Previous Year Questions (PYQs)

on
Measurement of Growth: National Income &
Per Capita Income

Introductory Note

This document contains the following 3 sections –

Section A – Under this section, you will find the exact previous year’s questions that were asked in RBI
and NABARD. This section will enable you to test your knowledge based on different concepts and for
your comfort, we have segregated the questions according to the different examinations. The questions
have been arranged in the following manner

1. RBI Grade B - Here, you will find all the previous year’s questions, which were asked in phase
2 of the RBI Grade B exam, starting from 2016 onwards
2. NABARD Grade A - Here, you will find all the previous year’s questions, which were asked ie
Phase 1 and Phase 2 of the NABARD Grade A exam, starting from 2016 onwards

If there is no question in this document on any exam for a particular year or years, it means no
question was asked for that exam in that year(s) or the exam itself was not conducted in that year.

Section B - In this section, you will find the answer key for all the questions, and it will enable you to
check your marks and understand your performance accordingly.

Section C – This section contains a detailed explanation of every question, and herein you will be able
to understand the concept in the best holistic manner possible.

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 Section A

Questions asked in Phase 2 of RBI Grade B exam, from 2016 onwards

Question 1 – GDP, or Gross Domestic Product is defined as _____________ RBI Grade B - Phase 2 - 2017
A. Value of all final goods and services produced for the marketplace over a period of time within domestic
borders
B. Value of all final goods and services produced for the marketplace over a period of time by the citizens of
that country
C. Value of all final goods and services produced within the country within one year
D. The sum of the value-added produced over a period of time within the country
E. None of the above

Question 2 – Gross Domestic Product – Depreciation is equal to_____________ RBI Grade B - Phase 2 - 2017
A. Gross National Product
B. Net National Product
C. Net Domestic Product
D. National Income
E. Real Gross Domestic Product

Question 3 – Estimates of National Income in India is released by which organization? RBI Grade B - Phase 2 -
2018
A. National Statistical Office
B. NITI Aayog
C. Union Ministry of Finance
D. Reserve Bank of India
E. National Sample Survey

Question 4 – Per capita income of a country is computed as___________ RBI Grade B - Phase 2 - 2018
A. Gross Domestic Product divided by population
B. National Income divided by population
C. Gross Domestic Product divided by working-age population
D. National Income divided by working-age population

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E. Gross National Product divided by population

Question 5 – A commodity that is used by the consumer to satisfy current wants or needs is known as
________RBI Grade B - Phase 2 - 2018
A. Primary Good
B. Final Good
C. Basic Good
D. Heavy Good
E. None of the above

Question 6 – With reference to Gross Value Added (GVA), which of the following statements is/are correct? RBI
Grade B - Phase 2 - 2018
A. It is defined as the value of output minus the value of intermediate consumption.
B. Its estimate is released by National Statistical Office.
C. From an economic perspective, it represents the supply side.
D. In India, GVA is calculated at basic prices.
E. All of the above

Question 7 – Which of the following statements about macroeconomics is not correct? RBI Grade B - Phase 2 -
2018
A. It studies issues and problems at the level of the economy as a whole.
B. It is basically concerned with determination of aggregate output and general price level in the economy as
a whole.
C. Its focus is on maximisation of social welfare.
D. It has a very wide scope, i.e. a state, or a country.
E. None of the above

Question 8 – Gross Domestic Product estimated by expenditure method does not include the value
of_________RBI Grade B - Phase 2 - 2018
A. Consumption expenditure
B. Investment expenditure
C. Government expenditure
D. Inventory
E. Net Export

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Question 9 – Who among the following coined the term ‘Animal Spirits’? RBI Grade B - Phase 2 - 2019
A. David Ricardo
B. John Maynard Keynes
C. Thomas Malthus
D. John Stuart Mill
E. Adam Smith

Question 10 – The term National Income represents _________ RBI Grade B - Phase 2 - 2019
A. Gross national product at market prices minus depreciation
B. Gross national product at market prices minus depreciation plus net factor income from abroad
C. Gross national product at market prices minus depreciation and indirect taxes plus subsidies
D. Gross national product at market prices minus net factor income from abroad
E. None of the above

Question 11 – Which of the following term denotes the average income earned by a person in India? RBI Grade
B - Phase 2 - 2019
A. GDP per capita
B. Per capita income
C. Personal income
D. Personal Disposable Income
E. None of the above

Questions asked in Phase 1 and Phase 2 of NABARD Grade A exam, starting from 2016 onwards

Question 1 – A market failure can best be described as a situation where __________NABARD Grade A - 2017
A. Markets fail to allocate resources efficiently
B. Markets encourage people to take risks
C. Markets enable buyers to gain utility
D. Markets fail to enable sellers to make profits
E. None of the above

Question 2 – With reference to Gross Value Added (GVA), which of the following statements is/are correct?
NABARD Grade A - 2018
A. It is defined as the value of output minus the value of intermediate consumption.
B. Its estimate is released by National Statistical Office.
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C. From an economic perspective, it represents the supply side.
D. In India, GVA is calculated at basic prices.
E. All of the above

Question 3 – GDP growth caused by an increase in the amount of inputs available for use or quantitative
increase in land, labour, and capital is called ________ NABARD Grade A - 2018
A. Extensive growth
B. Intensive growth
C. Primary growth
D. Secondary growth
E. Factor growth

Question 4 – Economic growth can be measured as the percentage rate increase in the________ NABARD
Grade A - 2018
A. Nominal gross domestic product
B. Real gross domestic product
C. National Income
D. Per capita income
E. Either (a) or (b)

Question 5 – GDP deflator is defined as __________NABARD Grade A - 2018

A. Nominal GDP multiplied by price level.
B. Nominal GDP minus Real GDP.
C. Nominal GDP divided by Consumer Price Index.
D. Nominal GDP divided by Wholesale Price Index.
E. Nominal GDP divided by real GDP.

Question 6 – How would a free-market economy be described? NABARD Grade A - 2018

A. An economy in which decisions are made by the government rather than by the interaction between
consumers and businesses
B. The international exchange of goods and services
C. An economy based on supply and demand with little or no government control
D. An economy that combines characteristics of capitalism and socialism
E. None of the above

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 Section B

Answer Key

RBI Grade B questions

Question Number Answer

Question 1 Option A
Question 2 Option C
Question 3 Option A
Question 4 Option B
Question 5 Option B
Question 6 Option E
Question 7 Option E
Question 8 Option D
Question 9 Option B
Question 10 Option C
Question 11 Option B

NABARD Grade A questions

Question Number Answer

Question 1 Option A
Question 2 Option E
Question 3 Option A
Question 4 Option B
Question 5 Option E
Question 6 Option C

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 Section C

Explanation
RBI Grade B questions

Question 1 – GDP, or Gross Domestic Product is defined as _______ RBI Grade B - Phase 2 - 2017
A. Value of all final goods and services produced for the marketplace over a period of time within domestic
borders
B. Value of all final goods and services produced for the marketplace over a period of time by the citizens of
that country
C. Value of all final goods and services produced within the country within one year
D. The sum of the value-added produced over a period of time within the country
E. None of the above

Answer – Option A

Explanation

The question is straightforward. It is definition based.

Key Definition

• Gross Domestic Product (GDP): GDP is the total monetary or market value of all the final goods and services
produced within a country's borders in a specific time period. GDP provides an economic snapshot of a
country, used to estimate the size of an economy and growth rate. It can be calculated in three ways, using
expenditures, production, or incomes.
• Final Goods and Services: Goods and services that are available for purchase by their ultimate or intended
user with no plans for further physical transformation or as an input in the production of other goods that
will be resold. Gross domestic product seeks to measure the market value of final goods.
➢ Final goods are purchased through product markets by the four basic macroeconomic sectors
(household, business, government, and foreign) as consumption expenditures, investment expenditures,
government purchases, and exports.
➢ Final goods, which are closely related to the term current production, should be contrasted with
intermediate goods- (and services) that will be further processed before reaching their ultimate user.

Question 2 – Gross Domestic Product – Depreciation is equal to _________ RBI Grade B - Phase 2 - 2017
A. Gross National Product
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B. Net National Product
C. Net Domestic Product
D. National Income
E. Real Gross Domestic Product

Answer – Option C

Explanation

The question is conceptual as it is based on the computation of GDP.

• GDP is calculated using the Production method, Expenditure method, and Income method.
• Production factors such as machines, equipment, tools, factory buildings, tractors, etc depreciate over a
period of time during the process of production. It may be the case that after a certain time these capital
goods need replacement.
• The capital used for this wear and tear is not part of anybody’s income.
• Thus, we subtract depreciation from the GDP to get the Net GDP
Net Domestic Product = GDP – Depreciation

Question 3 – Estimates of National Income in India is released by which organization ? RBI Grade B - Phase 2 -
2018
A. National Statistical Office
B. NITI Aayog
C. Union Ministry of Finance
D. Reserve Bank of India
E. National Sample Survey
Answer – Option A

Explanation

The question is fact-based; these kinds of questions are the usual dimensions in the examination.
• GDP estimates are released by NSO, which falls under the Ministry of statistical and programme
implementation. Along with it, CPI Inflation data is also released by it.

Question 4 – Per capita income of a country is computed as ____________ RBI Grade B - Phase 2 - 2018
A. Gross Domestic Product divided by population
B. National Income divided by population
C. Gross Domestic Product divided by the working-age population
D. National Income divided by the working-age population
E. Gross National Product divided by population
Answer – Option B

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Explanation

The question is definition based and is testing the basics of the subject.
• Per capita income is a measure of the amount of money earned per person in a nation or geographic region.
• Per capita income can be used to determine the average per-person income for an area and to evaluate the
standard of living and quality of life of the population.
• Per capita income for a nation is calculated by dividing the country's national income (Net National Income
at Factor Cost) by its population.
• Per capita income = National Income / Population

Question 5 – A commodity that is used by the consumer to satisfy current wants or needs is known as RBI Grade
B - Phase 2 - 2018
A. Primary Good
B. Final Good
C. Basic Good
D. Heavy Good
E. None of the above
Answer – Option B

Explanation

The question is definition based and one must be familiar with a basic definition of all economic terms.

• Final goods are referred to as those goods that do not require further processing. These goods are also
known as consumer goods and are produced for the purpose of direct consumption by the end consumer.
• In simple words, final goods are commodities that are manufactured by a company for a subsequent
consumption by the consumer. These goods satisfy the needs or want of a consumer.
• Final goods consist of the following:
➢ Goods that are purchased by households are meant for final consumption. For example, television, milk,
ready-to-eat foods, medicines, and more.
➢ It also consists of the goods that are purchased by the firms for investment purposes or for capital
formation.

Classification of Final Goods

Final goods can be classified into the following two broad parameters:
1. Buying habits
2. Durability
Let us know more in detail about these parameters.
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Buying habits
The following categories of final goods can be classified based on the buying habits of a consumer.
1. Convenience goods: Convenience goods are those goods that are available and regularly consumed.
Examples of such goods are the goods that are regularly used such as milk, bread, pulses, and more.
2. Specialty goods: Specialty goods are consumed by the upper class of society, as these are mostly goods that
provide luxury and are expensive. These goods are not a necessity; rather, the purchase is made based on
the user’s desires. Examples of such goods are antique cars, jewellery, and more.
3. Shopping goods: These types of goods require more planning on the consumer’s part for purchase, are
durable, and, more expensive than convenience goods. Examples of such goods are refrigerators,
televisions, laptops, and more.
4. Unsought goods: These types of goods are available in the market but are not purchased often by
consumers. Examples of such goods are fire extinguishers, snow jackets, and more.

Durability
Based on the durability of goods, there are three types of goods.
1. Services
2. Non-durable goods
3. Durable goods
Services are intangible in nature, but they provide satisfaction to consumers. They are variable and inseparable.
Examples of services include salon services, automobile repair services, and more.
• Non-durable goods are goods that have a finite lifespan and are to be consumed as soon as possible. For
example, milk, beverages, and more.
• Durable goods are those goods that have a higher lifespan than non-durable goods. For example, cars,
equipment, and more.

Question 6 – With reference to Gross Value Added (GVA), which of the following statements is/are correct? RBI
Grade B - Phase 2 - 2018
A. It is defined as the value of output minus the value of intermediate consumption.
B. Its estimate is released by National Statistical Office.
C. From an economic perspective, it represents the supply side.
D. In India, GVA is calculated at basic prices.
E. All of the above
Answer – Option E

Explanation

The question is based on one of the important concepts of GVA. One must have a thorough understanding of
this topic as discussed below.

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Gross Value Added
• In 2015, India opted to make major changes to its compilation of national accounts and decided to bring
the whole process into conformity with the United Nations System of National Accounts (SNA) of 2008.
➢ The SNA is the internationally agreed standard set of recommendations on how to compile measures of
economic activity.
➢ It describes a coherent, consistent and integrated set of macroeconomic accounts in the context of a set
of internationally agreed concepts, definitions, classifications and accounting rules.
• As per the SNA, GVA is defined as the value of output minus the value of intermediate consumption and
is a measure of the contribution to growth made by an individual producer, industry or sector.
➢ It provides the rupee value for the number of goods and services produced in an economy after
deducting the cost of inputs and raw materials that have gone into the production of those goods and
services.
• It can be described as the main entry on the income side of the nation’s accounting balance sheet, and from
an economics perspective represents the supply side.
• At the macro level, from a national accounting perspective, GVA is the sum of a country’s GDP and net of
subsidies and taxes in the economy.
➢ Gross Value Added = GDP + subsidies on products - taxes on products
• Earlier, India had been measuring GVA at ‘factor cost’ till the new methodology was adopted in which GVA
at ‘basic prices’ became the primary measure of economic output.
➢ GVA at basic prices will include production taxes and exclude production subsidies.
➢ GVA at factor cost included no taxes and excluded no subsidies.
• The base year has also been shifted to 2011-12 from the earlier 2004-05.
• The NSO provides both quarterly and annual estimates of the output of GVA. It provides sectoral
classification data on eight broad categories that include both goods produced and services provided in the
economy. These are:
1. Agriculture, Forestry, and Fishing.
2. Mining and Quarrying.
3. Manufacturing.
4. Electricity, Gas, Water Supply, and other Utility Services.
5. Construction.
6. Trade, Hotels, Transport, Communication, and Services related to Broadcasting.
7. Financial, Real Estate, and Professional Services.
8. Public Administration, Defense, and other Services.

Question 7 – Which of the following statements about macroeconomics is not correct? RBI Grade B - Phase 2 -
2018
A. It studies issues and problems at the level of the economy as a whole.
B. It is basically concerned with determination of aggregate output and general price level in the economy as
a whole.
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C. Its focus is on maximisation of social welfare.
D. It has a very wide scope, i.e. a state, or a country.
E. None of the above
Answer – Option E

Explanation

The question is based on broad understanding of Macroeconomics.

Microeconomics Macroeconomics
Microeconomics studies individuals and business Macroeconomics studies the impact of business
decisions decisions made by countries and governments
Microeconomics focuses on supply and demand and Macroeconomics focuses on the entire economy
other forces that determine price levels while taking a top-down approach to determine its
course and nature
Potential investors can use microeconomics to make Macroeconomics is an analytical tool used to craft
their decisions economic and fiscal policy
Microeconomics offers a picture of the goods and Macroeconomics ensures that the economic
services needed for a robust economy. It also will resources available in the country are optimally
project which goods and services will have demand in utilized
future
The term microeconomics was coined by Professor John Maynard Keynes is largely credited as the
Ragnar Frisch inventor of modern macroeconomics

Question 8 – Gross Domestic Product estimated by expenditure method does not include the value of________
RBI Grade B - Phase 2 - 2018
A. Consumption expenditure
B. Investment expenditure
C. Government expenditure
D. Inventory
E. Net Export
Answer – Option D

Explanation

The question is based on the computation methods of GDP namely expenditure method which forms the
fundamental of economics.
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• Expenditure method: In this method, the national income is calculated by adding all the expenditures that
are done for purchasing the national output.
• The expenditure method is a system for calculating gross domestic product (GDP) that combines
consumption, investment, government spending, and net exports.
➢ It is the most common way to estimate GDP. It says everything that the private sector, including
consumers and private firms, and government spending within the borders of a particular country, must
add up to the total value of all finished goods and services produced over a certain period of time.
➢ This method produces nominal GDP, which must then be adjusted for inflation to result in real GDP.
• Expenditure is a reference to spending. In economics, another term for consumer spending is demand. The
total spending, or demand, in the economy is known as aggregate demand. This is why the GDP formula
is actually the same as the formula for calculating aggregate demand; because of this, aggregate demand
and expenditure of GDP must fall or rise in tandem.
• However, this similarity isn’t technically always present in the real world—especially when looking at GDP
over the long run. Short-run aggregate demand only measures total output for a single nominal price level,
or the average of current prices across the entire spectrum of goods and services produced in the economy.
Aggregate demand only equals GDP in the long run after adjusting for the price level.
• The expenditure method is the most widely used approach for estimating GDP, which is a measure of the
economy’s output produced within a country’s borders irrespective of who owns the means to production.
➢ The GDP under this method is calculated by summing up all of the expenditures made on final goods and
services.
➢ There are four main aggregate expenditures that go into calculating GDP: consumption by households,
investment by businesses, government spending on goods and services, and net exports, which are
equal to exports minus imports of goods and services.
Additional Information
• There are four factors of production:
1. Natural resources or land;
2. Human resources or labour;
3. Produced means of production or capital; and
4. Entrepreneurs or organisation.
• The payment for the use of land is called rent. Payment for the use of labour is known as wages and
payment for the use of capital is known as interest. The factors of production — land, labour and
capital are primary factors of production and their contractual payments are called factor incomes.
The surplus—what is left after the payment of these primary factors — is called the profit. This
residual income is paid to the organiser of production as profit.
• Thus, income for the participation in the production process may take four forms: rent, wages, interest
and profit. By national income we mean the sum-total of all rent, wages, interest and profit earned in
the production process during a given period by all the citizens, which is known as the factor payments
total.

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 GDP Expenditure Method

Question 9 – Who among the following coined the term ‘Animal Spirits’? RBI Grade B - Phase 2 - 2019
A. David Ricardo
B. John Maynard Keynes
C. Thomas Malthus
D. John Stuart Mill
E. Adam Smith
Answer – Option B

Explanation

The question is fact-based and the term was frequently used in news. This question suggests that one must be
abreast with recent developments.
• Animal Spirits is a term that refers to the emotions and instincts that guide the behavior of investors and
consumers in a market economy. It was coined by British economist John Maynard Keynes in his 1936 book
“The General Theory of Employment, Interest, and Money,” to explain the persistence of economic
fluctuations under capitalism.
• Keynes argued that investment and consumption are often based on how people feel about the overall
economy rather than on unbiased, rational analysis of facts.

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• Critics have argued that while people are not perfectly rational, they are not completely guided by emotions
either; hence, animal spirits cannot sufficiently explain economic cycles.

Question 10 – The term National Income represents___________ RBI Grade B - Phase 2 - 2019
A. Gross national product at market prices minus depreciation
B. Gross national product at market prices minus depreciation plus net factor income from abroad
C. Gross national product at market prices minus depreciation and indirect taxes plus subsidies
D. Gross national product at market prices minus net factor income from abroad
E. None of the above
Answer – Option C

Explanation

The question is definition based.

• Net National Product (NNP) at MP: Is the market value of net output of final goods and services produced
by an economy during a year and net factor income from abroad.
• NNP=GNP-Depreciation or, NNP = C + I + G + (X-M) + NFIA – IT - Depreciation

Where,
C=Consumption
I=Investment
G=Government expenditure
(X-M) =Export minus import

• NFIA= Net factor income from abroad.

• IT= Indirect Taxes

National Income (NI): Is also known as National Income at factor cost which means total income earned by
resources for their contribution of land, labour, capital, and organizational ability. Hence, the sum of the income
received by factors of production in the form of rent, wages, interest and profit is called National Income.

Symbolically or as per the formula, it can be represented as follows.

NI=NNP +Subsidies-Interest Taxes
or, GNP-Depreciation +Subsidies-Indirect Taxes
or, NI = C + G + I+ (X-M) + NFIA-Depreciation - Indirect Taxes + Subsidies

Question 11 – Which of the following term denotes the average income earned by a person in India? RBI Grade
B - Phase 2 - 2019
A. GDP per capita
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B. Per capita income
C. Personal income
D. Personal Disposable Income
E. None of the above
Answer – Option B

Explanation

This question is definition based and is testing the basic understanding of the subject.

• Per capita income is a measure of the amount of money earned per person in a nation or geographic region.
• Per capita income can be used to determine the average per-person income for an area and to evaluate the
standard of living and quality of life of the population.
• Per capita income for a nation is calculated by dividing the country's national income (Net National Income
at Factor Cost) by its population.
• Per capita income = National Income / Population

Explanation
NABARD Grade A questions

Question 1 – A market failure can best be described as a situation where_______ NABARD - Grade A - 2017
A. Markets fail to allocate resources efficiently
B. Markets encourage people to take risks
C. Markets enable buyers to gain utility
D. Markets fail to enable sellers to make profits
E. None of the above
Answer – Option A

Explanation

The question is based on basics on economics.

• Market failure, in economics, is a situation defined by an inefficient distribution of goods and services in
the free market. In market failure, the individual incentives for rational behavior do not lead to rational
outcomes for the group.

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• In other words, each individual makes the correct decision for themselves, but those prove to be the wrong
decisions for the group. In traditional microeconomics, this can sometimes be shown as a steady-state
disequilibrium in which the quantity supplied does not equal the quantity demanded.

Question 2 – With reference to Gross Value Added (GVA), which of the following statements is/are correct?
NABARD - Grade A - 2018
A. It is defined as the value of output minus the value of intermediate consumption.
B. Its estimate is released by National Statistical Office.
C. From an economics perspective, it represents the supply side.
D. In India, GVA is calculated at basic prices.
E. All of the above
Answer – Option E

Explanation

The question is based on one of the important concepts of GVA. One must have a thorough understanding of
this topic as discussed below.

Gross Value Added

• In 2015, India opted to make major changes to its compilation of national accounts and decided to bring
the whole process into conformity with the United Nations System of National Accounts (SNA) of 2008.
➢ The SNA is the internationally agreed standard set of recommendations on how to compile measures of
economic activity.
➢ It describes a coherent, consistent, and integrated set of macroeconomic accounts in the context of a
set of internationally agreed concepts, definitions, classifications, and accounting rules.
• As per the SNA, GVA is defined as the value of output minus the value of intermediate consumption and
is a measure of the contribution to growth made by an individual producer, industry, or sector.
➢ It provides the rupee value for the number of goods and services produced in an economy after
deducting the cost of inputs and raw materials that have gone into the production of those goods and
services.
• It can be described as the main entry on the income side of the nation’s accounting balance sheet, and from
an economics perspective represents the supply side.
• At the macro level, from a national accounting perspective, GVA is the sum of a country’s GDP and net of
subsidies and taxes in the economy.
➢ Gross Value Added = GDP + subsidies on products - taxes on products
• Earlier, India had been measuring GVA at ‘factor cost’ till the new methodology was adopted in which GVA
at ‘basic prices’ became the primary measure of economic output.
➢ GVA at basic prices will include production taxes and exclude production subsidies.
➢ GVA at factor cost included no taxes and excluded no subsidies.
• The base year has also been shifted to 2011-12 from the earlier 2004-05.

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• The NSO provides both quarterly and annual estimates of the output of GVA. It provides sectoral
classification data on eight broad categories that include both goods produced and services provided in the
economy. These are:
1. Agriculture, Forestry and Fishing.
2. Mining and Quarrying.
3. Manufacturing.
4. Electricity, Gas, Water Supply, and other Utility Services.
5. Construction.
6. Trade, Hotels, Transport, Communication, and Services related to Broadcasting.
7. Financial, Real Estate and Professional Services.
8. Public Administration, Defense and other Services.

Question 3 – GDP growth caused by increase in the amount of inputs available for use or quantitative increase
in land, labour, capital is called? NABARD - Grade A - 2018
A. Extensive growth
B. Intensive growth
C. Primary growth
D. Secondary growth
E. Factor growth
Answer – Option A

Explanation

The question is application based. One must have a thorough understanding of these terms to answer this
question. Through elimination method, one can arrive at option A or B. To answer it precisely one must be
familiar with these definitions.

• Extensive growth in its pure form is based on quantitative increases in labour, capital and land, whereas
intensive growth is derived from gains in overall productivity, i.e., increasing efficiency of labour and a better
utilization of capital and other means of production.

Question 4 – Economic growth can be measured as the percentage rate increase in the_________ NABARD
Grade A - 2018
A. Nominal gross domestic product
B. Real gross domestic product
C. National Income
D. Per capita income
E. Either (a) or (b)
Answer – Option B

Explanation

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The question is based on basic concepts.
• The real economic growth rate, or real GDP growth rate, measures economic growth, as expressed by gross
domestic product (GDP), from one period to another, adjusted for inflation or deflation.
• In other words, it reveals changes in the value of all goods and services produced by an economy—the
economic output of a country—while accounting for price fluctuations.

Question 5 – GDP deflator is defined as _________NABARD Grade A - 2018

A. Nominal GDP multiplied by price level.
B. Nominal GDP minus Real GDP.
C. Nominal GDP divided by Consumer Price Index.
D. Nominal GDP divided by Wholesale Price Index.
E. Nominal GDP divided by Real GDP.
Answer – Option E

Explanation

The question is definition based.

• The GDP deflator, also called implicit price deflator, is a measure of inflation. It is the ratio of the value of
goods and services an economy produces in a particular year at current prices to that of prices that prevailed
during the base year.
• This ratio helps show the extent to which the increase in the gross domestic product has happened on
account of higher prices rather than an increase in output.
• Since the deflator covers the entire range of goods and services produced in the economy — as against the
limited commodity baskets for the wholesale or consumer price indices — it is seen as a more
comprehensive measure of inflation.

Question 6 – How would a free-market economy be described? NABARD Grade A - 2018

A. An economy in which decisions are made by the government rather than by the interaction between
consumers and businesses
B. The international exchange of goods and services
C. An economy based on supply and demand with little or no government control
D. An economy that combines characteristics of capitalism and socialism
E. None of the above
Answer – Option C

Explanation

The question is testing the basics. One must be familiar with free market economy and controlled economy as
discussed below.

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• Governments highly control some economies. In the most extreme planned, or command economies, the
government controls all of the means of production and the distribution of wealth, dictating the prices of
goods and services and the wages workers receive.
• In a purely free market economy, on the other hand, the law of supply and demand, rather than a central
planner, regulates production and labor. Companies sell goods and services at the highest price consumers
are willing to pay while workers earn the highest wages companies are willing to pay for their services.

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