they are below the poverty line. The law was initially called the National Rural Employment Guarantee Act (NREGA) but was renamed on 2 October 2009

Answer: (b)

Basis points: It is the increase in interest rates in percentage terms. For instance, if the interest rate increases by 50 basis points (bps), then it means that the interest rate has been increasing by 50%. One percentage point is broken down into 100 basis points. Therefore, an increase from 2% to 3% is an increase of one percentage point or 100 basis points.

Repo rate: Repo rate is the policy rate and is part of RBI’s Liquidity Adjustment Facility (LAF). It is the rate at which commercial banks borrow from the RBI by selling their securities or financial assets to the RBI for a short period of time. It comes with an agreement that the sold securities will be repurchased by the commercial banks from the RBI at a future date at a predetermined price. The repo rate is used by the central bank to increase liquidity in the system.

Reverse repo rate: Reverse Repo Rate is also a part of LAF. It is the rate of interest at which the central bank borrows funds from other banks for a short duration. The banks deposit their short term excess funds with the central bank and earn interest on it. This rate is used by the central bank to absorb liquidity from the economy. Generally, it is one per cent less than the Repo rate. Bank rate: The only way the bank rate is different from the repo rate is that the bank rate is the rate at which banks borrow money from the central bank without any sale of securities. It is generally for a longer period of time. 

Cash reserve ratio: CRR is the minimum percentage of cash deposits that banks must keep with the central bank. The current rate is 4%, which means for a cash deposit of `100, the bank has to park 4 rupees, with the central bank.

Answer: (a)

NABARD stands for National Bank for Agriculture and Rural Development. It is an apex development bank in India having headquarters based in Mumbai (Maharashtra).

It was established on 12 July 1982 and accredited with matters credit for agriculture and other economic activities in rural areas in India.

Answer: (b)

The interest paid on bonds is known as ‘coupon’ or ‘coupon rate’. Bonds and debentures both are the instruments of raising long-term capital but while the former is supported by collateral in the former is supported by collateral in the form of immovable property, the latter are not.

Answer: (c)

The process of curing inflation by reducing money supply is called disinflation. Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the price level of goods and services in GDP. Disinflation occurs when the increase in the “consumer price level” slows down from the previous period when the prices were rising.