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UPSC Prelims 2022

Real Sector in the Economy - UPSC Prelims 2022 Question

Prelims General Studies Paper - 1

May 14, 2023

2 min read



Which of the following activities constitute real sector in the economy?


1. Farmers harvesting their crops

2. Textile mills converting raw cotton into fabrics

3. A commercial bank lending money to a trading company

4. A corporate body issuing Rupee Denominated Bonds overseas




Select the correct answer using the code given below:

A. 1 and 2 only
B. 2, 3 and 4 only
C. 1, 3 and 4 only
D. 1,2, 3 and 4

The correct answer is A. 1 and 2 only


The real sector of an economy plays a crucial role in driving economic output and encompasses the key economic segments that contribute to the GDP's growth. This sector includes activities such as farmers harvesting their crops and textile mills transforming raw cotton into fabrics.


Within the real sector, we find enterprises (nonfinancial corporations), households, and nonprofit institutions serving households. From a monetary and financial perspective, households and nonprofit institutions serving households are sometimes grouped together as a subsector called "Other resident sectors."


However, it's important to note that certain financial transactions, such as a commercial bank lending money to a trading company or a corporate body issuing Rupee-denominated bonds overseas, do not fall under the purview of the real sector. These activities are part of the financial sector and are primarily focused on monetary and financial intermediation rather than direct production or economic output.


By distinguishing the real sector from the financial sector, economists and policymakers can gain a clearer understanding of the drivers of economic growth and design appropriate policies to support and stimulate the real sector's activities. This differentiation helps in channeling resources effectively towards sectors that directly contribute to the production of goods and services, job creation, and overall economic development.

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