• Option C is correct.

• Real wages are nominal wages adjusted for the effects of inflation. Changes in nominal wages can be expressed as an index, and if we divide this by changes in the price level (and multiply by 100) we can derive an index for real wages.

• Real wages show the value of wages adjusted for inflation. Real wages are a guide to how living standards have changed.

• For example, if nominal (actual) wages increased by 5%, but inflation was 5%. This would mean the purchasing power of your wages had stayed the same. The net effect would be the same as a wage freeze (0% real increase)

• However, if wages increase by 2%, and we have an inflation rate of 3%, your real wages is -1%. Prices have risen faster than wages, meaning you are worse off.

• When purchasing power will increase then individuals can buy more goods and services to satisfy their wants. The country as a whole can pay for its purchases from abroad called import. Increase in real income also means that the output level or quantity of output is higher than before. Here output includes output in different sectors of the economy such as agricultural output, industrial output and services to satisfy the needs of India’s growing population increase in output every year has to be achieved.

• Option B is correct.

• Real national income is nominal or money national income (output) adjusted for inflation. It is also national income at constant prices. It can be said that real national income is the measure of national income at a given years price or at a constant price.

• Real per capita income is the average income of individuals in the economy. It is argued that in order to achieve higher standard of living for each individual /household and the society as a whole, both per capita income and national income must grow in real terms. Since income represents purchasing power, increase in income will enhance the purchasing power of people and the country.

Option D is correct.

• Both the statements are incorrect.

• Sale of government assets, like sale of shares in Public Sector Undertakings (PSUs) which is referred to as PSU disinvestment, reduce the total amount of financial assets of the government. All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.

• When government takes fresh loans it will mean that in future these loans will have to be returned and interest will have to be paid on these loans. Similarly, when government sells an asset, then it means that in future its earnings from that asset, will disappear. Thus, these receipts can be debt creating or non-debt creating.

Option B is correct.

• Options 1 and 2 are correct. Option 3 is incorrect.

• Net borrowing at home includes that directly borrowed from the public through debt instruments (for example, the various small savings schemes) and indirectly from commercial banks through the Statutory Liquidity Ratio (SLR). The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy.

• Disinvestment of Public Sector Undertakings means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets. Unlike borrowings, it does not create liabilities for the government but reduces the financial capital of the government.

Option D is correct.

• All the options are correct.

• Reserve money/ high powered money = Currency in circulation + Bank’s deposits with the RBI Currency stored in banks also comes under currency in circulation

• Option D is correct.

• ‘Bankers’ deposits with the Reserve Bank’ represent balances maintained by banks in the current account with the Reserve Bank mainly for maintaining Cash Reserve Ratio (CRR) and as working funds for clearing adjustments.

• ‘Other’ Deposits with the Reserve Bank, for the purpose of monetary compilation, include deposits from foreign central banks, multilateral institutions, financial institutions and sundry deposits net of IMF Account No.1.

Option C is correct.

• Both the statements are correct.

• ‘Demand deposits’ include all liabilities which are payable on demand and they include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/ guarantees, balances in overdue fixed deposits, cash certificates and cumulative/ recurring deposits. ‘Time deposits’ are those which are payable otherwise than on demand and they include fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin money held against letters of credit if not payable on demand, India Millennium Deposits and Gold Deposits.

Option B is correct.

• Options 1 and 3 are correct. Options 2 and 4 are incorrect.

• M1 (narrow money)= C (currency held by public) + DD (demand deposits in banks) + OD(other deposits in RBI). Demand deposits are deposits which can be withdrawn at any time by the account holders. Current account deposits are included in demand deposits.

• Statements 1 and 3 are incorrect. Statement 2 is correct.

• Statement 1 is incorrect. A2 costs covers all paid-out expenses, both in cash and in kind, incurred by farmers on seeds, fertilizers, chemicals, hired labour, fuel, irrigation, etc.

• Statement 2 is correct. The cost of production (All-India weighted average Cost of Production) of agricultural produce is calculated in three ways – A2, A2+FL and C2.

• A2+FL covers actual paid-out costs plus an imputed value of unpaid family labour.

• C2 costs are more comprehensive, accounting for the rentals and interest for the owned land and fixed capital assets respectively, on top of A2+FL.

• CACP considers both A2+FL and C2 costs while recommending MSP.

• Statement 3 is incorrect. MSP does not have any legal backing till now and farmers can’t demand it as a legal right. It is just government policy and an administrative decision to purchase some food grains at MSP.

• Option C is correct.

• Skewflation is a phenomenon when there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation. E.g. food prices rose steadily during the last months of 2009 and the early months of 2010, even though the prices of non-food items continued to be relatively stable. The situation in which the inflation rate and unemployment both remain steadily high is called stagflation.