introduction to indian economy section 6 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Stagflation is a condition of slow economic growth and relatively high unemployment.

It is accompanied by a rise in prices, or inflation. Stagflation occurs when the economy isn’t growing but prices are increasing, which is not a good situation for a country to be in.

Answer: (d)

A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency.

LIC is an example of a NonBanking Financial institution.

Answer: (a)

Dadabhai Naoroji prepared the first estimates of National income in 1876. He estimated the national income by first estimating the value of agricultural production and then adding a certain percentage as non-agricultural production.

Answer: (b)

The rise in interest rates results in an increased cost of borrowing so lending decreases because businesses do not borrow at a high cost. Moreover, it results in an increase in the cost of production as the cost for all suppliers of raw material increases due to an increase in their borrowing cost.

For individuals, the savings increase as they start saving in lieu of higher return as interest. Higher rates of interest result in a decrease in return on capital as the cost of investment in capital increases.

Answer: (d)

In India, there are some regulations and restrictions with regard to establishing industries in certain categories. This is done by making it mandatory to obtain licenses before setting up such an industry.

The Licence Raj continued till 1991 (liberalization was introduced) as a result of India’s decision to have a planned economy where all aspects of the economy are controlled by the state and licences are given to a select few.

Up to 80 government agencies had to be satisfied before private companies could produce something and, if granted, the government would regulate production. The Industrial Policy Resolution 1956 aimed at the removal of regional disparities through the development of regions with low industrial bases.

The Indian economy was then guided by the socialistic model of planned development rather than being guided by profit.