NTA UGC NET/JRF Exam, Dec. 2020/June 2021 Economics

Total Questions: 100

1. The study titled, "Monetary Policy Transparency and Anchoring of Inflation Expectation in India" constructs an index of monetary policy transparency for India and examines the role of transparency in anchoring inflation expectations.

Empirical results show that the degree of policy transparency has indeed increased substantially since the adoption of Flexible Inflation Targeting (FIT) in 2016.

Further, empirical evidence suggests that inflation expectations of professional forecasters and households were anchored, in weak-form, in the post-FIT period, though households' expectations did not necessarily lie within the inflation tolerance band.

During the transition period (between the self-imposed disinflationary glide-path since 2014 and adoption of the FIT) both realized inflation and expectations followed a declining path, which resulted in a positive association between them.

During the pre-transition period, when explicit inflation target was absent. expectations were also reasonably anchored, albeit, at a higher level.

Inflation expectations of which group was empirically tested?

Correct Answer: (a) Both of professional forecasters and Households
Solution:

2014-2016 time span has been described as the transition period of monetary policy.

2. What has empirical evidence shown?

Correct Answer: (c) Degree of policy transparency increased but after coming into force of FIT.
Solution:

Empirical evidence suggests that inflation expectations of professional forecasters and households were anchored, in weak-form, in the Post-FIT period, though household's expectations did not necessarily lie within the inflation tolerance band.

3. Empirical evidence suggests that inflation expectations of professional forecasters and households were anchored, in weak-form, in the Post-FIT period, though household's expectations did not necessarily lie within the inflation tolerance band.

Correct Answer: (c) 2014-2016
Solution:

The study titled, "Monetary Policy Transparency and Anchoring of inflation Expectation in India" constructs an index of monetary policy transparency for India and examines the role of transparency in anchoring inflation expectation.

4. What happened to the anchoring of inflation expectations?

Correct Answer: (b) Inflation expectations anchored in a weakform in the post FIT
Solution:

Empirical results show that the degree of policy transparency has indeed increased substantially since the adoption of Flexible Inflation Targeting (FIT) in 2016.

5. Which of the following index has been constructed?

Correct Answer: (a) Index monetary policy transparency for India
Solution:

Inflation expectation of both of professional forecasters and House holds.

6. One argument of protection that stands up to close economic scrutiny is the infant-industry argument. It holds that a nation may have a potential comparative advantage in a commodity, but because of lack of knowledge and the initial small level of output, the industry cannot successfully compete with more established foreign firms.

The infant- industry argument for protection is correct but requires several important qualifications. First, such an argument is more justified for developing nations, where capital markets may not function properly. Second, as experience has shown that protection, once given, is difficult to remove.

Third, what trade protection in the form of import tariff can do an equivalent production subsidy to the infant industry can do better. The reason is that a purely domestic distortion such as this should be overcome with a purely domestic policy such as direct production subsidy to the infant industry.

A production subsidy is also a more direct form of aid and it is easier to remove than an import tariff. A better policy would be to provide a direct subsidy to the industry.

Similarly, a direct tax would also be better than a tariff to discourage activities that give rise to external diseconomies because the tax does not distort relative prices and consumption.

Developing countries are characterised by:

Correct Answer: (d) Improper functioning of the capital markets
Solution:

Trade protection in the form of import tariff can do an equivalent production subsidy to the infant industry can do better.

7. Which of the following is a direct aid to domestic industry?

Correct Answer: (d) Production subsidy
Solution:

First such an argument is more justified for developing nations, where capital markets may not function properly.

8. Which is the most appropriate instrument of trade protection?

Correct Answer: (d) Production subsidy
Solution:

One argument of protection that stands up to close economic scrutiny is that infant-industry argument. It holds that a nation may have a potential comparative advantage in a commodity, but because of lack of knowledge and the initial small level of output, the industry can not successfully complete with more established foreign firms.

9. The obstacles for an industry to compete with more established foreign firms are due to:

Correct Answer: (c) Lack of know-how and initial small level of output
Solution:

A direct tax would also be better than a tariff to discourage activities that give rise to external diseconomies because the tax does not distort relative prices and consumption.

10. Which of the following is effective in preventing external diseconomies?

Correct Answer: (a) A direct tax
Solution:

A production subsidy is also a more direct form of aid and it is easier to remove than an import tariff.