Page 119 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 10: Critique of Indian Economy Policies—Pre and Post Reforms

most of the backward states have poor record in health indicators like infant mortality, birth and Notes
death rates. However, among the forward states, Haryana indicates a poor record in terms of infant
mortality and birth rates, though it enjoys a third rank in per capita NSDP. Moreover, among the
backward states Bihar, Uttar Pradesh and Rajasthan have very poor record in literacy, particularly
female literacy. At the same time, the forward states—Haryana, Gujarat and Andhra Pradesh have a
very poor record in female literacy per se.
Self-Assessment

1. Choose the correct option
(i) Given that the consumer price index for each of three years is:
Year 1 = cpi = 100
Year 2 = cpi = 180
Year 3 = cpi = 198
The inflation rate for year 3 is:
(a) 198% (b) 18% (c)9%
(d) 10% (e) cannot be calculated with the data given
(ii) If the interest rate offered to depositors by banks in Year 1 is 7% and the banks expected the
3% inflation that occurred, the banks would experience:
(a) A disappointing cost for deposits of 7%
(b) A disappointing cost for deposits of 4%
(c) An expected nominal cost for deposits of 4%
(d) An expected real cost for deposits of 3%
(f) An expected real cost for deposits of 4%
(iii) The purchasing power of the dollar will:
(a) increase if there is unanticipated inflation.
(b) increase if there is unanticipated inflation but not if there is expected inflation.
(c) decrease if there is unanticipated inflation but not if there is expected inflation
(d) decrease if there is unanticipated inflation or expected inflation
(e) increase if there is anticipated inflation and decrease if there is unanticipated inflation
(iv) When rational consumers expect inflation to occur, they are more likely to
(a) Buy expensive goods sooner
(b) Postpone the purchase of expensive goods.
(c) Hoard dollars.
(d) Invest in newly issued fixed rate bonds that have not accounted for the expected inflation.
(e) Adapt consuming habits that will discourage inflation.
(v) Which of the following entities is most likely to benefit by unexpected inflation?
(a) A bank that has substantial loans out.
(b) A worker who has a 5 year contract without a cola adjustment.
(c) A government that has substantial debt.
(d) A retired worker on a fixed income
(e) A homeowner with an adjustable rate mortgage.
10.4 Summary

• The main aim of economic reforms was to enter an era of globalisation where there was free
flow of goods and services, free flow of technology, free flow of capital, and free movement of
human beings. This means economic reforms needed integrating the Indian economy with

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