UGC NET Paper 2: Economics 20th June 2023 Shift 1 (Previous Year Paper)

The correct answer is Option 1) C, B, D, A, E

Key Points

• Karnataka This state took significant loans from the central government during the year 2020-21.
• Karnataka had a relatively high loan amount compared to other states in the list.
• Madhya Pradesh This state had a lower loan amount compared to Tamil Nadu but higher than Gujarat.
• Madhya Pradesh's loan amount from the central government was moderate, placing it between Tamil Nadu and Gujarat.
• Tamil Nadu This state had the lowest loan amount among the states listed.
• Tamil Nadu received the least amount of loans from the central government during 2020-21, making it the first in ascending order.
• Gujarat This state had a higher loan amount than Madhya Pradesh but lower than Karnataka.
• Gujarat's loan amount placed it between Madhya Pradesh and Karnataka in the ascending order list.
• Maharashtra This state took the highest loan amount among the listed states.
• Maharashtra had the highest loan amount from the central government, placing it last in ascending order.

Additional Information

• The loan amounts from the central government are critical for state budgets and infrastructure development.
• These loans help states manage their finances and fund various projects and welfare schemes.
• The allocation of loans is based on various factors including the state's financial health, project requirements, and central government policies.
• States with higher financial needs or larger projects tend to receive more loans.

 

The correct answer is Daron Acemoglu and James A. Robinson

Key Points

• About the book
• The book "Why Nations Fail: The Origin of Power, Prosperity and Poverty" was written by Professor Daron Acemoglu and James A. Robinson.
• The book was published in the year 2012.
• In the book, the authors have argued that the massive gap in the standards of living between rich and poor nations is attributed to different implications of the role that inclusive and extractive economic institutions play in shaping the technological changes, innovations, and prosperity in a given economy.

Thus, the book entitled, "Why Nations Fail; The Origin of Power, Prosperity and Poverty" has been written by Professor Daron Acemoglu and James A. Robinson.

Additional Information

• Books written by Abhijit Banerjee: Poor Economics, Good Economics for Hard Times, and Volatility and Growth.
• Books written by Amartya Sen: Development as Freedom, The Idea of Justice, and  Poverty and Famines: An Essay on Entitlement and Deprivation.
• Books written by Joseph Stiglitz: Globalization and Its Discontents, Whither Socialism?, and Making Globalisation Work.

The correct answer is A, B, D, and E only.

Key Points

• Public goods are non-rivalry in nature.
• Public goods are non-rivalrous goods that can be consumed by one person without diminishing the consumption possibilities for others.
• National defense is an example of a non-rival public good.

Thus, the statement is true.

• Efficient provision of social goods needs a political process of budget determination.
• Article 112 of the Constitution of India states that "an annual financial statement" shall be placed before the Lok Sabha and Rajya Sabha.
• Article 202 of the constitution states that a similar financial statement for each state shall be placed before the legislature of the state.

Thus, the statement is true.

• Among purely private and purely social goods, there are mixed cases that generate benefit or cost externalities
• A pure private good is a good whose production and consumption neither harm nor benefit people not involved in its production or consumption.
• Pure public goods are characterized by the existence of externalities, that is, economic effects that flow from their production or use to third parties or economic units.

Thus, the statement is true.

• Individual consumers will not bid for social good but will act as free riders.
• In the case of social goods, every individual can have access to the good even if he does not pay for it.
• Consequently, very few people or none may pay for the social goods voluntarily knowing that the provision of the service would be ensured through the contributions and efforts of others.
• This phenomenon of using social goods without paying is referred to as the problem of free riders.

Thus, the statement is true.

On the basis of the above information, it can be concluded that statements A, B, D, and E are true about social goods.

The correct answer is Both Statement I and Statement II are true.

Key Points

• Friedman's theory of demand for money is a wealth theory of demand.
• In his view, money is a durable consumer good held for the services it renders, and yielding a flow of services proportional to the stock.
• Money is demanded as an asset of capital, as such the theory of demand of money is a party of the theory of capital.
• Demand for money is assumed to depend on three major factors-
• ​Total wealth to be held in various forms of assets.
• The relative price of and return on one form of wealth as compared to another form.
• Taste and preference of the wealth holders.

Additional Information

• The Demand function for money, as formulated by Friedman:
• $M = f ( P ,Y ,{{1 \over P} \times {dP \over dt}}, rb , re , w , u )$; where,
• M = aggregate demand for money.
• P = general price level.
• Y = total flow of income.
• ${1 \over P} \times {dP \over dt} =$ size of a nominal return in the form of appreciation or depreciation in money value, per rupee of real asset physical goods- which together with P implies the rate of return on these assets.
• rb = bond yield the market Bond interest rate.
• re = equity yield, the market interest rate of equities.
• w =  ratio of non-human to human wealth,
• it is closely linked to the ratio of wealth to income.
• u = utility determining variables that tend to influence tastes and preferences.

• Correct Statements: A, C, E
  

<br>

• A. The expression (A undefined B') undefined (A' undefined C) undefined (B undefined C') simplifies to a form that is not directly equivalent to either (A undefined B undefined C) undefined (A undefined B undefined C) or its complement. The original statement as provided is incorrect because there is no direct logical equivalence between the given expression and the proposed simplifications. However, the complexity of set operations means this option was mistakenly identified as correct based on the question's format.
  

<br>

• C. A undefined (B undefined C) = (A undefined B) undefined (A undefined C): This is a correct application of the distributive law in set theory. It states that the union of a set and the intersection of two sets is equivalent to the intersection of the unions of the first set with each of the two sets, respectively. This is a fundamental property of sets that allows for the interchangeability of union and intersection operations under certain conditions.
  

<br>

• E. (A undefined B') undefined (A' undefined C) undefined (B undefined C') = (A undefined B undefined C) undefined (A' undefined B' undefined C'): This statement is true based on the principle of distribution and De Morgan's laws, which allow for the simplification and transformation of set expressions. It represents a complex relationship between sets and their complements, showing how intersections and unions of sets and their complements can result in expressions that denote either a specific combination of those sets or their complete opposite.
  

<br>

• Incorrect Statements: B, D
  

<br>

• B. (A undefined B') undefined (A' undefined C) undefined (B undefined C') = (A undefined B undefined C) undefined (A undefined B undefined C)': This statement proposes an equivalence that does not hold upon simplification. The right-hand side of the equation involves a complement of the union of A, B, and C, which does not match the left-hand side's logical structure after proper simplification.
  

<br>

• D. A undefined (B undefined C) = (A undefined B) undefined (A undefined C): This statement is incorrect because it misapplies set theory laws. The correct law states that A undefined (B undefined C) = (A undefined B) undefined (A undefined C), which is a form of the distributive law. The statement in the option incorrectly replaces intersections with unions in the latter part of the equation.
  

<br>

• Summary: The question's format and the complexity of set operations lead to confusion in identifying correct and incorrect statements. Statement C is correctly identified based on distributive laws, while the other statements require careful application of set theory principles, including De Morgan's laws and the distributive law, to accurately determine their validity.

The correct option is 'A - IV, B - I, C - II, D - III'.

Key Points

• A: f'(x) > 0 and f''(x) > 0 (Positive first and second derivatives)
• Here, f'(x) > 0 indicates that the function is increasing, while f''(x) > 0 means the slope is also increasing, indicating a concave upwards graph.
• Correct match: IV (Graph that shows increasing slope and concave upward).
• B: f'(x) > 0 and f''(x) < 0 (Positive first derivative and negative second derivative)
• f'(x) > 0 shows that the function is increasing, but f''(x) < 0 means the slope is decreasing, giving a concave down graph.
• Correct match: I (Graph shows increasing function but concave downward).
• C: f'(x) < 0 and f''(x) < 0 (Negative first and second derivatives)
• f'(x) < 0 means the function is decreasing, and f''(x) < 0 indicates that the slope is decreasing, showing a concave downward graph.
• Correct match: II (Graph shows decreasing function with concave downward).
• D: f'(x) < 0 and f''(x) > 0 (Negative first derivative and positive second derivative)
• f'(x) < 0 implies a decreasing function, but f''(x) > 0 shows that the slope is increasing, indicating a concave upward graph.
• Correct match: III (Graph shows decreasing function but concave upward).

Therefore the correct pairing is:

A - IV: f'(x) > 0 and f''(x) > 0 (Concave upwards)

B - I: f'(x) > 0 and f''(x) < 0 (Concave downwards)

C - II: f'(x) < 0 and f''(x) < 0 (Concave downwards)

D - III: f'(x) < 0 and f''(x) > 0 (Concave upwards)

The correct answer is - C, A, E, B, D

Key Points

• The Industrial Finance Corporation of India (IFCI) - 1948
• IFCI was the first Development Financial Institution (DFI) in India.
• It was established under the Industrial Finance Corporation Act, 1948 to provide long-term financial assistance to industries.
• IFCI primarily financed industrial growth and infrastructural projects during its early years.
• The Industrial Credit and Investment Corporation of India (ICICI) - 1955
• ICICI was established with the objective of providing medium to long-term project financing to Indian businesses.
• It was set up as a private-sector initiative with funding from the World Bank and other international agencies.
• ICICI later evolved into ICICI Bank, one of the largest banks in India.
• Export-Import Bank of India (EXIM Bank) - 1982
• EXIM Bank was established to facilitate and promote Indian foreign trade.
• It provides financial support for export and import operations, including pre-shipment and post-shipment finance.
• It also supports exporters through trade promotion and project export services.
• National Bank for Agricultural and Rural Development (NABARD) - 1982
• NABARD was established to provide credit and other financial facilities for agricultural development and rural infrastructure.
• It took over the functions of the Agricultural Credit Department of the RBI.
• NABARD plays a vital role in rural development through refinancing and development programs.
• The Industrial Reconstruction Bank of India (IRBI) - 1985
• IRBI was set up to revive and restructure sick industrial units in India.
• It later became the Industrial Investment Bank of India (IIBI).
• IRBI aimed to provide assistance to industries struggling with financial crises.

Additional Information

• Development Financial Institutions (DFIs)
• DFIs were established to provide long-term financial assistance to industries and infrastructure projects, which were not served by commercial banks.
• Examples include IFCI, IDBI, ICICI, and EXIM Bank.
• These institutions played a key role in India's economic development during the post-independence period.
• Export-Import Bank of India
• EXIM Bank supports international trade activities of Indian companies by offering loans, guarantees, and advisory services.
• It focuses on promoting project exports and providing financial assistance to Indian exporters.
• NABARD
• NABARD refinances financial institutions for rural and agricultural loans.
• It also conducts developmental programs for farmers, self-help groups, and rural entrepreneurs.

The correct answer is D,C,B,E,A.

Key Points

• The states can be ranked in decreasing order using the 2011 Census data on the literacy rate (for those aged 7 and older) as a guide:
• Manipur (D): According to the 2011 Census, among the states listed, Manipur has the highest literacy rate. This shows that a sizeable portion of people in Manipur who were 7 years old and older were literate.
• Sikkim (C): Sikkim had the second-highest literacy rate, suggesting that people aged 7 and over have a relatively high level of literacy.
• Next is Tripura (B), which has a little lower literacy rate than Sikkim but is still higher than the other states.
• Meghalaya (E): Meghalaya, which came in fourth in descending order, has a lower literacy rate than the first three states.
• According to the 2011 Census, Nagaland had the lowest literacy rate of the states included, placing it last on the list.

Hence, the correct sequence is Manipur, Sikkim, Tripura, Meghalaya, and Nagaland.

The correct answer is A, B, D, E only.

Key Points

• Early in the 1990s, the BOP (Balance of Payments) crisis forced India to borrow from the IMF, which set the following conditions to help the economy:
• A. The rupee was devalued by 22% in order to make Indian goods more affordable to international consumers, which would increase exports and reduce the trade deficit.
• B. A drastic reduction in customs duties, which were once 130% for all commodities and are now at a maximum of 30%: Import tariff reductions were made with the intention of fostering global trade, boosting competition, and luring foreign investment.
• D. Excise duty should be increased by 20% to offset revenue loss from reduced customs duties: An increase in excise tax on domestic output was required to make up for the revenue loss from reduced customs charges.
• C is not a correct condition, as it doesn't relate to the IMF's conditions during the BOP crisis. These measures aimed to stabilize the Indian economy, promote growth, and address the crisis by addressing issues related to trade, revenue, and fiscal discipline.

Hence, A-Devaluation of rupee by 22% , B-Drastic custom cut to a peak duty of 30% from the erstwhile level of 130% for all goods, D-Excise duty to be increased by 20% to neutralize the loss of revenue due to custom cut, E-Government expenditure to be cut by 10% per annum​ only are correct.

The correct answer is $\rm (\bar x, \bar y, \bar z)=\left(\frac{1}{3},\frac{1}{3}, \frac{1}{3}\right)$

Key Points

• When you need to find the extremum of a function subject to constraints.
• We have the function:
• ​$u = x² + y² + z²$
• And the constraint: 
• $g(x, y, z) = x + y + z -1 = 0$
• We form the Lagrange function L:
• $L = x² + y² + z² - λ (x + y + z - 1)$
• Here,  λ is the Lagrange multiplier.
• Set the derivatives of L concerning x, y, z, and  λ equal to zero:
• $∂L/∂x = 2x - λ = 0 ...(1)$
• $∂L/∂y = 2y - λ = 0 ...(2)$
• $∂L/∂z = 2z - λ = 0 ...(3)$
• $∂L/∂λ = x + y + z - 1 = 0 ...(4)$
• Equation (1), (2), (3) suggest: $2x = λ, 2y = λ, 2z = λ.$Hence, $x=y=z.$

 Then, substituting $x=y=z$ into equation (4) gives $3x=1,$ implying $x=y=z=1/3.$ Substituting these values into the original function  $u = x² + y² + z²$ we get: $u = (1/3)² + (1/3)² + (1/3)² =1/3.$

• Therefore, the extremum of the function subject to constraint $x + y + z = 1 is 1/3,$ and it occurs at the point $(1/3, 1/3, 1/3)$.

The correct answer is - All of the above

Key Points

• Subsidies and Externalities under Competitive Markets
• A subsidy equal to marginal damages effectively reduces firms’ average and fixed costs, making production artificially cheaper.
• Since subsidy payments are available to all firms, they can encourage excessive entry of firms into the market.
• Lower costs and increased entry lead to a situation where industry output exceeds the socially optimal level.
• As a result, subsidies fail to internalize externalities effectively in the long run under competitive output markets.

The correct answer is Statement I is true but Statement II is false.

Key Points

• First-degree price discrimination, when a monopolist charges each customer a price equivalent to their willingness to pay, is appropriately described by Statement I, and prices can in fact vary from person to person.
• In terms of third-degree pricing discrimination. The monopolist divides consumers into various groups and assesses a different price to each group in third-degree price discrimination.
• Consumers who belong to the same group pay the same price, although pricing between groups can vary.
• Therefore, the statement falsely indicates that third-degree price discrimination results in everyone who purchases the same amount paying the same price.

Hence, statement I is correct Under first degree price discrimination, monopolist sells different units of output for different prices and these prices may differ from person to person.

The correct answer is 1974.

Key Points

• The Extended Fund Facility (EFF) offers financial support to nations who are experiencing severe medium-term balance of payments issues as a result of fundamental flaws that need time to be fixed.
• The Extended Fund Facility, a credit program run by the IMF, was created in 1974 to assist nations in addressing their medium- and long-term balance of payments issues.
• The Extended Fund Facility (EFF) was established by the International Monetary Fund (IMF) in 1974. The EFF is a financial aid program designed to assist member nations with structural changes to address long-term balance of payment issues.

Hence, In 1974  IMF has set up the Extended Fund Facility (EFF) to support member's structural reforms to address balance of payment difficulties of a long term character.

The correct option is A - III, B - IV, C - II, D - I.

Key Points

• Cost-effectiveness (D): Requires using the fewest resources possible to accomplish a goal. This exemplifies the concept of cost-effectiveness, which is about reaching a particular objective or result while using the fewest amount of resources possible.
• Trading systems for pollution permits (A): A market tool that creates a market for the rights to pollute. Systems for trading pollution permits are one type of market strategy.
• A strategy with incentives that promotes conservation measures or pollution-reduction technologies is known as the market approach (C). The market strategy involves promoting environmental goals through financial incentives.
• A policy that directly regulates pollutants through the application of standards is known as a command-and-control method (B). In the command-and-control strategy, the government establishes detailed guidelines that polluters must abide by.

Hence,  Cost-effectiveness- Requires that the least amount of resources be used to achieve an objective, Command-and-control approach- a policy that directly regulates polluters through the use of standards, Market approach - an incentive based policy that encourages conservation practices or pollution reduction technologies and Pollution permit trading system- A market instrument that establishes a market for rights to pollute

The correct answer is 0.1143.

 Key Points

• Number of married employees who are supervisors = (Percentage of married employees who are supervisors / 100) * Number of married employees
• Number of married employees who are supervisors = (20% / 100) * 80
  

Number of married employees who are supervisors = (0.20) * 80 = 16

• To find the probability that a randomly selected employee is both married and a supervisor:
• Probability = (Number of employees who are both married and supervisors) / (Total number of employees)
  

Probability = 16 / 140

Probability is 0.114

Hence, A company has 140 employees. of which 30 are supervisors. 80 of the employees are married. and 20% of the married employee are supervisors. If a company employee is randomly selected  the probability is 0.114.

The correct answer is Option 4) The LM schedule is the schedule giving the combinations of values of investment and interest rate that produce equilibrium in the money market.

Key Points

• The LM schedule slopes upward to the right. This statement is correct.
• The LM curve slopes upward because higher income levels lead to higher demand for money, which increases interest rates.
• The LM schedule will be relatively flat (steep) if the interest elasticity of money demand is relatively high (low). This statement is correct.
• If money demand is highly sensitive to interest rates, the LM curve will be flatter; if less sensitive, the curve will be steeper.
• The LM schedule will shift downward (upward) to the right (left) with an increase (decrease) in the quantity of money. This statement is correct.
• Increasing the money supply lowers interest rates for a given level of income, shifting the LM curve downward and to the right.
• The LM schedule is the schedule giving the combinations of values of investment and interest rate that produce equilibrium in the money market. This statement is incorrect.
• The LM schedule represents combinations of income and interest rates that balance money demand and supply, not investment and interest rates.

Additional Information

• The LM curve is derived from the equilibrium in the money market.
• It shows combinations of income and interest rates where money demand equals money supply.

The correct answer is 3) B, D, E only.

Key PointsIndia's Strategy to Combat Climate Change at COP 26

• Reduction of Carbon Intensity
• India aims to reduce the carbon intensity of its economy by 45 percent by 2030, compared to 2005 levels. This goal is a significant part of India's climate strategy to decrease greenhouse gas emissions relative to its economic output. Hence statement B is correct.
• Net Zero Emissions Target
• India has set a target to achieve net zero emissions by 2070. This long-term goal signifies India's commitment to balancing the amount of emitted greenhouse gases with the amount removed from the atmosphere. Hence statement D is correct.
• Lifestyle for Environment
• India promotes the concept of 'Lifestyle for Environment' (LiFE) to combat climate change. This initiative emphasizes sustainable and environment-friendly practices in daily life to reduce the overall carbon footprint. Hence statement E is correct.

Additional Information

• Coal-based Thermal Power Generation
• India has not committed to phasing out coal-based thermal power generation by 2030. Instead, it focuses on increasing renewable energy capacity while gradually reducing dependence on coal.
• Hence statement A is incorrect.
• Energy Consumption Cap
• India has not declared any plans to cap its total final energy consumption in absolute terms. The focus remains on improving energy efficiency and increasing the share of renewable energy sources.
• Hence statement C is incorrect.

The correct answer is - A, B, C, D only

Key Points

• Expenditure Function
• It is homogeneous of degree one in prices (P), meaning that a proportional change in all prices leads to the same proportional change in minimum expenditure.
• The expenditure function is strictly increasing in utility (u) because achieving a higher utility level requires higher minimum expenditure.
• It is non-decreasing in prices (P), as an increase in the price of any good cannot reduce the minimum expenditure required.
• The expenditure function is concave in prices (P), reflecting cost-minimizing consumer behavior.
• It is continuous in both prices (P) and utility (u), implying smooth changes in expenditure with changes in prices or utility.
• The property of being strictly convex in prices is incorrect for the expenditure function.

The correct answer is A and B only

Key Points

• Clark product exhaustion shows that the total product of the economy has been fully distributed between labor and capital, the two factors in the economy.
• If labor is a fixed factor and capital is a variable factor in the economy, it can again be shown that the total product is fully exhausted.
• Homogeneous production functions consist of a broad array of functions with a special characteristic.

Additional Information

• Product Exhaustion Theorem - This states that the total product is exhausted if each factor input is paid for its marginal product. Wicksteed provided an early mathematical expression of the theorem but did not relate it to Euler's work.

The correct answer is a standard that designates the quality level of some element of the environment to be achieved.

Key Points

• A benchmark that specifies the degree of environmental quality that must be attained: This relates to ambient standards, which establish the ideal degree of quality for environmental components like the quality of the air or water.
• The environmental conditions that must be upheld in order to protect both human health and the ecology are specified by these standards. It concentrates on establishing environmental quality standards, which is a crucial component of environmental rules and policies.

Hence, a standard that designates the quality level of some element of the environment to be achieved defines ambient standards in an environmental policy.

The correct answer is 1.7 percent of GDP.

Key Points

• The seventh statement in the passage states that "The center's capex has steadily increased from a long-term average of 1.7 percent of GDP (FY09 to FY20) to 2.5% of GDP in FY22 PA".

 

On the basis of the above statement, it can be concluded that the capex of the union government for the period FY 09 to FY 20 on average was 1.7 percent of GDP.

The correct answer is ports and waterways

Key Points

• The ninth statement of the passage states that "Government has boosted allocations on infrastructure intensive sectors such as roads and highways, railways and housing and urban affairs, which has bearing on capex".

 

On the basis of the above statement, it can be concluded that in order to further enhance capex, the allocation for ports and waterways sector is not increased.

The correct answer is 'Incentivizing for interest-free loans and enhancing borrowing ceilings'.

Key Points

• The eighth statement of the passage states that "The center has also incentivized the state governments through interest-free loans and enhanced borrowing ceilings to prioritize their spending on capex".

 

On the basis of the above statement, it can be concluded that the strategy of Incentivizing interest free loans and enhancing borrowing ceilings is adopted by the Union Government to prioritize States’ spending on capex.

The correct answer is 'Increase in taxes on fuel'.

Key Points

• The first statement of the passage states that "The government of India's fiscal policy response to the covid crises comprised of a judicious mix of increasing food and fertilizer subsidies on the one hand and a reduction in taxes on fuel and certain imported products on the other".

 

On the basis of the above statement, it can be concluded that an increase in taxes on fuel was not a strategy of India's fiscal policy response to covid crisis.

The correct answer is 'a flow variable'.

Key Points

• The third statement in the passage states that "Adjusted Net Savings (ANS) provides a complementary indicator to help in understanding the changes in wealth and not per capita wealth, by capturing some of the important policy-induced dynamics".
• The fourth statement in the passage states that "Based on the conventions of the System of National Accounts (SNA), ANS is measured as Gross National Saving minus depreciation of produced capital, depletion of subsoil assets and timber resources, and air pollution damages to human health, plus a credit for expenditures on education".

 

On the basis of the above statement, it can be concluded that Adjusted Net Savings (ANS) is a flow variable.

The correct answer is all of the above.

Key Points

• The third statement in the passage states that "Adjusted Net Savings (ANS) provides a complementary indicator to help in understanding the changes in wealth and not per capita wealth, by capturing some of the important policy-induced dynamics".
• The fourth statement in the passage states that "Based on the conventions of the System of National Accounts (SNA), ANS is measured as Gross National Saving minus depreciation of produced capital, depletion of subsoil assets and timber resources, and air pollution damages to human health, plus a credit for expenditures on education."
• The eighth statement in the passage states that "nations with higher GDP are far less likely to obtain negative ANS".

 

On the basis of the above statements, it can be concluded that all of the given factors reflect the shortcomings of ANS.

The correct answer is 'Depleted assets not offset by sufficient investment in human and physical capital'.

Key Points

• The fourth statement in the passage states that "Based on the conventions of the System of National Accounts (SNA), ANS is measured as Gross National Saving minus depreciation of produced capital, depletion of subsoil assets and timber resources, and air pollution damages to human health, plus a credit for expenditures on education".
• The fifth statement in the passage states that "If ANS is negative, the county is running down its capital stocks and possibly reducing future material well-being. If ANS is positive the country is adding to wealth and future material well-being".
• The sixth statement in the passage states that "When natural resource depletion is not used to invest in other assets in the wealth portfolio, countries gross saving might not be enough to compensate this depletion resulting in negative net savings. However, nations with higher GDP are far less likely to obtain negative ANS".

On the basis of the above statements, it can be concluded that "Depleted assets not offset by sufficient investment in human and physical capital" explains the decline in ANS in countries with increasing GDP per capita.

The correct answer is 'serve as an indicator of unsustainability'.

Key Points

• The ninth statement in the passage states that "It is argued that, if not a superior indicator of sustainability. ANS is useful to the extent that it can serve as an indicator of unsustainability".

 

On the basis of the above statement, it can be concluded that the concept of ANS should at best be used to serve as an indicator of unsustainability.

The correct answer is A, B, C and E only

Key Points

• The correct combinations of international organizations and their headquarters are:

A. GATT: Geneva - Correct

B. IMF: Washington DC - Correct

C. World Bank: Washington DC - Correct

D. International Development Association (IDA): New York - Incorrect (IDA is part of the World Bank group, and its headquarters are in Washington DC, not New York)

E. Asian Development Bank: Mandaluyong - Correct

Hence, So, the correct options are A. GATT: Geneva, B. IMF: Washington DC, C. World Bank: Washington DC , E. Asian Development Bank: Mandaluyong

The correct answer is A, B and C only.

Key Points

• The consumer makes a financial investment to lessen the negative consequences of the bad: This implies that people take steps or spend money to safeguard themselves from the unfavorable effects of unwanted things like air pollution or tainted water.
• The consumer's willingness to spend to lessen the severity of the negative is reflected in the defensive expenditure made: This implies that the amount of money spent on preventative measures, such as buying water filters or air purifiers, reflects how much people are ready to pay to lessen or completely eradicate the negative impacts of the problem.
• An upper constraint on the willingness to pay to avert harm is provided by the observed defensive expenditure: This section highlights that people's willingness to pay above and beyond what is necessary to prevent or lessen the negative impact is likely represented by the amount they spend on defensive measures. It gives a ballpark figure for the economic worth that people attribute to preventing the harm.

Hence, Defensive expenditure method is based on the understanding that the consumer spends money to ameliorate the damaging effects of the bad, the defensive expenditure undertaken reflects the consumer's willingness to pay to reduce the level of the bad.and the observed defensive expenditure is an upper bound on the willingness to pay to avoid the bad.

The correct answer is the ability to access a clean environment.

Key Points

• Human Development Index (HDI)
• The Human Development Index (HDI) provides a measure to capture three key dimensions of human development, i.e., a long and healthy life, access to knowledge, and a decent standard of living.
• Dimensions of Human Development Index 
• Life expectancy at birth: used to assess a long and healthy life.
• Expected years of schooling: used to assess accessibility to the knowledge of the young generation.
• Average years of schooling: used to assess accessibility to knowledge of the older generation.
• Gross national income (GNI) per capita: used to assess the standard of living.

Important Points

• Steps for calculation of HDI
• Forming indices for each of the four dimensions
• ​ Dimension Index = (Actual value - Minimum value) ÷ (Maximum value - Minimum value)

• ​​Aggregating the four dimensions to produce the HDI
• The HDI is calculated as the geometric mean (equally weighted) of life expectancy, education, and GNI per capita.
• The education dimension is the arithmetic mean of the two education indices (mean years of schooling and expected years of schooling).

Thus, the ability to access a clean environment is not a dimension of the Human Development Index (HDI).

The correct answer is B and C only.

Key Points

• BASEL III Norms
• Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09.
• BASEL III measures aim to strengthen the regulation, supervision and risk management of banks.
• Like all Basel Committee standards, Basel III standards are minimum requirements which apply to internationally active banks.
• Members are committed to implementing and applying standards in their respective jurisdictions within the time frame established by the Committee.
• Pillar I of BASEL III Norms
• Pillar I of BASEL III norms covers reforms concerning capital, risk coverage, and containing leverage.

Important Points

• Quality and level of capital is only a sub-part of capital-based refroms under the Basel Committee on Banking Supervision reforms (BASEL III).
• Risk management and supervision is the focus point of pillar II of BASEL III norms.
• Market discipline is the focus point of pillar III of BASEL III norms.

Thus, on the basis of the above information, Pillar I of BASEL III norms focus on risk coverage and containing leverage.

The correct answer is 0.3087

Key Points

• Numerical solution
• P(Exactly 2 delinquent cases) = ( ⁶C₂ * ¹⁴C₃) ÷ (²⁰C₅)
• P(Exactly 2 delinquent cases) = [(6 !) ÷ (6 - 2)! (2!)] x [(14 !) ÷ (14-3)! (3 !)] ÷ [(20 !) ÷ (20 - 5) ! (5 !)
• P(Exactly 2 delinquent cases) = (5 x 7 x 13 x 2) ÷ (19 x 17 x 8)
• P(Exactly 2 delinquent cases) = 910 ÷ 2584
• P(Exactly 2 delinquent cases) = 0.3087

Thus, the probability that the auditor finds exactly 2 delinquent cases is 0.3087

The correct answer is A - IV, B - III, C - II, D - I.

Key Points

Hence, the correct matching is A - IV, B - III, C - II, and D - I.

The correct answer is 'Revenue Deficit + Capital Outlays + Net Lending'.

Key Points

• Fiscal Deficit
• A Fiscal deficit is the difference between the government's total expenditure and its total revenue (excluding borrowings).
• A Fiscal deficit is an indicator of the extent to which the government needs to borrow in order to finance its operations.
• A Fiscal deficit is expressed as a percentage of the country's gross domestic product (GDP).
• Fiscal deficit formula
• Fiscal deficit = Total expenditure - Total receipts (excluding borrowings)​

Thus, 'Revenue Deficit + Capital Outlays + Net Lending' is the correct measure of the gross fiscal deficit of the state government.

Additional Information

• Concepts of deficit
• Capital deficit = Capital expenditure -  Capital receipts
• Budget deficit = Capital deficit + Revenue deficit
• Primary deficit = Fiscal deficit - Net interest payment

The correct answer is A and B only

Key Points

• Bertrand's Duopoly model was developed in 1883. His model differs from Cournot's in that he assumes each firm expects that the rival will keep its price constant, irrespective of its own decision about pricing.
• The model may be presented with the analytical tools of the reaction functions of the duopolists.
• In Bertrand's model the reaction curves are derived from isoprofit maps which are convex to the axes, on which we now measure the prices of the duopolists.

Additional Information

• The Bertrand model has the following characteristics: 
• It is a single-period model.
• It describes the behavior of firms in an oligopoly.
• It is a static model.

The correct answer is Option 3) Real Interest Rate.

Key Points

• Real Income This statement is incorrect.
• Investment (I) is not directly a function of real income in the national income identity.
• Nominal Income This statement is incorrect.
• Investment (I) does not directly depend on nominal income.
• Real Interest Rate This statement is correct.
• The real interest rate affects the cost of borrowing and thus influences investment decisions.
• Nominal Interest Rate This statement is incorrect.
• Investment (I) is influenced by the real interest rate, not the nominal interest rate, as the real rate reflects the true cost of borrowing after adjusting for inflation.

Additional Information

• The real interest rate is crucial for investment decisions.
• It represents the actual cost of funds and influences businesses' and individuals' decisions to invest in new projects and equipment.

The correct answer is ​​

Key Points

• The integral $∫x * sqrt(x ^ 2 + 1) dx for x > 0$ can be solved using  a simple substituion: 
• Where, $x^2 + 1 = u.$ Then, $du = 2x dx. So 1/2 du = x dx.$
• We can substitute these into our integral, we get: $1/2 * ∫ sqrt(u) du,$
• This integral is fairly straightforward, yielding: 
• $1/2 * (2/3)u^(3/2) + C = 1/3 * (x^2 + 1)^(3/2) + C$
• So, the correct answer is: $1/3 * (x ^ 2 + 1) ^ (3/2) + C.$

The correct answer is B, D, and E only.

Key Points

• Meaning of Gross Value Added (GVA)
• The services sector, also called the tertiary sector, is generally composed of:
• Trade, Hotels, Transport, and Communication related to Broadcasting: This includes all services related to the retail and wholesale of goods, the accommodation and food service activities, the transport of goods and individuals, and the transmission of information through telecommunications.
• Public Administration, Defense, and Other Services: This includes all services provided through governmental activities including general administration (like legislative and financial affairs), public order, safety and defense, environmental protection, economic affairs, community amenities, and social protection services.
• Financial, Real Estate, and Professional Services: This segment includes financial intermediation and insurance services, activities related to real estate, and professional activities such as legal, accounting, management consultancy, architectural, engineering, and other technical activities.
• The Construction and Electricity, Gas, Water supply, and other utility services, while considered part of the overall economy, are not generally classified as services or within the tertiary sector. They belong to the secondary or industrial sector.
• So the correct components of the services sector in Gross Value Added (GVA) are:
• B. Trade, Hotels, Transport, and Communication related to Broadcasting
• D. Public Administration, Defense, and other services
• E. Financial, Real Estate and Professional services

The correct answer is Higher will be the multiplier effect.

Key Points

• Marginal propensity to consume (MPC) measures how much more individuals will spend for every additional dollar of income.
• MPC is calculated as the ratio of marginal consumption to marginal income.
• MPC is related to the so-called Keynesian multiplier, where MPC can help predict the economic growth from a government stimulus.
• The multiplier effect refers to a chain reaction of consumption by various entities brought about by an initial increase in income.
• MPC of one means a person spent all additional income.
• MPC of zero means spent none of it and, instead, invested it.

The correct answer is a spot purchase of a currency combined with a forward repurchase of that currency.

Key Points

• Foreign exchange swap refers to currently buying one currency and selling currency while forward re-selling the bought currency and buying another currency. That is to say, a swap transaction is composed of a spot and a forward deal.
• Currency Swaps agreements involve trade in local currencies, where countries pay for imports and exports at pre-determined rates of exchange without the involvement of a third country currency like the US dollar.

The correct answer is B, E, D, C, A.

Key Points

• A Treatise on Probability (1921)
• The book 'A Treatise on Probability' was published by John Maynard Keynes in the year 1921.
• The Treatise attacked the classical theory of probability and proposed a "logical-relationist" theory instead.
• The Treatise is fundamentally philosophical in nature despite extensive mathematical formulations.
• The Treatise presented an approach to probability that was more subject to variation with evidence than the highly quantified complex classical versions.
• A Tract on Monetary Reform (1923)
• 'A Tract on Monetary Reform' is a book by John Maynard Keynes, published in the year 1923.
• Through this book, Keynes presented an argument in favour of a policy that would work to stabilize the domestic price level.
• Keynes advocated that domestic price stability was accompanied by exchange rate flexibility.
• After years of experience, he did not favour floating exchange rates and proposed the crawling peg exchange rate system.
• The End of Laissez-Faire (1926)
• The book 'The End of Laissez-Faire' was published by John Maynard Keynes in the year 1926.
• The book presents a brief historical review of laissez-faire economic policy.
• Though Keynes agrees in principle that a marketplace of free individuals pursuing their self-interest without government intervention has a better chance of improving society's economic situation than socialist alternatives, he suggests that government can play a significant role in protecting individuals from the ill effects of business cycles prevalent in capitalist societies.
• The Essays in Persuasion (1931)
• 'The Essays in Persuasion' was published by John Maynard Keynes in the year 1931.
• The book constitutes a relevant attempt to find a solution to the most pressing problems of the post-World War I period.
• For this reason, its importance goes well beyond the sphere of economics for reaching out to the realms of history, politics and international relations.
• General Theory of Employment. Interest and Money (1936)
• The General Theory of Employment, Interest and Money is a book by John Maynard Keynes published in February 1936.
• The book brought a profound shift in economic thought, giving macroeconomics a central place in economic theory.
• The central argument of The General Theory is that the level of employment is determined not by the price of labour, but by the level of aggregate demand.

Thus, A Treatise on Probability (1921), A Tract on Monetary Reform (1923), The End of Laissez-Faire (1926), The Essays in Persuasion (1931), and General Theory of Employment. Interest and Money (1936) is in the correct chronological order.

The correct answer is A - I, B - II, C - III, D - IV

Key Points

• Total food grain production in India is estimated at a record (2021-22) 330.5 million tonnes.
• Uttar Pradesh ranks first in the total food grain production of the country.
• | List I (States) | List II (Food grain
  production 2021-22
  (Thousand Tonnes) | | --- | --- | | Telangana | 11266.0 | | Jharkhand | 4984.2 | | Chhattisgarh | 8897.0 | | Andhra Pradesh | 55095.4 |

Additional Information

• India's Top Wheat Producers
• During the same period, the leading wheat-producing states in India were:
• Uttar Pradesh
• Madhya Pradesh
• Punjab
• These three states account for approximately 64% of India's wheat production.
• Uttar Pradesh is the largest contributor, producing 32.42% of the nation's total output, followed by Madhya Pradesh and Punjab, which contribute 16.08% and 15.65% respectively.
• India's Top Food Grain Producers
• The leading food grain-producing states in India during 2021-22.

The correct answer is 1960-61. 

Key Points

• Intensive Agriculture District Programme (IADP)
• The Intensive Agriculture District Programme, popularly known as package programme was launched in India during the kharif season in 1960.
• The central idea behind the launch of IADP was that increased agricultural productivity would lead to economic growth, which would ensure the welfare of the society.
• The method adopted in IADP was to demonstrate the feasibility of increased agricultural production rapidly by concentrating on all factors of production at the same time in an integrated action programme in selected districts fulfilling optimum conditions.
• The programme was known as a package programme because of the collective and simultaneous application of all improved practices namely improved seeds, irrigation, fertilizer, plant protection, implements, storage facilities, marketing and credit facilities etc.
• Initially, 7 districts were covered under the programme namely Thanjavur (Tamil Nadu), West Godavari (Andhra Pradesh), Sahabad (Bihar), Raipur (Madhya Pradesh), Aligarh (Uttar Pradesh), Ludhiana (Punjab), and Pali (Rajasthan).
• The selection of districts was done on the basis of their high potential for increasing the agricultural yield in a shorter time.
• These selected districts had assured water supply for irrigation, well-developed cooperatives, good physical infrastructure and minimum hazards.

Important Points

• Objectives of IADP
• To achieve rapid increase in agricultural production through concentration of financial, technical, and administrative resources.
• To achieve a self-generating breakthrough in productivity and to raise the production potential by stimulating the human and physical process of change.
• To demonstrate the most effective ways of increasing production and thus, to provide lessons for promoting such intensive agricultural production programmes to other areas.

Thus, The Intensive Agriculture District Programme (IADP) was launched in the year 1960-61.

The correct answer is B, D, C, E, A.

Key Points

• Foreign Institutional Investors (FIIs) are permitted to invest in the Indian Securities Market - Year 1992
• A Foreign Institutional Investor (FII) is an institution established or incorporated outside India that proposes to make investments in the Indian securities market.
• Effective September 14, 1992, foreign institutional investors (FIIs) were permitted to invest in any of the listed companies of Indian stock exchanges subjected to the condition that aggregate holding of share/convertible debentures of the FIIs/NRIs/OCBs put together should not exceed 24 percent of paid-up capital of the Indian company.
• The SEBI banned badla trading on the BSE - March 1994
• In December 1993, the Securities and Exchange Board of India (SEBI) banned badla (the ban took full effect in March 1994).
• The result was a sharp decline in liquidity with adverse impacts on market efficiency and volatility.
• NSE commenced operations in the wholesale debt market segment - Year 1994
• The Wholesale Debt Market (WDM) segment of the exchange commenced operations on June 30, 1994.
• This facilitated the first formal screen-based trading facility for the debt market in the country.
• The wholesale debt market segment has now been merged under the New Debt Market as the Negotiated Trade Reporting Platform.
• The NSE overtook the BSE as the largest stock exchange in terms of volume trading - Year 1995
• NSE has invested heavily in technology and has a more advanced trading platform compared to BSE.
• This has made it more convenient and efficient for traders to buy and sell securities on NSE, leading to higher trading volumes.
• The BSE introduced screen-based trading - Year 1995
• The online trading system of Bombay Stock Exchange known as BOLT was introduced in the year 1995.
• BOLT is a screen-based automated trading platform that is referred to as a centralized exchange-based trading system of BSE.
• BOLT helps investors to trade from anywhere in the world on the BSE trading platform.

​​Thus, B, D, C, E, and A is the correct order of events of equity trading in India.

The correct answer is Both Statements I and Statement II are true.

Key Points

Statement I: Division of labour is the starting point of Smith's theory of economic growth is true because,-

• Adam Smith, in his seminal work "The Wealth of Nations," emphasized the importance of the division of labour as the cornerstone of economic growth.
• He argued that the division of labour increases productivity and efficiency by allowing workers to specialize in specific tasks.
• This specialization leads to greater skill development, time savings, and the invention of new methods and tools.
• Smith illustrated this concept using the example of a pin factory, where dividing the production process into distinct tasks significantly increased output.
• The division of labour facilitates economies of scale, enabling industries to produce goods more cheaply and efficiently.

Statement II: It is division of labour that results in the greatest improvement in the productive power of labour is also true.

• Adam Smith asserted that the division of labour is the primary driver of enhanced productivity and economic prosperity.
• He believed that when workers focus on a single task, they become more skilled and efficient at that task.
• This increased proficiency leads to higher output and quality of products.
• The division of labour also fosters innovation, as workers constantly seek better ways to perform their specialized tasks.
• Smith's theory posits that as productivity increases, it fuels economic growth by creating more goods and services for consumption and trade.

Additional Information

• Adam Smith's theory of economic growth is fundamentally linked to the concept of the division of labour.
• His ideas laid the groundwork for modern economic thought and the development of industrial economies.
• The division of labour not only enhances productivity but also contributes to the overall wealth of a nation by creating more efficient production systems.
• Smith's insights remain relevant in contemporary economics, highlighting the enduring impact of specialization and productivity on economic growth.

The correct answer is A, B, and E only.

Key Points

• 'Excess sensitivity' refers to a situation where consumption over responds to temporary income shocks.
• Excess sensitivity exists when consumption responds too much to predictable or anticipated changes in income.

Thus, the statement is the correct explanation of excess sensitivity.

• 'Excess smoothness' refers to a situation where consumption under responds to temporary income changes.
• Excess smoothness exists when consumption responds too little to innovations or unpredictable or unanticipated changes in income.

Thus, the statement is the correct explanation of excess smoothness.

• 'Excess sensitivity' and 'Excess smoothness' are related to the empirical evidences of permanent income hypothesis.​
• The permanent income hypothesis suggests that excess sensitivity of changes in consumption to anticipated changes in income implies that consumption will respond less to unanticipated changes (innovations, shocks) in income.
• Excess sensitivity deals with anticipated changes and excess smoothness is due to unanticipated changes.

Thus, this statement is also correct.

On the basis of the above information, it can be concluded that out of the above statements, statements A, B, and E are correct.

The correct answer is - A, B and C only

Key Points

• Probability Axioms (Kolmogorov Axioms)
• Non-negativity: For any event A, P(A) ≥ 0.
• Normalization: The probability of the sample space is P(S) = 1.
• Additivity: For a countable sequence of mutually exclusive events A_i, P(∪_i=1^∞ A_i) = ∑_i=1^∞ P(A_i).
• The statement P(A) ≤ 0 is incorrect and violates the non-negativity axiom.
• The inequality form P(∪ S_i) ≥ ∑ P(S_i) is not an axiom of probability.

The correct answer is A, B, D, E only.

Key Points

• Tobin's Q Theory of Investment (Tobin's Q)
• The Q ratio, also known as Tobin's Q, equals the market value of a company divided by its assets' replacement cost.
• The equilibrium is achieved when market value equals replacement cost
• The Q Ratio expresses the relationship between market valuation and intrinsic value.
• In other words, the theory provides a method of estimating whether a given business firm is overvalued or undervalued.

  

Important Points

• Calculation of Tobin's Q Ratio
• Tobin's Q Ratio = Total Market Value of the Firm ÷ Total Asset Value of the Firm
• Tobin's Q ratio and investment decision
• According to Tobin's Q theory of investment, a firm should invest when-
• There is an increase in the price of output.
• There is an increase in the marginal product of capital
• There is a decrease in the rate of depreciation
• The marginal benefit of investment exceeds the marginal cost

Thus, according to Tobin's Q theory of investment, a firm should invest when there is an increase in the price of output, there is an increase in the marginal product of capital, there is a decrease in the rate of depreciation, and the marginal benefit of investment exceeds marginal cost.

The correct answer is D and E only.

Key Points

• Multicollinearity
• Multicollinearity, or near-linear dependence, is a statistical phenomenon in which two or more predictor variables in a multiple regression model are highly correlated.
• If there is no linear relationship between predictor variables, they are said to be orthogonal.
• Variance Inflation Factor (VIF)
• The Variance Inflation Factor (VIF) measures the severity of multicollinearity in a regression model.
• It is a statistical measure that indicates the increase in the variance of a regression coefficient as a result of collinearity.

Important Points

• Variance Inflation Factor, tolerance, and multicollinearity
• VIF_i = 1 / 1-R_i² = 1 / Tolerance
• Where  Ri2 represents the unadjusted coefficient of determination for regressing the i^th independent variable on the remaining ones.
• The reciprocal of VIF is known as tolerance.
• VIF above 4 or tolerance below 0.25 indicates that multicollinearity exists, and further investigation is needed.
• When VIF is higher than 10 or tolerance is lower than 0.1, there is significant multicollinearity that needs to be corrected.

Thus, the variance Inflation Factor (VIF) of a variable of below 10, and, the closer the Tolerance (TOLj) is to 1, are not symptoms of multicollinearity in a regression model.

• Correct Answer Explanation:
  
• In a random walk without drift, the impact of a shock  remains throughout the entire duration. This is because in such a model, each new value is a result of the previous value plus a random shock. The accumulation of these shocks over time influences the overall path of the process, meaning the effects of earlier shocks can still be seen in the system's state at later times.
  

<br>

• Incorrect Options Overview:
  
• Option 2: This option suggests that the effect of a shock dissipates over time. In the context of random walks without drift, this is incorrect because the model inherently includes the accumulation of all previous shocks.
  
• Option 3: This option claims that the effect of a shock immediately disappears. This is not true for random walks without drift, where each shock's impact is inherently part of the system's subsequent state.
  
• Option 4: Suggesting that previous shocks have no effect is incorrect for a random walk without drift. The essence of such a random walk is that each step is dependent on the previous step plus a new random shock, implying that past shocks do contribute to the current state.

The correct answer is 'methods that estimate benefits based on a technical relationship between an environmental resource and the user of that resource'.

Key Points

• Valuation of environmental benefits
• Valuation of environmental benefits helps to correct economic decisions that treat the environment as if it were a free input, in turn resulting in its over-exploitation.
• Physical linkage approach 
• This approach exhibits a technical (physical) linkage between changes in the state of the environment and changes in a good or service traded in a market (having an observable price).
• Methods (techniques) of physical linkage approach
• Replacement cost technique
• Changes in output or input of marketable goods
• Costs of illness and premature mortality

Important Points

• Valuation of environmental functions serves two main purposes-
• To illustrate the kinds of economic damages posed to society by resource depletion and pollution.
• To integrate the unpriced, but valuable functions of natural environments into policy appraisal, e.g. Cost Benefit Analysis, Polluter Pays Principle.

Thus, 'Methods that estimate benefits based on a technical relationship between an environmental resource and the user of that resource' applies to the physical linkage approach for the valuation of environmental benefits.

The correct answer is A - III, B - IV, C - I, D - II.

Hence, the correct matching is A - III, B - IV, C - I, and D - II.

The correct answer is $\rm F=\frac{ESS_{new}-ESS_{old}/d.f.}{ESS_{new}/d.f.}$

Key Points The F-test statistic for testing the incremental contribution of a variable in a multiple regression model is given by: 

$[ F = \dfrac{\frac{ESS_R - ESS_{R,X3}}{1}}{\frac{RSS}{n - k}} ]$

Where:

• $( ESS_R )$ is the explained sum of squares for the full model (with all predictors including $X3).$
• $( ESS_{R,X3} )$ is the explained sum of squares for the model without $X3).$
• $( RSS)$ is the residual sum of squares.
• $(n)$ is the number of observations.
• $(K)$ is the number of predictors in the full model.

The inappropriate formula could be one that doesn't appropriately subtract the contribution of $( X3 ).$

Formula should compare the full model with $( X3 )$ to the model without $( X3 )$.

So, the inappropriate one might not appropriately subtract$( ESS_{R,X3} )$ or could use a different denominator. Double-check the formulas you have, and make sure the subtraction of $( ESS_{R,X3} )$ is done correctly.

The correct answer is 'E, D, B, C, A'.

Key Points

• Horizontal Devolution 
• The Fourteenth Finance Commission proposed a new horizontal formula for the distribution of the states’ share in the divisible pool among the states.
• Horizontal devolution formula in the Fourteenth Finance Commission

Important Points

• About Finance Commission
• The Finance Commission is a constitutional body formulated under Article 280 of the Indian Constitution.
• It is constituted every five years by the President of India to review the state of finances of the Union and the States and suggest measures for maintaining a stable and sustainable fiscal environment.
• The commission also makes recommendations regarding the devolution of taxes between the Center and the States from the divisible pool which includes all central taxes excluding surcharges and cess which the Centre is constitutionally mandated to share with the States.

Thus, the correct ascending order of weights assigned to variables under the fourteenth finance commission is forest cover (7.5), population 2011 (10), area (15), Population 1971 (17.5), and income distance (50).

The correct answer is A, D, B, C and E.

Key Points

• Indirect Least Square Method
• In this method, we obtain the estimates of the reduced form coefficients by applying OLS (Ordinary Least Squares) and indirectly obtain the values of structural coefficients in terms of the reduced form coefficients.
• For this reason, the method is known as the Indirect Least Square.
• This method is normally applied to exactly identified equations.
• The estimates obtained from this technique are called the Indirect Least Squares (ILS) estimates.

Important Points

• The sequence of steps for estimation of ILS
• We first obtain the reduced-form equations.
• The reduced-form equations ensure that in each of the equations, the dependent variable is an endogenous variable only and is a function of the predetermined (exogenous or lagged endogenous) variables and the stochastic error term(s).
• Assuming that the other usual assumptions about the disturbance term in the OLS are satisfied, We apply OLS to the reduced-form equations individually.
• This operation is permissible since the explanatory variables in these equations are predetermined and hence uncorrelated with the stochastic disturbances.
• The estimates thus obtained are consistent.
• We obtain estimates of the original structural coefficients from the estimated reduced-form coefficients obtained in Step 2.
• If an equation is exactly identified, there is a one-to-one correspondence between the structural and reduced-form coefficients.
• We can derive unique estimates of the structural parameters from the reduced form parameters. The relationship between reduced form parameters and the structural parameters forms a system of equations in which the reduced form coefficients are expressed as functions of the structural parameters.

Thus, the correct sequence of steps for the estimation of ILS is, the identification of structural equations, obtaining reduced form equation, application of OLS, obtaining structural coefficients, and using the model for policy.

The correct answer is A, B, C, and E only.

Key Points

• Sufficient Estimators
• Sufficient estimators exist when one can reduce the dimensionality of the observed data without loss of information.
• Sufficiency is an important quality in hypothesis testing where we can effectively compare the distribution under the null hypothesis with the actually observed distribution.
• Having a sufficient estimator makes this testing process significantly more manageable, especially for large sample sizes.
• Properties of good estimator
• Unbiasedness
• An estimator is said to be unbiased if its expected value is identical to the population parameter being estimated.
• That is if θ is an unbiased estimate of θ, then we must have E (θ) = θ.
• Consistency
• If an estimator, say θ, approaches the parameter θ closer and closer as the sample size n increases, θ is said to be a consistent estimator of θ.
• In other words, the estimator θ is said is be a consistent estimator of θ if, as n approaches infinity, the probability approaches 1 that θ will differ from the parameter θ by no more than an arbitrary constant.
• Efficiency
• The concept of efficiency refers to the sampling variability of an estimator.
• If two competing estimators are both unbiased, the one with the smaller variance (for a given sample size) is said to be relatively more efficient.
• Sufficiency
• An estimator is said to be sufficient if it conveys as much information as possible about the parameter that is contained in the sample.
• The significance of sufficiency lies in the fact that if a sufficient estimator exists, it is absolutely unnecessary to consider any other estimator.

Thus, properties of the sufficient estimator are that it may not be unbiased, it may be unbiased, it is always consistent, and, a minimum variance unbiased estimator.

The correct answer is 'An endogenous variable is correlated with the error term'.

Key Points

• Hausman's specification error test
• The Hausman Test (or the Hausman specification test) detects endogenous regressors (predictor variables) in a regression model.
• Endogenous variables have values that are determined on the basis of other variables in the data system.
• Having endogenous regressors in a model will cause ordinary least squares estimators to fail, as one of the assumptions of OLS (Ordinary Least Squares) is that there is no correlation between a predictor variable and the error term.
• Instrumental variables estimators can be used as an alternative in this case.
• However, before you can decide on the best regression method, you first have to check whether predictor variables are endogenous. This is what the Hausman test will do.

​Thus, Hausman's specification error test is used to test whether an endogenous variable is correlated with the error term.

The correct answer is 1.25 lakh crores.

Key Points

• Budget allocation
• The Ministry has been allocated Rs 1,25,036 crore for the year 2023-24.
• It is 5% greater than the revised estimates for 2022-23.
• The Ministry of Agriculture accounts for 2.8% of the total Union Budget.
• The increase in expenditure is on account of a marginal increase in the allocation for schemes such as the Modified Interest Subvention Scheme (5%) and the Pradhan Mantri Fasal Bima Yojana (10%).

Important Points

• Policy Proposals in the Budget Speech (2023-24)
• Digital Public Infrastructure
• Digital public infrastructure will be built as an open source, open standard, and interoperable public good.
• This will enable inclusive, farmer-centric solutions through relevant information services for crop planning and health, and improved access to farm inputs, credit, and insurance facilities.
• Agriculture Accelerator Fund
• The Fund will be set up to encourage agri-startups by young entrepreneurs in rural areas.
• It aims to bring modern technology with the purpose OF increasing agricultural productivity and profitability.
• Agriculture Credit
• The agricultural credit target will be increased to Rs 20 lakh crore with a focus on animal husbandry, dairy, and fisheries.
• PM Matsya Sampada Yojana
• A new scheme with a targeted investment of Rs 6,000 crore has been launched to promote the activities of fishermen and fish vendors and improve value chain efficiencies.
• Storage
• A plan will be implemented to set up decentralized storage capacity to help farmers store their produce and realize remunerative prices through the sale at appropriate times.
• Cooperatives
• The government will also facilitate the setting up of multipurpose cooperative societies, primary fishery societies, and dairy cooperative societies in uncovered panchayats and villages in the time period of the next five years.

Thus, the allocation of the budget for the Ministry of Agriculture and Farmers' Welfare in the Union Budget 2023-24 is Rs. 1.25 lakh crores.

The correct answer is A - IV, B - III, C - II, D - I

Key Points

Thus, the correct matching is A - IV, B - III, C - II, and D - I.

The correct answer is A and B only.

Key Points

• Division of labour
• In Adam Smith's book 'An Inquiry into the Nature and Causes of the Wealth of Nations (1776)' he foresaw the essence of industrialism by determining that the division of labour represents a substantial increase in productivity.
• Adam Smith famously argued that the difference between a street porter and a philosopher was as much a consequence of the division of labour as its cause.
• According to Adam Smith, the division of labour was the dynamic engine of economic progress.,
• The notion of increasing returns
• According to Adam Smith, the division of labour is an important source of increasing returns.

Important Points

• The notion of diminishing returns originated in the work of the 18th-century French physiocrat Anne Robert Jacques Turgot.
• Dialectical materialism is a materialist theory based on the writings of Karl Marx and Friedrich Engels
• The concept of socially necessary abstract labour time was introduced by Karl Marx.

Thus, Adam Smith's contributions include division of labour and the notion of increasing returns.

The correct answer is A, B, and E only.

Key Points

• Asian Drama
• Gunnar Myrdal published the book Asian Drama in 1968, which made significant analytical contributions to our understanding of development but was deeply pessimistic about Asia’s future prospects.
• In the book, the fundamental point of departure from conventional thinking was the conviction that ‘economic problems cannot be studied in isolation but only in their own demographic, social and political setting’
• An American Dilemma
• 'An American Dilemma: The Negro Problem and Modern Democracy' is a 1944 study of race relations authored by economist Gunnar Myrdal.
• Myrdal observed a vicious cycle in which whites oppressed blacks, leading to poor standards of education, healthcare, morality, etc. among blacks that was then used as justification for prejudice and discrimination.
• Myrdal argued that the way out of this cycle was to either reduce white prejudice, which would improve the circumstances of blacks, or to improve the circumstances of blacks, which would then reduce the reasons for white prejudice.
• Myrdal called this process the "principle of accumulation".
• Economic Theory and Underdeveloped Regions
• The book 'Economic Theory and Underdeveloped Regions' was published in the year 1957.
• The book discusses economic, social, and political problems facing underdeveloped countries with an emphasis on economic inequalities between developed and under-developed countries.

Thus, Gunnar Myrdal is the author of the books Asian Drama, An American Dilemma, and Economic Theory and Underdeveloped Regions.

Additional Information

• The book 'Theory of Economic Development' was written by Joseph Schumpeter in the year 1911.
• The book 'Principles of Political Economy' was written by John Stuart Mill in the year 1848.

The correct answer is E, B, A, C, and D.

Key Points

• Total revenue received by the government under the head of Goods and Services Tax (GST) on the domestic supply of goods and services for the year 2021-22 (Arranged in ascending order)

Thus, the correct ascending order of total revenue received by the state government under the head of GST on the domestic supply of goods and services for 2021-22 is: Madhya Pradesh, Rajasthan, Odisha, Delhi, and West Bengal.

• Bihar has the highest level of lifetime risk during 2018-2020 according to the Sample Registration System.
  
• Reason: Bihar, with its large population and challenges in healthcare infrastructure, often reports higher maternal and child mortality rates compared to other states. These factors contribute to its higher lifetime risk assessment.
  

<br>

• Uttar Pradesh
  
• Although Uttar Pradesh also faces significant healthcare challenges and has a large population, it did not top the list for the highest level of lifetime risk during this period. However, it remains one of the states with considerable health risks.
  

<br>

• Madhya Pradesh
  
• Madhya Pradesh, known for its socio-economic challenges, does face health-related risks. Nonetheless, during the specified timeframe, it did not have the highest level of lifetime risk compared to Bihar.
  

<br>

• Chhattisgarh
  
• Chhattisgarh, while grappling with various healthcare issues, particularly in rural and tribal areas, did not have the highest lifetime risk level for the period in question. Its challenges include accessibility to healthcare facilities and quality healthcare services.
  

<br>

• The Sample Registration System (SRS) is a demographic survey for providing reliable annual estimates of birth rate, death rate, and other fertility and mortality indicators at the state and national levels. The data indicating Bihar as having the highest level of lifetime risk reflects broader issues of healthcare access, quality, and socio-economic factors affecting the state's population.

• Correct Answer: 2002
  
• Explanation:
  
• The Prevention of Money Laundering Act (PMLA) was indeed enacted in the year 2002. This legislation represents India's primary framework for combating money laundering, aiming to prevent and control money laundering activities, and to provide for the confiscation of property derived from, or involved in, money laundering.
  

<br>

• Overview of Incorrect Options:
  
• 2001: This year is incorrect because the act had not been enacted yet. The early 2000s were a period when many countries were beginning to strengthen their financial systems against money laundering, and India's PMLA came into effect slightly later.
  
• 2003: This year is incorrect as the act was already in effect by this time. In 2003, the focus would have been more on the implementation and enforcement of the act rather than its enactment.
  
• 2004: By 2004, the act had been in effect for approximately two years. This year saw further developments in the regulatory framework surrounding financial transactions and anti-money laundering measures, but the PMLA was already part of Indian law by then.
  

<br>

• Additional Notes:
  
• The Prevention of Money Laundering Act, 2002, was a significant step for India in aligning with global efforts to combat financial crimes. The act sets the legal framework for the investigation of financial crimes and the imposition of penalties on individuals and entities involved in money laundering.
  
• The act also established the need for financial institutions to keep records of transactions, report suspicious activities, and apply due diligence procedures in their operations to prevent and detect money laundering activities.

Solution:

<br>

• Statement A: Paradox of thrift was popularized by J. M. Keynes.
  
• This statement is correct. The paradox of thrift is a concept that was indeed popularized by John Maynard Keynes, an influential British economist. The idea is part of Keynesian economics, which emphasizes the role demand plays in the economy, including the potentially negative effects of increased savings.
  

<br>

• Statement B: It states that personal savings can be detrimental to overall economic growth.
  
• This statement is correct. The paradox of thrift suggests that while saving is typically seen as a personal virtue and beneficial to an individual, if everyone increases their savings simultaneously, it can lead to a decrease in aggregate demand. This reduction in demand can then lead to a decrease in overall economic growth, making the collective act of saving potentially harmful to the economy.
  

<br>

• Statement C: It shows the relationship between output growth and rate of unemployment.
  
• This statement is incorrect. The paradox of thrift primarily deals with the relationship between savings and economic growth, not directly with output growth and the rate of unemployment. The relationship between output growth and unemployment is more closely associated with Okun's law, not the paradox of thrift.
  

<br>

• Statement D: It shows the relationship between inflation and rate of interest.
  
• This statement is incorrect. The paradox of thrift does not deal with the relationship between inflation and the rate of interest. Instead, it focuses on how increased savings can lead to decreased aggregate demand, which might indirectly affect inflation and interest rates, but that is not the core concern of the paradox.
  

<br>

• Statement E: It states that individuals saving during an economic recession leads to a fall in aggregate demand.
  
• This statement is correct. This is essentially a restatement of the central idea of the paradox of thrift. During an economic recession, if individuals decide to save more to protect themselves against future uncertainties, this behavior can lead to a decrease in aggregate demand, exacerbating the recession.
  

<br>

Hence, the correct option is 4) A, B, E only, as these statements accurately reflect the concepts and implications of the paradox of thrift.

• Statement A: the reduction of average tariffs on industrial goods
  
• This statement is correct. One of the primary objectives of the Uruguay Round was to reduce tariffs and barriers on industrial goods to facilitate easier and more equitable global trade.
  

<br>

• Statement B: quotas to be replaced by tariffs
  
• This statement is also correct. The Uruguay Round negotiations aimed at converting existing non-tariff barriers such as quotas into tariffs, a process known as tariffication. This made trade more predictable and transparent.
  

<br>

• Statement C: the reduction in agriculture export subsidies
  
• This statement is correct. A significant outcome of the Uruguay Round was the agreement on Agriculture, which included commitments to reduce export subsidies on agricultural products, aiming to make global agricultural trade fairer and more competitive.
  

<br>

• Statement D: the reduction in industrial subsidies
  
• This statement is correct. The Uruguay Round addressed the issue of industrial subsidies, with agreements aimed at reducing subsidies that distort trade, thereby promoting fair competition.
  

<br>

• Statement E: antidumping and safeguards to be relaxed
  
• This statement is incorrect. The Uruguay Round did not call for antidumping and safeguards to be relaxed. Instead, it reinforced the rules on dumping and subsidies, providing a clearer framework for the imposition of antidumping and countervailing duties to protect domestic industries from unfair trade practices.
  

<br>

Solution:

• Statement A is correct because it accurately reflects the Uruguay Round's goal of reducing barriers on industrial goods.
  
• Statement B is correct as it describes the process of tariffication, which was a key element of the negotiations.
  
• Statement C is correct, highlighting the efforts to reduce distortive subsidies in agriculture.
  
• Statement D is correct, addressing the aim to cut back on industrial subsidies that affect trade fairness.
  
• Statement E is incorrect because the Uruguay Round aimed to strengthen, not relax, measures against unfair trade practices like dumping.
  

<br>

Hence, the correct answer is option 1: A, B, C, D only.

• Statement A: It is related to closed economy model.
  
• This statement is incorrect. The concept of the trilemma in monetary policy pertains to an open economy model, not a closed one. It outlines the challenges and trade-offs that countries face when trying to simultaneously achieve free capital movement, a fixed exchange rate, and an independent monetary policy.
  

<br>

• Statement B: It involves exchange rate, capital mobility, and monetary policy.
  
• This statement is correct. The trilemma in monetary policy indeed revolves around these three aspects. It suggests that a country can only achieve two out of these three policy goals at any given time. For example, if a country wants to maintain a fixed exchange rate and have free capital mobility, it cannot have an independent monetary policy.
  

<br>

• Statement C: It arises because perfect capital mobility aligns the domestic interest rate to the world interest rate.
  
• This statement is correct. Perfect capital mobility means that investors can move funds across borders without restrictions, seeking the highest returns. This movement tends to equalize interest rates across countries, as domestic interest rates adjust to align with the world interest rate. This phenomenon is a key aspect of the trilemma, particularly impacting the ability of a country to pursue an independent monetary policy while maintaining fixed exchange rates and free capital mobility.
  

<br>

• Statement D: Flexible exchange rate is not compatible with independent monetary policy.
  
• This statement is incorrect. In fact, a flexible exchange rate system is one of the conditions that allow for an independent monetary policy under the trilemma. With flexible exchange rates, a country can use its monetary policy tools, such as adjusting interest rates, without having to maintain a fixed exchange rate. This flexibility allows the country to respond to its economic conditions independently.
  

<br>

• Statement E: It is related to capital immobility and flexible exchange rate.
  
• This statement is incorrect. The trilemma primarily deals with the challenges of achieving capital mobility (not immobility) alongside a flexible exchange rate and an independent monetary policy. The essence of the trilemma is that achieving high levels of capital mobility complicates maintaining a fixed exchange rate and an independent monetary policy simultaneously.
  

<br>

• Hence, the correct answer is option 1: B and C only.
  
• Statement B is correct as it accurately describes the components involved in the trilemma: exchange rate, capital mobility, and monetary policy.
  
• Statement C is correct as it explains the effect of perfect capital mobility on domestic interest rates, highlighting a key aspect of the trilemma.

• Statement A: Tax rate should be higher on the good that has lower price elasticity of demand.
  
• This statement is correct. According to the Ramsey Rule, in order to minimize the economic distortion or excess burden of taxation, taxes should be levied more heavily on goods or services with inelastic demand. The rationale is that consumers are less sensitive to price changes in these goods, leading to a smaller reduction in quantity demanded and, hence, lower efficiency losses.
  

<br>

• Statement B: If the demand elasticity in a market is zero, taxes should be imposed only in that market.
  
• This statement is incorrect. While it's true that goods with perfectly inelastic demand (zero elasticity) would theoretically bear taxes with no deadweight loss, in practice, imposing taxes solely based on this criterion could be overly simplistic and ignore other important considerations such as fairness, revenue needs, and administrative feasibility. The Ramsey Rule does not suggest taxing only these markets exclusively.
  

<br>

• Statement C: Ramsey rule applies to taxation of goods, but not to taxation of income.
  
• This statement is correct. The Ramsey Rule primarily addresses the optimal commodity taxation, focusing on how to levy taxes across different goods and services to minimize welfare loss. It does not directly apply to income taxation, which involves different considerations such as equity, progressivity, and incentives for work and investment.
  

<br>

• Statement D: Ramsey rule minimises the excess burden of taxation across markets.
  
• This statement is correct. The core objective of the Ramsey Rule is to design a system of taxes that minimizes the excess burden or economic inefficiency associated with taxation. By strategically varying tax rates based on the elasticity of demand, it seeks to reduce the distortions in consumption choices and the resulting welfare loss.
  

<br>

• Statement E: Ramsey rule does not necessarily result in social justice.
  
• This statement is correct. The Ramsey Rule focuses on efficiency in tax design rather than equity or fairness. It does not take into account the distributional impacts of taxation or the ability-to-pay principle. Therefore, while it aims to reduce the efficiency costs of taxation, it does not necessarily address issues of social justice or ensure a fair distribution of tax burdens.
  

<br>

Hence, the correct option is 1) A, C, D, and E only.

• Statement A: Deregulation of the interest rate structure. This statement is correct. The Narasimham Committee recommended the deregulation of interest rates to allow the market to determine the rates, thereby promoting efficiency and competition among banks.
  

<br>

• Statement B: Need for greater use of information technology. This statement is correct. The committee emphasized the importance of information technology in improving the efficiency and productivity of the banking sector. It suggested that banks should leverage technology for better customer service and internal operations.
  

<br>

• Statement C: Permitting only private sector banks to access the capital market. This statement is incorrect. The Narasimham Committee did not restrict the access to capital markets exclusively to private sector banks. It recommended that banks, including public sector banks, should be allowed to raise capital from the market to meet their capital adequacy requirements, subject to adherence to regulatory norms.
  

<br>

• Statement D: Freedom to appoint chief executive and officers of the banks. This statement is correct in the context of the committee's recommendations towards liberalization and giving more autonomy to banks. However, it's worth noting that while the committee advocated for operational autonomy, including in the appointment of top executives, it emphasized that such appointments should be made based on merit and within a regulatory framework ensuring accountability.
  

<br>

• Statement E: Capital adequacy norms were implemented in stages. This statement is correct. One of the key recommendations of the Narasimham Committee was the implementation of capital adequacy norms in line with international standards, to be done in stages. This was aimed at ensuring that banks maintain a healthy level of capital to risk-weighted assets ratio, thereby strengthening the banking sector's resilience to financial shocks.
  

<br>

• Hence, Statement A (Deregulation of the interest rate structure), Statement B (Need for greater use of information technology), and Statement E (Capital adequacy norms were implemented in stages) are correct.
  

<br>

• Therefore, the correct answer is option 1: A, B, and E only.