23.8     ndian     onom
            quantity of foreign goods and services              non-inflationary growth by encouraging
            ( i.e., its total imports) that a country           new investment.
            can purchase from the proceeds of the       8. (d)  The present management cost of each
            sale of its goods and services (i.e., its           insurance policy is Rs. 120, which will
            total exports) of a given quantity. It is           come down to Rs. 25 once repositories
            a measure of a country’s trading clout              start functioning. The IRDA has licensed
            and is expressed as the ratio of an index           five firms to function as repositories
            of export prices to an index of import              (Karvy Insurance Repositories, NSDL
            prices. Terms of trade of a country                 Database Management Ltd, Central
            improves when the prices of its exports             Insurance Repositories Ltd., SHCIL
            rise in comparison with the prices of its           Projects Ltd. and CAMS Repositories
            imports and vice versa.                             Services Ltd. Out of the total 52 insurance
     5. (b) To highlight the importance of the                  firms in the country only 20 per cent are
            agriculture sector in case of India, the            ready with the sufficient infrastructure
            Survey first quotes Mahatma Gandhi                  for repositories—GoI may make it
            (India lives in villages) and then Theodore         mandatory by the 2014–15 fiscal.
            Schultz. In 2016–17, we see a major shift
                                                        9. (d)  The 3rd generations of economic reforms
            in the government’s budgetary allocation
                                                                articulated the idea of ‘decentralised’
            in favour of the agriculture sector.
                                                                development planning—parallel to the
     6. (d) Both the statements are correct about               idea of inclusive growth. The concept got
            the Rule. The US Federal Reserve                    reference while the government decided
            Board seems to take this rule under
                                                                to go for the 2nd and 3rd generation of
            consideration (as many other central
                                                                economic reforms (in the year 2000–
            banks of the world) but does not always
                                                                01)—the benefits of reforms were found
            follow its suggestions when adjusting the
                                                                to be non-inclusive in nature.
            interest rate. This rule was developed by
            John Taylor, a 20th century economist.      10. (d) The Economic Survey 2016–17 advised
                                                                the government to set up such a body
     7. (d) All of the statements are correct about the
                                                                which it called ‘public sector asset
            Curve. Although the theory claims that
                                                                reconstruction agency (PARA)’. It will
            there is a single maximum point of tax
            rate and moves in either of the directions          serve twin purposes—on one hand it
            from this point makes revenues fall, in             will buy the ‘non-performing assets’
            reality this is only an approximation.              (i.e., bad debts) of the government
            This is a ‘graphical representation’ of a           banks while on the other it will help the
            conceptual relationship between marginal            corporate sector of the country to come
            tax rates and total tax collections. Named          out of the ‘red’ (their balance sheet in
            after the US economics professor Arthur             unsustainable)—this way helping India
            Laffer who proposed that lower tax rates            to come out of the ‘twin balance sheet’
            encourage additional output (supply)                (TBS) problem.
            and thus increase aggregate income.         11. (b) LoU is issued by banks/financial
            Laffer curve is used by the supporters              institutions to firms which gives guarantee
            of ‘supply side economics’ to back their            of firms’ creditworthiness. This makes it
            claim that low income tax policies spur             possible for the firms to borrow as per