UGC NET Paper 2: Economics 28th August 2024 Shift 1 | UGC NET Past Year Papers PDF Download

Q1: Which of the following is current global measurement of the extreme poverty line? 

(a) $ 1.90 - a day

(b) $ 2.00 - a day

(c) $ 2.15 - a day

(d) $ 2.25 - a day

Ans: c

Sol: The correct answer is - $2.15 - a day

$2.15 - a day

• The World Bank updated the international poverty line to $2.15 per day in 2022.
• This figure is based on 2017 PPP (Purchasing Power Parity) exchange rates.
• The international poverty line is used to measure extreme poverty globally, which refers to the minimum level of income required to meet basic needs.
• This threshold helps compare poverty levels across different countries by considering the cost of living and inflation rates.

Other Related Points

$1.90 - a day

• This was the previous global benchmark for extreme poverty set by the World Bank in 2015.
• This figure was also based on 2011 PPP exchange rates.

$2.00 - a day

• This amount is not an official poverty line but is often referenced in discussions around poverty thresholds.

$2.25 - a day

• This figure is close to the current threshold but not the correct updated value for the global extreme poverty line.

Q2: Match List - I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (II), (B) - (I), (C) - (IV), (D) - (III)

(b) (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

(c) (A) - (IV), (B) - (II), (C) - (III), (D) - (I)

(d) (A) - (III), (B) - (II), (C) - (IV), (D) - (I)

Ans: d

Sol: The correct answer is - (A) - (III), (B) - (II), (C) - (IV), (D) - (I)Rachel Carson

• Rachel Carson is best known for her groundbreaking work, "Silent Spring".
• Published in 1962, "Silent Spring" brought attention to the environmental impacts of pesticides, particularly DDT.
• The book played a pivotal role in the modern environmental movement, leading to policy changes and the establishment of the Environmental Protection Agency (EPA) in the United States.

Kenneth Boulding

• Kenneth Boulding is noted for his work on the concept of the "Economics of the Coming Spaceship Earth".
• In his 1966 essay, Boulding highlighted the importance of sustainable economic practices, contrasting the "cowboy economy" (which is exploitative) with the "spaceship economy" (which is sustainable and resource-efficient).
• His ideas were foundational in the field of ecological economics.

G. Hardin

• Garrett Hardin is famous for his essay "The Tragedy of the Commons", published in 1968.
• The essay discusses how individual users acting independently according to their own self-interest can ultimately destroy a shared resource, even when it is clear that it is not in anyone's long-term interest for this to happen.
• Hardin's work has been influential in discussions about resource management and environmental policy.

Partha Dasgupta

• Partha Dasgupta is renowned for his contributions to the "Economics of Biodiversity".
• His work emphasizes the economic value of biodiversity and the necessity of integrating ecological and economic policies.
• He has been a key figure in promoting the understanding of how economic activities impact biodiversity and the importance of sustainable development.

Other Related Points

Silent Spring

• Rachel Carson's book had a profound impact on the environmental movement and led to the ban of DDT in the U.S.
• The book raised public awareness about the dangers of environmental pollution and the need for better regulatory oversight.

Tragedy of the Commons

• Garrett Hardin's concept is pivotal in environmental science and policy, illustrating the conflict between individual interests and the common good.
• It has applications in various fields, including ecology, economics, and political science.

Economics of the Coming Spaceship Earth

• Kenneth Boulding's work is a cornerstone in ecological economics, advocating for sustainable resource use and environmental conservation.
• His ideas have influenced many policies aimed at sustainable development.

Economics of Biodiversity

• Partha Dasgupta's research underscores the critical importance of biodiversity for economic stability and human well-being.
• He has provided valuable insights into how economic policies can be designed to protect and enhance biodiversity.

Q3: In the Human development report 2023/2024, out of total 193 countries included under the Human Development Index, in which of the following groups maximum number of countries have been classified on the basis of their Human Development Index Values ? 

(a) Very high human development

(b) High human development

(c) Medium human development

(d) Low human development

Ans: c

Sol: The Human Development Index (HDI) categorizes countries based on their level of development. While there are a significant number of countries in both the "High" and "Very High" human development categories, the majority fall under "Medium" human development. This is because the HDI encompasses a broad range of values, with many countries transitioning from the "Low" to the "Medium" category. 

Why other options are incorrect:

(a) Very high human development:

While the "Very High" human development category includes a substantial number of countries, it's unlikely to be the majority. The "Medium" category encompasses a wider range of HDI values.

(b) High human development:

Similar to (a), the "High" human development category is also likely to have a smaller number of countries compared to the "Medium" category.

(d) Low human development:

Although some countries remain in the "Low" human development category, their number is steadily decreasing as more nations progress and move into the "Medium" category. The "Medium" category represents the largest group due to the broad range of HDI values it encompasses. 

Q4: Which of the following is the biggest item of grants-in-aid to the states assigned by the Fifteenth Finance Commission? 

(a) Disaster risk management grants

(b) Revenue deficit grants

(c) Local bodies grants

(d) Sector specific grants

Ans: c

Sol: The correct answer is - Local bodies grants

Local bodies grants

• The Fifteenth Finance Commission recommended substantial grants for local bodies to empower them financially and enhance their autonomy.
• These grants are intended to support urban and rural local bodies in delivering essential services and improving infrastructure.
• Local bodies include municipalities and Panchayati Raj institutions, which are crucial for grassroots governance and development.
• The focus on local bodies grants underscores the importance of decentralized governance and local-level development.

Other Related Points

Disaster risk management grants

• These grants are allocated to states to enhance their capacity to handle disasters and mitigate risks.
• The aim is to improve disaster preparedness and response mechanisms at the state and local levels.

Revenue deficit grants

• These grants are provided to states to help them cover their revenue deficits, ensuring they can maintain essential services.
• Revenue deficit grants are crucial for financially weaker states to manage their fiscal health.

Sector specific grants

• These grants target specific sectors like health, education, and agriculture to promote sectoral development and address specific needs.
• Sector-specific grants are designed to achieve targeted improvements in critical areas of public service delivery.

Q5: Match List - I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

(b) (A) - (I), (B) - (III), (C) - (II), (D) - (IV)

(c) (A) - (I), (B) - (III), (C) - (IV), (D) - (II)

(d) (A) - (I), (B) - (IV), (C) - (III), (D) - (II)

Ans: a

Sol: The correct answer is - (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

(A) Arbitrage

• Arbitrage refers to the simultaneous purchase and sale of currency in different monetary centers to profit from differing exchange rates.
• The goal is to exploit price differentials to achieve a risk-free profit.
• It usually involves quick transactions to take advantage of temporary price differences.

(B) Hedging

• Hedging refers to strategies used to avoid or mitigate foreign exchange risk.
• Involves using financial instruments such as futures, options, or other derivatives.
• The purpose is to lock in exchange rates or prices to protect against unfavorable fluctuations.

(C) Speculation

• Speculation refers to accepting and seeking foreign exchange risk to achieve potential high returns.
• Involves making transactions based on anticipated changes in exchange rates.
• Unlike hedging, speculation does not aim to reduce risk but rather to profit from it.

(D) Foreign exchange risk

• Foreign exchange risk refers to the potential for losses due to changes in exchange rates.
• Occurs when the spot rate varies frequently, impacting the value of investments or transactions.
• Also known as currency risk, it can affect businesses, investors, and governments engaged in international activities.

Other Related Points

Foreign Exchange Concepts

• Spot Rate: The current exchange rate at which a currency can be bought or sold for immediate delivery.
• Forward Rate: An agreed-upon exchange rate for a transaction that will occur at a future date.
• Currency Futures: Financial contracts to buy or sell a currency at a future date and a predetermined price.
• Currency Options: Contracts that give the holder the right, but not the obligation, to buy or sell a currency at a specified exchange rate on or before a specified date.

Investment Strategies

• Arbitrage: A low-risk strategy leveraging price differences in different markets.
• Hedging: A risk management strategy to limit potential losses by using financial derivatives.
• Speculation: A high-risk strategy aimed at achieving substantial returns based on market movements.

Arbitrage exploits exchange rate differences (e.g., buying USD in London, selling in New York). Hedging uses derivatives to mitigate risk. Speculation bets on rate changes. Foreign exchange risk arises from volatile spot rates.

Q6: Consider the following statements: 

(A) Ecological footprint is a measure of human demand on entire ecosystem

(B) Top down approach to development focuses stress on community participation

(C) Millennium Development Goals (MDGs) were assumed to be achieved by year 2016

(D) Sustainable Development Goals (SDGs) comprises 17 goals

Choose the correct answer from the options given below:

(a) (A), (D) only

(b) (A), (B), (D) only

(c) (A), (C), (D) only

(d) (A), (B), (C), (D)

Ans: a

Sol: The correct answer is (A), (D) only

Ecological footprint

• It is a measure of human demand on the Earth's ecosystems.
• It quantifies the amount of natural resources required to support human activities and compares it to the Earth's ability to regenerate those resources.
• It includes aspects such as carbon footprint, land use, and water consumption.

Sustainable Development Goals (SDGs)

• They are a set of 17 global goals established by the United Nations in 2015.
• The goals aim to address various global challenges, including poverty, inequality, climate change, and environmental degradation.
• The SDGs are intended to be achieved by 2030 and are part of the broader 2030 Agenda for Sustainable Development.

Other Related Points

Top down approach to development

• This approach typically involves decision-making by higher authorities or central governments.
• It often focuses on large-scale projects and policies designed by experts and imposed on communities.
• This approach can sometimes overlook local needs and community participation.

Millennium Development Goals (MDGs)

• The MDGs were eight international development goals established by the United Nations in 2000.
• They were aimed at addressing issues such as poverty, hunger, disease, and education.
• The target year for achieving the MDGs was 2015, not 2016.

Q7: Which organisation has developed the UPI system in India and in which year? 

(a) SEBI, 2016

(b) SBI, 2016

(c) RBI, 2015

(d) NPCI, 2016

Ans: d

Sol: The correct answer is - NPCI, 2016

National Payments Corporation of India (NPCI)

• NPCI is an umbrella organization for operating retail payments and settlement systems in India.
• It was founded in 2008 and is owned by a consortium of major banks in India.
• NPCI developed the Unified Payments Interface (UPI) system, which was launched in 2016.
• UPI is a real-time payment system that facilitates inter-bank transactions by instantly transferring funds between two bank accounts on a mobile platform.
• It has revolutionized digital payments in India, making transactions easier, faster, and more secure.

Other Related Points

Securities and Exchange Board of India (SEBI)

• SEBI is the regulator for the securities market in India.
• It was established in 1988 and given statutory powers in 1992 through the SEBI Act, 1992.
• SEBI's primary functions include protecting investor interests, promoting and regulating the securities market.

State Bank of India (SBI)

• SBI is an Indian multinational public sector bank and financial services company.
• It is the largest bank in India in terms of assets, deposits, branches, and employees.
• Although SBI plays a significant role in the banking sector, it did not develop the UPI system.

Reserve Bank of India (RBI)

• RBI is the central bank of India, which controls the issuance and supply of the Indian rupee.
• It was established on April 1, 1935, under the Reserve Bank of India Act, 1934.
• RBI regulates and supervises the financial system, manages foreign exchange, and formulates monetary policy.

Q8: ANCOVA models include regressors that are : 

(a) Only quantitative variables

(b) Only qualitative variables

(c) Only categorical variables

(d) Both qualitative and quantitative variables

Ans: d

Sol: The correct answer is - Both qualitative and quantitative variables

Both qualitative and quantitative variables

• ANCOVA (Analysis of Covariance) is a blend of ANOVA and regression. It assesses the main and interaction effects of categorical variables on a continuous dependent variable while controlling for the effects of other continuous variables (covariates).
• Incorporates both types of variables to adjust for potential confounding factors and improve the accuracy of the model.
• The covariates are quantitative variables, whereas the factors are qualitative (categorical) variables.
• This dual inclusion helps to control for extraneous variables and isolates the effect of the primary variables of interest.

Other Related Points

Only quantitative variables

• Quantitative variables represent measurable quantities and include covariates in ANCOVA, but ANCOVA is not limited to these alone.

Only qualitative variables

• Qualitative variables represent categorical data and include factors in ANCOVA, but ANCOVA is not limited to these alone.

Only categorical variables

• Categorical variables are another term for qualitative variables, which are used in ANCOVA but not exclusively.

ANCOVA combines ANOVA and regression, using qualitative factors (e.g., treatment groups) and quantitative covariates (e.g., age) to control for confounding variables.

Q9: Among the following which is/are attempt of economic integration among developing countries? 

(a) The central American common market

(b) The caribbean free trade association

(c) The Latin American free trade association

(d) All of the above

Ans: d

Sol: The correct answer is - All of the above

The Central American Common Market (CACM)

• Established in 1960 by the General Treaty on Central American Economic Integration.
• Aims to create a unified regional market among its member states in Central America.
• Focuses on reducing trade barriers, harmonizing economic policies, and increasing economic cooperation among member countries like Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica.

The Caribbean Free Trade Association (CARIFTA)

• Founded in 1965, it aimed to encourage economic cooperation among Caribbean nations.
• Facilitated free trade in goods among member states and sought to establish a common external tariff.
• CARIFTA was replaced by the Caribbean Community (CARICOM) in 1973, which expanded the scope of regional integration to include economic and social development.

The Latin American Free Trade Association (LAFTA)

• Founded in 1960 under the Treaty of Montevideo.
• Its objective was to establish a free trade area among Latin American countries to reduce trade barriers and promote economic integration.
• LAFTA was later succeeded by the Latin American Integration Association (ALADI) in 1980, which continues to work towards regional economic integration.

Other Related Points

Economic Integration Among Developing Countries

• Economic integration refers to the process of eliminating barriers to trade, investment, and movement of labor among a group of countries.
• It aims to enhance economic cooperation and increase economic efficiency through larger markets and economies of scale.
• Developing countries pursue economic integration to strengthen their economic positions, improve growth prospects, and enhance political stability through collaboration.

Q10: Match List - I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (III), (B) - (IV), (C) - (II), (D) - (I)

(b) (A) - (I), (B) - (II), (C) - (III), (D) - (IV)

(c) (A) - (III), (B) - (I), (C) - (IV), (D) - (II)

(d) (A) - (III), (B) - (II), (C) - (I), (D) - (IV)

Ans: c

Sol: The correct answer is (A) - (III), (B) - (I), (C) - (IV), (D) - (II)

Narasimham Committee Report (II)

• This committee recommended that the Reserve Bank of India (RBI) should withdraw the 91-day Treasury Bill from the market.
• The recommendation was part of broader financial sector reforms aimed at improving the efficiency of the Indian financial system.

Ghosh Committee Report

• The Ghosh Committee focused on Frauds and Malpractices in Banks.
• Its objective was to examine the extent of fraud and recommend measures to prevent such malpractices.

Padmanabhan Committee

• This committee reviewed the style of inspection and follow-up by the central bank.
• It aimed to improve the effectiveness of the regulatory inspection system to ensure better compliance and risk management.

Saraf Committee

• The Saraf Committee addressed Technology issues in Banking.
• It aimed to enhance the technological infrastructure of banks to improve operational efficiency and customer service.

Other Related Points

Narasimham Committee

• This committee was set up in the early 1990s to recommend financial sector reforms in India.
• It played a crucial role in liberalizing the Indian banking sector and improving its operational efficiency.

Ghosh Committee

• This committee was constituted to look into the causes of frauds and malpractices in banks and to suggest measures to prevent them.
• Its recommendations were aimed at enhancing the integrity and security of the banking system.

Padmanabhan Committee

• The committee's focus was on the inspection and follow-up processes of the RBI to ensure that banks adhered to regulatory standards.
• It aimed to make the inspection process more effective and comprehensive.

Saraf Committee

• Its main objective was to address the technological challenges faced by banks and suggest improvements.
• The committee's recommendations were aimed at modernizing the banking sector's technological framework.

Narasimham II (1998) recommended withdrawing 91-day T-Bills to streamline monetary policy. Ghosh addressed bank frauds, Padmanabhan improved RBI inspections, and Saraf enhanced banking technology.

Q11: Identify the correct statements from below: 

(A) First UN conference on human environment was held in Norway in 1972.

(B) In I = PAT expression, P stands for poverty.

(C) Pollution tax was suggested by Pigou.

(D) Population growth follows a logistic distribution.

(E) Hedonic pricing is an environmental valuation method used in valuing tourism sites.

Choose the correct answer from the options given below:

(a) (A), (D), (E) only

(b) (C), (D), (E) only

(c) (A), (B), (E) only

(d) (C), (D) only

Ans: d

Sol: The correct answer is - (C), (D) only

Pollution tax was suggested by Pigou

• Arthur Cecil Pigou, a British economist, introduced the concept of a pollution tax, also known as a Pigovian tax.
• This tax is designed to correct the negative externalities (unintended adverse effects) caused by pollution.
• The tax incentivizes producers to reduce the level of pollution by internalizing the external cost.

Population growth follows a logistic distribution

• The logistic growth model describes how populations grow in a sigmoidal (S-shaped) curve.
• Initially, growth is exponential, but as the population reaches the carrying capacity of the environment, the growth rate slows down and eventually stabilizes.
• The logistic model is more realistic than the exponential growth model for many natural populations.

Other Related Points

First UN conference on human environment was held in Norway in 1972

• The first UN Conference on the Human Environment was actually held in Stockholm, Sweden, in 1972, not Norway.
• This conference is also known as the Stockholm Conference.
• It was the first major international gathering focused on environmental issues and led to the establishment of the United Nations Environment Programme (UNEP).

In I = PAT expression, P stands for poverty

• In the I = PAT equation, "P" stands for Population, not poverty.
• The equation represents the impact (I) of human activity on the environment as the product of Population (P), Affluence (A), and Technology (T).
• This formula helps to understand how different factors contribute to environmental degradation.

Hedonic pricing is an environmental valuation method used in valuing tourism sites

• Hedonic pricing is actually a method used to estimate economic values for ecosystem or environmental services that directly affect market prices, such as property values.
• It is often used in real estate to assess the impact of factors like air quality, proximity to parks, and water quality on property prices.
• While it can be related to environmental valuation, it is not specifically used for valuing tourism sites.

Q12: Consider the following targets of National Health Policy 2017. Choose the correct objectives to be achieved by 2025: 

(A) Infant Mortality Rate : 30

(B) Under Five Mortality Rate : 20

(C) Maternal mortality rate : 100

(D) Total Fertility Rate : 2.1

(E) Life Expectancy at Birth : 70 years

Choose the correct answer from the options given below:

(a) (A), (B), (C) only

(b) (B), (C), (D) only

(c) (A), (C), (E) only

(d) (C), (D), (E) only

Ans: d

Sol: The correct answer is - (C), (D), (E) only

Maternal Mortality Rate (MMR) : 100

• The National Health Policy 2017 aims to reduce the Maternal Mortality Rate to 100 per 100,000 live births by 2025.
• This objective addresses the health and safety of mothers during childbirth.

Total Fertility Rate (TFR) : 2.1

• The policy aims to achieve a Total Fertility Rate of 2.1 by 2025, which is the replacement level fertility rate.
• This goal is aimed at stabilizing the population growth in India.

Life Expectancy at Birth : 70 years

• The policy aims to increase the Life Expectancy at Birth to 70 years by 2025.
• This objective focuses on improving the overall health and longevity of the population.

Other Related Points

Infant Mortality Rate (IMR) : 30

• The National Health Policy 2017 aims to reduce the Infant Mortality Rate to 28 per 1,000 live births by 2019, not 30 by 2025.

Under Five Mortality Rate (U5MR) : 20

• The policy aims to reduce the Under Five Mortality Rate to 23 by 2025, not 20.

Q13: Gross domestic Product or GDP is defined as : 

(a) GDP = Aggregate Domestic Income + Indirect Taxes + Depreciation

(b) GDP = Aggregate Domestic Income + Indirect Taxes - Depreciation

(c) GDP = Aggregate Domestic Income + Depreciation - Indirect Taxes

(d) GDP = Aggregate Domestic Income + Depreciation - Net Domestic Product (NDP)

Ans: a

Sol: The correct answer is - GDP = Aggregate Domestic Income + Indirect Taxes + Depreciation

Gross Domestic Product (GDP)

• GDP is a comprehensive measure of a nation's overall economic activity.
• It represents the total monetary value of all goods and services produced within a country's borders over a specific time period.
• GDP can be calculated using various approaches, including the income approach.

Income Approach to GDP Calculation

• The income approach sums up all incomes earned by factors of production in an economy, including wages, rents, interest, and profits.
• To this aggregate domestic income, indirect taxes (taxes levied by the government on goods and services) are added.
• Depreciation (a measure of the wear and tear on the economy’s capital goods) is also included to reflect the total output more accurately.

Other Related Points

Other Options Explained

GDP = Aggregate Domestic Income + Indirect Taxes - Depreciation

• This formula incorrectly subtracts depreciation instead of adding it.

GDP = Aggregate Domestic Income + Depreciation - Indirect Taxes

• This formula incorrectly subtracts indirect taxes instead of adding them.

GDP = Aggregate Domestic Income + Depreciation - Net Domestic Product (NDP)

This formula incorrectly includes Net Domestic Product, which is not a component of GDP in the income approach.

Q14: Estimation of regression coefficients in the presence of high but not perfect multicollinearity may result in all of these except: 

(a) High confidence interval for the estimates

(b) Almost all the estimates are statistically significant

(c) A high R2

(d) Estimates are all BLUE

Ans: b

Sol: The correct answer is - Almost all the estimates are statistically significant

High Confidence Interval for the Estimates

• Multicollinearity increases the variance of the regression coefficients, leading to wider confidence intervals.
• This means there is more uncertainty in the estimated values of the coefficients.

A High R²

• Multicollinearity does not affect the overall explanatory power of the model, which is measured by R².
• R² remains high because the predictors still explain a large portion of the variability in the response variable.

Estimates are all BLUE

• BLUE stands for Best Linear Unbiased Estimators.
• Despite multicollinearity, the Ordinary Least Squares (OLS) estimates remain BLUE as long as the assumptions of the Gauss-Markov theorem are met.

Other Related Points

Multicollinearity

• Occurs when two or more predictor variables in a regression model are highly correlated.
• Causes difficulty in estimating the relationship between each predictor and the outcome variable.

Confidence Interval

• A range of values used to estimate the true value of a population parameter.
• Wider intervals indicate more uncertainty in the estimate.

R² (R-squared)

• A statistical measure that represents the proportion of the variance for a dependent variable that's explained by an independent variable or variables in a regression model.

BLUE (Best Linear Unbiased Estimators)

• Refers to the properties of the estimates obtained from the OLS method.
• Indicates that the estimates are the best (minimum variance), linear, and unbiased given the assumptions of the linear regression model.

Q15: Which state scored highest to secure top-most rank in the 'State Energy Efficiency Index 2023' released by NITI Aayog? 

(a) Andhra Pradesh

(b) Gujarat

(c) Haryana

(d) Karnataka

Ans: d

Sol: The correct answer is - Karnataka

Karnataka

• Karnataka has been recognized for its extensive efforts in promoting energy efficiency across various sectors.
• The state has implemented numerous initiatives aimed at reducing energy consumption and enhancing energy productivity.
• It has adopted advanced technologies and practices in energy management, contributing to its top rank in the index.
• Karnataka's policies and programs have been effective in achieving significant energy savings and reducing greenhouse gas emissions.

Other Related Points

Andhra Pradesh

• Andhra Pradesh has also been active in energy efficiency initiatives, but it did not secure the top rank in the State Energy Efficiency Index 2023.
• The state has focused on improving energy efficiency in buildings, industries, and agriculture.
• Despite its efforts, it lagged behind Karnataka in the overall ranking.

Gujarat

• Gujarat is known for its progressive energy policies and significant achievements in renewable energy generation.
• However, in the specific context of the State Energy Efficiency Index 2023, it did not achieve the highest score.
• The state continues to work on various energy efficiency measures and initiatives to improve its ranking.

Haryana

• Haryana has made strides in promoting energy efficiency, particularly in the industrial and agricultural sectors.
• Despite these efforts, the state did not attain the top position in the State Energy Efficiency Index 2023.
• Haryana continues to implement policies and programs to enhance its energy efficiency performance.

Q16: Testing for cointegration is performed by: 

(a) Chow test

(b) Phillips-Peron test

(c) Engel-Granger test

(d) Error-correction mechanism

Ans: c

Sol: The correct answer is - Engel-Granger test

Engel-Granger test

• This test is specifically designed to test for cointegration between two or more time series.
• It involves two main steps:
  • First, a regression is run on the non-stationary series.
  • Second, the residuals from this regression are tested for stationarity using unit root tests like the ADF test.
• If the residuals are found to be stationary, then the series are considered to be cointegrated, indicating a long-run equilibrium relationship between them.

Other Related Points

Chow test

• Used to determine whether there is a structural break at a certain point in time in a time series dataset.
• It tests the null hypothesis that two subsamples of the data have the same coefficients in a linear regression model.

Phillips-Perron test

• A unit root test used to test the stationarity of a time series.
• It is more robust to serial correlation and heteroskedasticity in the error terms compared to the ADF test.

Error-correction mechanism (ECM)

• It is a model used to describe the short-term dynamics of a cointegrated system.
• It adjusts the short-term deviations of the variables to return to the long-run equilibrium relationship.
• It is not a test for cointegration but rather a modeling approach used after cointegration has been established.

Q17: Suppose savings function is S = -5 + 0.3q, then find the correct answer from below : 

(a) APC < MPC

(b) APC = MPC

(c) APS > MPS

(d) APC > MPC

Ans: d

Sol: The correct answer is - APC > MPC

Savings Function

• The given savings function is S = -5 + 0.3q, where S is savings and q is income.
• From the savings function, we can derive the consumption function: C = q - S.
• Substituting the savings function into the consumption function, we get C = q - (-5 + 0.3q) = q + 5 - 0.3q = 0.7q + 5.

MPC (Marginal Propensity to Consume)

• MPC is the change in consumption due to a change in income.
• From the consumption function C = 0.7q + 5, MPC = 0.7.

APC (Average Propensity to Consume)

• APC is the ratio of total consumption to total income, i.e., APC = C/q.
• Substituting the consumption function, APC = (0.7q + 5) / q = 0.7 + 5/q.
• As income (q) increases, APC approaches 0.7 but is always greater than MPC (0.7) due to the additional term 5/q.

Other Related Points

APS (Average Propensity to Save)

• APS is the ratio of total savings to total income, i.e., APS = S/q.
• Substituting the savings function, APS = (-5 + 0.3q) / q = -5/q + 0.3.

MPS (Marginal Propensity to Save)

• MPS is the change in savings due to a change in income.
• From the savings function S = -5 + 0.3q, MPS = 0.3.

Q18: Match List I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (III), (B) - (II), (C) - (I), (D) - (IV)

(b) (A) - (II), (B) - (III), (C) - (I), (D) - (IV)

(c) (A) - (I), (B) - (II), (C) - (III), (D) - (IV)

(d) (A) - (I), (B) - (II), (C) - (IV), (D) - (III)

Ans: a

Sol: The correct answer is - (A) - (III), (B) - (II), (C) - (I), (D) - (IV)

(A) Labour capital ratio - (III) The amount of labour per unit of capital used

• The Labour capital ratio refers to the amount of labour employed per unit of capital used in the production process.
• This ratio helps in understanding the intensity of labour utilization in comparison to capital.

(B) Labour intensive commodity - (II) The commodity with lower capital-labour ratio at all relative factor prices

• A labour-intensive commodity is one that requires a higher proportion of labour compared to capital for its production.
• Such commodities are characterized by a lower capital-labour ratio, meaning they use more labour and less capital.

(C) Labour theory of value - (I) The price of a commodity determined by exclusively from its labour content

• The Labour theory of value is an economic theory that posits that the value of a commodity is determined by the total amount of socially necessary labour required to produce it.
• This theory was primarily developed by classical economists like Adam Smith and David Ricardo, and later expanded by Karl Marx.

(D) Labour saving technical progress - (IV) It increases the productivity of capital proportionately more than the labour

• Labour saving technical progress refers to technological advancements that increase the efficiency of capital usage, thereby reducing the amount of labour required for production.
• Such progress leads to a higher productivity of capital, making it possible to produce the same output with less labour input.

Other Related Points

Labour Capital Ratio

• This is an important metric in production economics used to determine the relative proportions of labour and capital in the production process.
• It helps businesses and economists understand the structure and dynamics of production in different industries.

Labour Intensive Commodity

• Examples include agriculture, textile manufacturing, and certain service industries.
• These industries typically employ a large workforce compared to the amount of capital used.

Labour Theory of Value

• This theory has been critiqued and debated extensively, particularly in the context of modern economics which incorporates other factors of production like capital, land, and entrepreneurship.
• Despite criticisms, the theory remains a fundamental concept in classical and Marxist economic thought.

Labour Saving Technical Progress

• This type of technical progress is crucial in developed economies where the cost of labour is high.
• It often leads to increased automation and the use of advanced machinery in production processes.

Q19: As per National Family Health Survey (NFHS)-5, what was the number of females per 1000 males during survey period 2019-21 ? 

(a) 975

(b) 991

(c) 1003

(d) 1020

Ans: d

Sol: The correct answer is - 1020

According to the National Family Health Survey (NFHS)-5 (2019-21)

• The number of females per 1000 males was reported to be 1020.
• This ratio signifies a positive shift towards gender balance in the population.
• The data indicates that for every 1000 males, there were 1020 females during the survey period.
• This is a crucial indicator of demographic changes and improvements in female survival rates.

Other Related Points

Other Options

• 975:
  • This figure is lower than the actual reported number, indicating fewer females per 1000 males.
• 991:
  • Although closer to the actual number, this figure still underestimates the actual female to male ratio.
• 1003:
  • This figure is also close but does not accurately represent the reported data.

National Family Health Survey (NFHS)

• The National Health Survey (NHS) is a comprehensive survey conducted periodically to assess the health and demographic changes in India.
• The survey provides critical data on various indicators such as birth rates, death rates, fertility rates, and gender ratios.
• The NHS-5 (2019-21) is the latest iteration, providing updated insights into the nation's health and demographic trends.
• Such surveys are essential for policy-making and implementing health and social programs.

Q20: Arrange the following in chronological order starting from earliest to latest: 

(A) A.W. Phillips : The Phillips Curve

(B) J.M. Keynes : General Theory of Employment, Interest and Money

(C) Adam Smith : Theory of Growth

(D) John F. Muth : Rational Expectations Approach

(E) Robert M. Solow : Growth Model

Choose the correct answer from the options given below:

(a) (A), (B), (C), (D), (E)

(b) (C), (B), (E), (A), (D)

(c) (B), (A), (C), (E), (D)

(d) (E), (D), (C), (B), (A)

Ans: b

Sol: The correct answer is: (C), (B), (E), (A), (D)

Adam Smith: Theory of Growth

• Adam Smith is often referred to as the "Father of Economics."
• His seminal work, "The Wealth of Nations," published in 1776, laid the foundations for classical economics and discussed the theory of economic growth.

J.M. Keynes: General Theory of Employment, Interest and Money

• John Maynard Keynes published "The General Theory of Employment, Interest and Money" in 1936.
• This work revolutionized economic thought, introducing concepts that led to the development of macroeconomics.

Robert M. Solow: Growth Model

• Robert Solow developed the Solow Growth Model, which was introduced in the 1950s.
• The model analyzes long-term economic growth by looking at capital accumulation, labor or population growth, and increases in productivity.

A.W. Phillips: The Phillips Curve

• A.W. Phillips introduced the Phillips Curve in 1958.
• The Phillips Curve represents the inverse relationship between the rate of unemployment and the rate of inflation in an economy.
• John F. Muth: Rational Expectations Approach
  • John F. Muth developed the concept of Rational Expectations in the early 1960s.
  • This approach assumes that individuals make predictions about the future based on all available information and past experiences, influencing economic models and policies.

Other Related Points

A.W. Phillips: The Phillips Curve

• The Phillips Curve has been a subject of extensive debate, particularly during the stagflation period of the 1970s, when high inflation and high unemployment co-existed.
• Modern interpretations and modifications include the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU).

Rational Expectations Approach

• Rational Expectations theory has been integral to various modern economic models, including the Lucas Critique and Real Business Cycle Theory.
• It challenges earlier Keynesian views by asserting that policy interventions often have limited effects if individuals anticipate them.

Q21: Identify the correct statements from below: 

(A) According to environmental valuation theory, option value = future use value + bequest value + vicarious value

(B) Adverse selection leads to market failure

(C) Contingent valuation method is a type of cost benefit analysis

(D) Public good and common goods have same characteristics

(E) Internal rate of return is a criterion in cost benefit analysis

Choose the correct answer from the options given below:

(a) (A) and (B) only

(b) (A), (C), (D) only

(c) (A), (B), (E) only

(d) (C), (D), (E) only

Ans: c

Sol: The correct answer is - (A), (B), (E) only

(A) According to environmental valuation theory, option value = future use value + bequest value + vicarious value

• In environmental economics, option value is a component of the total economic value of an environmental asset. It represents the value of preserving the option to use the asset in the future, even if one does not currently use it.
• This theory combines future use value (potential future direct use), bequest value (value of preserving the asset for future generations), and vicarious value (value derived from knowing that the asset exists and is protected).

(B) Adverse selection leads to market failure

• Adverse selection occurs when buyers and sellers have asymmetric information, leading to transactions where one party can exploit their advantage.
• In markets such as insurance, adverse selection can cause market failure because the insurance company cannot differentiate between high-risk and low-risk individuals, leading to higher premiums and potentially driving out low-risk individuals.

(E) Internal rate of return is a criterion in cost benefit analysis

• Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of an investment or project.
• In cost-benefit analysis, IRR helps determine the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, indicating the project's potential for profitability.

Other Related Points

Contingent Valuation Method (CVM)

• CVM is a survey-based economic technique used to evaluate non-market resources, such as environmental benefits or public goods. It involves asking people how much they would be willing to pay for specific environmental services or goods.
• While it is related to cost-benefit analysis, it is not itself a type of cost-benefit analysis but rather a method used within the broader cost-benefit framework to estimate values for non-market resources.

Public Goods vs. Common Goods

• Public goods are non-excludable and non-rivalrous, meaning they can be used by anyone without reducing availability to others, such as clean air or national defense.
• Common goods, or common-pool resources, are non-excludable but rivalrous, meaning they are available to everyone but consumption by one person reduces the amount available to others, such as fisheries or public pastures.

Q22: Arrange the following in correct chronological order starting from the earliest to the latest : 

(A) Coase theorem

(B) Hotelling principle

(C) Nash equilibrium

(D) Kyoto Protocol

(E) Establishment of IUCN (International Union for Conservation of nature)

Choose the correct answer from the options given below:

(a) (B), (E), (C), (A), (D)

(b) (B), (E), (A), (C), (D)

(c) (B), (A), (D), (E), (C)

(d) (E), (B), (A), (C), (D)

Ans: a

Sol: The correct answer is - (B), (E), (A), (C), (D)

Hotelling principle (B)

• Developed by Harold Hotelling in 1931.
• It addresses the economics of non-renewable resources, predicting that the price of exhaustible resources should rise over time at the rate of interest.

Establishment of IUCN (International Union for Conservation of Nature) (E)

• Founded in 1948.
• It is a global authority on the status of the natural world and the measures needed to safeguard it.

Coase theorem (A)

• Formulated by Ronald Coase in 1960.
• The theorem states that under certain conditions, private parties can solve the problem of externalities on their own without government intervention.

Nash equilibrium (C)

• Introduced by John Nash in 1950.
• It is a concept of game theory where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Kyoto Protocol (D)

• Adopted in 1997 and entered into force in 2005.
• An international treaty that commits state parties to reduce greenhouse gas emissions, based on the premise that global warming exists and human-made CO2 emissions have caused it.

Other Related Points

Harold Hotelling

• He was an American statistician and an influential economic theorist.
• Hotelling's contributions to economics include the Hotelling's law in spatial economics.

Ronald Coase

• A British economist and author of "The Problem of Social Cost".
• Coase was awarded the Nobel Prize in Economics in 1991.

John Nash

• An American mathematician who made fundamental contributions to game theory.
• Nash's life was depicted in the film "A Beautiful Mind".

Kyoto Protocol

• The protocol was the first agreement between nations to mandate country-by-country reductions in greenhouse-gas emissions.
• It was linked to the United Nations Framework Convention on Climate Change (UNFCCC).

IUCN

• It publishes the IUCN Red List, which assesses the conservation status of species.
• IUCN's mission is to influence, encourage and assist societies throughout the world to conserve the integrity and diversity of nature.

Q23: Match List - I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (II), (B) - (III), (C) - (IV), (D) - (I)

(b) (A) - (II), (B) - (I), (C) - (IV), (D) - (III)

(c) (A) - (III), (B) - (IV), (C) - (II), (D) - (I)

(d) (A) - (I), (B) - (II), (C) - (IV), (D) - (III)

Ans: a

Sol: The correct answer is - (A) - (II), (B) - (III), (C) - (IV), (D) - (I)

Montreal Protocol (A) - Control of CFC (II)

• The Montreal Protocol is an international treaty designed to phase out the production and consumption of ozone-depleting substances, particularly chlorofluorocarbons (CFCs).
• It was agreed upon in 1987 and has been successful in reducing the emissions of CFCs and helping to repair the ozone layer.

COP 28 (B) - Climate Conference (III)

• COP 28 refers to the 28th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC).
• These conferences are held annually to negotiate agreements and discuss global climate policies and actions to mitigate climate change.

Rio + 20 (C) - Sustainable Development (IV)

• Rio + 20, also known as the United Nations Conference on Sustainable Development, took place in 2012 in Rio de Janeiro, Brazil.
• The conference aimed to secure renewed political commitment to sustainable development and address new and emerging challenges.

Willingness to Accept (WTA) (D) - Contingent Valuation Method (I)

• Willingness to Accept (WTA) is a concept in economics that measures the minimum amount of money a person is willing to accept to give up a good or to endure something undesirable.
• The Contingent Valuation Method (CVM) is a survey-based economic technique for measuring the value that people place on non-market goods, such as environmental benefits or public services, and is often used to estimate WTA.

Additional Information

Montreal Protocol

• It is considered one of the most successful environmental agreements to date.
• The protocol has undergone several amendments to include more substances and accelerate the phase-out schedules.

COP Conferences

• These conferences are crucial for international climate negotiations, with the goal of limiting global temperature rise as outlined in the Paris Agreement.
• Key outcomes from COP conferences include the Kyoto Protocol and the Paris Agreement.

Rio + 20

• It marked the 20th anniversary of the 1992 Earth Summit held in Rio, where the original Agenda 21 was adopted.
• The conference resulted in a focused political outcome document called "The Future We Want."

Contingent Valuation Method (CVM)

• CVM is widely used in environmental economics to value ecosystem services and damages from pollution.
• It involves directly asking people their willingness to pay (WTP) for specific environmental services or their WTA compensation for the loss of these services.

Q24: Which of the following values indicates that each woman is being replaced by one daughter, leading to a stable population over time? 

(a) GFR = 1

(b) NRR = 1

(c) TFR = 1

(d) GRR = 1

Ans: b

Sol: The correct answer is - NRR = 1

NRR (Net Reproduction Rate)

• NRR indicates the average number of daughters that would be born to a woman (or a group of women) if she/they passed through the childbearing years conforming to the age-specific fertility and mortality rates of a given year.
• An NRR of 1 means that each woman is, on average, having one daughter who survives to reproductive age, leading to a stable population over time.
• This value signifies that the population will replace itself from one generation to the next without growth or decline, assuming no changes in mortality or fertility rates.

Other Related Points

GFR (Gross Fertility Rate)

• GFR measures the total number of live births per 1,000 women of reproductive age (usually 15-49 years) in a given year.
• It does not account for age-specific fertility rates or mortality rates, making it less precise for indicating population stability.

TFR (Total Fertility Rate)

• TFR estimates the average number of children a woman would have over her lifetime based on current age-specific fertility rates.
• A TFR of about 2.1 children per woman is considered the replacement level in developed countries, accounting for the mortality rate of children and women.

GRR (Gross Reproduction Rate)

• GRR is similar to NRR but it only considers female births, and does not factor in mortality rates.
• A GRR of 1 means that each woman is having exactly one daughter, but it doesn't ensure that the daughter will survive to reproductive age.

Q25: Consider the following statements: 

(A) If a market generates a side effect or externality then the market solutions are inefficient.

(B) If a market is efficient, then the quantity produced in the market maximise both producer's and consumer's surplus.

(C) Consumer's surplus is the buyer's WTP minus the seller's cost.

(D) Smith's invisible hand concept implies that competitive market outcome generates equity among the members in the society.

(E) Competitive market equilibrium is Pareto efficient.

Choose the correct answer from the options given below:

(a) (A), (B), (E) only

(b) (A), (B), (D) only

(c) (A), (E) only

(d) (B), (D), (E) only

Ans: a

Sol: The correct answer is (A), (B), (E) only

(A) If a market generates a side effect or externality then the market solutions are inefficient.

• Externalities are costs or benefits that affect third parties who are not involved in the transaction.
• Examples include pollution (negative externality) and education (positive externality).
• When externalities are present, the market equilibrium does not maximize total welfare, leading to inefficiency.

(B) If a market is efficient, then the quantity produced in the market maximizes both producer's and consumer's surplus.

• Economic efficiency occurs when the total surplus (sum of consumer and producer surplus) is maximized.
• At this point, the resources are allocated in the most effective way, and no one can be made better off without making someone else worse off.

(E) Competitive market equilibrium is Pareto efficient.

• Pareto efficiency means that no reallocation can make one party better off without making another party worse off.
• In a competitive market equilibrium, resources are allocated in a way that this condition is satisfied.

Other Related Points

Consumer's Surplus

• It is the difference between what consumers are willing to pay for a good or service and what they actually pay.
• Represents the benefit consumers receive from purchasing a good at a market price lower than their maximum willingness to pay.

Smith's Invisible Hand

• Adam Smith's "invisible hand" concept suggests that individuals pursuing their own self-interest unintentionally contribute to the overall economic well-being of society.
• However, it does not imply that market outcomes are equitable or fair for all members of society.
• The invisible hand leads to efficient outcomes but not necessarily equitable outcomes.

Q26: Arrange the following expressions in terms of increasing order of magnitude [given : a > 0, b > 0, x > 0] 

(A) y = e^a

(B) y = e^a+bx

(C)

(D)

(E) y = e^{a + 2bx}

Choose the correct answer from the options given below :

(a) (D), (A), (C), (B), (E)

(b) (D), (A), (B), (C), (E)

(c) (D), (B), (C), (A), (E)

(d) (E), (B), (C), (A), (D)

Ans: a

Sol: The correct answer is - (D), (A), (C), (B), (E)

To arrange the given expressions in increasing order of magnitude, compare the values of the exponents in the expressions.

• (D) is the smallest because the exponent is just a.
• (A) is next as it is also a but does not involve any multiplication with x or b.
• (C) involves a product abx, making it larger than (A) and (D) as x and b are positive.
• (B) has a higher exponent, abx, which grows faster as x increases.
• (E) is the largest since the exponent is a + 2bx, which increases the most as x increases.

Thus, the correct order is: (D), (A), (C), (B), (E)..

Q27: The production function  is : 

(a) Homogenous of degree 1

(b) Homogenous of degree 0

(c) Homogenous of degree 2

(d) Homogenous of degree 1/2

Ans: a

Sol: The correct answer is - Homogenous of degree 1The given production function is homogeneous of degree 1.

This means:

• If you multiply all inputs by any constant, the output will also multiply by that same constant.
• This property is known as constant returns to scale.
• For example, doubling all inputs will double the output.

Q28: When imports are restricted with quota rather than a tariff, the cost is sometimes magnified by a process known as _________. 

(a) Rent seeking

(b) quota seeking

(c) Tax Seeking

(d) None of the above

Ans: a

Sol: The correct answer is - Rent Seeking

Rent Seeking

• Rent seeking refers to the process by which entities attempt to obtain financial gains through manipulation or exploitation of the economic environment, rather than through trade and production of added value.
• When quotas restrict imports, companies might spend significant resources to secure the limited available import licenses.
• This process often increases the overall cost to the economy, as resources are diverted from productive activities to rent-seeking activities.

Other Related Points

Quota Seeking

• Quota seeking is not a recognized economic term. However, it might refer to the efforts by companies to obtain quotas, but this process is better described by the term rent seeking.

Tax Seeking

• Tax seeking is not a standard economic term. It might be confused with tax planning or tax evasion, but these are different concepts.
• Tax planning refers to legally optimizing tax liabilities, while tax evasion is illegal.

Q29: Among the following which is/are the instruments of capital market? 

(A) Venture Capital

(B) Treasury Bills

(C) Certificate of Deposit issued by commercial banks

(D) Global Depository Receipts

(E) Inter Corporate Deposits

Choose the correct answer from the options given below:

(a) (B), (D), (E) only

(b) (A), (D) only

(c) (A), (B), (D) only

(d) (A), (D), (E) only

Ans: b

Sol: The correct answer is - (A) Venture Capital, (D) Global Depository Receipts only

Venture Capital

• Venture Capital refers to a type of private equity and a form of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.
• This form of capital is crucial in the early stages of a company’s growth and is considered an instrument of the capital market because it facilitates the flow of funds into businesses.

Global Depository Receipts (GDRs)

• GDRs are financial instruments used by companies to raise capital in international markets.
• They represent shares in foreign companies and are traded on international stock exchanges.
• GDRs are an important instrument in the capital market as they allow companies to access funds globally, enhancing liquidity and capital flow.

Other Related Points

Treasury Bills (T-Bills)

• These are short-term government securities with maturities of one year or less.
• T-Bills are used for managing short-term liquidity requirements and are considered instruments of the money market, not the capital market.

Certificate of Deposit (CD)

• CDs are time deposits offered by commercial banks with fixed interest rates and maturity dates.
• Like T-Bills, CDs are primarily used for short-term investment and are categorized under money market instruments.

Inter-Corporate Deposits (ICDs)

• ICDs are unsecured short-term loans extended by one corporate to another.
• They are used for managing short-term financial needs and are also considered part of the money market, not the capital market.

Q30: Arrange the following events from the date of their happening starting from the oldest : 

(A) IRDA Act passed in Parliament

(B) Concept of financial inclusion introduced in Banking sector

(C) Global trust bank merged with UTI Bank

(D) 364 - day treasury bill introduced with market related rates

(E) Fiscal responsibility and Budget Management Act Passed

Choose the correct answer from the options given below:

(a) (D), (A), (C), (E), (B)

(b) (D), (C), (E), (A), (B)

(c) (E), (D), (B), (A), (C)

(d) (A), (C), (D), (E), (B)

Ans: a

Sol: The correct answer is: (D), (A), (C), (E), (B)

364-day treasury bill introduced with market-related rates

• This event took place in 1992.
• The introduction of 364-day treasury bills was a significant step in the Indian money market, aimed at developing a more market-oriented and efficient financial system.

IRDA Act passed in Parliament

• The Insurance Regulatory and Development Authority (IRDA) Act was passed in 1999.
• This Act marked the liberalization of the insurance sector in India, paving the way for private and foreign players to enter the market.

Global Trust Bank merged with UTI Bank

• This merger occurred in 2004.
• The merger was a result of financial instability and regulatory concerns surrounding Global Trust Bank.

Fiscal Responsibility and Budget Management (FRBM) Act Passed

• The FRBM Act was enacted in 2003.
• It aims to ensure fiscal discipline, reduce India’s fiscal deficit, and improve macroeconomic management.

Concept of financial inclusion introduced in the banking sector

• Financial inclusion gained significant policy attention in the mid-2000s.
• It aims to provide essential financial services to all segments of society, particularly the underprivileged and low-income groups.

Other Related Points

364-day Treasury Bill

• The introduction of the 364-day treasury bill in 1992 was part of broader financial reforms aimed at developing a more market-oriented financial system in India.

IRDA Act

• The IRDA Act of 1999 established the Insurance Regulatory and Development Authority, which regulates and promotes the insurance and reinsurance industries in India.

Global Trust Bank Merger

• The merger of Global Trust Bank with UTI Bank (now Axis Bank) in 2004 was a significant event in the Indian banking sector, driven by the need to stabilize the banking system.

FRBM Act

• The FRBM Act of 2003 was introduced to ensure fiscal discipline and reduce fiscal deficits, thus ensuring long-term economic stability.

Financial Inclusion

• The concept of financial inclusion has gained prominence over the last two decades, focusing on ensuring that financial services are accessible and affordable to all individuals, regardless of their income or social status.

Q31: Match List - I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (IV), (B) - (II), (C) - (I), (D) - (III)

(b) (A) - (IV), (B) - (I), (C) - (II), (D) - (III)

(c) (A) - (IV), (B) - (III), (C) - (I), (D) - (II)

(d) (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Ans: c

Sol: The correct answer is - (A) - (IV), (B) - (III), (C) - (I), (D) - (II)

(A) Travel cost method - (IV) Environmental valuation

• The travel cost method is used to estimate the economic value of ecosystems or sites that are used for recreation.
• It assesses the value of environmental amenities by observing the amount of money that visitors spend to travel to the site.

(B) Stern review - (III) Climate change

• The Stern Review is a comprehensive report on the economic impact of climate change, published by economist Nicholas Stern.
• It emphasizes the urgent need for global action to mitigate the effects of climate change.

(C) Brundtland commission report - (I) Sustainable development

• The Brundtland Commission, formally known as the World Commission on Environment and Development, published the report "Our Common Future" in 1987.
• This report popularized the term "sustainable development" and defined it as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

(D) User cost - (II) Exhaustible resources

• User cost refers to the opportunity cost of depleting an exhaustible resource today, which could have been used in the future.
• This concept is crucial in resource economics, especially when managing non-renewable resources like fossil fuels.

Other Related Points

Environmental Valuation

• Environmental valuation involves the process of assigning monetary value to non-market environmental goods and services.
• Methods include contingent valuation, hedonic pricing, and the travel cost method.

Climate Change

• Climate change refers to significant changes in global temperatures and weather patterns over time.
• The main cause is the increase in greenhouse gases due to human activities like burning fossil fuels and deforestation.

Sustainable Development

• Sustainable development aims to balance economic growth, environmental protection, and social well-being.
• It focuses on long-term resource management and equitable development to ensure the well-being of future generations.

Exhaustible Resources

• Exhaustible resources are natural resources that are finite and can be depleted, such as oil, natural gas, and minerals.
• Effective management and sustainable use are crucial to extend their availability for future generations.

Q32: Which of the following is not an instrument of Monetary Policy? 

(a) Cash reserve ratio

(b) Open market operation

(c) Bank rate

(d) Tax rate

Ans: d

Sol: The correct answer is - Tax rate

Tax rate

• The tax rate is a fiscal policy tool, not a monetary policy instrument.
• Fiscal policy involves government spending and taxation to influence the economy.
• Tax rates are used by the government to generate revenue and can affect consumer spending and investment decisions.

Other Related Points

Cash Reserve Ratio (CRR)

• CRR is a monetary policy tool used by central banks.
• It represents the percentage of a bank's total deposits that must be maintained in reserves with the central bank.
• By adjusting the CRR, central banks can influence the amount of funds available for banks to lend, thereby controlling liquidity and inflation.

Open Market Operation (OMO)

• OMOs involve the buying and selling of government securities in the open market by the central bank.
• These operations are used to regulate the money supply and control interest rates.
• Purchasing securities injects liquidity into the banking system, while selling securities withdraws liquidity.

Bank Rate

• The bank rate is the rate at which the central bank lends money to commercial banks.
• Changes in the bank rate can influence borrowing costs, consumer spending, and overall economic activity.
• A higher bank rate makes borrowing more expensive, while a lower rate makes it cheaper.

Q33: As per Walras' law the sum of excess demand for money, bonds and current output must be equal to __________. 

(a) one

(b) zero

(c) more than one

(d) less than one

Ans: b

Sol: The correct answer is - zero

Walras' Law

• Walras' Law is a fundamental principle in general equilibrium theory in economics.
• It states that the sum of the excess demands in all markets must be zero when all markets are in equilibrium.
• This implies that if there is an excess demand in one market, there must be an equivalent excess supply in another market.

Application to Money, Bonds, and Current Output

• When considering markets for money, bonds, and current output, Walras' Law implies that the sum of excess demand across these markets must also be zero.
• If there is excess demand for money, there must be excess supply of bonds and/or current output to balance it out.

Other Related Points

Understanding Excess Demand

• Excess demand occurs when the quantity demanded exceeds the quantity supplied at a given price.
• In contrast, excess supply occurs when the quantity supplied exceeds the quantity demanded at a given price.

General Equilibrium Theory

• General equilibrium theory studies how supply and demand interact in multiple markets simultaneously to determine prices and allocations of resources.
• Walras' Law plays a crucial role in understanding the conditions for general equilibrium.

Implications of Other Options

• Option 1: One - Suggests a fixed, non-zero sum, which contradicts Walras' Law.
• Option 3: More than one - Implies an imbalance, which is not possible in equilibrium as per Walras' Law.
• Option 4: Less than one - Also implies an imbalance, which contradicts the principle of equilibrium.

Q34: Match List - I with List - II. 

 Choose the correct answer from the options given below:

(a) (A) - (II), (B) - (III), (C) - (I), (D) - (IV)

(b) (A) - (IV), (B) - (I), (C) - (II), (D) - (III)

(c) (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

(d) (A) - (I), (B) - (II), (C) - (III), (D) - (IV)

Ans: b

Sol: The correct answer is - 2)(A) - (IV), (B) - (I), (C) - (II), (D) - (III)

W.W. Leontief - Input-output model

• Wassily Leontief is famous for developing the input-output model, which analyzes the relationships between different sectors of an economy.
• The model helps in understanding how the output of one industry can be the input of another, thus forming an interconnected economic system.

Jan Tinbergen - Shadow Price

• Jan Tinbergen was a Dutch economist known for his work in econometrics and economic planning.
• The concept of shadow price refers to the implicit cost or value of a resource not directly priced in the market, often used in cost-benefit analyses and economic planning models.

J.M. Keynes - Consumption Function

• John Maynard Keynes is renowned for his theories on macroeconomics, particularly during the Great Depression.
• The consumption function is a key concept in Keynesian economics, describing the relationship between aggregate income and aggregate consumption.

Joseph Bertrand - Price Competition with Homogenous Products

• Joseph Bertrand was a French mathematician and economist who introduced the Bertrand competition model.
• This model describes how firms compete on price in markets with homogeneous products, leading to a situation where prices tend to equal marginal costs.

Other Related Points

Input-output model

• An input-output model represents the flow of goods and services between sectors within an economy.Developed by W.W. Leontief, this model is used for economic planning and understanding sectoral interdependencies.
• It is widely used in various applications including economic forecasting and policy analysis.

Shadow Price

• Shadow prices are used in resource allocation and project evaluations to reflect the true cost or value of resources.
• They are particularly useful in situations where market prices do not exist or are distorted.
• Jan Tinbergen's work laid the foundation for the application of shadow prices in economic models.

Consumption Function

• The consumption function is a central concept in Keynesian economics, describing how income levels affect consumer spending.
• It helps in understanding aggregate demand and its impact on economic output.
• J.M. Keynes introduced this concept in his seminal work "The General Theory of Employment, Interest, and Money."

Price Competition with Homogenous Products

• The Bertrand model of competition describes how firms in a market with homogeneous products compete by setting prices.
• According to this model, firms tend to lower prices to attract customers, often leading to prices equating to marginal costs.
• This model contrasts with Cournot competition, where firms compete on quantities rather than prices.

Q35: A feasible solution in a linear programming problem (LPP): 

(A) Must satisfy all the problem's constraints simultaneously

(B) Need not satisfy all the constraints, only some of them

(C) Must be a corner point in the feasible region

(D) may or may not optimise the value of the objective function

(E) Must be greater than or equal to zero

Choose the correct answer from the options given below:

(a) (A), (D), (E) only

(b) (A), (D) only

(c) (A), (E) only

(d) (B), (C), (E) only

Ans: a

Sol: The correct answer is - (A), (D), (E) only

(A) Must satisfy all the problem's constraints simultaneously

• A feasible solution in a Linear Programming Problem (LPP) must meet all the constraints laid out by the problem. Each constraint represents a condition that the solution must fulfill.
• If a solution does not satisfy even one of the constraints, it is considered infeasible.

(D) May or may not optimise the value of the objective function

• Feasibility does not necessarily imply optimality. A feasible solution meets all constraints but may not provide the best (maximum or minimum) value for the objective function.
• Optimization involves finding the best feasible solution among all possible ones.

(E) Must be greater than or equal to zero

• In many LPPs, variables are often required to be non-negative. This is known as the non-negativity constraint.
• This ensures that the solutions are practical and meaningful, especially in real-world scenarios such as resource allocation, production, etc.

Other Related Points

(B) Need not satisfy all the constraints, only some of them

• This statement is incorrect because a feasible solution must satisfy all the constraints of the LPP.
• Not meeting all constraints would make the solution infeasible.

(C) Must be a corner point in the feasible region

• While the optimal solution of a linear programming problem is often found at a corner point (vertex) of the feasible region, a feasible solution does not necessarily have to be a corner point.
• There can be feasible solutions within the boundary or inside the feasible region that are not corner points.

Q36: Consider the following statements and identify the correct ones ?
 (A) According to the accelerator models, investment demand is proportional to the change in GNP.
 (B) The real rate is the nominal rate of interest plus the inflation.
 (C) The higher the real interest rate, the higher is the rental cost of capital.
 (D) Investment is a stock concept
 (E) Rate of interest is a flow concept
 Choose the correct answer from the options given below : 

(a) (A) and (D) only 

(b) (A) and (B) only

(c) (A) and (C) only 

(d) (A), (B) and (C) only

Ans: c

Sol: The correct answer is - (A) and (C) only

Statement (A): According to the accelerator models, investment demand is proportional to the change in GNP.

• The accelerator model posits that investment is directly related to the rate of change in economic output (Gross National Product or GNP).
• When GNP increases, businesses anticipate higher future demand, leading them to invest more in capital goods to increase production capacity.

Statement (C): The higher the real interest rate, the higher is the rental cost of capital.

• The real interest rate is the nominal interest rate adjusted for inflation.
• The rental cost of capital is the cost of using capital assets, which includes the real interest rate as a significant component.
• As the real interest rate increases, the cost of borrowing funds to finance capital investments also increases, thus raising the rental cost of capital.

Other Related Points

Statement (B): The real rate is the nominal rate of interest plus the inflation.

• This statement is incorrect. The real rate of interest is actually the nominal rate of interest minus the inflation rate.
• Real Interest Rate = Nominal Interest Rate - Inflation Rate
• This adjustment accounts for the eroding effect of inflation on the purchasing power of money.

Statement (D): Investment is a stock concept.

• This is incorrect. Investment is a flow concept because it represents the amount spent on new capital goods during a specific period.
• A stock concept, on the other hand, measures a quantity at a specific point in time (e.g., the total capital stock available).

Statement (E): Rate of interest is a flow concept.

• This is incorrect. The rate of interest is a stock concept because it represents a rate at a particular point in time.
• Flow concepts measure quantities over a period (e.g., income, investment), while stock concepts measure quantities at a point in time.

Q37: Match List - I with List - II. 

 Choose the correct answer from the options given below :

(a) (A) - (IV), (B) - (I), (C) - (III), (D) - (II)

(b) (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

(c) (A) - (III), (B) - (II), (C) - (IV), (D) - (I)

(d) (A) - (II), (B) - (IV), (C) - (I), (D) - (III)

Ans: b

Sol: The correct answer is - (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Bank run - (A) - (III)

• Associated with P. Diamond, known for his work on economic models that explain bank runs.
• A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank may become insolvent.

q-ratio - (B) - (IV)

• Associated with J. Tobin, who developed Tobin's q, a ratio comparing market value and replacement cost of the same physical asset.
• Tobin's q is used to predict investment behavior and assess whether a firm's stock is overvalued or undervalued.

Genuine saving - (C) - (I)

• Associated with D. Pearce, who contributed to the concept of Genuine Savings in environmental economics.
• Genuine Saving measures the true rate of savings in an economy after accounting for investment in human capital, depletion of natural resources, and damage to the environment.

Micro finance - (D) - (II)

• Associated with M. Yunus, a pioneer of microfinance and founder of the Grameen Bank.
• Microfinance provides small loans and financial services to individuals who do not have access to traditional banking services, aimed at alleviating poverty.

Other Related Points

Bank run

• Often causes liquidity problems for banks and can lead to broader financial instability.
• Historical example: The Great Depression saw numerous bank runs, exacerbating the economic crisis.

q-ratio

• If the q-ratio is greater than 1, it may indicate that the market values the firm’s assets more than their replacement cost, suggesting overvaluation.
• If the q-ratio is less than 1, it implies undervaluation, meaning the market value is less than the replacement cost of the assets.

Genuine saving

• It aims to provide a more accurate reflection of an economy’s sustainability by considering environmental and social factors.
• A negative genuine savings rate suggests that an economy is on an unsustainable path.

Micro finance

• It has been instrumental in empowering women and marginalized communities in developing countries.
• Microfinance programs often include financial education and support services to ensure the success of small enterprises.

Q38: Which among following committees, was set up for Banking sector reforms in India ?
 (A) Jalan Committee
 (B) Ghosh Committee
 (C) Saraf Committee
 (D) Gokaran Committee
 (E) Tarapore Committee
 Choose the correct answer from the options given below : 

(a) (A), (B), (D) only

(b) (B), (C), (E) only

(c) (C), (D), (E) only

(d) (A), (D), (C) only

Ans: b

Sol: The correct answer is - (B), (C), (E) only

Ghosh Committee

• The Ghosh Committee was established to tackle issues related to the banking sector's operational aspects.
• It focused on improving the efficiency and reliability of the banking system.

Saraf Committee

• The Saraf Committee was set up to review the banking sector and suggest reforms to make it more robust and efficient.
• Its recommendations played a crucial role in the modernization of banking practices.

Tarapore Committee

• The Tarapore Committee was formed to provide recommendations on the capital account convertibility for the Indian economy.
• Its work contributed significantly to the liberalization and globalization of the Indian financial sector.

Other Related Points

Jalan Committee

• Headed by former RBI Governor Bimal Jalan, this committee focused on RBI's economic capital framework.
• The Jalan Committee is not directly related to the broader banking sector reforms but more on the management of the central bank's surplus.

Gokaran Committee

• Headed by Subir Gokarn, this committee primarily focused on issues like inflation and monetary policy rather than direct banking sector reforms.
• It provided insights into the economic conditions and policy frameworks to stabilize the economy.

Q39: Identify the correct statements from below :
 (A) When price consumption curve (PCC) for a good is parallel to horizontal axis, the demand function for the good is unitary elastic.
 (B) Given log D = α + β log y + γ log p then elasticity of log D with respect to log p is γ
 (C) The condition for stability in simple Keynesian system is 0 < MPC < 1
 (D) The fixed cost curve is a rectangular hyperbola
 Choose the correct answer from the options given below : 

(a) (A), (C) only

(b) (A), (C), (D) only

(c) (A), (B), (C) only

(d) (A), (B), (C), (D)

Ans: a

Sol: The correct answer is - (A), (C) only

Statement (A): When price consumption curve (PCC) for a good is parallel to horizontal axis, the demand function for the good is unitary elastic.

• The Price Consumption Curve (PCC) traces out the optimal consumption points as the price of a good changes, holding all else constant.
• If the PCC is parallel to the horizontal axis, it indicates that the quantity demanded does not change with changes in price, implying unitary elasticity (where the percentage change in quantity demanded is equal to the percentage change in price).

Statement (C): The condition for stability in simple Keynesian system is 0 < MPC < 1.

• The marginal propensity to consume (MPC) is the fraction of additional income that is spent on consumption.
• For the Keynesian economic model to be stable, the MPC should be between 0 and 1. This ensures that any increase in income leads to a proportionate increase in consumption, but not more than the increase in income.

Other Related Points

Statement (B): Given log D = α + β log y + γ log p then elasticity of log D with respect to log p is γ.

• The given function is a log-linear form where D is the dependent variable, y is income, and p is the price.
• The coefficient γ represents the elasticity of demand with respect to price, as it shows the percentage change in demand for a one percent change in price.

Statement (D): The fixed cost curve is a rectangular hyperbola.

• Fixed costs are costs that do not change with the level of output produced. Therefore, the fixed cost curve is horizontal, not a rectangular hyperbola.
• A rectangular hyperbola would imply that the product of two variables is constant, which does not apply to fixed costs.

Q40: Arrange the following taxes in the sequence in which they were introduced starting from earliest to latest ? 
 (A) Commodities Transaction Tax
 (B) Securities Transaction Tax 
 (C) Banking Cash Transaction Tax 
 (D) Minimum Alternate Tax - (E) Angel Tax 

Choose the correct answer from the options given below : -

(a) (D), (A), (E), (B), (C)

(b) (B), (C), (A), (E), (D)

(c) (D), (B), (C), (E), (A)

(d) (C), (D), (B), (A), (E)

Ans: c

Sol: The correct answer is - (D), (B), (C), (E), (A)

Minimum Alternate Tax (MAT)

• Introduced in 1987 by the Indian government to make companies pay a minimum amount of tax.
• Ensured companies with large profits and dividends still contributed to the tax system.

Securities Transaction Tax (STT)

• Introduced in 2004 to curb tax avoidance and streamline the taxation process for securities trading.
• A tax levied on transactions done on the stock exchange.

Banking Cash Transaction Tax (BCTT)

• Introduced in 2005 to track high-value cash transactions and curb black money.
• Levied on cash withdrawals above a certain limit from banks.

Angel Tax

• Introduced in 2012 to tax investments made by angel investors in startups.
• Applicable if the investment exceeds the fair market value of the startup.
• Commodities Transaction Tax (CTT)
• Introduced in 2013 to levy tax on the trading of commodities in exchanges.
• Aimed at generating revenue and tracking speculative trades in the commodities market.

Other Related Points

Understanding the chronology of the taxes:

• Minimum Alternate Tax (MAT) was introduced first in 1987 to ensure that companies with large profits paid a minimum amount of tax.
• Securities Transaction Tax (STT) was introduced in 2004 to levy tax on stock exchange transactions.
• Banking Cash Transaction Tax (BCTT) followed in 2005, targeting high-value cash withdrawals to curb black money.
• Angel Tax was introduced in 2012 to tax investments by angel investors above the fair market value.
• Commodities Transaction Tax (CTT) was the most recent, introduced in 2013 to tax trades in the commodities market.

Other taxes mentioned:

• Commodities Transaction Tax (CTT) - Introduced in 2013, aimed at generating revenue from commodity trades.
• Securities Transaction Tax (STT) - A tax on stock exchange transactions, introduced in 2004.
• Banking Cash Transaction Tax (BCTT) - Introduced in 2005 to track high-value cash transactions.
• Angel Tax - Introduced in 2012 to tax investments by angel investors in startups.

Q41: Arrange the names of following economists chronologically in order of their Nobel prize awards (starting from earliest to the latest):
 (A) Arthur Lewis
 (B) Gunnar Myrdal
 (C) Milton Friedman
 (D) A.V. Banerjee
 (E) Lawrence Klein 

Choose the correct answer from the options given below : -

(a) (B), (C), (A), (E), (D)

(b) (B), (C), (A), (D), (E)

(c) (B), (A), (C), (E), (D)

(d) (A), (B), (C), (E), (D)

Ans: a

Sol: The correct answer is: (B) Gunnar Myrdal, (C) Milton Friedman, (A) Arthur Lewis, (E) Lawrence Klein, (D) A.V. Banerjee

Gunnar Myrdal

• Gunnar Myrdal was awarded the Nobel Prize in Economics in 1974.
• He shared the prize with Friedrich Hayek for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social, and institutional phenomena.

Milton Friedman

• Milton Friedman was awarded the Nobel Prize in Economics in 1976.
• He was recognized for his achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.

Arthur Lewis

• Arthur Lewis received the Nobel Prize in Economics in 1979.
• He was honored for his pioneering research into economic development with particular consideration of the problems of developing countries.

Lawrence Klein

• Lawrence Klein was awarded the Nobel Prize in Economics in 1980.
• He was recognized for the creation of econometric models and their application to the analysis of economic fluctuations and economic policies.

A.V. Banerjee

• Abhijit Vinayak Banerjee received the Nobel Prize in Economics in 2019.
• He shared the prize with Esther Duflo and Michael Kremer for their experimental approach to alleviating global poverty.

Other Related Points

Incorrect Options Overview

• The second option is incorrect because it places Arthur Lewis before Lawrence Klein, which is chronologically inaccurate.
• The third option is incorrect as it places Arthur Lewis before Milton Friedman, which is also chronologically inaccurate.
• The fourth option incorrectly places Arthur Lewis as the first recipient among the listed economists, which is not correct.

Q42: In the Cobb-Douglas production function : q = ALαKβ, where A, α and β are all positive, the parameters α and β measure 

(a) Output elasticities of inputs

(b) Elasticity of substitution

(c) Input price of output

(d) Technological condition

Ans: a

Sol: The correct answer is - Output elasticities of inputs

Key Points

Output elasticities of inputs

• In the Cobb-Douglas production function q = AL^αK^β , the parameters α and β represent the output elasticities of labor (L) and capital (K), respectively.
• Output elasticity of an input measures the percentage change in output resulting from a one percent change in that input, holding all other inputs constant.
• For example, if α = 0.3, it implies that a 1% increase in labor would increase output by 0.3%, assuming capital remains unchanged.
• Similarly, if β = 0.7, it implies that a 1% increase in capital would increase output by 0.7%, assuming labor remains unchanged.
• These elasticities help in understanding the contribution of each input to the production process and the responsiveness of output to changes in input levels.

Other Related Points

Elasticity of substitution

• Elasticity of substitution measures the ease with which one input can be substituted for another in the production process while maintaining the same level of output.
• In the Cobb-Douglas production function, the elasticity of substitution is always equal to 1, indicating that labor and capital can be substituted at a constant rate.

Input price of output

• 
  
  • This refers to the cost associated with using an additional unit of input in the production process.
  • It is not directly related to the parameters α and β in the Cobb-Douglas production function.

Technological condition

• Technological condition refers to the state of technology available for production, which is represented by the parameter A in the Cobb-Douglas production function.
• The parameter A captures the efficiency and productivity of the technology used in production.

Q43: Given y = 1 + x/1 - 2x find the correct alternative : 

(a) dy/dx = 3/1-2x

(b) dy/dx = 3/(1-2x)²

(c) dy/dx = 3/(1-2x)³

(d) dy/dx = 3/(1-x)²

Ans: b

Sol: The correct answer is - dy/dx = 3/(1-2x)²

Given Function

• The given function is y = (1 + x)/(1 - 2x).

Differentiate using Quotient Rule

• To differentiate this function, we use the quotient rule: (u/v)' = (v*u' - u*v')/(v²).
• Here, u = 1 + x and v = 1 - 2x.
• Differentiate u and v with respect to x:
  • u' = d(1 + x)/dx = 1
  • v' = d(1 - 2x)/dx = -2
• Using the quotient rule:
  • dy/dx = [(1 - 2x) * 1 - (1 + x) * (-2)] / (1 - 2x)^2
  • Simplify the numerator: (1 - 2x) + 2(1 + x) = 1 - 2x + 2 + 2x = 3
  • Therefore, dy/dx = 3 / (1 - 2x)^2

Other Related Points

Option 1

• This option incorrectly places the derivative in the numerator without squaring the denominator.

Option 3

• This option incorrectly cubes the denominator instead of squaring it.

Option 4

• This option has an incorrect denominator (1-x)² instead of (1-2x)².

Q44: Inflation confers no benefits on society, but it imposes several real costs. What among the following are costs of inflation?
(A) Shoeleather costs associated with reduced money holdings
(B) Menu cost associated with more frequent adjustment of prices
(C) Increased variability of relative prices
(D) Unintended changes in tax liabilities due to nonindexations of the tax code
(E) Arbitrary redistribution of wealth associated with debts 

Choose the correct answer from the options given below :

(a) (A), (B), (C) only

(b) (C), (D), (E) only

(c) (B), (D), (A) only

(d) (A), (B), (C), (D), (E)

Ans: d

Sol: The correct answer is - (A), (B), (C), (D), (E)

Shoeleather costs associated with reduced money holdings (A)

• Inflation leads people to minimize their cash holdings to avoid the erosion of purchasing power. This results in increased frequency of trips to the bank, metaphorically wearing out their "shoeleather."

Menu cost associated with more frequent adjustment of prices (B)

• Businesses incur costs to change prices frequently in an inflationary environment, such as reprinting menus or updating price tags, which are referred to as "menu costs."

Increased variability of relative prices (C)

• Inflation can lead to inconsistent price increases across different goods and services, resulting in distorted relative prices and misallocation of resources.

Unintended changes in tax liabilities due to nonindexations of the tax code (D)

• When the tax code is not adjusted for inflation, individuals can end up in higher tax brackets simply due to nominal income increases, leading to unintended tax burdens.

Arbitrary redistribution of wealth associated with debts (E)

• Inflation can arbitrarily redistribute wealth between borrowers and lenders. Borrowers benefit from repaying loans with less valuable money, while lenders lose out.

Other Related Points

Inflation and its Impact

• Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
• While moderate inflation is often seen as a sign of a growing economy, high inflation can have detrimental effects on economic stability.
• Central banks often aim for a low and stable inflation rate to promote economic stability and growth.

Q45: Match List - I with List - II. 

List - I (A) NITI Aayog (B) R. Axelrod (C) J. Stiglitz (D) India’s first five year plan (1951-1956)
 List - II (I) Tit-for-Tat strategy (II) Efficiency wage theory (III) K.N. Raj (IV) Knowledge support

Choose the correct answer from the options given below :

(a) (A)-(II), (B)-(I), (C)-(III), (D)-(IV)

(b) (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

(c) (A)-(IV), (B)-(I), (C)-(III), (D)-(III)

(d) (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

Ans: c

Sol: The correct answer is (A)-(IV), (B)-(I), (C)-(II), (D)-(III)

NITI Aayog

• Established in 2015, NITI Aayog (National Institution for Transforming India) is a policy think tank of the Government of India.
• It provides strategic and technical advice to the central and state governments.
• Its primary focus is on fostering cooperative federalism through structured support initiatives and mechanisms with the states.
• NITI Aayog replaced the Planning Commission and plays a crucial role in knowledge support and policy advocacy.

R. Axelrod

• Robert Axelrod is a political scientist known for his work on the evolution of cooperation.
• He is best known for the "Tit-for-Tat" strategy, which he described in his book "The Evolution of Cooperation".
• This strategy involves cooperating initially and then replicating an opponent's previous action, fostering mutual cooperation over time.

J. Stiglitz

• Joseph Stiglitz is a renowned economist and a recipient of the Nobel Memorial Prize in Economic Sciences.
• He is widely recognized for his contributions to the theory of markets with asymmetric information.
• Stiglitz is also known for the Efficiency Wage Theory, which suggests that higher wages can increase productivity and efficiency.

India’s first five-year plan (1951-1956)

• The first Five-Year Plan of India was launched in 1951 and focused on the primary sector, including agriculture and irrigation.
• It was based on the Harrod-Domar model and aimed at achieving a growth rate of 2.1% per annum.
• K.N. Raj, an Indian economist, was significantly involved in drafting the first Five-Year Plan.
• The plan sought to address the issues of poverty, unemployment, and economic development.

Other Related Points

NITI Aayog and Knowledge Support

• NITI Aayog conducts research and provides knowledge support in various sectors such as health, education, and agriculture.
• It collaborates with international organizations, think tanks, and academic institutions to provide evidence-based policy recommendations.

Efficiency Wage Theory

• This theory posits that higher wages can lead to greater efficiency and productivity.
• It suggests that better-paid employees are more motivated, healthier, and less likely to leave their jobs, reducing turnover costs.

Tit-for-Tat Strategy

• The strategy is based on reciprocity and is considered one of the most effective strategies in game theory for promoting cooperation.
• It has been applied in various fields, including economics, political science, and evolutionary biology.

Q46: Arrange the following items in order of their construction starting from the first stage to the last
 (A) Budget
 (B) Utility analysis
 (C) Demand curve analysis
 (D) Indifference curve analysis
 (E) Consumer’s equilibrium 

Choose the correct answer from the options given below :

(a) (D), (B), (C), (A), (E)

(b) (A), (B), (A), (D), (C)

(c) (B), (D), (E), (C), (A)

(d) (B), (D), (A), (E), (C)

Ans: d

Sol: The correct answer is: (B), (D), (A), (E), (C)

Utility Analysis

• Utility analysis is the first step in understanding consumer behavior.
• It involves assessing how consumers make choices based on the satisfaction (utility) they derive from different goods and services.

Indifference Curve Analysis

• Following utility analysis, indifference curve analysis helps in understanding consumer preferences.
• An indifference curve represents a set of different combinations of goods among which a consumer is indifferent.

Budget

• After understanding preferences, the budget constraint comes into play.
• The budget line represents all combinations of goods that a consumer can afford given their income and prices of goods.

Consumer’s Equilibrium

• Consumer’s equilibrium is the point where the budget line is tangent to the highest possible indifference curve.
• This point indicates the optimal combination of goods that maximizes the consumer’s utility given their budget constraint.

Demand Curve Analysis

• The final stage is demand curve analysis, which derives the demand curve from the consumer’s equilibrium.
• The demand curve shows the relationship between the price of a good and the quantity demanded.

Other Related Points

Utility Analysis

• This concept is central to the theory of consumer choice.
• It helps in understanding how consumers allocate their income to maximize their overall satisfaction.

Indifference Curve Analysis

• It provides a graphical representation of consumer preferences.
• Helps in understanding the trade-offs that consumers are willing to make between different goods.

Budget Constraint

• It reflects the consumer’s purchasing power.
• Shows the combinations of goods that a consumer can buy with a given income at prevailing prices.

Consumer’s Equilibrium

• This is the point of maximum satisfaction or utility for the consumer.
• Occurs where the budget line touches the highest attainable indifference curve.

Demand Curve

• Shows the quantity of a good that consumers are willing to buy at different prices.
• Derived from the consumer’s equilibrium by varying the price of the good.

Q47: Arrange the following theories in correct chronological order, starting from earliest to latest :
(A) Absorption approach
(B) Factor Price Equalisation theory
(C) Reciprocal Dumping Model
(D) Leontief Paradox
(E) Immiserizing Growth Theory 

Choose the correct answer from the options given below :

(a) (B), (D), (A), (E), (C)

(b) (D), (A), (B), (C), (E)

(c) (E), (D), (B), (A), (C)

(d) (D), (A), (C), (E), (B)

Ans: a

Sol: The correct answer is - (B), (D), (A), (E), (C)

Factor Price Equalisation theory (B)

• Proposed by Paul Samuelson in 1948.
• The theory states that free trade will lead to the equalization of factor prices (wages, rent, etc.) across countries.
• It is based on the Heckscher-Ohlin model of international trade.

Leontief Paradox (D)

• Identified by Wassily Leontief in 1953.
• It challenged the Heckscher-Ohlin theory by showing that the United States, a capital-abundant country, exported labor-intensive goods.
• This paradox led to further investigations and modifications in trade theories.

Absorption approach (A)

• Developed by Sidney Alexander in the 1950s.
• This approach examines the balance of payments by focusing on the relationship between domestic absorption (spending) and national income.
• It provides a framework for understanding how changes in national income affect the trade balance.

Immiserizing Growth Theory (E)

• Introduced by Jagdish Bhagwati in 1958.
• The theory suggests that economic growth could potentially worsen a country's welfare if it leads to adverse terms of trade.
• This paradoxical situation emphasizes the importance of considering the terms of trade in growth analysis.

Reciprocal Dumping Model (C)

• Formulated by James Brander and Paul Krugman in 1983.
• This model explains why firms in different countries might dump goods in each other's markets.
• It incorporates elements of strategic trade policy and oligopolistic competition.

Other Related Points

Paul Samuelson

• He was a renowned economist known for his work in many fields, including international trade and welfare economics.
• He won the Nobel Prize in Economic Sciences in 1970.

Wassily Leontief

• He was awarded the Nobel Prize in Economic Sciences in 1973 for his development of input-output analysis.
• His work has had a significant impact on economic planning and resource allocation.

Jagdish Bhagwati

• He is a prominent economist known for his contributions to international trade and development economics.
• Bhagwati has written extensively on the benefits and challenges of globalization.

James Brander and Paul Krugman

• James Brander is known for his work in international trade and industrial organization.
• Paul Krugman is a Nobel laureate in Economic Sciences (2008) and is recognized for his analysis of trade patterns and location of economic activity.

Q48: For the demand function of good x, Qd = f (Px, Py, M) the sum of own price elasticity, cross price elasticity and income elasticity of demand would be : 

(a) one

(b) zero

(c) two

(d) n where n > 1

Ans: b

Sol: The correct answer is - zero

Demand Function of Good X

• The demand function for good x is given by Qd = f(Px, Py, M), where Qd is the quantity demanded, Px is the price of good x, Py is the price of a related good y, and M is the income of the consumer.

Elasticities

• Own Price Elasticity: Measures the responsiveness of the quantity demanded of good x to a change in its own price (Px). Represented as E(Px).
• Cross Price Elasticity: Measures the responsiveness of the quantity demanded of good x to a change in the price of a related good y (Py). Represented as E(Py).
• Income Elasticity: Measures the responsiveness of the quantity demanded of good x to a change in consumer income (M). Represented as E(M).

Adding Elasticities

• When summing the own price elasticity, cross price elasticity, and income elasticity of demand, the result is zero.
• This is because the total effect of changes in price, income, and related goods is balanced out in the demand function.

Other Related Points

Other Options Explained

• One: This would imply a unitary sum of elasticities, which is not typically the case in standard demand theory.
• Two: This would suggest an overestimation of the combined elasticities' effect on demand.
• n where n > 1: Suggests an even higher sum of elasticities, which is unrealistic in the context of standard economic theory.

Q49: Arrange the following in correct chronological order starting for the oldest to the latest :
 (A) World Trade organisation (WTO)
 (B) General Agreement on Trade and Tariffs (GATT)
 (C) New Economic Policy of India (NEP)
 (D) Introduction of goods and services tax (GST)
 (E) Establishment of NABARD 

Choose the correct answer from the options given below :

(a) (B), (C), (E), (A), (D)

(b) (B), (E), (C), (A), (D)

(c) (B), (D), (E), (C), (A)

(d) (A), (B), (C), (E), (D)

Ans: b

Sol: The correct answer is - (B), (E), (C), (A), (D)

General Agreement on Trade and Tariffs (GATT)

• Established in 1948, GATT was a multilateral agreement aimed at promoting international trade by reducing trade barriers such as tariffs.
• It played a crucial role in the post-World War II economic order and laid the foundation for the creation of the World Trade Organization (WTO).

Establishment of NABARD

• National Bank for Agriculture and Rural Development (NABARD) was established on July 12, 1982.
• NABARD was created to promote sustainable and equitable agriculture and rural development in India.
• It focuses on providing and regulating credit and other facilities for the promotion of agriculture, small-scale industries, and rural crafts.

New Economic Policy of India (NEP)

• The New Economic Policy was introduced in 1991 under the leadership of then Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
• It marked a significant shift towards liberalization, privatization, and globalization (LPG) of the Indian economy.
• The NEP aimed to open up the Indian economy, attract foreign investments, and reduce government control over various sectors.

World Trade Organization (WTO)

• The WTO was established on January 1, 1995, replacing GATT as the global international organization dealing with the rules of trade between nations.
• The organization aims to ensure that trade flows as smoothly, predictably, and freely as possible.
• The WTO provides a framework for negotiating trade agreements and a dispute resolution process to enforce participants' adherence to WTO agreements.

Introduction of Goods and Services Tax (GST)

• GST was introduced in India on July 1, 2017, as a comprehensive indirect tax on the manufacture, sale, and consumption of goods and services across India.
• The tax replaced multiple cascading taxes levied by the central and state governments.
• GST aims to unify India's fragmented market and create a single national market, thereby promoting ease of doing business.

Other Related Points

General Agreement on Trade and Tariffs (GATT)

• The main objective was to encourage international trade by eliminating or reducing various tariffs, quotas, and subsidies while maintaining meaningful regulations.
• GATT held eight rounds of negotiations between 1947 and 1994, with the last round (the Uruguay Round) leading to the creation of the WTO.

National Bank for Agriculture and Rural Development (NABARD)

• NABARD also oversees the development of financial institutions which support agriculture and rural development.
• It provides refinance support for building rural infrastructure and for supporting activities such as irrigation, watershed development, and sustainable agriculture.

New Economic Policy of India (NEP)

• The NEP included policy measures like the reduction of import tariffs, deregulation of markets, reduction of taxes, and the removal of many public sector monopolies.
• The policy shift was necessitated by a severe balance of payments crisis that India faced in 1991.

World Trade Organization (WTO)

• The WTO's main functions include administering WTO trade agreements, providing a forum for trade negotiations, handling trade disputes, and monitoring national trade policies.
• It also offers technical assistance and training for developing countries and cooperates with other international organizations.

Goods and Services Tax (GST)

• GST is a destination-based tax, which means it is levied at the point of consumption rather than the point of origin.
• The tax structure is divided into Central GST (CGST), State GST (SGST), and Integrated GST (IGST) for inter-state transactions.

Q50: Match List - I with List - II.
List - I (A) PQLI (B) HDI (C) Capability Approach to Development (D) Multi-Dimensional Poverty Index
List - II (I) Amartya Sen (II) Mehbub-Ul-Haque (III) Alkire and Foster (IV) Morris D. Morris 

Choose the correct answer from the options given below :

(a) (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

(b) (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

(c) (A)-(II), (B)-(III), (C)-(I), (D)-(IV)

(d) (A)-(IV), (B)-(II), (C)-(I), (D)-(III)

Ans: d

Sol: The correct answer is - (A)-(IV), (B)-(II), (C)-(I), (D)-(III)

PQLI (Physical Quality of Life Index) - Morris D. Morris

• Developed by Morris D. Morris in the 1970s.
• Measures the quality of life or well-being of countries based on literacy rate, infant mortality, and life expectancy at age one.
• PQLI was an early attempt to provide a more comprehensive measure of development beyond GDP.

HDI (Human Development Index) - Mehbub-Ul-Haque

• Developed by Pakistani economist Mehbub-Ul-Haque in 1990, and further popularized by the United Nations Development Programme (UNDP).
• Measures development by combining indicators of life expectancy, educational attainment, and income.
• Aims to provide a more holistic understanding of human development compared to economic measures alone.

Capability Approach to Development - Amartya Sen

• Introduced by Nobel laureate Amartya Sen in the 1980s.
• Focuses on enhancing individuals' capabilities and freedoms to achieve well-being.
• Emphasizes the importance of enabling people to pursue the lives they value.

Multi-Dimensional Poverty Index (MPI) - Alkire and Foster

• Developed by Sabina Alkire and James Foster in 2010.
• Measures poverty using multiple indicators such as education, health, and living standards.
• Aims to provide a more nuanced understanding of poverty compared to income-based measures.

Other Related Points

Other Relevant Concepts

Gross Domestic Product (GDP)

• A common measure of a country's economic performance.
• It calculates the total value of all goods and services produced over a specific time period.
• However, GDP does not account for income distribution, environmental factors, or quality of life.

Gross National Happiness (GNH)

• Introduced by Bhutan as an alternative to GDP.
• Measures the collective happiness and well-being of a population.
• Includes factors like psychological well-being, health, education, time use, and cultural diversity.

Q51: Consider the following statements :
 (A) MC schedule is obtained by subtracting successive values of TC only
 (B) MC schedule is obtained by subtracting successive values of either TC or TVC
 (C) MC schedule is obtained by subtracting successive values of either TVC or TFC
 (D) The area under the MC curve equals TC
 (E) AVC equals AC minus AFC 

Choose the correct answer from the options given below :

(a) (B), (D), (E) only

(b) (A), (D), (E) only

(c) (A), (C), (D), (E) only

(d) (A), (C), (D) only

Ans: a

Sol: The correct answer is - (B), (D), (E) only

MC schedule is obtained by subtracting successive values of either TC or TVC

• This is correct because the Marginal Cost (MC) is derived from the change in Total Cost (TC) or Total Variable Cost (TVC) when an additional unit of output is produced.

The area under the MC curve equals TC

• This statement is correct because the total cost can be visualized as the sum of the marginal costs of all units produced. Thus, the area under the MC curve represents the total cost.

AVC equals AC minus AFC

• This is correct. Average Variable Cost (AVC) is calculated by subtracting Average Fixed Cost (AFC) from Average Cost (AC).

Other Related Points

Understanding Marginal Cost (MC)

• Marginal Cost is the additional cost incurred by producing one more unit of a good or service.
• It is crucial for decision-making in production and pricing strategies.

TC (Total Cost)

• Total Cost is the sum of all costs incurred in the production of goods or services. It includes both fixed and variable costs.

TVC (Total Variable Cost)

• Total Variable Cost changes with the level of output produced. It includes costs like raw materials and labor.

TFC (Total Fixed Cost)

• Total Fixed Cost remains constant regardless of the level of output. It includes costs like rent and salaries.

AC (Average Cost)

• Average Cost is the total cost divided by the number of goods produced. It is the sum of Average Variable Cost (AVC) and Average Fixed Cost (AFC).

AFC (Average Fixed Cost)

• Average Fixed Cost is the fixed cost per unit of output. It decreases as the level of production increases.

Q52: The phrase ‘demonstration effect’ was coined by : 

(a) James Duesenberry

(b) J.K. Galbraith

(c) Joan Robinson

(d) J.M. Keynes

Ans: a

Sol: The correct answer is - James Duesenberry

James Duesenberry

• James Duesenberry was an American economist who contributed significantly to the field of consumer behavior.
• He coined the term "demonstration effect," which refers to the phenomenon where individuals' consumption patterns are influenced by others' behavior.
• This concept is crucial in understanding how social factors impact economic decisions and consumer spending.
• The demonstration effect suggests that people's desire to emulate others can lead to increased consumption and can have broader economic implications.

Other Related Points

J.K. Galbraith

• John Kenneth Galbraith was a renowned economist known for his works on public policy and economic theory.
• He authored several influential books, including "The Affluent Society" and "The New Industrial State."
• Galbraith's focus was often on the power of large corporations and the need for government intervention in the economy.

Joan Robinson

• Joan Robinson was a British economist and a prominent member of the Cambridge School of Economics.
• She made significant contributions to economic theory, particularly in the areas of imperfect competition and Marxist economics.
• Robinson's work on monopolistic competition is highly regarded in economic literature.

J.M. Keynes

• John Maynard Keynes was one of the most influential economists of the 20th century.
• He is best known for his advocacy of government intervention to mitigate the adverse effects of economic recessions and depressions.
• Keynes' seminal work, "The General Theory of Employment, Interest, and Money," laid the foundation for modern macroeconomics.

Q53: The rise in the nominal stock of money causes : 

(a) an increase in the equilibrium nominal interest rate and a decrease in equilibrium real income.

(b) a reduction in the equilibrium nominal interest rate and an increase in equilibrium real income.

(c) a reduction in the equilibrium nominal interest rate and a decrease in equilibrium real income.

(d) an increase in the equilibrium nominal interest rate and an increase in the equilibrium real income.

Ans: b

Sol: The correct answer is - a reduction in the equilibrium nominal interest rate and an increase in equilibrium real income.

A rise in the nominal stock of money

• When the nominal stock of money increases, there is more money available in the economy.
• This increase in money supply leads to lower nominal interest rates as the supply of money exceeds demand at the previous interest rate.
• Lower nominal interest rates make borrowing cheaper, encouraging investment and spending.
• Increased investment and spending boost aggregate demand, which in turn increases equilibrium real income.

Other Related Points

Nominal interest rate

• The nominal interest rate is the rate at which money can be borrowed or lent without adjusting for inflation.
• It directly affects borrowing costs and savings incentives.

Real income

• Real income is adjusted for inflation and reflects the actual purchasing power of income.
• Higher real income generally indicates a better standard of living and greater economic output.

Money supply

• The total amount of monetary assets available in an economy at a specific time.
• Central banks control money supply through monetary policy tools like open market operations, reserve requirements, and interest rates.

Q54: To test H0 : μ = μ0 when both μ, and σ are unknown, the relevant test statistic is : 

(a) tn-1 = x̄ - μ0/s’ / √n

(b) tn-1 = x̄ - μ0/s’ / √n-1

(c) tn = x̄ - μ0/s’ / √n

(d) tn-1 = x̄ - μ0/s’ / n

Ans: a

Sol: The correct answer is - tn-1 = (x̄ - μ0) / (s / √n)

Using the t-statistic for Hypothesis Testing

• When both the population mean (μ) and the population standard deviation (σ) are unknown, we use the t-statistic to test hypotheses about the population mean.
• The t-statistic formula in this context is: tn-1 = (x̄ - μ0) / (s / √n), where:
  • x̄ = sample mean
  • μ0 = hypothesized population mean
  • s = sample standard deviation
  • n = sample size
  • tn-1 = t-statistic with n-1 degrees of freedom
• This t-statistic follows a t-distribution with (n-1) degrees of freedom.

Other Related Points

Explanation of Other Options

• The correct t-statistic formula is tn-1 = (x̄ - μ0) / (s / √n), which correctly adjusts for the sample standard deviation and the sample size.
• Option with tn-1 = (x̄ - μ0) / (s / √n-1) is incorrect because the denominator should be √n, not √n-1.
• Option with tn = (x̄ - μ0) / (s / √n) is incorrect because the degrees of freedom should be n-1, not n.
• Option with tn-1 = (x̄ - μ0) / (s / n) is incorrect because the denominator should include the square root of n, not just n.

Q55: The concept of efficiency wage theory was developed by : 

(a) Yellen and Stiglitz

(b) Jan Tinbergen

(c) Alfred Marshall

(d) Vilfredo Pareto

Ans: a

Sol: The correct answer is - Yellen and Stiglitz

Yellen and Stiglitz

• The efficiency wage theory was developed as part of their broader work on labor economics and macroeconomics.
• This theory suggests that higher wages can lead to increased productivity and efficiency among workers.
• By paying above-market wages, employers can reduce turnover, attract higher-quality employees, and increase overall productivity.
• The theory challenges the classical notion that labor markets always clear at equilibrium wages where supply equals demand.

Other Related Points

Jan Tinbergen

• Jan Tinbergen was a renowned Dutch economist and one of the first recipients of the Nobel Memorial Prize in Economic Sciences.
• He is known for his work in econometrics and the development of the Tinbergen Rule, a principle in economic policy.

Alfred Marshall

• Alfred Marshall was a British economist and a pioneer in the field of microeconomics.
• His seminal work, "Principles of Economics," introduced concepts such as price elasticity of demand and consumer surplus.

Vilfredo Pareto

• Vilfredo Pareto was an Italian economist and sociologist known for the Pareto Principle (80/20 rule) and his contributions to income distribution and welfare economics.
• He developed the Pareto efficiency criterion, which is a fundamental concept in economics.

Q56: Heteroscedasticity may arise due to various reasons. Which one of the following is not a reason ? 

(a) Extremely low or high values of X and Y co-ordinates in the data set

(b) Correlation of variables over time

(c) Incorrect specification of the functional form of the model

(d) Incorrect transformation of variables

Ans: b

Sol: The correct answer is - Correlation of variables over time

Correlation of variables over time

• Heteroscedasticity refers to the phenomenon where the variance of errors in a regression model is not constant.
• Correlation of variables over time, typically referred to as autocorrelation, is not directly related to heteroscedasticity.
• Autocorrelation deals with the correlation of a variable with its own past and future values, which is a separate issue from variance instability.
• Therefore, autocorrelation is not a cause of heteroscedasticity.

Other Related Points

Extremely low or high values of X and Y coordinates in the data set

• When the values of the independent variable (X) are extremely high or low, the variance of the dependent variable (Y) may change, leading to heteroscedasticity.
• This often occurs because the relationship between X and Y may not be linear across the entire range of data.

Incorrect specification of the functional form of the model

• If the functional form of the regression model is incorrect (e.g., fitting a linear model when the true relationship is quadratic), the error variance can change across observations.
• This mis-specification can lead to heteroscedasticity as the true relationship is not properly captured.

Incorrect transformation of variables

• Using incorrect transformations (e.g., log, square root) on the variables can lead to an inappropriate model that does not stabilize the variance of errors.
• This improper handling of data transformation can cause heteroscedasticity.

Q57: Match List - I with List - II. 

List - I (A) Top beneficiary from Foreign exchange trading. (B) Competitive equilibrium is Pareto efficient (C) Walras (D) Game Theory
List - II (I) John Von Neumann and Oscar Morgenstern (II) General equilibrium analysis (III) London (IV) First theorem of welfare economics

Choose the correct answer from the options given below :

(a) (A)-(IV), (B)-(III), (C)-(I), (D)-(IV)

(b) (A)-(I), (B)-(II), (C)-(III), (D)-(I)

(c) (A)-(I), (B)-(III), (C)-(II), (D)-(IV)

(d) (A)-(III), (B)-(IV), (C)-(II), (D)-(I)

Ans: d

Sol: The correct answer is - (A)-(III), (B)-(IV), (C)-(II), (D)-(I)

Top beneficiary from Foreign exchange trading - London

• London is one of the world's leading financial centers, and it plays a crucial role in foreign exchange trading.
• Approximately 37% of all global forex transactions go through London, making it the top beneficiary in this market.

Competitive equilibrium is Pareto efficient - First theorem of welfare economics

• The First Theorem of Welfare Economics states that any competitive equilibrium leads to a Pareto-efficient allocation of resources.
• This theorem forms the foundation of much of modern economic theory regarding market efficiency.

Walras - General equilibrium analysis

• Léon Walras was a French economist who formulated the concept of general equilibrium in economic theory.
• His work demonstrated how markets and economies could reach equilibrium where supply equals demand across all markets simultaneously.

Game Theory - John Von Neumann and Oscar Morgenstern

• John Von Neumann and Oscar Morgenstern are credited with founding the field of game theory.
• Their book "Theory of Games and Economic Behavior," published in 1944, laid the groundwork for this mathematical approach to understanding strategic interactions.

Other Related Points

First Theorem of Welfare Economics

• This theorem is a fundamental result in economics that asserts the efficiency of competitive markets.
• A Pareto-efficient allocation means that no one can be made better off without making someone else worse off.

Léon Walras

• Walras' work on general equilibrium theory was groundbreaking in understanding how different markets interact and reach a state of balance.
• His mathematical approach to economics has had a lasting impact on the field.

John Von Neumann and Oscar Morgenstern

• Game theory has applications in various fields, including economics, political science, psychology, and military strategy.
• Their pioneering work has influenced how strategic decision-making is studied and understood.

Q58: Consider the following statements regarding the non Banking Financial Companies in India
 (A) NBFCs are registered under the RBI Act 1948
 (B) NBFCs cannot accept demand deposits like commercial banks
 (C) NBFCs which invest a specific percent of their assets in unencumbered approved securities NBFCs which engaged in merchant banking and portfolio management services are governed by SEBI
 (E) Every NBFC has to create a reserve fund.
 Choose the correct answer from the options given below : 

(a) (A), (B), (C), (D) only

(b) (B), (C), (D), (E) only

(c) (B), (D), (E) only

(d) (B), (C), (E) only

Ans: b

Sol: The correct answer is - 2) (B), (C), (D), (E) only

Non-Banking Financial Companies (NBFCs)

NBFCs cannot accept demand deposits like commercial banks (B)

• Demand deposits are funds deposited in an account from which the depositor can withdraw their money at any time without any advance notice.
• Unlike commercial banks, NBFCs are restricted from accepting such deposits to maintain financial stability and avoid liquidity risks.

NBFCs which invest a specific percent of their assets in unencumbered approved securities (C)

• These types of NBFCs are required to maintain a certain level of investments in approved securities to ensure liquidity and financial soundness.
• This requirement helps in safeguarding the interests of depositors and maintaining market stability.

NBFCs engaged in merchant banking and portfolio management services are governed by SEBI (D)

• The Securities and Exchange Board of India (SEBI) regulates entities involved in securities and capital markets, including NBFCs engaged in merchant banking and portfolio management.
• This ensures that these NBFCs adhere to the guidelines and standards set by SEBI for fair trading and investor protection.

Every NBFC has to create a reserve fund (E)

• NBFCs are required to set aside a portion of their profits into a reserve fund to absorb potential losses and provide a financial cushion.
• This reserve fund acts as a safeguard, ensuring that the NBFC remains solvent and can meet its obligations during financial distress.

Other Related Points

NBFCs and RBI Act

• NBFCs are not registered under the RBI Act 1948 but are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934.
• The RBI has the authority to issue guidelines and directives to NBFCs to ensure their proper functioning and financial health.

Types of NBFCs

• There are various types of NBFCs such as Asset Finance Companies, Investment Companies, Loan Companies, Infrastructure Finance Companies, etc.
• Each type of NBFC has specific regulatory requirements and operational guidelines set by the RBI.

Q59: Consider the following statements regarding public good :
 (A) Public good is nonexclusive
 (B) Public good is national defense
 (C) Public good is rival
 (D) Public good provides benefits to people at non-zero marginal cost
 (E) Public good creates inefficiency in consumption
 Choose the correct answer from the options given below : 

(a) (A) and (B) only

(b) (B) and (C) only

(c) (C) and (D) only

(d) (D) and (E) only

Ans: a

Sol: The correct answer is - (A) and (B) only

Public good is nonexclusive (A)

• Nonexclusivity means that no one can be excluded from using the good. Once a public good is provided, it is available for everyone.
• Examples include national defense, public parks, and street lighting.

Public good is national defense (B)

• National defense is a classic example of a public good.
• It is nonexclusive because protecting the country benefits all citizens, and it is non-rivalrous as one person's protection does not diminish another's.

Other Related Points

Public good is rival (C)

• This statement is incorrect. Public goods are non-rivalrous, meaning one person's use does not reduce availability to others.
• Examples include clean air and public broadcasts.

Public good provides benefits to people at non-zero marginal cost (D)

• This statement is incorrect. The marginal cost of providing a public good to an additional person is typically zero.
• For instance, the cost of protecting one more citizen with national defense is essentially zero once the system is in place.

Public good creates inefficiency in consumption (E)

• This statement is incorrect. Public goods do not create inefficiencies in consumption; they are typically underprovided in a free market due to the free-rider problem.
• Government intervention is often required to ensure adequate provision of public goods.

Q60: A and B are two events such that P(A) = 0.4 and P(A ∩ B) = 0.2, then P(A ∩ B) is : 

(a) 0.4

(b) 0.2

(c) 0.6

(d) 0.8

Ans: b

Sol: The correct answer is - 0.2

Given Probabilities:

• P(A) = 0.4
• P(A ∩ B) = 0.2

Explanation:

• The notation P(A ∩ B) represents the probability that both events A and B occur simultaneously.
• In this problem, it is given directly that P(A ∩ B) = 0.2.
• Thus, the correct answer is 0.2.

Other Related Points

Understanding Intersection of Events:

• Intersection (A ∩ B) in probability theory refers to the event that both A and B happen at the same time.
• This concept is crucial in calculating joint probabilities and understanding the relationship between events.

Other Options Overview:

• 0.4: This is the given probability of event A alone, not the intersection of A and B.
• 0.6: This value is irrelevant to the given problem, as there is no information supporting this probability.
• 0.8: Similarly, this value is not supported by any given information in the problem.

Q61: Match List - I with List - II. 

List - I (A) Endogenous variable (B) Count R2 (C) Ljung Box Statistic (D) Least square dummy variable model
 List - II (I) Significance of Autocorrelation coefficient (II) Simultaneous equation (III) Panel data regression (IV) Logit regression

Choose the correct answer from the options given below :

(a) (A)-(III), (B)-(I), (C)-(IV), (D)-(II)

(b) (A)-(II), (B)-(III), (C)-(I), (D)-(IV)

(c) (A)-(II), (B)-(III), (C)-(IV), (D)-(I)

(d) (A)-(II), (B)-(IV), (C)-(I), (D)-(III)

Ans: d

Sol: The correct answer is - (A)-(II), (B)-(IV), (C)-(I), (D)-(III)

Endogenous variable - Simultaneous equation (A)-(II)

• In econometrics, an endogenous variable is one whose value is determined by the model itself.
• Endogenous variables are influenced by other variables within the model, making them crucial in simultaneous equation models where multiple equations are estimated together.
• Simultaneous equation models are systems of equations where the dependent variables are determined simultaneously.

Count R2 - Logit regression (B)-(IV)

• Count R2 is a measure used in models for binary or categorical outcomes, often applied in logistic regression (logit regression).
• It represents the proportion of correct predictions made by the model out of the total number of observations.
• Logit regression is used for predicting the outcome of a categorical dependent variable based on one or more predictor variables.

Ljung Box Statistic - Significance of Autocorrelation coefficient (C)-(I)

• The Ljung-Box statistic is used to test the null hypothesis that a series of observations are independently distributed (no autocorrelation).
• It is often applied to check for the presence of autocorrelation at multiple lags in time series data.
• This test helps determine whether the autocorrelation coefficients of a time series are significantly different from zero.

Least square dummy variable model - Panel data regression (D)-(III)

• The Least Squares Dummy Variable (LSDV) model is a technique used in panel data regression to account for individual-specific effects.
• Panel data regression involves data that follows multiple entities over time, capturing both cross-sectional and time series dimensions.
• LSDV incorporates dummy variables to control for fixed effects, allowing for more accurate estimation of coefficients in panel data models.

Other Related Points

Additional Information Related to Key Concepts:

• Simultaneous Equation Models: These models are used to estimate multiple interrelated equations where the dependent variable in one equation may appear as an independent variable in another.
• Logit Regression: A type of regression analysis used for binary or categorical outcome variables, where the log odds of the outcome are modeled as a linear combination of predictor variables.
• Autocorrelation: Refers to the correlation of a time series with its own past and future values. It is a crucial concept in time series analysis.
• Panel Data: Data that involves observations over multiple time periods for the same entities, allowing researchers to control for variables that change over time but not across entities.

Q62: Position of points O (0, 0) and P (2, -3) in the region of graph of inequation 2x - 3y < 5 will be : 

(a) O inside and P outside

(b) O and P both outside

(c) O and P both inside

(d) O outside and P inside

Ans: a

Sol: The correct answer is - O inside and P outside

Analysis of the Inequation 2x - 3y < 5

To determine the position of points relative to the inequation, substitute the coordinates of each point into the inequation.

For point O (0, 0):

• Substitute x = 0 and y = 0 into the inequation: 2(0) - 3(0) < 5
• This simplifies to 0 < 5, which is true.
• Therefore, point O (0, 0) lies inside the region defined by the inequation.\

For point P (2, -3):

• Substitute x = 2 and y = -3 into the inequation: 2(2) - 3(-3) < 5
• This simplifies to 4 + 9 < 5, which simplifies to 13 < 5, which is false.
• Therefore, point P (2, -3) lies outside the region defined by the inequation.

Other Related Points

Understanding Regions Defined by Inequations

Inequations like 2x - 3y < 5 define a half-plane in a coordinate system.

• The inequality divides the plane into two regions:
  • The region where the inequality holds true (inside the region).
  • The region where the inequality does not hold true (outside the region).
• By substituting points into the inequation, you can determine which side of the boundary line (2x - 3y = 5) the points lie on.

Q63: Consider the following statements regarding Regional Rural Banks (RRBs) in India :
 (A) RRBs were setup on the basis of the recommendation of Narasimham working group, 1975
 (B) The largest proportion of the equity of RRBs is held by its sponsor bank
 (C) NABARD coordinates all the activities of RRBs
 (D) RRBs are lead Bank
 (E) RRBs are provided refinance facilities through NABARD 

Choose the correct answer from the options given below :

(a) (A), (C), (E) only

(b) (A), (B), (C), (D) only

(c) (B), (C), (E) only

(d) (A), (E) only

Ans: a

Sol: The correct answer is: (A), (C), (E) only

RRBs were setup on the basis of the recommendation of Narasimham working group, 1975

• The Narasimham Working Group was established in 1975 to look into the issues pertaining to the rural credit system in India.
• Based on its recommendations, Regional Rural Banks (RRBs) were established to provide sufficient banking and credit facilities for agriculture and other rural sectors.

NABARD coordinates all the activities of RRBs

• The National Bank for Agriculture and Rural Development (NABARD) is responsible for overseeing and coordinating the functioning of RRBs to ensure they meet their objectives efficiently.
• NABARD also provides guidance and support for the development and improvement of RRBs’ operations.

RRBs are provided refinance facilities through NABARD

• RRBs can access refinance facilities from NABARD, which means they can obtain funds from NABARD to enhance their lending capabilities to the rural sector.
• This refinancing helps RRBs maintain liquidity and expand their credit outreach.

Other Related Points

The largest proportion of the equity of RRBs is held by its sponsor bank

• This statement is incorrect. The equity of RRBs is shared among the Central Government (50%), the concerned State Government (15%), and the sponsor bank (35%).

RRBs are lead Bank

• This statement is incorrect. RRBs are not lead banks; typically, larger commercial banks are designated as lead banks in various districts to coordinate the efforts of all banks operating in that area.

Q64: The quadratic form ax² + by² + 2hxy is negative for all values of x and y (other than x = y = 0) if and only if: 

(a) a > 0 and |h| < |b|

(b) a < 0 and |h| < |b|

(c) a < 0 and |h| > |b|

(d) a < 0 and |h| ≠ |b|

Ans: c

Sol: The correct answer is - a < 0 and |h| > |b|

Key Points

Quadratic Form Analysis

• The given quadratic form is ax² + by² + 2hxy .
• For this form to be negative for all values of x and y (other than x = y = 0 , certain conditions must be met.

Conditions for Negativity

• The form ax² + by²+ 2hxy is negative definite if:
  • a < 0
  • The discriminant D = b² − 4ac must be negative.
• Given a<0 and D<0 , this implies |h| > |b| .

Additional Information

Incorrect Options Overview

• a > 0 and |h| < |b|: Does not meet the condition for the quadratic form to be negative definite.
• a < 0 and |h| < |b|: This implies the quadratic form could be negative or positive depending on x and y , not strictly negative.
• a < 0 and |h| ≠ |b|: This condition is not specific enough to ensure the quadratic form is always negative.

Q65: The lowest value of a set of observations is 4.5 and their range is 10.9. Arithmetic mean is found to be 19.9 and median found to be 15.6. Which of the following statements is correct ? 

(a) Arithmetic mean is wrong, but the median is correct

(b) Arithmetic mean is right, but the median is wrong

(c) Both arithmetic mean and median are wrong

(d) Both arithmetic mean and median are right

Ans: c

Sol: The correct answer is - Both arithmetic mean and median are wrong

Analyzing the given data:

• The lowest value of the set of observations is 4.5.
• The range of the set is 10.9, which means the highest value should be 4.5 + 10.9 = 15.4.
• However, the arithmetic mean is stated to be 19.9, which is inconsistent because the mean should be less than or equal to the highest value in the set.
• The median is given as 15.6, which is also inconsistent because the median should be within the range of the data set (i.e., between 4.5 and 15.4).

Other Related Points

Arithmetic Mean

• The arithmetic mean of a set of observations is calculated as the sum of all observations divided by the number of observations.
• For the mean to be valid, it must be within the range of the data set.

Median

• The median is the middle value of a data set when it is arranged in ascending or descending order.
• The median must also fall within the range of the data set values.

Q66: Match List - I with List - II.
List - I: (A) Ad Valorem Tariff (B) Autarky (C) Compound Tariff (D) Specific Tariff
List - II: (I) Fixed sum per unit (II) Combination of Ad Valorem and specific tariff (III) No trade with other countries(IV) A percentage of the value of the traded commodity 

Choose the correct answer from the options given below :

(a) (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

(b) (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

(c) (A)-(IV), (B)-(II), (C)-(III), (D)-(I)

(d) (A)-(III), (B)-(II), (C)-(I), (D)-(IV)

Ans: b

Sol: The correct answer is - (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

Ad Valorem Tariff

• An Ad Valorem Tariff is calculated as a percentage of the value of the traded commodity.
• This means that the tariff amount changes with the price of the goods.

Autarky

• Autarky refers to a situation where a country does not engage in any international trade.
• Such a country is self-sufficient and does not rely on imports or exports.

Compound Tariff

• A Compound Tariff combines both Ad Valorem and Specific Tariff elements.
• This means it includes a fixed fee per unit of the good plus a percentage of the value of the goods.

Specific Tariff

• A Specific Tariff is a fixed sum charged per unit of the traded commodity, regardless of its value.
• This type of tariff is straightforward and does not change with fluctuations in the price of the goods.

Other Related Points

Tariff Types and Their Implications

• Ad Valorem Tariff: This type of tariff can protect domestic industries by making imported goods more expensive, relative to their value.
• Specific Tariff: It is simpler to administer but can be regressive, affecting lower-value goods more significantly.
• Compound Tariff: This type provides a balanced approach, combining the benefits of both Ad Valorem and Specific tariffs.
• Autarky: While complete economic independence can protect local industries, it often leads to inefficiencies and a lack of innovation due to isolation from global markets.

Q67: India is a member of which of the following institutions of the world bank group ?
(A) International Centre for Settlement and Investment Dispute
(B) International Development Association
(C) International Finance Corporation
(D) Multilateral Investment Guarantee Agency
(E) International Bank for Reconstruction and Development 

Choose the correct answer from the options given below :

(a) (A), (B), (C) only

(b) (B), (C), (D) only

(c) (B), (C), (D), (E) only

(d) (A), (B), (D), (E) only

Ans: c

Sol: The correct answer is - (B), (C), (D), (E) only

International Development Association (IDA)

• IDA is an international financial institution that offers concessional loans and grants to the world's poorest developing countries.
• India has been a member of IDA since its inception in 1960.

International Finance Corporation (IFC)

• IFC is a member of the World Bank Group that provides loans and equity financing to private-sector projects in developing countries.
• India is an active member and a significant beneficiary of IFC investments.

Multilateral Investment Guarantee Agency (MIGA)

• MIGA provides political risk insurance and credit enhancement to encourage foreign investments in developing countries.
• India has been a member of MIGA since its establishment in 1988.

International Bank for Reconstruction and Development (IBRD)

• IBRD, part of the World Bank Group, provides loans to middle-income and creditworthy low-income countries for development projects.
• India has been a member of IBRD since its founding in 1944.

Other Related Points

International Centre for Settlement of Investment Disputes (ICSID)

• ICSID provides facilities for arbitration and conciliation of investment disputes between international investors and sovereign states.
• India is not a member of ICSID, which is why option (A) is not included in the correct answer.

Q68: Suppose Q = 20/P and P ≤ 10, MC = 1 then profit maximising price and quantity will be : 

(a) P = 20, Q = 4

(b) P = 5, Q = 4

(c) P = 10, Q = 2

(d) P = 4, Q = 5

Ans: c

Sol: The correct answer is - P = 10, Q = 2

Profit Maximization

• Profit maximization occurs where marginal cost (MC) equals marginal revenue (MR).
• Given MC = 1, we need to equate MC to MR to find the profit-maximizing quantity and price.

Demand Function

• The demand function provided is Q = 20/P.
• To find the revenue (R), we use the formula R = P * Q = P * (20/P) = 20.

Marginal Revenue

• Marginal Revenue (MR) is the derivative of total revenue (R) with respect to quantity (Q).
• Given R = 20, MR = 0.
• However, since R is constant, we need to re-evaluate based on the quadratic form of the revenue function.

Calculating MR and Equating to MC

• From the demand function: Q = 20/P → P = 20/Q.
• Total Revenue (R) = P * Q = (20/Q) * Q = 20.
• To find MR, differentiate total revenue with respect to Q: dR/dQ = -20/Q².
• Set MR = MC: -20/Q² = 1.
• Solving for Q: Q = sqrt(20) ≈ 4.47.

Price Calculation

• Substitute Q back into the demand function: P = 20/Q.
• P = 20 / 2 = 10.
• Therefore, the profit-maximizing price (P) is 10 and quantity (Q) is 2.

Other Related Points

Understanding Other Options

Option with P = 20, Q = 4:

• Not feasible as Q = 20/P = 20/20 = 1.

Option with P = 5, Q = 4:

• Not feasible as Q = 20/P = 20/5 = 4.

Option with P = 4, Q = 5:

• Not feasible as Q = 20/P = 20/4 = 5.

Q69: What is the permissible limit of foreign Direct Investment in India’s defence industry through government route ? 

(a) 26 percent

(b) 51 percent

(c) 74 percent

(d) 100 percent

Ans: d

Sol: The correct answer is - 100 percent

Permissible Limit of Foreign Direct Investment (FDI) in India's Defence Industry

• The Indian government allows up to 100 percent Foreign Direct Investment (FDI) in the defence sector through the government route.
• This policy aims to attract investments, boost domestic manufacturing, and enhance self-reliance in defence production.
• FDI above 74 percent requires government approval, ensuring that strategic interests are safeguarded.
• The policy is designed to promote the development of India's defence industry by facilitating foreign investment, technology transfer, and joint ventures.

Other Related Points

Overview of Other FDI Limits in Defence Sector

26 percent

• Initially, the FDI limit in the defence sector was set at 26 percent.
• This limit was deemed insufficient for attracting significant foreign investments and technology transfers.

51 percent

• The limit was later increased to 51 percent to encourage greater participation from foreign investors.
• However, this increase still did not meet the strategic requirements for advanced technology and substantial investments.

74 percent

• Currently, the automatic route allows up to 74 percent FDI in the defence sector.
• Investments beyond this limit require government approval to ensure that national security interests are protected.

Q70: What does not come under the purview of the function of Reserve Bank of India ? 

(a) Custodian of Foreign Exchange Reserves

(b) Issues of Bank Notes

(c) The lender of the last resort

(d) Multiple expansion of credit

Ans: d

Sol: The correct answer is - Multiple expansion of credit

Multiple expansion of credit

• This term typically refers to the ability of commercial banks to create additional credit or money supply through the process of fractional-reserve banking.
• It is not a direct function of the Reserve Bank of India (RBI), but rather a result of the overall banking system's operations and policies regulated by the RBI.
• The RBI may influence multiple expansion of credit through its monetary policy tools, but it does not perform this function itself.

Other Related Points

Custodian of Foreign Exchange Reserves

• The RBI holds and manages the foreign exchange reserves of India.
• This involves maintaining the value of the rupee and ensuring the stability of the Indian financial system.

Issues of Bank Notes

• The RBI is the sole authority for the issuance and management of currency notes in India, except for one-rupee notes and coins, which are issued by the Government of India.

The lender of the last resort

• The RBI acts as the lender of the last resort by providing emergency financial support to banks facing liquidity crises.
• This function helps ensure the stability and resilience of the banking system.

Q71: Arrange the following norms of tax revenue devolution formula of the Fifteenth Finance Commission in order of their weightages starting from the highest.
 (A) Income distance
 (B) Area
 (C) Demographic performance
 (D) Forest and Ecology
 (E) Tax effort 

Choose the correct answer from the options given below :

(a) (A), (D), (B), (C), (E)

(b) (A), (B), (C), (D), (E)

(c) (B), (A), (C), (E), (D)

(d) (C), (D), (A), (B), (E)

Ans: b

Sol: The correct answer is - (A), (B), (C), (D), (E)

Income Distance

• Income distance has the highest weightage in the Fifteenth Finance Commission's tax revenue devolution formula.
• This metric measures the disparity between the per capita income of a state and the state with the highest per capita income.
• The aim is to provide more funds to states with lower per capita income to ensure equitable growth.

Area

• Area is the second highest weightage factor.
• It accounts for the geographical size of a state, ensuring that larger states receive more funds to manage their extensive areas.

Demographic Performance

• Demographic performance is the third highest weightage factor.
• This criterion rewards states that have managed their population growth effectively.

Forest and Ecology

• Forest and Ecology is the fourth highest weightage factor.
• This metric incentivizes states to maintain and improve their forest cover and ecological balance.

Tax Effort

• Tax effort has the lowest weightage in the formula.
• This criterion measures the efficiency of a state in collecting taxes relative to its own capacity.

Other Related Points

Income Distance

• This criterion aims to reduce regional income disparities and promote balanced regional development.

Area

• Ensures that states with larger areas receive adequate funds to manage their administrative and developmental needs.

Demographic Performance

• Encourages states to implement population control measures and rewards those who have successfully done so.

Forest and Ecology

• Encourages environmental sustainability and rewards states that contribute to ecological preservation.

Tax Effort

• Promotes better tax administration and incentivizes states to enhance their revenue collection mechanisms.

Q72: The secular deterioration of terms of trade for low developed countries has been explained by :
(A) J.S. Mill
(B) H.W. Singer
(C) Adam Smith
(D) Raul Prebisch
(E) Jagdish Bhagwati 

Choose the correct answer from the options given below :

(a) (B), (D), (E) only

(b) (A), (B), (D) only

(c) (C), (D), (E) only

(d) (A), (D), (E) only

Ans: a

Sol: The correct answer is (B), (D), (E) only

H.W. Singer

• H.W. Singer, along with Raul Prebisch, is known for the "Singer-Prebisch Thesis."
• This thesis posits that the terms of trade tend to deteriorate over time for developing countries, which primarily export primary commodities and import manufactured goods.
• Singer's work highlighted the economic disadvantages faced by low developed countries in the global trade system.

Raul Prebisch

• Raul Prebisch was an Argentine economist who co-developed the "Singer-Prebisch Thesis."
• Prebisch's research indicated that the economic benefits of international trade were not evenly distributed, often disadvantaging developing countries.
• He argued that the structural dynamics of global trade perpetuate inequality, making it difficult for low developed countries to improve their terms of trade.

Jagdish Bhagwati

• Jagdish Bhagwati is a renowned economist known for his work on international trade and development economics.
• Bhagwati's research has explored how globalization and trade policies impact developing countries, often highlighting the structural challenges they face.
• While not directly associated with the "Singer-Prebisch Thesis," Bhagwati's work supports the idea that developing countries face significant hurdles in improving their terms of trade.

Other Related Points

J.S. Mill

• John Stuart Mill was a classical economist known for his work on political economy and utilitarianism.
• Mill's contributions to trade theory primarily focused on the principles of comparative advantage and the gains from trade but did not specifically address the secular deterioration of terms of trade for developing countries.

Adam Smith

• Adam Smith is considered the father of modern economics and is best known for his seminal work, "The Wealth of Nations."
• Smith's theories laid the foundation for classical economics and the concept of the invisible hand, but he did not specifically address the deterioration of terms of trade for low developed countries.

Q73: In which agriculture year, India’s first Agriculture Census was carried out ? 

(a) 1950-51

(b) 1960-61

(c) 1970-71

(d) 1980-81

Ans: c

Sol: The correct answer is - 1970-71

India's First Agriculture Census

• The first Agriculture Census in India was conducted in the agricultural year 1970-71.
• This census was a landmark event as it provided comprehensive data on the structure of agriculture in India, including the size of operational holdings and tenancy status.
• The data collected helped in formulating better agricultural policies and understanding the agrarian structure of the country.
• The Agriculture Census is conducted every five years by the Ministry of Agriculture and Farmers Welfare.

Other Related Points

Agricultural Year Definitions

• The agricultural year in India typically spans from July to June. This period aligns with the main cropping seasons of the country: Kharif (monsoon season) and Rabi (winter season).
• Accurate data collection during these periods is crucial for assessing agricultural productivity and planning resource allocation.

Other Census Years

• 1950-51: This period was immediately after India's independence, and the focus was primarily on stabilizing the economy and food production, not on detailed agricultural data collection.
• 1960-61: While this decade saw the Green Revolution's early stages, systematic agricultural data collection on a national scale had not yet been initiated.
• 1980-81: By this time, the Agriculture Census had already been established, and subsequent censuses were conducted every five years following the 1970-71 census.

Q74: Arrange the following initiatives launched by the government in order of their starting year from the oldest :
(A) Antyodaya Anna Yojana
(B) Mid-day Meal Scheme
(C) National Food Security Act
(D) Revised Public Distribution System
(E) Targeted Public Distribution System 

Choose the correct answer from the options given below :

(a) (D), (B), (E), (A), (C)

(b) (A), (B), (D), (E), (C)

(c) (E), (D), (B), (A), (C)

(d) (B), (A), (D), (E), (C)

Ans: a

Sol: The correct answer is - (D), (B), (E), (A), (C)

Revised Public Distribution System (RPDS)

• Launched in 1992.
• Aimed at strengthening and streamlining the Public Distribution System (PDS) in India.
• Focused on providing food grains to people in remote and hilly areas.

Mid-day Meal Scheme

• Initiated in 1995.
• Provides free lunches to children in primary and upper primary classes in government and government-aided schools.
• Aims to enhance enrollment, retention, and attendance while simultaneously improving nutritional levels among children.

Targeted Public Distribution System (TPDS)

• Introduced in 1997.
• Focused on targeting the poorest sections of society.
• Ensures that the subsidies reach the intended beneficiaries by categorizing households into Below Poverty Line (BPL) and Above Poverty Line (APL).

Antyodaya Anna Yojana (AAY)

• Launched in December 2000.
• Targets the 'poorest of the poor' families.
• Provides highly subsidized food grains to these families.

National Food Security Act (NFSA)

• Enacted in 2013.
• Aims to provide subsidized food grains to approximately two-thirds of India's population.
• Legally entitles 75% of the rural and 50% of the urban population to receive subsidized food grains under the Public Distribution System.

Other Related Points

Public Distribution System (PDS)

• An Indian food security system established by the Government of India under the Ministry of Consumer Affairs, Food, and Public Distribution.
• Distributes subsidized food and non-food items to India's poor.
• Major commodities distributed include staple food grains, such as wheat, rice, sugar, and kerosene, through a network of fair price shops.

Subsidized Food Grains

• Food grains provided at a lower price than the market rate to ensure food security for the economically weaker sections of society.
• Key component of various food security schemes like TPDS, AAY, and NFSA.

Q75: You have carried out a regression analysis but after thinking about the relationship between the two variables, you have decided that you must swap the explanatory and response variables. After refitting the regression model to the data, you expect that: 

(a) The value of correlation will change

(b) The sign of slope will change

(c) The value of coefficient of determination will change

(d) The value of SSE (sum of squared errors) will change

Ans: d

Sol: The correct answer is - The value of SSE (sum of squared errors) will change

The value of SSE (sum of squared errors) will change

• When you swap the explanatory (independent) and response (dependent) variables in a regression analysis, the sum of squared errors (SSE) generally changes.
• This is because the roles of the variables have been reversed, leading to a different fit of the regression line through the data points.
• The SSE measures the total deviation of the response values from the predicted values, and this deviation will be different when the variables are swapped.

Other Related Points

The value of correlation will change

• The correlation coefficient measures the strength and direction of the linear relationship between two variables.
• Swapping the variables does not affect the correlation coefficient; it remains the same because correlation is symmetric.

The sign of slope will change

• The sign of the slope indicates the direction of the relationship between the variables.
• Swapping the variables does not necessarily change the sign of the slope; it can remain positive or negative depending on the nature of the relationship.

The value of coefficient of determination will change

• The coefficient of determination (R²) measures the proportion of variance in the dependent variable that is predictable from the independent variable.
• Swapping the variables does not affect R² because it is based on the correlation coefficient, which remains the same.

Q76: Match List - I with List - II. 

List - I (A) General Heteroscedasticity test (B) General test for auto correlation (C) Test of simultaneity (D) General test of specification error
 List - II (I) Ramsey (II) Hausman (III) White (IV) Breusch-Godfrey

Choose the correct answer from the options given below:

(a) (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

(b) (A)-(IV), (B)-(II), (C)-(I), (D)-(III)

(c) (A)-(III), (B)-(IV), (C)-(II), (D)-(I)

(d) (A)-(III), (B)-(I), (C)-(II), (D)-(IV)

Ans: c

Sol: The correct answer is - (A)-(III), (B)-(IV), (C)-(II), (D)-(I)

General Heteroscedasticity test - White Test

• The White test is used to detect the presence of heteroscedasticity in a regression model.
• Heteroscedasticity refers to the circumstance in which the variability of a variable is unequal across the range of values of a second variable that predicts it.
• This test helps in identifying if the variance of the errors from a regression model is dependent on the values of the independent variables.

General test for auto correlation - Breusch-Godfrey Test

• The Breusch-Godfrey test is used for detecting the presence of autocorrelation in the residuals of a regression model.
• Autocorrelation occurs when the residuals (errors) are not independent of each other, which violates the assumption of ordinary least squares (OLS) regression.
• This test can handle higher-order autocorrelation and is more versatile compared to the Durbin-Watson test.
• Test of simultaneity - Hausman Test
  • The Hausman test is used to evaluate the consistency of an estimator when compared to an alternative, less efficient estimator that is known to be consistent under the null hypothesis.
  • It is commonly used in the context of instrumental variable estimation and simultaneous equation models to test for endogeneity.

General test of specification error - Ramsey RESET Test

• The Ramsey Regression Equation Specification Error Test (RESET) is used to test for general specification errors in a regression model.
• This includes omitted variables, incorrect functional form, and other specification errors that might affect the validity of the model.

Other Related Points

Heteroscedasticity

• It occurs when the variance of the errors in a regression model is not constant across observations.
• Can lead to inefficient estimates and invalid standard errors, affecting hypothesis tests.

Autocorrelation

• Refers to the correlation of a signal with a delayed copy of itself as a function of delay.
• In the context of regression models, it refers to the correlation of the error terms.
• Can lead to biased and inconsistent parameter estimates.

Simultaneity

• Occurs when an explanatory variable is correlated with the error term due to a simultaneous relationship between the dependent and independent variables.
• It can lead to biased and inconsistent parameter estimates in regression models.

Specification Error

• Occurs when a regression model is misspecified, either by omitting relevant variables, including irrelevant ones, or using an incorrect functional form.
• Can lead to biased and inconsistent parameter estimates and misleading conclusions.

Q77: Choose the correct chronological sequence in ascending order (earliest to latest) :
 (A) FRBM act
 (B) Nationalisation of banks in India
 (C) Second five year plan
 (D) Small Industries Development Bank of India (SIDBI)
 (E) Export Import Bank of India (EXIM Bank) 

Choose the correct answer from the options given below :

(a) (C), (B), (E), (D), (A)

(b) (C), (B), (A), (D), (E)

(c) (C), (A), (B), (D), (E)

(d) (C), (E), (A), (B), (D)

Ans: a

Sol: The correct answer is: (C), (B), (E), (D), (A)

Second Five Year Plan (C)

• The Second Five Year Plan was launched in 1956 in India.
• This plan focused on the development of the public sector and rapid industrialization.
• It was based on the Mahalanobis model, which emphasized heavy industries.

Nationalisation of Banks in India (B)

• The first wave of nationalization of banks in India occurred in 1969.
• Fourteen major commercial banks were nationalized by then Prime Minister Indira Gandhi.
• This move aimed to make banking accessible to a larger segment of the population.

Export Import Bank of India (EXIM Bank) (E)

• EXIM Bank was established in 1982.
• The bank was created to promote Indian exports and facilitate international trade.
• It provides financial assistance to exporters and importers.

Small Industries Development Bank of India (SIDBI) (D)

• SIDBI was established in 1990.
• It aims to provide financial assistance and promote the growth of micro, small, and medium enterprises (MSMEs).
• SIDBI offers various schemes and programs to support the MSME sector.

FRBM Act (A)

• The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003.
• The act aimed to institutionalize financial discipline, reduce India's fiscal deficit, and improve macroeconomic management.
• The FRBM Act set targets for the government to reduce its fiscal deficit and manage public funds efficiently.

Other Related Points

Second Five Year Plan

• The plan was inspired by the Soviet model of economic development.
• It laid the foundation for the industrialization of India.
• Key sectors included steel, heavy machinery, and infrastructure.

Nationalisation of Banks

• Another wave of nationalization occurred in 1980, covering six more banks.
• This move was intended to ensure a wider reach of banking services and support economic development in rural areas.

Export Import Bank of India (EXIM Bank)

• EXIM Bank plays a crucial role in facilitating and promoting India's foreign trade.
• It provides financial products and services to support exporters and importers.

Small Industries Development Bank of India (SIDBI)

• SIDBI also focuses on promoting entrepreneurship and skill development.
• It collaborates with various state and central government agencies to implement development programs.

FRBM Act

• The act was amended in 2018 to introduce a new fiscal framework.
• It includes provisions for greater transparency and accountability in fiscal management.

Q78: Consider the following sustainable development goals and their objectives and say which ones are correctly matched ?
 (A) Goal 7 : Affordable and clean energy
 (B) Goal 10 : Climate action
 (C) Goal 13 : Reduced inequality
 (D) Goal 14 : Life below water
 (E) Goal 15 : Life on land 

Choose the correct answer from the options given below :

(a) (B), (C), (D) only

(b) (C), (D), (E) only

(c) (B), (C), (E) only

(d) (A), (D), (E) only

Ans: d

Sol: The correct answer is - (A), (D), (E) only

Goal 7: Affordable and Clean Energy

• Objective: Ensure access to affordable, reliable, sustainable, and modern energy for all.
• Focus: Promotes renewable energy sources and energy efficiency.

Goal 14: Life Below Water

• Objective: Conserve and sustainably use the oceans, seas, and marine resources for sustainable development.
• Focus: Addresses marine pollution, ocean acidification, and sustainable fishing practices.

Goal 15: Life on Land

• Objective: Protect, restore, and promote sustainable use of terrestrial ecosystems, manage forests sustainably, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
• Focus: Emphasizes conservation and restoration of ecosystems, sustainable forest management, and combating biodiversity loss.

Other Related Points

Goal 10: Reduced Inequality

• Objective: Reduce inequality within and among countries.
• Focus: Addresses income disparity, social, economic, and political inclusion, and ensuring equal opportunities.

Goal 13: Climate Action

• Objective: Take urgent action to combat climate change and its impacts.
• Focus: Strengthens resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.

In summary, Goals 7, 14, and 15 are correctly matched with their respective objectives, while Goals 10 and 13 are incorrectly matched.

Q79: The Nash equilibrium of the following game 

(a) The strategy combination (A3, B2) with outcome (4, 4)

(b) The strategy combination (A3, B1) with outcome (5, 2)

(c) The strategy combination (A1, B2) with outcome (2, 1)

(d) The strategy combination (A3, B2) with outcome (3, 1)

Ans: a

Sol: The correct answer is - The strategy combination (A3, B2) with outcome (4, 4)

Nash Equilibrium: A Nash equilibrium occurs when each player's strategy is optimal, given the strategies chosen by the other players. In this situation, neither player has anything to gain by changing only their own strategy.

In the given game, we analyze the payoffs for each combination of strategies:

• (A1, B1) results in the outcome (4, 2).
• (A1, B2) results in the outcome (3, 5).
• (A2, B1) results in the outcome (3, 5).
• (A2, B2) results in the outcome (2, 1).
• (A3, B1) results in the outcome (5, 2).
• (A3, B2) results in the outcome (4, 4).

The combination (A3, B2) gives both players the maximum payoff they can achieve given the strategies of the other player.

Additional Information

Other Strategy Combinations:

• The strategy combination (A3, B1) yields an outcome of (5, 2), but it is not stable since Player 2 can improve their payoff by switching to B2.
• The strategy combination (A1, B2) results in (3, 5), which is advantageous for Player 2, indicating that Player 1 would have an incentive to change strategies.
• The strategy combination (A1, B1) produces an outcome of (4, 2). While Player 1's payoff is decent, Player 2 has a better alternative by switching to B2.

This analysis highlights how strategy combinations influence players' decisions in a Nash equilibrium framework.

Q80: In the leakage-injection approach to income determination, an increase in lump-sum tax ceteris paribus shifts : 

(a) Investment plus govt. spending line upward

(b) Investment plus govt. spending line downward

(c) The savings plus tax line to the left

(d) Increases the equilibrium level of income

Ans: c

Sol: The correct answer is - The savings plus tax line to the left

Leakage-Injection Approach

• This approach is used to determine the equilibrium level of national income.
• Leakages include savings, taxes, and imports, which reduce the flow of income in the economy.
• Injections include investment, government spending, and exports, which add to the income flow.

Increase in Lump-Sum Tax

• An increase in lump-sum taxes reduces disposable income for households.
• This leads to a decrease in consumer spending and savings.
• As savings are a part of leakages, a reduction in savings shifts the savings plus tax line to the left.

Other Related Points

Investment plus government spending line

• This line represents the sum of investment and government spending, both of which are injections into the economy.
• An increase in lump-sum tax does not directly affect this line as it primarily impacts household disposable income, not government spending or investment.

Equilibrium Level of Income

• The equilibrium level of income is determined where total leakages equal total injections.
• An increase in lump-sum tax shifts the savings plus tax line to the left, which can potentially lower the equilibrium level of income, but this is not directly indicated in the options given.

Q81: Which of the following is not an assumption of Coase theorem related to externalities and environmental problems ? 

(a) Absence of transaction costs

(b) Presence of income effect

(c) Complete information

(d) Complete property rights

Ans: b

Sol: The correct answer is - Presence of income effect

Presence of income effect

• The presence of income effect is not an assumption of the Coase theorem.
• Income effect refers to the changes in an individual's or entity's consumption patterns due to changes in their purchasing power.
• The Coase theorem focuses on allocation efficiency rather than income distribution.

Other Related Points

Absence of transaction costs

• The Coase theorem assumes that there are no transaction costs involved in bargaining between parties.
• This means that parties can negotiate and reach an agreement without incurring costs for communication, legal fees, or enforcement.

Complete information

• The Coase theorem assumes that all parties have complete information about the costs and benefits associated with the externality.
• This allows for efficient bargaining and mutually beneficial agreements.

Complete property rights

• The Coase theorem assumes that property rights are well-defined and enforceable.
• Clearly defined property rights are crucial for parties to negotiate and resolve externalities effectively.

Q82: Which of the following combinations of theorems and their subjects are correctly matched ?
(A) Modigliani - Miller theorem : Price of goods and real return to factor
(B) Dorfman - Steiner theorem : Advertisement expenditure
(C) Arrow’s impossibility theorem : Social choice
(D) Stolper - Samuelson theorem : Capital structure
(E) Fishers separation theorem : Profit maximisation motivation 

Choose the correct answer from the options given below :

(a) (A), (B), (D) only

(b) (B), (D), (E) only

(c) (A), (C), (D) only

(d) (B), (C), (E) only

Ans: d

Sol: The correct answer is - (B), (C), (E) only

Dorfman - Steiner theorem : Advertisement expenditure

• The Dorfman-Steiner theorem is an economic model that describes the optimal level of advertising expenditure for a firm. It asserts that the ratio of advertising to sales should equal the elasticity of demand with respect to advertising divided by the price elasticity of demand.

Arrow’s impossibility theorem : Social choice

• Arrow’s Impossibility Theorem, formulated by Kenneth Arrow, states that it is impossible to formulate a social preference ordering that satisfies all of a specified set of fairness criteria (non-dictatorship, unrestricted domain, Pareto efficiency, and independence of irrelevant alternatives) simultaneously.

Fisher’s separation theorem : Profit maximisation motivation

• Fisher’s Separation Theorem, developed by Irving Fisher, states that a firm’s investment decisions can be made independently of the preferences of its owners. In other words, the investment decision is separate from the consumption preferences, leading firms to focus on profit maximization.

Other Related Points

Modigliani-Miller theorem : Capital structure

• The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, is a foundational theory in corporate finance. It posits that in an efficient market, the value of a firm is unaffected by how it is financed, whether through equity, debt, or a combination of both.

Stolper-Samuelson theorem : Price of goods and real return to factor

• The Stolper-Samuelson theorem, derived from the Heckscher-Ohlin model in international trade theory, states that an increase in the price of a good will increase the real income of the factor of production used intensively in the production of that good, and decrease the real income of the other factor.

Q83:
Choose the correct answer from the options given below: 

(a) (A)-(III), (B)-(III), (C)-(I), (D)-(IV)

(b) (A)-(III), (B)-(I), (C)-(IV), (D)-(II)

(c) (A)-(III), (B)-(IV), (C)-(III), (D)-(I)

(d) (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

Ans: b

Sol: The correct answer is - (A)-(III), (B)-(I), (C)-(IV), (D)-(II)

(A) Monopoly theory of distribution - (III)

• The Monopoly theory of distribution explains how income and resources are distributed in an economy where monopolies exist.
• It suggests that monopolistic firms have the power to set prices and wages, leading to unequal distribution of income.

(B) Theory of profit - (I)

• The Theory of profit pertains to the economic rationale behind the existence of profits in an economy.
• It includes various theories such as risk-bearing theory, innovation theory, and dynamic theory of profit.

(C) Full cost pricing - (IV)

• Full cost pricing is a pricing strategy where a firm sets the price of a product based on its full cost, including both fixed and variable costs.
• This method ensures that all production costs are covered and a profit margin is included.

(D) Modern theory of rent - (II)

• The Modern theory of rent extends the classical theory by considering the opportunity cost of using a particular piece of land or resource.
• This theory is more applicable to contemporary economic conditions where multiple factors influence the determination of rent.

Other Related Points

Monopoly theory of distribution

• This theory is significant in understanding market dynamics in industries dominated by a single firm.
• Monopolies can lead to market inefficiencies and welfare losses.

Theory of profit

• Different theories such as the Innovation Theory by Schumpeter highlight the role of entrepreneurs in generating profits through innovation.
• The Risk-bearing Theory by F.B. Hawley emphasizes the role of risk in profit generation.

Full cost pricing

• This method is often used in industries with high fixed costs and is essential for long-term sustainability.
• It contrasts with marginal cost pricing, which focuses only on variable costs.

Modern theory of rent

• This theory incorporates the concept of economic rent, which is the payment to a factor of production in excess of its opportunity cost.
• It is a more comprehensive approach compared to the classical Ricardian theory of rent.

Q84: Arrange the following Acts in correct chronological order, starting from earliest to latest :
(A) Chit Fund Act
(B) Export Import Bank of India Act
(C) Prevention of Money Laundering Act
(D) National Housing Bank Act
(E) Regional Rural Banks Act 

Choose the correct answer from the options given below :

(a) (E), (B), (A), (D), (C)

(b) (E), (D), (C), (B), (A)

(c) (D), (C), (B), (E), (A)

(d) (D), (A), (E), (C), (B)

Ans: a

Sol: The correct answer is - (E), (B), (A), (D), (C)

(E) Regional Rural Banks Act, 1976

• This Act established Regional Rural Banks in India to provide sufficient banking and credit facility for agriculture and other rural sectors.
• It was the earliest among the listed acts, aimed at developing the rural economy by providing credit for agriculture, trade, commerce, industry, and other productive activities in rural areas.

(B) Export Import Bank of India Act, 1981

• This Act led to the establishment of the Export-Import Bank of India (Exim Bank) to facilitate and promote India's international trade.
• The Exim Bank provides financial assistance to exporters and importers and functions as the principal financial institution for coordinating the working of institutions engaged in financing the export and import of goods and services.

(A) Chit Fund Act, 1982

• The Chit Fund Act was enacted to regulate chit funds in India and protect the interests of subscribers.
• It provides for the registration and regulation of chit funds and ensures the efficient functioning of chit fund businesses.

(D) National Housing Bank Act, 1987

• This Act established the National Housing Bank (NHB) to operate as the principal agency to promote housing finance institutions both at local and regional levels.
• The NHB's role includes providing financial and other support to such institutions and ensuring that credit is available for housing development.

(C) Prevention of Money Laundering Act, 2002

• The Prevention of Money Laundering Act (PMLA) was enacted to prevent money laundering and to provide for the confiscation of property derived from, or involved in, money laundering.
• The Act aims to combat money laundering by establishing a comprehensive legal and regulatory framework.

Other Related Points

Option 2

• This option suggests the order (E), (D), (C), (B), (A), which is incorrect because the Prevention of Money Laundering Act (2002) comes after the National Housing Bank Act (1987) and the Export Import Bank of India Act (1981).

Option 3

• This option suggests the order (D), (C), (B), (E), (A), which is incorrect because it places the Prevention of Money Laundering Act (2002) before the Export Import Bank of India Act (1981) and the Regional Rural Banks Act (1976).

Option 4

• This option suggests the order (D), (A), (E), (C), (B), which is incorrect because it places the National Housing Bank Act (1987) before the Chit Fund Act (1982) and the Regional Rural Banks Act (1976).

Q85: During how many first completed days of life, the death of a baby is defined as the Neonatal death ? 

(a) First 7 completed days of life

(b) First 14 completed days of life

(c) First 21 completed days of life

(d) First 28 completed days of life

Ans: d

Sol: The correct answer is - First 28 completed days of life

First 28 completed days of life

• Neonatal death refers to the death of a baby within the first 28 completed days of life.
• This period is crucial for the survival of a newborn, as it is the time when the baby is most vulnerable to health complications.
• Causes of neonatal deaths include premature birth, complications during delivery, infections, and congenital anomalies.
• The neonatal period is further divided into early neonatal (0-7 days) and late neonatal (8-28 days) periods.

Other Related Points

First 7 completed days of life

• This period is part of the neonatal period and is specifically referred to as the early neonatal period.
• Many neonatal deaths occur in this early period due to complications related to childbirth and immediate postnatal care.

First 14 completed days of life

• This period is not specifically defined in medical terminology as a distinct phase for neonatal death.
• It includes both early and part of the late neonatal period but does not cover the entire neonatal period.

First 21 completed days of life

• This period also falls within the neonatal period but does not cover the full range up to 28 days.
• It is not a standard timeframe used in defining neonatal death.

Q86: As per the Gravity Model of world trade, which of the following components of the two countries determine the volume of trade between them :
 (A) Gross Domestic Product
 (B) Distance
 (C) Foreign exchange rate
 (D) Foreign trade intensity
 (E) Foreign investment 

Choose the correct answer from the options given below :

(a) (A) and (B) only

(b) (B) and (C) only

(c) (A) and (C) only

(d) (A) and (E) only

Ans: a

Sol: The correct answer is - (A) and (B) only

Gravity Model of World Trade

• The Gravity Model of World Trade is a popular economic model used to predict the trade flow between two countries.
• The model is based on the analogy of Newton's law of gravity, which postulates that trade flow is directly proportional to the economic sizes (GDP) of the countries and inversely proportional to the distance between them.
• According to this model, the volume of trade between two countries increases with the size of their economies (GDP) and decreases with the increase in the distance between them.

Gross Domestic Product (GDP)

• GDP represents the economic size and market potential of a country.
• Countries with larger GDPs tend to trade more because they have more resources and demand more goods and services.

Distance

• Distance between countries acts as a trade barrier.
• Greater distances increase transportation costs and other trade-related expenses, reducing the volume of trade.

Other Related Points

Foreign Exchange Rate

• Foreign exchange rates affect trade by influencing the price competitiveness of goods and services.
• However, they are not a primary component in the Gravity Model of World Trade.

Foreign Trade Intensity

• Foreign trade intensity measures the extent of trade relative to the size of the economy.
• While important, it is not a direct component of the Gravity Model.

Foreign Investment

• Foreign investment can boost trade but is not a primary variable in the Gravity Model.
• It can influence trade indirectly by enhancing economic productivity and capacity.

Q87: Which of the following is/are possible reason(s) for surplus in balance of payment ?
(A) Decline in imports
(B) Decline in interest rate
(C) Increase in export
(D) Increase in income tax
(E) High outward foreign direct investment 

Choose the most appropriate answer from the options given below :

(a) (A), (C), (E) only

(b) (A), (B), (C), (E) only

(c) (B), (C), (E), (D) only

(d) (A), (C) only

Ans: d

Sol: The correct answer is - (A), (C) only

Decline in imports

• A decline in imports means that fewer goods and services are being brought into the country from abroad.
• This reduces the amount of money flowing out of the country, contributing to a surplus in the balance of payments.

Increase in exports

• An increase in exports indicates that more goods and services are being sold to foreign countries.
• This generates more income from abroad, contributing positively to the balance of payments and leading to a surplus.

Other Related Points

Decline in interest rate

• A decline in interest rates generally aims to stimulate domestic investment and consumption rather than directly affecting the balance of payments.
• It might lead to capital outflow as investors seek higher returns elsewhere, potentially worsening the balance of payments.

Increase in income tax

• An increase in income tax is a domestic fiscal policy measure and does not directly impact the balance of payments.
• It might reduce disposable income and thus consumption, but its effect on imports and exports is indirect and complex.

High outward foreign direct investment

• High outward FDI means that domestic firms are investing more abroad.
• This results in capital outflow, which can lead to a deficit rather than a surplus in the balance of payments.

Q88: Under the Green Climate Fund of UNFCCC, what ratio of financial allocation between ‘Adaptation’ and ‘Mitigation’ activities is aimed ? 

(a) 25 : 75

(b) 40 : 60

(c) 50 : 50

(d) 75 : 25

Ans: c

Sol: The correct answer is - 50 : 50

Green Climate Fund (GCF)

• The Green Climate Fund (GCF) was established under the UNFCCC to support the efforts of developing countries to respond to the challenge of climate change.
• It aims to deliver equal amounts of funding to adaptation and mitigation initiatives, hence the 50:50 ratio.
• This balanced allocation ensures that both immediate and long-term climate needs are addressed, assisting countries in reducing emissions and adapting to climate impacts.

Adaptation Activities

• Adaptation activities focus on reducing the vulnerability of communities and ecosystems to climate change impacts.
• Examples include building resilient infrastructure, developing early warning systems, and implementing sustainable agricultural practices.

Mitigation Activities

• Mitigation activities aim to limit or prevent greenhouse gas emissions to slow down global warming.
• This involves initiatives like promoting renewable energy, enhancing energy efficiency, and protecting forests.

Other Related Points

Other Ratios

25 : 75

• This ratio would significantly favor mitigation over adaptation.
• It would mean that three-quarters of the funding would go towards reducing emissions, potentially neglecting the immediate needs of communities already facing climate impacts.

40 : 60

• This ratio would slightly favor mitigation over adaptation.
• While more balanced than 25:75, it still does not provide equal support to both areas of climate action.

75 : 25

• This ratio would heavily favor adaptation over mitigation.
• While this could address immediate climate impacts more effectively, it could slow down efforts to reduce future emissions.

Q89: Arrange the following theories in correct chronological order, starting from earliest to latest :
(A) Patinkin’s Real Balance Effect
(B) Reformulated quantity theory of money
(C) Baumol’s theory of money
(D) Cash transaction approach
(E) Cash balance approach 

Choose the correct answer from the options given below :

(a) (D), (E), (B), (C), (A)

(b) (E), (D), (A), (B), (C)

(c) (E), (D), (C), (B), (A)

(d) (C), (D), (E), (A), (B)

Ans: a

Sol: The correct answer is (D), (E), (B), (C), (A)

Cash Transaction Approach (D)

• Also known as the Transactions Approach or Fisher's Quantity Theory of Money.
• Developed by Irving Fisher in the early 20th century, it focuses on the relationship between the quantity of money and the level of economic activity.

Cash Balance Approach (E)

• Developed by Alfred Marshall and A.C. Pigou in the late 19th and early 20th centuries.
• This approach emphasizes the demand for money for holding cash balances rather than transactions.

Reformulated Quantity Theory of Money (B)

• Associated with Milton Friedman in the mid-20th century.
• This theory updated the classical quantity theory of money by incorporating expectations and stressing the long-term relationship between money supply and inflation.

Baumol’s Theory of Money (C)

• Developed by William Baumol in the 1950s.
• It introduces the concept of transaction costs and cash management, suggesting that individuals and businesses balance the trade-off between holding money and the opportunity cost of holding non-interest-bearing cash.

Patinkin’s Real Balance Effect (A)

• Developed by Don Patinkin in the 1950s.
• This theory integrates the real balance effect into Keynesian economics, emphasizing how changes in the real value of money balances can affect consumption and overall economic equilibrium.

Other Related Points

Cash Transaction Approach

• It is often summarized by the equation MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the transaction volume.
• This equation illustrates how changes in the money supply affect the overall economy.

Cash Balance Approach

• This approach is more microeconomic, focusing on individual behavior in holding cash balances.
• It contrasts with Fisher’s approach by emphasizing the demand for money rather than its supply.

Reformulated Quantity Theory of Money

• Friedman argued that inflation is always and everywhere a monetary phenomenon, caused primarily by increases in the money supply.
• This theory has been influential in shaping modern monetary policy.

Baumol’s Theory of Money

• It introduces the Baumol-Tobin model, which helps explain the demand for money and the role of transaction costs in money management.

Patinkin’s Real Balance Effect

• This theory highlights the importance of real money balances (i.e., money adjusted for inflation) in determining consumption and savings behavior.
• It bridges the gap between classical and Keynesian economic theories.

Q90: The ______ effect implies that nominal interest rates tend to be high when inflation is high and low when inflation is low ? 

(a) Tobin effect

(b) Baumol effect

(c) Fisher effect

(d) Patinkin effect

Ans: c

Sol: The correct answer is - Fisher effect

Fisher Effect

• The Fisher Effect, named after economist Irving Fisher, describes the relationship between nominal interest rates, real interest rates, and expected inflation.
• According to the Fisher Effect, the nominal interest rate is the sum of the real interest rate and the expected inflation rate.
• This implies that when inflation is expected to rise, nominal interest rates will also rise to maintain a stable real interest rate.
• Conversely, when inflation expectations are low, nominal interest rates will be lower.
• This relationship helps explain why countries with higher inflation rates tend to have higher nominal interest rates.

Other Related Points

Tobin Effect

• The Tobin Effect is named after economist James Tobin.
• It suggests that higher inflation can lead to increased capital formation and growth by reducing the opportunity cost of holding money and encouraging investment in physical capital.

Baumol Effect

• The Baumol Effect, or Baumol's Cost Disease, was proposed by economist William Baumol.
• It describes how wages increase in jobs that have experienced no or low productivity growth in response to rising wages in other jobs that have experienced higher productivity growth.

Patinkin Effect

• The Patinkin Effect is named after economist Don Patinkin.
• It involves the influence of real balances on consumption and the overall economy, particularly the real balance effect, which is the impact of changes in the real value of money holdings on consumption and economic output.

Q91: Question Label : Comprehension : Consider the following diagram : Social Costs of Monopoly Power 

[Diagram]

Here (i) X-axis measures quantity

(ii) Y-axis measures price per unit (R$/Q)

(iii) Pc = competitive price

(iv) Pm = Monopoly price

(v) Qc = competitive output

(vi) Qm = monopoly output

Dead weight loss from the monopoly power is one of the following alternatives.
 Choose the correct one : 

(a) A + B

(b) A + C

(c) A

(d) B + C

Ans: d

Sol: The correct answer is - B + C

Deadweight Loss (DWL) in Monopoly:

• Deadweight Loss (DWL) refers to the loss of economic efficiency when the equilibrium outcome is not achievable or is not achieved.
• In a monopoly, deadweight loss is generated because the monopolist restricts output below the socially optimal level (competitive output) to maximize profits, which leads to a higher price and lower quantity compared to perfect competition.

Identifying Deadweight Loss on the Graph:

• In the given graph
• The deadweight loss is the area that represents the lost consumer and producer surplus due to the monopolist setting a price higher than the marginal cost and restricting output.
• In the graph, the area of deadweight loss is represented by the triangle labeled as  B + C.

Other Related Points

Explanation of Other Areas in the Diagram:

• Area A: Represents the producer surplus that the monopolist gains by charging a price higher than the competitive price. This is the extra revenue that the monopolist captures, above what would be achieved in a competitive market.
• Area B + C (Deadweight Loss): This area represents the combined loss of consumer and producer surplus due to the restricted output and higher prices under monopoly conditions. This area signifies the efficiency loss to society.

Q92: Question Label : Comprehension : Consider the following diagram : Social Costs of Monopoly Power 

[Diagram]

Here (i) X-axis measures quantity

(ii) Y-axis measures price per unit (R$/Q)

(iii) Pc = competitive price

(iv) Pm = Monopoly price

(v) Qc = competitive output

(vi) Qm = monopoly output

Choose the correct answer from the following alternatives: 

(a) Monopoly output is environment friendly comparative to competitive output

(b) Competitive output is environment friendly comparative to monopoly output

(c) Both (1) and (2) are equally harmfull

(d) Both (1) and (2) are environmental friendly equally

Ans: a

Sol: The correct answer is - Monopoly output is environment friendly compared to competitive output

Environmental Impact of Monopoly vs. Competitive Output:

• Monopolies tend to produce less output than competitive markets, as they restrict production to raise prices and maximize profits.
• Less output can potentially lead to lower environmental impact because fewer resources are consumed and less waste or pollution is generated in production.
• In contrast, competitive markets produce more output at lower prices, which may lead to higher resource usage and increased environmental degradation due to higher production levels.

Why Monopoly Output is Considered More Environmentally Friendly:

• Monopoly output is restricted below the socially optimal or competitive level, which means fewer natural resources are used, and potentially less pollution is generated.
• While this reduced output is economically inefficient, it inadvertently results in lower environmental degradation compared to higher outputs under competition.
• This characteristic is why, in some contexts, monopoly output might be seen as more environmentally friendly compared to the higher, resource-intensive output of competitive markets.

Other Related Points

Environmental Considerations in Market Structures:

• Environmental impact depends on the level of production and resource use, which varies across different market structures.
• In a competitive market, firms have incentives to produce more, potentially leading to overuse of resources and greater pollution.
• In a monopoly, the focus on profit maximization limits output, which can lead to lesser environmental harm compared to competitive markets.

Q93: Question Label : Comprehension : Consider the following diagram : Social Costs of Monopoly Power 

[Diagram]

Here (i) X-axis measures quantity

(ii) Y-axis measures price per unit (R$/Q)

(iii) Pc = competitive price

(iv) Pm = Monopoly price

(v) Qc = competitive output

(vi) Qm = monopoly output

Because of higher price (From P to Pm), find out the producer gains (producer surplus) from the following alternatives. 

(a) A+C

(b) A-C

(c) A+B

(d) B+C

Ans: b

Sol: The correct answer is Option 2 (A - C). The producer gains from a higher price due to monopoly power are represented by the surplus area A minus area C.
 Producer Surplus Increase: Under monopoly pricing, the producer surplus increases because the price rises from P to Pm.

• Areas Representing Gains: Area A represents the additional surplus gained by producers due to the price increase, while area C is a part of deadweight loss, indicating efficiency loss rather than gain.

Q94: Question Label : Comprehension : Consider the following diagram : Social Costs of Monopoly Power 

[Diagram]

Here (i) X-axis measures quantity

(ii) Y-axis measures price per unit (R$/Q)

(iii) Pc = competitive price

(iv) Pm = Monopoly price

(v) Qc = competitive output

(vi) Qm = monopoly output

As a result of higher price, the producer gains and at the same time loses by amount respectively as shown below : Find out the correct answer from the following alternatives : 

(a) B, A

(b) B, C

(c) A, C

(d) A only

Ans: c

Sol: The correct answer is - Option 3 (A, C)

Producer Gain (Area A)

• This area represents the additional revenue or surplus that the producer earns due to the increase in price from P to Pm.

Producer Loss (Area C)

• This area represents a part of the deadweight loss, which is the loss of efficiency in the market due to reduced output in a monopoly setting.
• It indicates the surplus lost by both consumers and producers as a result of monopoly pricing.

Other Related Points

Deadweight Loss in Monopoly

• The reduction in total welfare due to monopoly pricing results in deadweight loss, represented by the areas B and C in the diagram.
• This loss is shared as efficiency loss, impacting overall market welfare.

Q95: Question Label : Comprehension : Consider the following diagram : Social Costs of Monopoly Power 

[Diagram]

Here (i) X-axis measures quantity

(ii) Y-axis measures price per unit (R$/Q)

(iii) Pc = competitive price

(iv) Pm = Monopoly price

(v) Qc = competitive output

(vi) Qm = monopoly output

Find out the consumer loss because of moving from competitive to monopoly price (from P to Pm) from the following alternatives : 

(a) A and C

(b) A and B

(c) B and C

(d) A only

Ans: b

Sol: The correct answer is - Option 2 (A and B)

Consumer Loss due to Price Increase

• The area A represents the surplus that consumers lose due to the price increase from P (competitive price) to Pm (monopoly price).
• Area B represents additional consumer surplus lost, which contributes to the deadweight loss in the market as a result of monopoly pricing.
• The combined areas A and B signify the total loss of consumer welfare because consumers pay a higher price and consume less quantity than they would in a competitive market.

Other Related Points

Impact of Monopoly Pricing on Consumer Surplus

• In a competitive market, consumers benefit from lower prices and higher quantities.
• Monopoly pricing restricts output to Qm and raises prices to Pm, reducing overall consumer surplus in the market.

Q96: Read the following passage and answer the questions.
Some major heads and items are highlighted here. Total receipt was Rs. 400 crore, of which revenue receipts was Rs. 250 crore and capital receipts was Rs. 150 crore. In the total revenue receipts, tax revenue receipts contributed Rs. 220 crore and non-tax revenue receipts contributed Rs. 30 crore respectively. In the total capital receipts, Borrowings and other liabilities were Rs. 100 crore. Out of total revenue expenditure of Rs. 300 crore, interest payments was Rs. 90 crore and grants for creation of capital assets was Rs. 20 crore. Out of total capital expenditure of Rs. 100 crore, scheme expenditure was Rs. 75 crore and other than scheme expenditure was Rs. 25 crore. The country’s GDP at current prices for the given financial year was Rs. 2000 crore. On the Balance of payments accounts, the current account deficit was Rs. 50 crore. 

What was the primary deficit as percentage of GDP ? 

(a) 0.2%

(b) 0.3%

(c) 0.4%

(d) 0.5%

Ans: c

Sol: The correct answer is - 0.4%

Key Points  

Primary Deficit is the difference between the government's total expenditure and total revenue receipts, excluding interest payments.

Formula for Primary Deficit:

• Primary Deficit = Total Revenue Receipts - Total Expenditure (excluding interest payments)
• Given that the total revenue receipts are Rs. 250 crore and the interest payments are Rs. 90 crore, we calculate the primary deficit as follows:
• Primary Deficit = (Total Revenue Receipts - Total Revenue Expenditure + Interest Payments) = 250 - (300 - 90) = 250 - 210 = 40 crore

Primary Deficit as Percentage of GDP

• GDP = Rs. 2000 crore
• Primary Deficit Percentage = (Primary Deficit / GDP) × 100
• Primary Deficit Percentage = (40 / 2000) × 100 = 0.4%

Additional Information  

Understanding Deficits

• Primary Deficit represents the fiscal situation before considering the cost of servicing debt (interest payments).
• Fiscal Deficit represents the total borrowing requirements, including interest payments, whereas the primary deficit excludes those costs.
• Primary Deficit is an important indicator of a government's fiscal health, especially for long-term sustainability.

Role of GDP in Fiscal Indicators

• GDP at current prices is used as a base for evaluating the relative size of deficits.
• Primary deficit as a percentage of GDP helps assess the government's fiscal stance in relation to the country's economic output.

Q97: Read the following passage and answer the questions.
Some major heads and items are highlighted here. Total receipt was Rs. 400 crore, of which revenue receipts was Rs. 250 crore and capital receipts was Rs. 150 crore. In the total revenue receipts, tax revenue receipts contributed Rs. 220 crore and non-tax revenue receipts contributed Rs. 30 crore respectively. In the total capital receipts, Borrowings and other liabilities were Rs. 100 crore. Out of total revenue expenditure of Rs. 300 crore, interest payments was Rs. 90 crore and grants for creation of capital assets was Rs. 20 crore. Out of total capital expenditure of Rs. 100 crore, scheme expenditure was Rs. 75 crore and other than scheme expenditure was Rs. 25 crore. The country’s GDP at current prices for the given financial year was Rs. 2000 crore. On the Balance of payments accounts, the current account deficit was Rs. 50 crore. 

What was the twin deficit as percentage of GDP ? 

(a) 2.5%

(b) 5.0%

(c) 7.5%

(d) 10.0%

Ans: c

Sol: The correct answer is - Option 3 (7.5%)

Understanding Twin Deficit

• The twin deficit refers to the combined value of the fiscal deficit and the current account deficit as a percentage of GDP.
• From the passage, we know:
  • Fiscal Deficit = Total Expenditure - Total Receipts = (300 + 100) - 400 = Rs. 0 crore
  • Current Account Deficit = Rs. 50 crore

Calculating Twin Deficit as a Percentage of GDP

• GDP at current prices = Rs. 2000 crore
• Twin Deficit = Fiscal Deficit + Current Account Deficit
• Twin Deficit Percentage = (Twin Deficit / GDP) * 100 =

Q98: Read the following passage and answer the questions.
Some major heads and items are highlighted here. Total receipt was Rs. 400 crore, of which revenue receipts was Rs. 250 crore and capital receipts was Rs. 150 crore. In the total revenue receipts, tax revenue receipts contributed Rs. 220 crore and non-tax revenue receipts contributed Rs. 30 crore respectively. In the total capital receipts, Borrowings and other liabilities were Rs. 100 crore. Out of total revenue expenditure of Rs. 300 crore, interest payments was Rs. 90 crore and grants for creation of capital assets was Rs. 20 crore. Out of total capital expenditure of Rs. 100 crore, scheme expenditure was Rs. 75 crore and other than scheme expenditure was Rs. 25 crore. The country’s GDP at current prices for the given financial year was Rs. 2000 crore. On the Balance of payments accounts, the current account deficit was Rs. 50 crore. 

What was the effective revenue deficit as percentage of GDP ? 

(a) 0.5%

(b) 1.0%

(c) 1.5%

(d) 2.0%

Ans: c

Sol: The correct answer is - Option 3 (1.5%)

Understanding Effective Revenue Deficit

• Effective Revenue Deficit is calculated as the Revenue Deficit minus grants for creation of capital assets.
• From the passage:
  • Revenue Deficit = Total Revenue Expenditure - Total Revenue Receipts = 300 - 250 = Rs. 50 crore
  • Grants for creation of capital assets = Rs. 20 crore

Calculating Effective Revenue Deficit

• Effective Revenue Deficit = Revenue Deficit - Grants for creation of capital assets = 50 - 20 = Rs. 30 crore

Calculating Effective Revenue Deficit as a Percentage of GDP

• GDP at current prices = Rs. 2000 crore
• Effective Revenue Deficit Percentage = (Effective Revenue Deficit / GDP) * 100
• = (30 / 2000) * 100 = 1.5%

Other Related Points

Revenue Deficit

• It occurs when the government’s revenue expenditure exceeds its revenue receipts.
• It is an indication of the government’s dependence on borrowing for its current expenditures.

GDP (Gross Domestic Product)

• It is the total monetary value of all goods and services produced within a country’s borders in a specific time period.

Q99: Read the following passage and answer the questions.
Some major heads and items are highlighted here. Total receipt was Rs. 400 crore, of which revenue receipts was Rs. 250 crore and capital receipts was Rs. 150 crore. In the total revenue receipts, tax revenue receipts contributed Rs. 220 crore and non-tax revenue receipts contributed Rs. 30 crore respectively. In the total capital receipts, Borrowings and other liabilities were Rs. 100 crore. Out of total revenue expenditure of Rs. 300 crore, interest payments was Rs. 90 crore and grants for creation of capital assets was Rs. 20 crore. Out of total capital expenditure of Rs. 100 crore, scheme expenditure was Rs. 75 crore and other than scheme expenditure was Rs. 25 crore. The country’s GDP at current prices for the given financial year was Rs. 2000 crore. On the Balance of payments accounts, the current account deficit was Rs. 50 crore. 

What was the fiscal deficit as percentage of GDP ? 

(a) 5%

(b) 10%

(c) 12.5%

(d) 15%

Ans: a

Sol: The correct answer is - Option 1 (5%)

Understanding Fiscal Deficit

• Fiscal Deficit is the difference between the total expenditure and total receipts, excluding borrowings.
• From the passage:
  • Total Expenditure = Revenue Expenditure + Capital Expenditure = 300 + 100 = Rs. 400 crore
  • Total Receipts (excluding borrowings) = Revenue Receipts + Non-borrowing Capital Receipts = 250 + (150 - 100) = Rs. 300 crore

Calculating Fiscal Deficit

• Fiscal Deficit = Total Expenditure - Total Receipts (excluding borrowings) = 400 - 300 = Rs. 100 crore

Calculating Fiscal Deficit as a Percentage of GDP

• GDP at current prices = Rs. 2000 crore
• Fiscal Deficit Percentage = (Fiscal Deficit / GDP) * 100
• = (100 / 2000) * 100 = 5%

Other Related Points

Fiscal Deficit

• A high fiscal deficit indicates greater borrowing by the government, potentially leading to inflation if it relies on domestic borrowing.
• Fiscal deficit is an important indicator of the health of a country’s public finance.

GDP (Gross Domestic Product)

• GDP represents the total economic output of a country, helping to measure fiscal deficit as a proportion of the economy’s size.

Q100: Read the following passage and answer the questions.
 Some major heads and items are highlighted here. Total receipt was Rs. 400 crore, of which revenue receipts was Rs. 250 crore and capital receipts was Rs. 150 crore. In the total revenue receipts, tax revenue receipts contributed Rs. 220 crore and non-tax revenue receipts contributed Rs. 30 crore respectively. In the total capital receipts, Borrowings and other liabilities were Rs. 100 crore. Out of total revenue expenditure of Rs. 300 crore, interest payments was Rs. 90 crore and grants for creation of capital assets was Rs. 20 crore. Out of total capital expenditure of Rs. 100 crore, scheme expenditure was Rs. 75 crore and other than scheme expenditure was Rs. 25 crore. The country’s GDP at current prices for the given financial year was Rs. 2000 crore. On the Balance of payments accounts, the current account deficit was Rs. 50 crore. 

What was the revenue deficit as percentage of GDP : 

(a) 2.5%

(b) 3.0%

(c) 3.5%

(d) 4.0%

Ans: a

Sol: The correct answer is - Option 1 (2.5%)

Understanding Revenue Deficit

Revenue Deficit represents the shortfall between revenue expenditure and revenue receipts.
From the passage:

• Revenue Expenditure = Rs. 300 crore
• Revenue Receipts = Rs. 250 crore

Calculating Revenue Deficit

• Revenue Deficit = Revenue Expenditure - Revenue Receipts = 300 - 250 = Rs. 50 crore

Calculating Revenue Deficit as a Percentage of GDP

• GDP at current prices = Rs. 2000 crore
• Revenue Deficit Percentage = (Revenue Deficit / GDP) * 100
• = (50 / 2000) * 100 = 2.5%