Indian Economy Quiz 3

State Government transactions are carried out by RBI in terms of the agreement entered into with the State Governments in terms of section 21 A of the Act. As of now, such agreements exist between RBI and all the State Governments except the Government of Sikkim.

Rate of interest is determined by Liquidity preference. Liquidity Preference Theory is a model that suggests that an investor should demand a higher interest rate or premium on securities with long-term maturities that carry greater risk because investors prefer cash or other highly liquid holdings.

A firm is said to be in equilibrium when its marginal cost is equal to marginal revenue. A firm in equilibrium enjoys maximum profits if average revenue exceeds marginal cost.

All of the goods which are scarce and limited in supply are called luxury goods. A luxury good is a good for which demand increases more than what is proportional as income rises.

The best way for a bank to avoid loss is to accept sound collateral. In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.

The taxation system in India empowers the state governments to levy income tax on agricultural income, professional tax, state excise duty, land revenue and stamp duty. The Central Government of India levies taxes such as customs duty, income tax, Goods and service tax (GST), and central excise duty.

In economics, hot currency is the flow of funds from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.

Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall. Thus, higher borrowing costs will increase production costs and decrease return on capital.

The main advantage of devaluation is to make the exports of a country or currency area more competitive, as they become cheaper to purchase as a result. This can increase external demand and improvement in the balance of payment.

Close substitute goods are similar products that target the same customer groups and satisfy the same needs, but have slight differences in characteristics. Tea and coffee are close substitutes. Increase in price of coffee may increase the demand of tea.