Which of the following activities constitute real sector in the economy? 1. Farmers harvesting their crops 2. Textile mills converting raw cotton into fabr

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

Answer: A

Explanation

The real sector of an economy is the key section as activities of this sector persuade economic output and is represented by those economic segments that are essential for the progress of GDP of the economy. For instance, farmers harvesting their crops or textile mills converting raw cotton into fabrics ensure increase of economic output and in turn progress of GDP. The sector is crucial for the sustainability of the economy because of its productive capability to meet nations’ aggregate demand. Hence statements 1 and 2 are correct. On other hand, the financial sector is a section of the economy made up of firms and institutions that provide financial services to commercial and retail customers. The financial sector generates a good portion of its revenue from loans and mortgages. This sector comprises a broad range of industries including banks, investment companies, insurance companies, and real estate firms. Thus, a commercial bank lending money to a trading company or a corporate body issuing rupee denominated bonds overseas constitute financial sector activities and not real sector activities. Hence statements 3 and 4 are not correct.