Introductory Microeconomics

A bank places its funds in assets to earn profits. The assets include:

• investments
• loans and advances
• money at call and short notice
• bills discounted and purchased
• cash in hand with the banks
• cash held with the RBI

It also includes the liabilities which include deposits (both time and demand) and borrowings.

Hence (b) is the correct answer.

Source: Introductory Macroeconomics: NCERT Class Economics

Occupation wise an economy is broadly divided into primary, secondary and tertiary sectors. The primary sector includes production units producing goods by exploiting natural resources. Some examples are farming, mining, fishing, dairy farming etc. Most of such economic activities are usually carried out in rural areas. Hence pair 2 is correctly matched.

The secondary sector covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. Some examples are production of bicycles, scooters, spinning and weaving etc. Most of these activities are carried out in a factory or mill. Hence pair 4 is correctly matched.

The tertiary sector includes units producing only services like banks, transport shops, insurance government department, domestic servants, etc. These are activities that help in the development of the primary and secondary sectors. These activities, by themselves, do not produce a good but they are an aid or a support for the production process. For example, goods that are produced in the primary or secondary sector would need to be transported by trucks or trains and then sold in wholesale and retail shops. At times, it may be necessary to store these in godowns. Transport, storage, communication, banking, trade are some examples of tertiary activities. Hence pair 1 is not correctly matched.

Further, Mineral exploration (different from mining) is a complex activity representing high end research and development for exploration of minerals. It also involves specialists and consultants for prospecting of minerals skill and knowledge based economy. Though activities involving R&D, specialists and consulting form part of Quaternary and Quinary sector, it has been historically been covered under tertiary sector. So, in context of 3 major sectors of Indian economy (Primary, Secondary, tertiary), we can say that mineral exploration should form part of tertiary sector per se. Hence pair 3 is correctly matched.

Source: NCERT

Occupation wise an economy is broadly divided into primary, secondary and tertiary sectors. The primary sector includes production units producing goods by exploiting natural resources. Some examples are farming, mining, fishing, dairy farming etc. Most of such economic activities are usually carried out in rural areas. Hence pair 2 is correctly matched.

The secondary sector covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. Some examples are production of bicycles, scooters, spinning and weaving etc. Most of these activities are carried out in a factory or mill. Hence pair 4 is correctly matched.

The tertiary sector includes units producing only services like banks, transport shops, insurance government department, domestic servants, etc. These are activities that help in the development of the primary and secondary sectors. These activities, by themselves, do not produce a good but they are an aid or a support for the production process. For example, goods that are produced in the primary or secondary sector would need to be transported by trucks or trains and then sold in wholesale and retail shops. At times, it may be necessary to store these in godowns. Transport, storage, communication, banking, trade are some examples of tertiary activities. Hence pair 1 is not correctly matched.

Further, Mineral exploration (different from mining) is a complex activity representing high end research and development for exploration of minerals. It also involves specialists and consultants for prospecting of minerals skill and knowledge based economy. Though activities involving R&D, specialists and consulting form part of Quaternary and Quinary sector, it has been historically been covered under tertiary sector. So, in context of 3 major sectors of Indian economy (Primary, Secondary, tertiary), we can say that mineral exploration should form part of tertiary sector per se. Hence pair 3 is correctly matched.

Source: NCERT

There are 4 concepts of money supply: M1, M2, M3, and M4.

1. M1 = C + DD + OD
   C - Is the currency held by the public. (Public money means that money which is held by everybody other than the government and the banks. It includes companies, general organizations, households. It does not include inter-bank or government deposits in banks.)
   DD - Means net demand deposits with banks. 'Net' here indicates the deposits of only the public in banks.
   OD - Means other deposits. These are the deposits with the RBI, held by certain individuals and institutions, such as former governors of the RBI and institutions like IMF deposits.
2. M3 = M1 + TD = C + DD + OD + TD (Broad money)
   'TD' means time deposits. M3 shows the total purchasing power in the economy. Therefore, when we say money supply in general, it means M3. So, normally, in newspapers, etc., when the word money supply is used, it means M3 (Sometimes, M1 is also used- meaning 100% liquid money- but overall purchasing power is shown by M3.)

Now, in the given case, while the DD component will fall by Rs. 1,00,000, the C component will increase by Rs. 1,00,000, thereby, leaving the money supply unchanged. Hence option (d) is the correct answer.

Source: NCERT

Capital formation means increasing the stock of real capital in a country. In other words, capital formation involves making more capital goods such as machines, tools, factories, transport equipment, materials, electricity, etc., which are all used for future production of goods.

For making additions to the stock of capital, savings and investment are essential. Capital output ratio is the amount of capital needed to produce one unit of output. For example, suppose that investment in an economy is 32% (of GDP), and the economic growth corresponding to this level of investment is 8%. Here, a Rs 32 investment produces an output of Rs 8. The capital output ratio is 32/8 or 4. In other words, to produce one unit of output, 4 units of capital are needed.

Hence, if the capital-output ratio is high, there will not be a significant increase in output despite high savings and investment.

Source: NCERT: Business Studies