Indian Economy Quiz 7

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

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.

Production function is the functional relationship between inputs and output in a given state of technology. Q=f(L,K) [where Q is output, L is Labour, K is Capital]

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.

Consumer sovereignty is the situation in an economy where the desires and needs of consumers control the output of producers.

Inflation is a measure of the rate of rising prices of goods and services in an economy. Increasing the money supply faster than the growth in real output will cause inflation. The reason is that there is more money chasing the same number of goods.

The Reserve Bank of India (RBI) was nationalised with effect from 1 January 1949 on the basis of the RBI Act 1948.

A trade bloc is a group of nations that has reached a set of special agreements regarding their economic relationships with each other.

Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

The statement is taken from Keyne's Investment Demand Function. According to Keynes Investment expenditure refers to the creation of new assets i.e. an addition to the stock of existing capital assets.