Question 1

With reference to the computation of National Income in India, consider the following activities:
1. Mining and quarrying
2. Construction
3. Forestry
4. Financial services

How many of the above activities are classified under the Secondary Sector?

Accepted Answer

Only two. Statement 1 is correct. For the purpose of National Income computation, 'Mining and quarrying' is included in the Secondary Sector. Statement 2 is correct. 'Construction' is also classified under the Secondary Sector. Statement 3 is incorrect. 'Forestry' is classified under the Primary (or Agri and Allied) Sector. Statement 4 is incorrect. 'Financial, real estate and professional services' are classified under the Tertiary (or Service) Sector. Therefore, only two of the listed activities fall under the Secondary Sector.

Question 2

Consider the following statements regarding the Capital Output Ratio:

Statement-I: A high Capital Output Ratio in an economy suggests that a large amount of capital is required to produce a single unit of output.
Statement-II: To achieve higher economic efficiency and productivity, an economy should aim for a progressively increasing Capital Output Ratio.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Statement-I is correct but Statement-II is incorrect. Statement-I is correct. The Capital Output Ratio is defined as the amount of capital needed to produce one unit of output. Therefore, a higher ratio signifies that more capital is required for each unit of production, indicating lower efficiency. Statement-II is incorrect. A higher ratio indicates less efficiency or productivity. Consequently, a low capital-output ratio, which implies that less capital is needed to produce an additional unit of output, is always desired for efficient economic performance.

Question 3

Consider the following statements regarding the estimation of National Income in India:
1. The first scientific method to compute National Income was used by P.C. Mahalanobis.
2. The National Statistical Office (NSO) is an autonomous body formed based on the recommendation of the Rangarajan Commission.
3. The National Statistical Office (NSO) was established through the merger of the Central Statistics Office (CSO) and the National Sample Survey Office (NSSO).

How many of the above statements are correct?

Accepted Answer

Only one. Statement 1 is incorrect. The first scientific method to compute National Income was used by Dr. V.K.R.V. Rao in 1931–32. P.C. Mahalanobis headed the first official committee for this purpose. Statement 2 is incorrect. The National Statistical Commission (NSC), not the NSO, is an autonomous body formed in 2005 under the recommendation of the Rangarajan Commission. The NSO is a body under the Ministry of Statistics and Programme Implementation. Statement 3 is correct. The Central Government merged the CSO and the NSSO in 2019 to establish the National Statistical Office (NSO). Therefore, only one statement is correct.

Question 4

With reference to the concept of 'Normal Residents' in the context of National Income accounting, consider the following statements:

1. A foreign citizen who has been living in India for 18 months for the purpose of medical treatment is considered a normal resident of India.
2. An Indian citizen working in the office of the International Monetary Fund (IMF) located in India is not considered a normal resident of India.
3. The ambassador of a foreign country posted in India for a period of three years is considered a normal resident of India.

How many of the above statements are correct?

Accepted Answer

None. Statement 1 is incorrect. A person's normal residency is determined by their center of economic interest. Foreigners who are in a country for specific purposes like medical treatment or studies are not considered normal residents, irrespective of their length of stay, as their economic interests are assumed to lie in their home country. Statement 2 is incorrect. While foreign staff of international organizations (like the IMF) are not considered normal residents of the country where the office is located, this does not apply to citizens of that country. An Indian citizen working for the IMF in India is a normal resident of India. Statement 3 is incorrect. Diplomatic personnel, such as ambassadors, are always considered normal residents of the country they represent, not the country where they are posted. Since all three statements are incorrect, the correct option is 'd'.

Question 5

Consider the following statements:

Statement-I: An increase in government subsidies on a product, holding other factors constant, will lead to a decrease in its Factor Cost.

Statement-II: Subsidies received by a firm are considered direct inputs into the production process and are therefore included in the calculation of Factor Cost.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Statement-I is incorrect but Statement-II is correct. Statement-I is incorrect. The relationship is defined as Factor Cost = Market Price - Net Indirect Taxes. Net Indirect Taxes are defined as (Indirect Taxes – Subsidies). Therefore, the full formula is Factor Cost = Market Price - (Indirect Taxes - Subsidies), which simplifies to Factor Cost = Market Price - Indirect Taxes + Subsidies. According to this relationship, an increase in subsidies, holding other factors constant, will lead to an increase, not a decrease, in the Factor Cost. Statement-II is correct. The text explicitly states that subsidies received are included in the Factor Cost as they are considered direct inputs into production, unlike indirect taxes which are not directly related to the production process.

Question 6

Consider the following statements regarding components of National Income and Economic Territory:

1. The revenue generated by an Indian airline from its flights operating exclusively between two foreign countries is considered part of India's domestic/economic territory.
2. Scholarship payments received by students from the government are excluded from the calculation of National Income.
3. Capital goods, such as machinery, are considered a type of intermediate good because they are used as inputs in the production of final goods.

How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is correct. The domestic/economic territory includes aircraft operated by residents of a country, even if they operate outside the geographical boundaries. Since the airline is Indian, its revenue is part of India's domestic territory. Statement 2 is correct. Scholarships are a form of transfer payment. Transfer payments are unilateral payments against which no goods or services are exchanged, and they are not included in the calculation of National Income. Statement 3 is incorrect. The text explicitly distinguishes between capital goods and intermediate goods. While both are used in production, capital goods are not transformed in the process and remain with the producer, whereas intermediate goods are used up or transformed into the final product. Therefore, capital goods are not intermediate goods.

Question 7

Consider the following statements regarding Gross Domestic Product (GDP) and Gross National Product (GNP):

1. GDP is concerned with production by a country's nationals irrespective of their location, whereas GNP is concerned with production within a country's borders.
2. GDP is considered a better measure than GNP for assessing domestic employment creation and tax revenue generation.
3. The primary benefit of GNP for the home economy is realized through increased exports and moderated inflation.

How many of the above statements are correct?

Accepted Answer

Only one. Statement 1 is incorrect. It swaps the definitions. GDP is concerned with production within a country's borders, while GNP is concerned with production by a country's residents (nationals), regardless of where they are located. Statement 2 is correct. The text explicitly states that GDP is considered a better measure because it indicates domestic production where employment is created and tax revenue is more. Statement 3 is incorrect. The text attributes moderated inflation and increased exports as indicators associated with GDP, not GNP. The benefit of GNP is stated to flow in the form of 'Remittances'.

Question 8

Consider the following statements regarding the calculation of national income aggregates:

1. To convert a 'Gross' aggregate to a 'Net' aggregate, depreciation must be added.
2. To convert an aggregate from 'Market Price' to 'Factor Cost', one must subtract subsidies and add indirect taxes.
3. National Income is officially defined as the Net National Product (NNP) at Market Prices.

How many of the above statements are correct?

Accepted Answer

None. Statement 1 is incorrect. To convert a 'Gross' aggregate to a 'Net' aggregate, depreciation (consumption of fixed capital) must be subtracted. The formula is Net = Gross - Depreciation. Adding depreciation is the incorrect operation.

Statement 2 is incorrect. To convert an aggregate from 'Market Price' (MP) to 'Factor Cost' (FC), one must subtract net indirect taxes. Net indirect taxes are the difference between indirect taxes and subsidies. Therefore, the correct conversion is FC = MP - Indirect Taxes + Subsidies. The statement reverses this relationship.

Statement 3 is incorrect. National Income (NI) is conventionally defined as Net National Product at Factor Cost (NNPfc), not at Market Prices. NNP at Market Prices includes net indirect taxes, which are not part of the income earned by factors of production.

Since all three statements are incorrect, the correct option is 'None'.

Question 9

Consider the following statements:

Statement-I: The GDP deflator is considered a more comprehensive measure of inflation compared to the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).

Statement-II: Unlike the WPI, the GDP deflator includes the price changes of services, and unlike the CPI, it does not have a fixed consumption basket and excludes imported consumption goods.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.. Statement-I is correct as the text states that the GDP deflator is seen as a 'more comprehensive measure'. Statement-II is also correct as it accurately lists the reasons provided in the text for the GDP deflator's preference over WPI and CPI. Specifically, WPI does not consider services inflation, and CPI uses a fixed basket and includes imported goods. Since Statement-II provides the precise reasons why the GDP deflator is more comprehensive, it is the correct explanation for Statement-I.

Question 10

Consider the following statements regarding National Income (NI) and Personal Income (PI):

1. Undistributed profits of corporations and Corporate Taxes are components of Personal Income as they represent income earned by factors of production.
2. National Income includes transfer payments made by the government to households as they form part of the income available within the country.
3. Interest paid on the national debt is included in Personal Income but is excluded from National Income.

How many of the above statements are correct?

Accepted Answer

Only one. Statement 1 is incorrect. Undistributed profits and corporate taxes are part of National Income (income generated) but are not received by households, so they are excluded from Personal Income. The formula for PI involves subtracting these from NI. Statement 2 is incorrect. National Income is the income generated by factors of production and does not include transfer payments, which are unearned receipts. Transfer payments are, however, a component of Personal Income. Statement 3 is correct. Personal Income is the sum of all income actually received by households, which includes interest on national debt. National Income, focusing on income generated from productive activities, does not include interest on national debt.

Question 11

Consider the following statements:

Statement-I: Personal Disposable Income (PDI) is a key indicator of the purchasing power available to households for consumption or saving.

Statement-II: PDI is calculated by deducting direct taxes and miscellaneous fees paid by households from their Personal Income (PI).

Which one of the following is correct in respect of the above statements?

Accepted Answer

Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.. Statement-I is correct. Personal Disposable Income (PDI) represents the income that remains with individuals or households after all mandatory deductions, thus reflecting their actual capacity to purchase goods and services or to save. Statement-II is also correct. The formula for PDI is explicitly defined as Personal Income (PI) minus direct taxes and miscellaneous fees and fines paid by households. Statement-II correctly explains Statement-I because the very process of deducting taxes and fees from PI is what isolates the 'disposable' portion, which in turn determines the purchasing power of households.

Question 12

Consider the following statements about national income aggregates:

1. National Disposable Income (NDI) is calculated by adding Net Indirect Taxes and Net Current Transfers from the Rest of the World to Net National Product at Factor Cost (NNPfc).
2. Gross National Disposable Income (GNDI) is derived by adding depreciation to Net National Disposable Income (NNDI).
3. Both National Disposable Income (NDI) and Gross National Disposable Income (GNDI) account for current transfers receivable from the rest of the world.

How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is correct. The formula for National Disposable Income (NDI) is the sum of Net National Product at Factor Cost (NNPfc), net indirect taxes, and net current transfers from the rest of the world. Statement 2 is incorrect. The relationship is inverted. Net National Disposable Income (NNDI) is derived by deducting depreciation from Gross National Disposable Income (GNDI), not the other way around. Therefore, GNDI is NNDI plus depreciation. Statement 3 is correct. The formula for NDI includes 'Net current transfers from ROW', and the definition of GNDI includes 'current transfers receivable by resident units from rest of the world'. Both aggregates incorporate these international transfers to reflect the total income available to the nation for consumption or saving.

Question 13

With reference to the schedule of release for National Income estimates by the NSO, consider the following statements:

1. The Provisional Estimate (PE) is released approximately two months before the completion of the financial year.
2. The First Revised Estimate was previously referred to as the Quick Estimate (QE).
3. National income data for a financial year is considered to be more or less stabilised after the release of the Second Revised Estimate.

How many of the above statements are correct?

Accepted Answer

Only one. Statement 1 is incorrect. The Advance Estimate (AE), not the Provisional Estimate (PE), is released around two months before the completion of the financial year (on January 7). The Provisional Estimate is released two months after the completion of the financial year (on May 31). Statement 2 is correct. The text explicitly states that 'The First Revised Estimate was earlier termed as Quick Estimate (QE)'. Statement 3 is incorrect. The text mentions that data gets more or less stabilised after the release of the 3rd Revised Estimate, not the second. Therefore, only one statement is correct.

Question 14

Consider the following statements with respect to the components of India's GDP:

Statement-I: As per the provided data, the share of Government Final Consumption Expenditure (GFCE) in India's GDP has shown a declining trend from 2022-23 to the First Advance Estimates of 2024-25.

Statement-II: The absolute amount of Government Final Consumption Expenditure (GFCE) has decreased during the period from 2022-23 to 2024-25.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Statement-I is correct but Statement-II is incorrect. Statement-I is correct. According to the table 'Share in GDP (%)', the share of Government Final Consumption Expenditure (GFCE) was 10.7% in 2022-23, 10.4% in 2023-24, and is estimated to be 10.3% in 2024-25, showing a clear declining trend. Statement-II is incorrect. The table shows the absolute value of GFCE (in Rupees Crore) increasing from 28,83,649 in 2022-23 to 30,68,970 in 2023-24, and to 33,30,598 in 2024-25. The share of GFCE in GDP can decrease even when its absolute value increases, if the overall GDP is growing at a faster rate than the GFCE.

Question 15

Based on the provided information on National Income estimation, consider the following statements:

1. In the expenditure approach for GDP calculation, the value of Imports is subtracted from the sum of other components.
2. As per the First Advance Estimates for 2024-25, the combined share of Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) in GDP is more than 90%.
3. 'Discrepancies' in national income accounts represent the gap between Gross National Income (GNI) and Net National Income (NNI).

How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is correct. The formula for GDP (Expenditure Approach) is given as GDP = PFCE + GFCE + GFCF + CIS + Valuables + Exports - Imports, which clearly shows that Imports are subtracted. Statement 2 is correct. According to the table for 2024-25 (FAE), the share of PFCE in GDP is 61.8% and the share of GFCF is 30.1%. Their combined share is 61.8% + 30.1% = 91.9%, which is more than 90%. Statement 3 is incorrect. The text explicitly defines 'Discrepancies' as the gap between GDP (Production/Income Approach) and GDP (Expenditure Approach), not the gap between GNI and NNI. Therefore, only two statements are correct.

Question 16

With reference to the calculation of National Income, consider the following statements:
1. Land Revenue and Stamp fees are classified as Product Taxes.
2. Subsidies provided on a per-unit basis, such as fertiliser subsidies, are classified as Product Subsidies.
3. Gross Value Added (GVA) at Basic Prices is calculated by adding Net Production Taxes to GVA at Factor Cost.

How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is incorrect. Land Revenue and Stamp fees are classified as Production Taxes, not Product Taxes. Production taxes are compulsory payments levied on the production process itself, independent of the volume of output (e.g., taxes on the ownership of land used in production). Product taxes are levied per unit of a product.

Statement 2 is correct. Subsidies that are payable per unit of a good or service produced, such as fertiliser subsidies, are classified as Product Subsidies. They are directly linked to the volume of the product.

Statement 3 is correct. The relationship between Gross Value Added (GVA) at Basic Prices and GVA at Factor Cost is defined by the formula: GVA at Basic Prices = GVA at Factor Cost + (Production Taxes - Production Subsidies). The term (Production Taxes - Production Subsidies) is known as Net Production Taxes.

Since two statements (2 and 3) are correct, the correct option is 'b'.

Question 17

Consider the following statements:

Statement-I: Gross Value Added (GVA) provides an economic insight from the supplier's perspective, while Gross Domestic Product (GDP) provides an insight from the consumer's perspective.

Statement-II: GVA is calculated at basic prices by adding net product taxes to GVA at factor cost, while GDP is calculated at market prices by adding net product taxes to GVA at basic prices.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Statement-I is correct but Statement-II is incorrect.. Statement-I is correct. The text explicitly states that 'GVA provides insight into the economy from the input or supplier side, while GDP provides insight from the output or consumer side'. Statement-II is incorrect. The first part of the statement is flawed. GVA at basic prices is calculated by adding Net **Production** Taxes (not Net Product Taxes) to GVA at Factor Cost. The formula is: GVA at Basic Prices = GVA at Factor Cost + (Production Taxes – Production Subsidies). While the second part regarding GDP calculation is correct (GDP at Market Price = GVA at Basic Prices + Product Taxes - Product Subsidies), the initial error makes the entire statement incorrect. Therefore, Statement-I is correct, but Statement-II is incorrect.

Question 18

Consider the following items with respect to National Income accounting:
1. Government expenditure on old-age pensions.
2. Commission charged by a broker on the sale of second-hand goods.
3. Income from the sale of shares and bonds.
4. Imputed rent of an owner-occupied property.

Under the standard methods of calculation, how many of the above items are included in the estimation of a country's National Income?

Accepted Answer

Only two. Let's analyze each item:
1. Government expenditure on old-age pensions is a transfer payment. The text states that under the expenditure method, this is not included in government purchases (G), and under the income method, transfer receipts are not included. Thus, it is not included.
2. Commission charged by a broker on the sale of second-hand goods is included. The text specifies under the Income Method that this commission is included in National Income as it represents payment for a service rendered in the current year. Thus, it is included.
3. Income from the sale of shares and bonds is not included. The text explicitly states under the Income Method that income from the sale of shares, bonds, and debentures is not included as it is a financial transaction that does not correspond to the production of new goods or services. Thus, it is not included.
4. Imputed rent of an owner-occupied property is included. The text specifies under the Product Method that imputed rent is a part of National Income. Thus, it is included.
Therefore, only two items (Commission and Imputed Rent) are included in the estimation of National Income.

Question 19

Consider the following statements regarding the shapes of economic recovery:

1. A W-shaped recovery is characterized by the economy struggling at a low growth rate for some time before gradually rising to usual levels.
2. An L-shaped recovery is considered a dangerous scenario where growth falls and rises, but falls again before recovering, forming a distinct chart pattern.
3. A K-shaped recovery signifies a divergence where some parts of the economy recover quickly while others continue to stagnate or decline.

How many of the above statements are correct?

Accepted Answer

Only one. Statement 1 is incorrect. It describes a U-shaped recovery, where the economy, after falling, struggles and muddles around a low growth rate for some time before rising. A W-shaped recovery involves a fall, a rise, another fall, and then a final recovery. Statement 2 is incorrect. It describes a W-shaped recovery. An L-shaped recovery is the worst-case scenario where growth, after falling, stagnates at low levels and does not recover for a very long time. Statement 3 is correct. A K-shaped recovery illustrates a scenario where a portion of the population and businesses recover quickly and fully, while another segment suffers, showing a divergence in economic fortunes.

Question 20

Consider the following statements:

Statement-I: National Income accounting is often considered an incomplete measure of the sustainable economic well-being of a nation's populace.

Statement-II: National Income figures are utilized by the corporate sector to forecast revenues and plan future investment activities.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Both Statement-I and Statement-II are correct but Statement-II is not the correct explanation for Statement-I. Statement-I is correct. National Income accounting does not factor in negative externalities such as environmental degradation (e.g., industrial waste, carbon emissions) that arise from economic activities. This omission means it can overstate sustainable well-being. Statement-II is also correct. National Income data provides insights into the overall economic trajectory, which helps corporations in planning their business activities and investments. However, Statement-II does not explain Statement-I. The reason National Income is an incomplete measure of sustainable well-being (Statement-I) is its failure to account for non-market transactions, social welfare, and negative externalities, not because corporations use it for planning (Statement-II).

Question 21

With reference to Gross Fixed Capital Formation (GFCF) in the context of national income accounting, consider the following statements:

1. Gross Fixed Capital Formation (GFCF) is a measure of capital expenditure undertaken exclusively by the private corporate sector.
2. A revival in private sector capex spending guarantees a proportional increase in the GFCF as a percentage of GDP.
3. Investments in intellectual property products, such as software and R&D, are included in the measurement of GFCF.

How many of the above statements are correct?

Accepted Answer

Only one. Statement 1 is incorrect. GFCF is a comprehensive measure of investment that includes capital expenditure by all sectors of the economy: the public sector (government), the private corporate sector, and households.

Statement 2 is incorrect. The GFCF as a percentage of GDP is a ratio. An increase in one component (private capex) does not guarantee an increase in the overall ratio. The final value depends on the performance of other components (public and household investment) and the growth rate of the denominator, GDP. For instance, if public investment falls sharply or GDP grows faster than GFCF, the ratio could decrease despite a revival in private capex.

Statement 3 is correct. GFCF measures the net additions to the stock of fixed assets. Fixed assets are defined as produced assets used repeatedly in the production process for more than one year. This definition includes tangible assets like machinery and buildings, as well as intangible assets like software, databases, and R&D expenditures, as they contribute to future production and economic benefit over an extended period.

Question 22

Consider the following statements regarding the quality and impact of public expenditure:

Statement-I: A rising trend in a government's Quality of Public Expenditure Index (QPEI) generally indicates a compositional shift towards higher capital expenditure relative to revenue expenditure.

Statement-II: Government capital expenditure is considered to have a lower fiscal multiplier effect on the economy compared to its revenue expenditure.

Accepted Answer

Statement-I is correct but Statement-II is incorrect.. Statement-I is correct. The Quality of Public Expenditure Index (QPEI) is a conceptual tool to assess government spending effectiveness. It values asset-creating expenditure (capital) over operational costs (revenue). A rising QPEI thus signifies a compositional shift towards a higher share of capital expenditure. Statement-II is incorrect. It is a well-established economic principle that capital expenditure has a significantly higher fiscal multiplier than revenue expenditure. Capex boosts aggregate demand, creates long-term assets, crowds in private investment, and enhances productive capacity, leading to a larger, more sustained GDP increase. Revenue expenditure, while necessary, has a more immediate and smaller multiplier effect.

Question 23

Consider the following statements regarding capital formation in the Indian economy:

1. The Quality of Public Expenditure Index is a quarterly statistical release by the National Statistical Office (NSO).
2. Private sector capital expenditure includes investments made by both large corporations and household-run businesses.
3. Gross Fixed Capital Formation (GFCF) data excludes the net acquisition of valuables like gold by households.

Which of the statements given above is/are correct?

Accepted Answer

2 and 3 only. Statement 1 is incorrect. The Quality of Public Expenditure Index (QPEI) is an analytical tool used to assess the composition of public spending, particularly the ratio of capital expenditure to revenue expenditure. It is not a formal, routine statistical release published quarterly by the National Statistical Office (NSO). Statement 2 is correct. In the context of national accounts, the 'private sector' encompasses both the private corporate sector (companies) and the household sector. The household sector's investments in fixed assets for business purposes are part of private capital expenditure. Statement 3 is correct. Gross Capital Formation (GCF) has three main components: Gross Fixed Capital Formation (GFCF), Change in Stocks, and Valuables. GFCF specifically measures investment in productive fixed assets and does not include the acquisition of non-productive assets like gold, which are accounted for separately under 'Valuables'.

Question 24

With reference to the periodic revision of the base year for Gross Domestic Product (GDP) estimation in India, consider the following statements:
1. This exercise is conducted under the mandate of the Ministry of Finance.
2. A key methodological update for the new series involves the integration of data from the Goods and Services Tax Network (GSTN).
3. The fundamental reason for such a revision is to account for the structural transformations within the economy over time.
How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is incorrect. The revision of the GDP base year is the responsibility of the Ministry of Statistics and Programme Implementation (MoSPI), not the Ministry of Finance. Statement 2 is correct. The upcoming GDP series with a new base year is planned to use more robust data sources, with the Goods and Services Tax Network (GSTN) being a significant one for better estimation of economic activity. Statement 3 is correct. Base year revisions are crucial for capturing the structural changes in an economy, such as the changing relative importance of different sectors (e.g., agriculture, industry, services), to ensure the GDP figures provide an accurate representation of the current economic landscape.

Question 25

Consider the following statements regarding national income accounting:
Statement-I: An increase in capital consumption, ceteris paribus, widens the gap between GDP and NDP.
Statement-II: Net Domestic Product (NDP) is derived by adding depreciation to Gross Domestic Product (GDP).

Accepted Answer

Statement-I is correct but Statement-II is incorrect.. Statement-I is correct. The difference between GDP and NDP is depreciation (Consumption of Fixed Capital). If depreciation increases, the numerical gap between the two aggregates widens. Statement-II is incorrect. It inverts the relationship; NDP is calculated by subtracting depreciation from GDP (NDP = GDP - Depreciation), not by adding it.

Question 26

With reference to the news (2026-01-08) regarding the GDP Base Year Revision, which of the following are potential outcomes?
1. A change in the relative share of various sectors in the economy.
2. An upward revision of the nominal GDP of past years.
3. A change in the real GDP growth rate for the year 2025-26.
Select the correct answer using the code given below:

Accepted Answer

1 and 3 only. Statement 1 is correct. A base year revision is done to capture structural changes, which often results in revised shares for sectors like agriculture, industry, and services. Statement 2 is incorrect. A base year change affects the calculation of real GDP, not nominal GDP of past years, which is recorded at then-current prices. Statement 3 is correct. Real GDP is calculated using base year prices, so a new base year will lead to a re-calculation of real GDP and its growth rates.

Question 27

With reference to the Consumer Confidence Index (CCI), consider the following statements:

Statement-I: A dip in the Consumer Confidence Index suggests a potential slowdown in private final consumption expenditure.
Statement-II: The index reflects household sentiments on future income and employment, which directly influence precautionary savings.

Which one of the following is correct in respect of the above statements?

Accepted Answer

Both statements are correct and Statement-II is the correct explanation.. Statement-I is correct. A fall in consumer confidence indicates that households are pessimistic about the future, leading them to reduce discretionary spending, thus slowing down private consumption. Statement-II is also correct. The index's components, like future income and employment outlook, are key drivers of household saving/spending decisions. When households are pessimistic about the future (as reflected in the CCI), they tend to increase their precautionary savings, which means they spend less. Therefore, Statement-II correctly explains the mechanism through which the sentiment in Statement-I translates into economic reality.

Question 28

Consider the following statements regarding the Consumer Confidence Survey (CCS) in India:

1. The bi-monthly Consumer Confidence Survey is conducted by the National Statistical Office (NSO).
2. An index value below 100 represents net pessimism among the respondents.
3. The survey captures perceptions on both the current situation and future expectations.

How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is incorrect. The Consumer Confidence Survey is conducted by the Reserve Bank of India (RBI), not the NSO. Statement 2 is correct. The index is structured such that 100 is the neutral level, with values above it indicating optimism and below it indicating pessimism. Statement 3 is correct. The survey is bifurcated into the Current Situation Index (CSI) and the Future Expectations Index (FEI).

Question 29

With reference to the Reserve Bank of India's Consumer Confidence Survey (CCS), consider the following statements:

1. The Current Situation Index (CSI) measures household perceptions of the general economic situation for the upcoming year.
2. The Future Expectations Index (FEI) serves as a forward-looking input for the Monetary Policy Committee's assessment of demand conditions.
3. A concurrent decline in both the CSI and the FEI is indicative of a broad-based weakening in aggregate demand.

Which of the statements given above is/are correct?

Accepted Answer

2 and 3 only. Statement 1 is incorrect. The Current Situation Index (CSI) assesses perceptions of the prevailing economic conditions over the preceding year. Perceptions for the 'upcoming year' are captured by the Future Expectations Index (FEI), not the CSI. Statement 2 is correct. The FEI provides crucial forward-looking information on household sentiment, which is a key input for the Monetary Policy Committee's inflation and growth forecasts, helping them assess future demand conditions. Statement 3 is correct. A fall in the CSI indicates that current economic sentiment and demand are weak, while a concurrent fall in the FEI suggests that households expect future conditions to be weak as well. Together, they signal a comprehensive and broad-based slowdown in aggregate demand.

Question 30

Consider the following statements regarding the estimation of District Domestic Product (DDP) in India:
1. The methodology is primarily 'bottom-up', involving the direct aggregation of economic data from all establishments within a district.
2. The production approach, which calculates Gross Value Added (GVA), is generally preferred over the expenditure approach for this estimation.
3. State-level economic estimates are often disaggregated using relevant district-level indicators to derive the DDP.
How many of the above statements are correct?

Accepted Answer

Only two. Statement 1 is incorrect. The estimation of DDP in India uses a mixed approach. While the primary sector (like agriculture) may use a bottom-up method, the secondary and tertiary sectors predominantly rely on a 'top-down' approach due to the impracticality of collecting comprehensive data from all establishments at the district level. Statement 2 is correct. The production approach (calculating GVA) is the standard and most feasible method for sub-national accounting. The expenditure approach is difficult to apply at the district level because of the challenges in accurately measuring inter-district trade flows. Statement 3 is correct. This describes the 'top-down' methodology, where State Gross Domestic Product (SGDP) or State GVA is apportioned to districts using suitable indicators like workforce distribution, credit deployment, or infrastructure availability.

Question 31

Consider the following statements regarding the estimation of District Domestic Product (DDP) in India:
1. The National Statistical Office (NSO) is the sole agency responsible for the compilation and final release of DDP data for all districts.
2. The estimation of DDP is a mandatory exercise for all states as per the provisions of the Fiscal Responsibility and Budget Management (FRBM) Act.
3. The Ministry of Statistics and Programme Implementation (MoSPI) provides the guidelines to states for ensuring uniformity and comparability in DDP estimation.
Which of the statements given above is/are correct?

Accepted Answer

3 only. Statement 1 is incorrect. While the Ministry of Statistics and Programme Implementation (MoSPI), through the NSO, provides guidelines, the actual compilation and release of District Domestic Product (DDP) data are undertaken by the Directorates of Economics and Statistics (DES) of the respective state governments. The NSO's role is advisory and for standardisation, not direct compilation for all districts. Statement 2 is incorrect. There is no legal mandate under the FRBM Act or any other law that makes DDP estimation a compulsory exercise for states. It is a recommended practice to facilitate granular-level policy-making. Statement 3 is correct. To ensure uniformity in methodology and comparability of data across states, MoSPI has formulated and circulated detailed guidelines for the estimation of DDP.

Question 32

Consider the following statements regarding the estimation of District Domestic Product (DDP) in India:
Statement-I: The primary objective of DDP estimation is to enable targeted policy interventions and reduce regional economic disparities.
Statement-II: The methodology for DDP estimation often relies on apportioning state-level data using proxies, making it less robust than national-level estimates.

Accepted Answer

Both statements are correct; Statement-II is not the correct explanation for Statement-I.. Statement-I is correct. The main goal of estimating GDP at the district level (DDP) is to facilitate evidence-based, localized planning to address regional imbalances. Statement-II is also correct. Due to data limitations, DDP for many sectors is estimated by disaggregating state data using various indicators (proxies), which is a less direct and robust method than national estimation. However, Statement-II describes a methodological challenge, not the reason for the initiative described in Statement-I. The goal (Statement-I) exists despite the methodological limitation (Statement-II).

Macroeconomics and National Income

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