Indian Economy Quiz 7

Special drawing rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency per se. They represent a claim to currency held by IMF member countries for which they may be exchanged.

RBI buys and sells government securities or bonds to control the money supply and interest rates. To increase the money supply, the RBI will purchase bonds from banks, which injects money into the banking system. It will sell bonds to reduce the money supply. Statutory Liquidity Ratio (SLR) is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities.

Efficient allocation of resources is achieved to greatest extent under Perfect competition. Efficient allocation of resources is a property of an efficient market whereby all goods and services are optimally distributed among buyers in an economy. It occurs when parties are able to use the accurate and readily available data reflected in the market to make decisions about how to utilize their resources.

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.

The existence of Black money leads to the creation of a parallel economy. It makes the monetary policies less effective as the government cannot account properly for the money which is not formally included in the system.

Budget deficit is the difference between total expenditure and total receipts. The solution to a budget deficit for a government would be to increase taxes, find new avenues for revenue and reduce government spending. Fiscal deficit is calculated by subtracting the total income from the total expenditure.

Treasury bills are short-term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 days, 182 days and 364 days. Treasury bills are zero-coupon securities and pay no interest.

The demand for a commodity changes due to a change in price. It is called extension and contraction of demand. When there is decrease in price of a commodity there is increase in demand of that commodity.

Using Defence Strategies a seller or buyer protects his business or holdings from changing prices and takes action against it.

An open market operation (OMO) is an activity by a central bank (RBI) to give liquidity in its currency to a bank or a group of banks.