UGC NET Paper 2: Economics 21st June 2019 (Previous Year Paper)

• The correct answer is (a) and (d).

Key Points 

• Cobb - Douglas Production Function: 
• Cobb - Douglas production function is named after Paul H. Douglas and C. W. Cobb.
• Q = AL^α Cβ, where Q is output; L and С are inputs of labour and capital respectively.  A, a and β are positive parameters where = α > 0, β > 0. A = total factor productivity.
• Q depends directly depends upon L and C. A is the residual known as 'technical change'.
• This is a long run production function.
• Cobb-Douglas production function exhibits three types of returns to scale: ​
• If a+b>1, there are increasing returns to scale.
• If a+b=1, there are constant returns to scale.
• If a+b<1, there are decreasing returns to scale.
• Elasticity of an output: 
• Output elasticity is the percentual change in output in respond to a change in levels of either labor or capital.
• Output elasticity with respect to labor is constant and equal to β.
• If β is 0.4 and labor increases in 20%, output will increase 8%.
• α and β are output elasticities of capital and labor, and are constant.

Hence, among the given alternatives, only (a) and (d) are correct.

The correct answer is OE.

Key Points

• Monopoly market:
• Monopoly is a market structure in which one firm is the sole seller of the product which has no close substitute.

Important Points

• Price and output determination under monopoly: 
• MC = MR
• MC cuts MR from below
• This is the output determination under monopoly. In the diagram, MC cuts MR at point B.
• So output equilibrium under monopoly is OX¹.
• Price under monopoly: 
• Price will be charged where the equilibrium point touches at average revenue curve.
• As we know that average revenue is the demand curve of a market.
• Here point A is the point of equilibrium price under monopoly. The price charged under monopoly is OE or AX¹.

Hence, price OE will be charged under monopoly.

The correct answer is OX2

Key Points 

• Monopoly market: 
• Monopoly is a market structure in which one firm is the sole seller of the product which has no close substitute.

Important Points

• Monopoly socially optimum level of production: 
• The optimum level of production under monopoly is where the price (AR) curve and MC intersect.
• At point C, both AR and MC intersect each other. Here the socially optimum level of production is OX2.
• Hence the socially efficient level of production is OX2.

​The correct answer is BAC.

Key Points

• Monopoly market: 
• A monopoly is a market structure in which one firm is the sole seller of the product which has no close substitute.

Important Points

• Deadweight loss:  
• It occurs due to market inefficiency when demand and supply are out of equilibrium.
• In the given diagram due to market inefficiency in the monopoly market, deadweight loss is shown by triangle BAC.
• Deadweight loss is represented by the area of BAC.

The correct answer is MRTPX, Y = MRS$\rm_{X, Y}^A$ = MRRS$\rm _{X, Y}^B$

Key Points

• Pareto's Marginal Condition for Efficiency:
• The marginal conditions for a Pareto efficiency in the composition of output require the marginal rate of product transformation (MRPT) between any two commodities to be the same as the marginal rate of substitution (MRS) between the same two commodities.
• The condition will remain the same if the number of commodities changes (increase or decrease).
• Labour (L) and capital (K) are the two inputs involved in this model.
• F or three commodities X, Y and Z, the right condition will be 
  

 MRTPX, Y = MRS$\rm_{X, Y}^A$ = MRRS$\rm _{X, Y}^B$

Hence, Pareto's marginal condition for efficiency in the composition of output (product-mix) requires MRTPX, Y = MRS$\rm_{X, Y}^A$ = MRRS$\rm _{X, Y}^B$

The correct answer is (a)-(iii), (b)-(ii), (c)-(i), (d)-(iv).

Key Points

• Indifference Curve (IC): 

• IC shows a various combinations of goods and services that provide equal utility (satisfaction) to the consumer.

• Indifference Map: 

• A set of two or more indifference curves are known as indifference map.

• Budget Line: 

• Budget line shows various combination that a consumer can purchase. 
  

• Consumers' Equilibrium: 

• Equilibrium occurs when a consumer reaches its maximum state of utility (Satisfaction).

• The tangency point of a budget line on an indifference curve represents that point where the consumer enjoys the maximum satisfaction given the prices of commodities.

Hence, the correct combinations will be (a)-(iii), (b)-(ii), (c)-(i), (d)-(iv).

The correct answer is essential to understand one's opponent's point of view. 

Key Points

• Non-cooperative game: 
• This is a type of game where the game is played between two individuals.
• Generally, this is a game where both players try to maximize their own payoffs. They might sacrifice their most preferred choice to maximize their payoffs.
• If there's no coordination between them, they might end up having worse payoffs.
• Example: Battle of sexes, Prisoners' dilemma are the classic examples of non-cooperative game.

Additional Information 

• It is essential for the players to know how the other player might thing before making choices.
• Deduction of his choices might lead to two outcomes with even worse payoffs.

Hence, under non-cooperative games it is essential to understand one's opponent's point of view.

The correct answer is prices and quantities in all markets simultaneously.

Key Points

• General Equilibrium: 
• Developer: Leon Walrus
• General equilibrium is concerned with determinants of prices and quantities simultaneously in multiple inter-connected markets.
• The theory assumes that an exogeneous shock in the price of one commodity will have an impact on the relative prices faced by economic agents in different markets of the economy.

Hence, general equilibrium analysis determines prices and quantities in all markets simultaneously. 

Additional Information

• Limitations of General equilibrium economies: 
• The theory is based on perfectly competitive market model which is unrealistic. Perfectly competitive markets do not exist in real economy.
• The theory is static in nature. This theory assumes that all the producers and consumers purchase identical products regularly without delay. And, their decisions are made in complete harmony.

The correct answer is if two strategies have the same expected profit, select the one with smaller standard deviation. 

Key Points

• Risk aversion:
• It is a preference of consumers where they assure a certain level of outcome over a gamble with equal or higher values.
• Standard deviation: 
• Standard deviation (SD) measures the average amount by which the data diverges from the given mean.
• Price swings up or down, if standard deviation is high, that means there is high volatility in the market.
• If standard deviation is low, volatility would be low as well.
• Level of risk in a gamble is directly related to the value of standard deviation. The lower the deviation, the smaller the risk.
• If the profit remains the same. a lesser standard deviation ensures a lower level of risk.

Hence, if two strategies have the same expected profit, select the one with smaller standard deviation is the correct answer. 

Additional Information

• If two strategies have the same standard deviation, select the one with smaller expected profit: 
• The level of risk is directly related to standard deviation. The amount of profit does not affect the amount of risk a consumer is going to experience.
• If two strategies have the same standard deviation, select the strategy with larger coefficient of variation
• Larger coefficient of variation has the same effect on the volatility of the market as the standard deviation has.
• Hence, larger the variance, larger is the risk and volatility in the market.
• If two strategies have different expected profits, select the one with the larger standard deviation
• A consumer must always choose larger expected profits with lesser risks to enjoy the maximum amount of output.
• Hence, lesser standard deviation and the least coefficient of variation should be the optimal choice.

The correct answer is the value of marginal product of labour. 

Key Points

• The demand and supply of labour:
• Labour and capital are the most commonly chosen inputs by a firm.
• The demand and supply of labour are determined in a market where the participants are firms and labours.
• Firms demand labour from workers in exchange for wages.
• The firm's demand for labor is a derived demand that depends upon the demand of a firm put forward in order to earn a certain amount of output.
• If demand for output increases, the firm will hire more workers (labours). If demand falls, the firm might reduce its work force to reduce costs.
• When the level of output demanded is already known, the firm easily determines how much labor to demand by analyzing the marginal revenue product of labor.
• The marginal revenue product of labour (MRP_L) is the additional revenue the firm earns by employing one more unit of labour.  (MRPL) is related to the marginal product of labor (MPL).
• In addition, in a perfectly competitive market, the firm's marginal revenue product of labour is the value of the marginal product of labor.

Hence, The firms are competitive and profit maximizing the demand curve for labour is determined by the value of marginal product of labour.

The correct answer is due to the problem of moral hazard.

Key Points

• Moral Hazard in Insurance: 
• This occurs  where the parties involved have incomplete information.
• One of the parties gets into a risky event knowing that it is insured (protected against the risk) and the other party will incur the cost.
• Example: A person starts driving recklessly knowing that he has protected himself from all kinds of accidents by wearing a seatbelt.

Hence, individuals act in riskier ways after being insured due to the problem of moral hazard.

• Adverse Selection: 
• This occurs when one of the parties has full information and the other party has incomplete information.
• In insurance, the policyholders have a tendency to hide any high-risk lifestyles, or dangerous jobs they have signed up, or any incurable disease they are suffering from to get insurance coverage as a way of protecting themselves from impending risks.
• Insurance companies, on the other hand, reduces the exposure to high-risk claims by reducing insurance coverage as a way of compensating the company.

The correct answer is Kaldor-Hicks criterion.

Key Points

• Scitovsky Paradox:
• Named after the Hungarian born American economist, Tibor Scitovsky
• In welfare economies Scitovsky Paradox is a contraditory theory of Compensation Principle of Kaldor and Hicks. According to Kaldor and Hicks, economic welfare of economy B is better than that of economy A. A policy change will improve social welfare of economy A.
• Scitovsky had stated in his theory that even a policy change in economy A might not lead to improved social welfare in the economy.
• Little criterion**:**
• there would be a social welfare when an individual can be made better off without making others worse off. ​
• • There would be a social welfare if income distribution gets better, ceteris paribus.

Hence, the inconsistency of little criterion is labelled as Scitovsky Paradox.

Additional Information

• Pareto criterion: 
• Pareto optimality/criterion is a situation where no individual of an economy can be made better off without making at least one individual worse off.
• Bergson criterion:
• first introduced by Prof. Bergson and later on developed by Samuelson, Tintner and Arrow.
• Bergson defines social welfare “as a function either of the welfare of each member of the community or of the quantities of products consumed and services rendered by each member of the community.”

Key Points

• National income:
• National income is the combination of goods and services produced in an economy during a financial year.

Important Points 

• Y = C + I + G
• Given,
  

C = 25 + 0.8Yd; where, I =100, G=75, Net tax = 100

• ⇒ Y = 25 + 0.8Yd + 100 + 75
• ⇒ 25 + 0.8 (Y - T) + 175
• ⇒ Y = 200 + 0.8 (Y - 100)
• ⇒ Y = 200 + 0.8Y - 80
• ⇒ Y - 0.8Y = 120
• ⇒ 0.2Y = 120
• ⇒ Y = 600

Hence, the level of equilibrium income (Y) is 600.

The correct answer is 5.

Key Points 

• National income: 
• National income is the combination of goods and services produced in an economy during a financial year.

Important Points 

• Y = C + I + G
• Y = a + b Yd + I + G
• Y = a + b ( Y - T) + I + G
• Y - bY = a - bT + I + G
• Y ( 1 - b ) = a - bT + I + G
• Now, 
• $change in Y / change in G = 1/1-b$
• $\rm\left(\frac{\Delta Y}{\Delta G}\right)$ = $1/1-b$
• C = 25 + 0.8Yd,
• Here b = 0.8
• $\rm\left(\frac{\Delta Y}{\Delta G}\right)$ = $1/1-0.8$
• = $10/2$
• = 5

Hence, the value of the government expenditure multiplier $\rm\left(\frac{\Delta Y}{\Delta G}\right)$ is 5.

The correct answer is (- 4). 

Key Points

• National income: 
• National income is the combination of goods and services produced in an economy during a financial year.

Important Points

• Y = C + I + G
• Y = a + b Yd + I + G
• Y = a + b ( Y - T) + I + G
• Y - bY = a - bT + I + G
• Y ( 1 - b ) = a - bT + I + G
• $change in Y / change in T = -b/1-b$
• $\rm\left(\frac{\Delta Y}{\Delta T}\right)$ = $-b/1-b$
• C = 25 + 0.8Yd,
• Here b = 0.8
• $\rm\left(\frac{\Delta Y}{\Delta T}\right)$ = $-0.8/1-0.8$
• = $-0.8/0.2$
• = - 4

Hence the value of tax multiplier $\rm\left(\frac{\Delta Y}{\Delta T}\right)$ is (- 4).

The correct answer is (a)-(iii), (b)-(iv), (c)-(i), (d)-(ii).

Key Points

• Professor Paul A. Samuelson attempted to mix different multiplier and accelerator values to examine the nature of income streams generated by them. He discovered that when the super multiplier with different values is used, four different sorts of fluctuations are created.
• Alfred Marshall and A.C. Pigou presented the Cambridge approach. This approach also illustrated the proportionate relationship between the amount of money and the level of pricing. Marshall focuses mostly on the individual's decision regarding the best amount of money to hold. Some money is kept for transactional purposes.
• According to the Life cycle hypothesis, individuals try to balance their consumption over their lifespan by borrowing when their income is low and saving when their income is high. In the early 1950s, economists Franco Modigliani and his student Richard Brumberg created the notion.
• According to efficiency wage theory, a company must pay its employees a high enough wage so workers are incentivized to be productive and highly competent workers do not depart. It is given by Akerlof and Yellen.

Hence, the correct answer is (a)-(iii), (b)-(iv), (c)-(i), (d)-(ii).

The correct answer is lowering the interest rate so that investment spending increases.

Key Points

• A rise in the supply of money has two effects: it lowers interest rates, which encourages investment, and it puts more money in the hands of consumers, making them feel wealthier and so increasing expenditure. When sales increase, businesses order more raw materials and expand production.
• Monetary policy aims to boost aggregate demand during a recession by expanding the money supply.
• According to the idea of liquidity preference, increasing the money supply causes interest rates to fall. Lower interest rates lead to increased investment spending, which boosts aggregate demand.
• A reduction in the repo rate, the purchase of assets on the open market, and a reduction in the cash reserve ratio will all enhance the money supply.

Hence, the correct answer is An increase in money supply will increase the demand for goods and services by lowering the interest rate so that investment spending increases.

The correct answer is structural unemployment.

Key Points

• Long-term unemployment caused by economic developments is referred to as structural unemployment. This sort of unemployment occurs when there is a mismatch between what companies require and what available workers supply.
• Cyclical unemployment is the component of overall unemployment caused directly by economic ups and downs. Typically, unemployment rises during recessions and falls during economic expansions.
• The number of workers that willingly switch jobs is known as frictional unemployment. Frictional unemployment happens at some level since labor is constantly moving in and out of the workforce and to different jobs.
• Seasonal unemployment refers to workers who are out of work at various times of the year when demand is low. Although unemployment is always an issue, seasonal unemployment does not remain long; the peak season of a given industry ultimately arrives, and many workers are re-employed.

Hence, the correct answer is the long-term chronic unemployment arising from imbalance between the skills and other characteristics of workers in the market and the needs of employers is known as structural unemployment.

The correct answer is maximize the efficiency of worker per rupee of real wages received.

Key Points

• Efficiency wage theory explains why corporations appear to overpay for workers by suggesting that higher wages raise a firm's total productivity and profitability in the long run.
• Employers who pay more than the minimum wage to retain competent personnel, boost productivity, or maintain loyalty are referred to as paying efficiency wages.
• The efficiency wage theory explains why businesses are hesitant to lower wages even in the face of greater competition or during economic downturns.
• When the marginal cost of a salary rise equals the marginal gain of increased productivity to an employer, the wage is said to be optimally efficient. The "efficiency wage" theory in labor economics contends that wages, at least in some labor markets, do not form in a market-clearing manner.

Hence, In efficiency wage model, the real wage is set to maximize the efficiency of worker per rupee of real wages received.

The correct answer is ratchet effect.

Key Points

• The ratchet effect is an economic process that is difficult to undo once it is in motion or has occurred. Consumption as a percentage of income rises as income rises and falls in the opposite proportion as income falls. In other words, consumption cannot be reversed. This is referred to as the 'Ratchet Effect.'
• The "wealth effect" is the idea that when households become wealthier as a result of an increase in asset values, such as corporate stock prices or home values, they spend more and stimulate the economy.
• Individuals' conduct is affected by demonstration effects when they observe the acts and consequences of others. The word is most commonly used in political science and sociology to describe how changes in one place frequently function as a trigger in another.
• Income effects can be direct or indirect. When a consumer chooses to change their spending habits as a result of a change in income, the income effect is said to be direct.

Hence, As income falls, consumption declines but proportionately less than the decrease in income because the consumer desires to sustain previous standard of living. This is called ratchet effect.

The correct answer is movement along the Phillips curve such that unemployment falls and inflation rises.

Key Points

• A Phillips curve depicts the tradeoff in an economy between unemployment and inflation.
• According to Keynesian macroeconomics, the remedy to a recession is expansionary fiscal policy that moves the aggregate demand curve to the right.
• Government spending increases aggregate demand, hence it drives the economy along the short-run Phillips curve.
• The economy goes from point A to point B, with the unemployment rate falling and the inflation rate rising.
• At the natural rate of unemployment, the Long-Run Phillips Curve is a vertical line.
• When actual inflation equals expected inflation, unemployment equals the natural rate.

Hence, An increase in fiscal spending leads to a movement along the Phillips curve such that unemployment falls and inflation rises.

The correct answer is 'government borrowings drive up interest rate'

Key Points

• Financial Crowding Out:
• Financial crowding out occurs when increased government borrowing leads to a reduction in private sector investment.
• This happens because government borrowing raises the demand for credit, which in turn increases interest rates.
• Higher interest rates make borrowing more expensive for the private sector, leading to reduced private investment.

Additional Information

• Overview of Other Options:
• Credit Rationing:
• Credit rationing refers to the limitation of the availability of loans to certain borrowers or sectors by lenders.
• While it affects the availability of credit, it is not directly related to government borrowing affecting interest rates.
• Government Borrowing and Private Investment:
• The statement "what the government borrows cannot be used for private investment" is indirectly related to crowding out but does not capture the mechanism of how interest rates are affected.
• RBI Controls on Commercial Bank Lendings:
• RBI controls on commercial bank lendings refer to regulatory measures imposed by the Reserve Bank of India to control the lending practices of banks.
• This is a different concept from crowding out and relates to regulatory policy rather than government borrowing and interest rates.

The correct answer is there is expansion and inflation in the economy.

Key Points

• Expansionary fiscal policy instruments include more government expenditure, lower taxation, and increased government transfers.
• Any of these actions will boost aggregate demand, resulting in higher output, higher employment, and higher prices.
• A fiscal policy that is expansionary reduces tax rates or boosts spending in order to increase aggregate demand and drive economic growth.
• In the broadest sense (and assuming constants), an increase in aggregate demand corresponds to an increase in the price level; conversely, a decrease in aggregate demand corresponds to a decrease in the price level.

Additional Information

• Deflation is when prices drop significantly, due to too large a money supply or a slump in consumer spending; lower costs mean companies earn less and may institute layoffs.
• A recession can be defined as a sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate. During a recession, many other indices of economic activity are similarly weak.
• The term "stagflation" refers to the combination of excessive inflation and economic stagnation. Inflation raises prices while decreasing purchasing power.

Hence, Assume that an economy begins in macroeconomic equilibrium, then taxes are significantly decreased. As a result of this change there is expansion and inflation in the economy.

The correct answer is lowers the reserve of bank.

Key Points

• The term 'economic drain' refers to a percentage of India's national product that was not accessible for consumption by its people but was being drained away to Britain for political reasons, with India receiving insufficient economic or material returns.
• According to Whittlesey, the most crucial issue limiting credit expansion is "external drain." As we've seen, commercial banks can extend their credit by issuing demand deposits based on their excess reserves.
• Some of these banks' debtors are expected to withdraw a portion of their savings in currency. Every rupee in cash taken from the banking system reduces bank reserves, limiting further deposit increase.
• In summary, an external drain is the withdrawal of currency from the banking system by the general public; it reduces bank reserves and partially eliminates banks' ability to provide credit.

Hence, External drains lowers the reserves of bank of commercial bank.

The correct answer is option D

Key Points

Liquidity:

• A measure of the cash and other assets that commercial banks have available to pay bills and meet short-term business and financial obligations.

Profitability:

• A major portion of a commercial bank's profit comes from the fees that they charge for their services and the interest that they earn on its assets.
• Its major expense is the interest paid on its liabilities.
• It is evidently showed in recent studies that capital ratio, bank size, management efficiency, credit risk, and diversification determine the profitability of a commercial bank.

Solvency:

• A vital parameter on which a bank's financial health is analyzed.
• Solvency refers to the ability of the bank to meet long-term obligations as and when they arise, also the ability of a company to meet its long-term debts and other financial obligations.

Equity: 

• The shareholders' stake in the company, identified on a company's balance sheet is known as equity.
• Equity is a company's total assets minus its total liabilities, and it's used in several key financial ratios such as ROE.

Hence, a commercial bank has to manage its assets and liabilities with three considerations in mind, namely, equity, profitability, and solvency.

The correct answer is promoting economic welfare.

Key Points

• Credit control is a method used by businesses and central banks to ensure that credit is only extended to borrowers who can repay it. As such, credit controllers exercise control over lending by calculating and managing risk.
• The basic goal of selective Credit control aims to influence credit allocation among various borrowers and consumers.
• Credit control is used to regulate the supply and demand for money. The Reserve Bank of India employs a credit-control system to ensure the long-term development of the Indian economy.
• Controlling credit assists the RBI and the government in achieving economic growth while also controlling inflation.

Hence, Promoting economic welfare is not the main objective of credit control.

The correct answer is purpose-oriented credit.

Key Points

• Since nationalization, the government has pushed low-interest loans to agricultural and small-scale industry. The program is known as the direct credit program.
• According to the committee, these industries have matured and no longer require such financial assistance. This directed credit initiative was successful from the standpoint of the government, but it had a negative impact on private banks.
• Essentially, it lowered loan quality, resulting in a shift away from security-oriented loans and toward purpose-oriented loans. Banks were set a massive objective of priority sector lending, etc., resulting in bank profit erosion.

Hence, Direct credit program introduced purpose-oriented credit.

The correct answer is (a)-(iii), (b)-(i), (c)-(iv), (d)-(ii).

Key Points

• The World Bank, the Government of India, and representatives from Indian industry founded ICICI in 1955. The primary goal was to establish a development financial organization to provide medium- and long-term project finance to Indian firms.
• The Industrial Reconstruction Corporation of India Ltd., formed in 1971 for the rehabilitation of ill industrial enterprises, was reconstituted as the Industrial Reconstruction Bank of India in 1985, under the IRBI Act of 1984.
• IFCI, formerly Industrial Finance Corporation of India, is a development finance institution owned by the Government of India's Ministry of Finance. IFCI was founded in 1948 as a statutory corporation and is now a firm listed on the BSE and NSE. IFCI is made up of seven subsidiaries and one affiliate.
• The IDBI Bank Limited is a development finance organization owned by the Life Insurance Corporation of India and the Government of India. It began as the Industrial Development Bank of India, a development finance institution that offered financial services to the industrial sector, in 1964.

Hence, ICICI was established in 1955, IRBI was established in 1971, IFCI was established in 1948 and IDBI was established in 1964.

The correct answer is Providing better returns to direct investors.

Key Points

• The capital market is defined as a location where savings and investments are made between capital suppliers and those in need of capital. As a result, it is a location where various entities trade various financial instruments.
• The capital Market aids in the efficient distribution of resources from those with excess capital to those in need of capital.
• Following the rise of Capital Markets, the taxation system and financial institutions give investors with facilities and provisions to save more.
• Capital markets help to keep stock values stable.
• Reduced speculative activity and the provision of money to borrowers at reduced interest rates aid in the stabilization of asset prices.
• Continuous investments are made in capital markets. Buyers and sellers engage and trade capital and assets via an online platform. Stock exchanges like as the NSE and BSE provide a platform for this, making capital market transactions simple.

Hence, providing better returns to direct investors is NOT the function of a capital market.

The correct answer is L1, L2 and L3.

Key Points

• Aside from monetary aggregates, the Working Group recommended the compilation of three liquidity aggregates, namely L1, L2, and L3, which include select items of financial liabilities of non-depository financial corporations such as development financial institutions and non-banking financial companies accepting public deposits, excluding post office savings banks.
• L1 - NM3 + All post office savings bank deposits (excluding National Savings Certificates).
• L2 - L1 + +Term deposits with term lending and refinancing institutions (FIs) Term borrowing by financial institutions + certificates of deposit issued by financial institutions
• L3 - L2 + + Non-banking financial enterprises' public deposits.

Hence, The liquidity aggregates are classified as L1, L2 and L3.

The correct answer is surplus and necessary labor time.

Key Points

• Surplus value is defined in Marxian economics as the difference between the amount raised via the sale of a product and the amount it cost the owner of that product to produce it.
• The amount raised through the sale of the product minus the cost of the materials, plant, and labor power.
• Marx criticized capitalism for alienating the masses. His logic was that, while workers generate goods for the market, market forces, not workers, control the market.
• People are forced to labor for capitalists who control the means of production and wield authority in the workplace.

Hence, According to Marxian analysis the surplus value depends upon surplus and necessary labor time.

The correct answer is (a)-(ii), (b)-(iii), (c)-(iv), (d)-(i) 

Key Points

The correct answer is R. Coase.

 Key Points

• The Coase Theorem
• The Coase theorem was developed by economist Ronald Coase.
• The theorem describes the economic efficiency of an economic allocation in the presence of externalities.
• The theorem states that if trade in an externality is possible and there are sufficiently low or nil transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocations of property.
• One of Coase's conclusions is that under some conditions, it makes no difference to efficiency whether the polluter has a right to pollute or the victim has a right to clean air.

Thus, the statement "Under some conditions, it makes no difference to efficiency whether the polluter has a right to pollute or the victim has a right to clean air." is related to the work of R. Coase.

Additional Information

• ​Applicability of the Coase theorem
• The Coase theorem is applicable in situations where the economic activities of one party (polluter) impose costs on or damage the property of another party (victim).
• Based on the bargaining that takes place as per the Coase theorem, funds may either be offered to compensate one party for the other's activities or to pay the party whose activity inflicts the damage to forgo that economic activity.
• According to the theorem, in case of market inefficiencies resulting from externalities, private individuals/firms are able to negotiate a socially desirable solution as long as there are no costs associated with the negotiation or bargaining process.
• The result is expected to hold valid regardless of whether the polluter has the right to pollute or the affected (victim) has the right to a clean environment.

The correct answer is 53.89

Key Points

• Life Table
• A life table is a mathematical model that portrays the mortality condition at a particular time in a population and provides a basis for measuring longevity.
• The life table is based on age-specific mortality rates observed for a population for a particular year.

Important Points

• Numerical Explanation 
• In the table l_x denotes the number of survivors at age x;
• d_x denotes the number of deaths;
• L_x denotes the number of years lived between x and x+1;
• T_x denotes the number of years lived after age x;
• e⁰x denotes life expectancy.
• Calculation of life expectancy (e0x)
• ​e0x = T_x / l_X = 4850000 / 90000 = 53.89

Thus, ​e0x = 53.89 completes the life table.

The correct answer is (a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)

Key Points

The correct answer is Cannon

Key Points 

• Optimum theory of population
• The optimum theory of population was propounded by Edwin Cannan in his book Wealth published in the year 1924.
• According to this theory, The optimum population is the ideal population which combined with other available resources of the country will yield the maximum returns or income per head. Other things being constant, any rise or fall in the size of the population above or below the optimum level will cause a reduction in the income per head.
• If the population of a country is below the optimum, i.e. below what it ought to be, then the country is said to be under-populated. The number of people is not sufficient to utilize the available resources of the country.
• If the population goes on increasing and exceeds the optimum, then the country is said to be overpopulated. There are too many people in the country and the available resources are insufficient to provide gainful employment to all.

Important Points

• Assumptions of the theory
• The natural resources of a country are given at a point of time.
• There is no change in the techniques of production.
• The stock of capital remains constant.
• The tastes and preferences of the people remain unchanged.
• The ratio of the working population to the total population remains constant.
• Working hours of labor remain constant.
• Modes of business organization are constant.

Additional Information

• Diagrammatic presentation of the theory

The diagram shows that output per head or income per head is maximum when the population size reaches the point of optimum population.

The correct answer is (a)-(iv), (b)-(i), (c)-(ii), (d)-(iii).

Key Points 

Hence, Gauss markov is related with blue, Coefficient of determination is R^2, H0 : B2 = 0, H1 : B2 = 70 is a one sided test and Heteroscedasticity is related with Gold Quadnt test.

Option 1 is correct.

The correct answer is deseasonalize the time series data.

 Key Points

• Deseasonalizing the time series:
• A time series that has had the seasonal effects removed is known as deseasonalized time series and the process of using the seasonal indexes to remove the seasonal effects from a time series.
• Using a multiplicative decomposition model, we deseasonalize the time series by dividing each observation by its corresponding seasonal index,
• The mutiplicative decomposition model is
• $Y_T=Trend_t \times seasonal_t \times irregular_t$
• when we divide each time series by its corresponding seasonal index, the resulting data shows only trend and random variability.

Hence, Multiplicative decomposition model is used to deseasonalize the time series data.

The correct answer is (a)-(iv), (b)-(i), (c)-(ii), (d)-(iii).

Important Points 

• Hence, skewness matches with lack of symmetry
• Variance matches with dispersion.
• Earthquake is related with random variation.
• F test is related with ratio of variances.

Thus (a)-(iii), (b)-(iv), (c)-(i), (d)-(ii) is correct.

The correct answer is 27.

Important Points The determinant of matrix A can be calculated as:

A=$\left[\begin{array}{ccc}6 & 5 & 5 \ 3 & −11 & −5 \ 3 & −5 & −2\end{array}\right]$

 |A|= {6(-11)(-2)-(-5)(-5)}-5{(3)(-2)-(3)(-5)}+5{(3)(-5)-(-11)(3)}

|A|= 6{22-25}-5{-6+15}+5{-15+33}

|A|=-18-45+90

 |A|=27

Hence, the correct option 3, |A|=27.

The correct answer is 1.5.

Key Points Price elasticity of demand:

• It shows the responsiveness of demand changes with the change in price.
• Price is an independent variable. demand(Q) is a dependent variable. Change in price affects the change in demand.
• There is inverse relationship between price and demand. Increase in price leads to reduction in demand for a commodity.
• $PEd=\frac{P}{Q} \times \frac{Change in Q}{Change in P}$

Average revenue: It is the per unit amount of revenue received from production of commodity.

Marginal revenue: It is the additional amount of revenue received from production of commodity.

Important Points The relationship between price elasticity of demand, AR, MR is

$P_E=\frac{AR}{AR-MR}$

From question, AR=15, MR=5

Price elasticity of demand= 15/15-5

price elasticity of demand=1.5

Hence, the price elasticity of demand =1.5

The correct answer is discrete changes.

Key Points 

Difference equation: 

• A difference equation expresses discrete changes in dependent variables with respect to discrete changes in independent variable.
• It is a equation which contains the difference of variable.
• These are similar to the differentiation in the continuous systems and they have same functions in discrete time system.
• A first order difference equation only contains the first difference of variable.
• A Second order derivative contains the second difference of variable.
• The classification of difference equation is based on different factors such as order of equation, linear function etc.
• For example, Y(t+1)-Yt=4 is a difference equation as it expresses a discrete change in the dependent variable Y in relation to discrete changes in independent variable t.
• Hence, discrete changes is correct because difference equation is concerned with discrete changes.

The correct answer is Simplex method.

Key Points Linear programming:

• It is a concept or technique in which a linear function is maximized or minimized subjected to various constraints.
• It determines the way to use available resources.
• In a problem, the objective function should be mentioned in a quantitative way.
• The relationship between two or more variables in the function should be linear.
• There are various methods to solve the linear programming problem.
• These are graphical method, systematic trial and error method, simplex method.

Simplex method:

• To solve the linear programming model, the easiest method is to find the optimal solution for a problem.
• It also includes slack variables, tableau for the optimization of particular problem.

Hence, A linear programming problem can be solved using Simplex method.

The correct answer is biased and inconsistent.

Key Points simultaneous equations

• Under simultaneous equations, independent variables can be both exogenous and endogenous.
• To solve an equation of the model, we have to consider other equations of system.
• Identification is required before solving the equations.
• OLS estimators are inconsistent.
• Techniques used in simultaneous equations are: ILS, 2SLS, 3SLS, Maximum likelihood estimation.
• In simultaneous equations, explanatory variables and error terms are dependent.
• In assumption of OLS, it states that there should be no covariance between explanatory variables and error terms is violated.
• If Simultaneous equations are applied to OLS method, then these estimators are biased and inconsistent.
• This is also known as simultaneous equation bias.
• Hence, option 4 is correct.

The correct answer is Hawkins-Simon conditions.

Input-output model: 

• Input output model is given by Leontief.
• This model states the interdependence of different sectors an industries operating in an economy.
• It concentrates on an economy which is in equilibrium.
• It deals with technical problems of production and do not deals with demand analysis.
• It shows how the outputs of one sector flows in to another sector as inputs.

Hawkins Simon condition for viability of input output model.

• The determinant of (I-A) of Leontief matrix must be positive.
• The diagonal elements of Leontief matrix must be positive and should be less than 1.

Hence, in an open economy input output model, the viability is examined by the Hawkins- Simon condition.

Additional Information Dickey fuller test and Gold Quandt test is used to test the unit root and stationarity.

The correct answer is 8.

Key Points

 Monopoly: It is a form of market in which there is only one seller for a product.

• Under monopoly, the monopolist charges different prices from different individuals.
• The main feature is price discrimination.
• They have full control over the prices.
• Their main aim is to maximize the profits and profits will be maximized at point where MR=MC.
• From profit maximization, output and price level can be obtained.

Important Points 

In this question, the cost function is given as$C = 40+12x$(\text{Hence MC}=0+12 =12\)[Derivate TC in respect of x]  And   $P= 60-3x$            TR$=P\times x$            TR$= 60x-3x^2$(\text{Hence MR}=60-6x\) [Derivate TR in respect of x]The profits will be maximized where MR=MC,Hence,$60-6x=12$.

$6x=48$(x=8\)Hence, the profit maximization output level is 8.

The correct answer is unique numerical values of structural parameters can be obtained.

Key Points Simultaneous equations: These are those equations which describes how independent variables and dependent variables are related to each other.

• These tells how unknown quantities and equations are related to each other.
• There are different approaches to it: substitution, eliminated and augmented matrix method.
• Simultaneous equations can be either exactly, over and under identified.
• If the equations are not identified, they are either unidentified or under identified.
• It is said to be exactly identified if unique numerical values of structural parameters can be obtained.
• It is said to be overidentified if more than one numerical value can be identified for some of the parameters of structural equations.

Hence, a simultaneous equation model is exactly identified, if unique numerical values of structural parameters can be obtained.

The correct answer is the translation exposure.

Key Points

• Foreign exchange risk is the risk that changes in currency exchange rates will have an impact on a company's financial performance or position. Transaction risk, economic risk, and translation risk are the three categories of foreign exchange risk.
• Transaction risk is the risk that a corporation faces when it conducts financial transactions between jurisdictions. The danger is that the exchange rate will change before the transaction is settled. The time lag between transaction and settlement is essentially the cause of transaction risk. Forward contracts and options can be used to reduce transaction risk.
• The danger that a company's market value will be damaged by inevitable exposure to exchange rate swings is known as economic risk, sometimes known as forecast risk. Typically, macroeconomic variables such as geopolitical instability and/or government laws cause this form of risk.
• Translation risk, also known as translation exposure, refers to the risk faced by a firm headquartered in the United States but conducting business in a foreign jurisdiction, and whose financial performance is reported in the company's home currency. When a company holds a larger proportion of its assets, liabilities, or equities in a foreign currency, the risk of translation increases.

Hence, a foreign exchange risk involves the transaction exposure, the accounting exposure and the translation exposure

The correct answer is commercial borrowings.

Key Points

• The following are the components of capital account.
• External help is defined as borrowing from foreign countries at a low interest rate.
• Commercial borrowing, in which the Indian government and private sector borrow cash from the international money market at higher market interest rates. Non-resident deposits are an important item in the capital account.
• Non-resident Indians (NRIs) who maintain their surplus funds with Indian banks make these deposits. Foreign investment by foreign enterprises in India is another major component in the balance of payments on capital account. Foreign investment is classified into two types.
• The first type of investment is portfolio investment, in which foreign institutional investors (FII) purchase shares (equity) and bonds issued by Indian enterprises and the government.
• The second type is foreign direct investment (FDI), in which foreign firms establish plants and factories on their own or in conjunction with Indian firms.

Hence, commercial borrowings is included in the Capital Account of the balance of payments of a country.

The correct answer is 0.1

Key Points 

• Rate of effective protection: The value added per unit of output in each industry, when both intermediate and final items are imported, is calculated using the effective rate of protection (ERP), which is a measurement of the overall impact of the complete tariff structure.

Important Points

• The rate of effective protection (g) = $\rm\frac{t−a_i t_i}{1−a_i}$ 
• if g = 0.3, ai = 0.8 and ti = 0
• g = $\rm\frac{t−a_i t_i}{1−a_i}$
• 0.3 = $\rm\frac{t−0.8 (0)}{1−0.8}$
• 0.3 (0.2) = t
• t = 0.06 ≈ 0.1
• Hence the value of t is 0.1.

The correct answer is more than 1.

Key Points

• Marshal-Lerner relates to the idea that a country's currency depreciation will enhance its trade balance with the rest of the world only if the sum of its export and import price elasticities is greater than one.
• For example, if total export revenue falls due to inelastic demand for a country's exports and total import expense grows due to inelastic demand for its imports, the country's trade imbalance will deteriorate.
• As a result, weakening its currency may not always be the optimal strategy for a country seeking to lower its trade imbalance.
• The Marshall-Lerner condition is named after Alfred Marshall, a British economist, and Abba P. Lerner, a Russian economist.
• The Marshall-Lerner condition is predicated on a country's net exports increasing as a result of currency depreciation and price elasticity of demand. Price elasticity of demand is more elastic in the long run than in the short run.

Hence, According to Marshall-Lerner condition for the foreign exchange market to be stable, the sum of the elasticities of demand for imports and the demand for exports should be more than 1.

The correct answer is impact and incidence fall upon the same person.

Key Points

• A direct tax is one that is paid directly to the entity that levied it by a person or organization.
• Income tax, real property tax, personal property tax, and asset taxes are all examples of taxes paid directly to the government by an individual taxpayer.
• The end tax burden is known as tax incidence, and the initial tax burden is known as tax effect. The tax incidence is on the person who eventually pays it, while the tax impact is on the person who collects the tax.
• A direct tax is one in which the incidence and impact of the taxation fall on the same entity. The taxpayer cannot pass the responsibility to someone else.

Additional Information

• An indirect tax is levied on one person or group, such as manufacturers, and then passed on to a different payer, typically the consumer. In contrast to direct taxes, indirect taxes are placed on goods and services rather than individuals and are collected by the retailer or manufacturer.
• In case of indirect tax, tax impact and tax incidence fall on different person.

Hence, a tax is said to be direct, when impact and incidence fall upon the same person.

The correct answer is the benefit principle.

Key Points

• The benefit principle is a notion in taxation theory from public finance. It bases taxes on a politically revealed willingness to pay for benefits obtained to pay for public-goods expenditures.
• The principle is sometimes compared to the price function in allocating private commodities.
• For example, persons who use a specific road system should pay for its upkeep. Gasoline taxes are often used to fund highway development and maintenance. Those who gain from decent roads contribute to their upkeep.

Additional Information

• Horizontal equality is a tax-fairness principle that states that taxpayers with the same income should pay the same amount in taxes.
• Vertical equity is a system of collecting income tax in which the amount of tax paid rises in proportion to the quantity of earned income.
• A progressive tax is one in which the average tax burden rises as income rises. High-income families bear a disproportionate part of the tax burden, whereas low- and middle-income taxpayers bear only a minor share.

Hence, A toll tax is a tax based on ​the benefit principle.

The correct answer is revenue receipts and recovery of loans and other receipts minus total expenditure.

Key Points

• The fiscal deficit is the difference between the government's total revenue and total spending. It represents the entire amount of borrowing required by the government. Borrowings are not included in the total revenue calculation.
• Fiscal deficit = Total expenditure - Total receipts (excluding borrowings).
• Fiscal deficit = (Revenue expenditure + Capital expenditure) - (Revenue receipts + Capital receipts excluding borrowings).
• Fiscal deficit = (Revenue expenditure - Revenue receipts) + (Capital expenditure - Capital receipts excluding borrowings).
• Fiscal deficit = Revenue deficit + (Capital expenditure - Capital receipts excluding borrowings).
• Fiscal deficit = Borrowings. (When interest payment are zero)

Hence, the concept of fiscal deficit implies Revenue receipts and recovery of loans and other receipts minus total expenditure.

The correct answer is fixed fiduciary system.

Key Points

• The central bank is authorized under the fixed fiduciary system to issue only a certain amount of currency note against government securities of a predetermined amount fixed by all, and any issue in excess of this limit must be fully backed by gold and silver reserves.
• This is one of the earliest note-control systems.
• The minimum reserves of gold against note issuing that the authority is obligated to hold under the minimum fiduciary system are specified by law. The monetary authority can issue as much paper currency as the economy need against these minimal reserves.
• Maximum Fiduciary System: Under this system, the central bank is only allowed to print notes with no gold reserves up to a certain amount. However, gold reserves must be fully backed up above this amount.

Hence, Under fixed fiduciary system the central bank is authorized by law to issue a fixed amount of notes against government securities and any excess is to be fully backed by gold/silver.

The correct answer is Radcliffe approach.

Key Points

• Liquidity is a method of arranging assets and liabilities on a balance sheet. The most liquid asset will be at the top of the liquidity approach, while the least liquid asset will be at the bottom.
• Liabilities are recorded in the order in which they are satisfied.
• During periods of extreme inflation, the Radcliffe approach is not to restrict the availability of money alone, but to strike more directly and quickly at the overall liquidity of spenders.
• In this regard, a mixture of regulation over bank advances, capital issues, and consumer credit has been urged.

Additional Information

• According to monetarist theory, velocity is generally steady, implying that nominal income is mostly determined by the money supply. Nominal income fluctuations reflect changes in real economic activity (the volume of products and services sold) as well as inflation (the average price paid for them).
• While explaining the notion of money, Gurley and Shaw emphasised the substitution relationship between numerous components such as currency, demand deposits, time deposits, and saving bank deposits. These elements serve as sources of value storage.

Hence, Liquidity approach is also known by the name Radcliffe approach

The correct answer is (a)-(iii), (b)-(iv), (c)-(i), (d)-(ii).

Key Points

• Paul Rosenstein-Rodan invented the Big Push concept in 1943, and Murphy, Shleifer, and Vishny popularized it in 1989. The concept underlying this hypothesis is that a large push or a large and comprehensive investment package can aid in economic progress.
• Harrod popularized the terms warranted growth, natural growth, and genuine growth. The justified growth rate is the rate of growth at which all savings are invested.
• "Social Dualism is the collision of an imported social system with an indigenous social system of a different form," writes Boeke. High capitalism is the most commonly imported social system. But it may also be socialism or communism, or a combination of the two."
• Paul Romer, an economist, has established a theory of economic growth with "endogenous" technology change, which means that it can be influenced by population increase and capital accumulation. According to endogenous growth theory, economic growth is mostly the consequence of internal rather than external influences.

Hence, Theory of big push was given by Rosenstein-Rodan, Warranted rate of growth was given by R. F. Harrod, Social dualism was given by J. H. Boeke and Endogenous growth theory was given by Paul Romer.

Key Points

Inequality measures: A function that assigns a value to a particular income distribution in order to facilitate direct and accurate comparisons between distributions is known as an inequality measure.

Important Points 

Axioms of inequality measures: 

• The Principle of Transfer is also known as the Pigou-Dalton Principle
• Scale invariance
• Translation invariance
• The principle of population
• Decomposability.

Hence the correct answer is option (2).

The correct answer is State-A: 0.375, State-B: 0.375

Key Points

• Headcount ratio 
• The headcount ratio (HCR) is the proportion of the population that exists, or lives, below the poverty line or poverty threshold.
• Headcount ratio (HCR) =  Number of people living below the poverty line / Total population

 Important Points

• Numerical explanation
• Headcount ratio in state A
• Number of households living below the poverty threshold in state A / Total households in state A, i.e., 3 / 8 = 0.375
• ​Headcount ratio in state B
• Number of households living below the poverty threshold in state B / Total households in state B, i.e., 3 / 8 = 0.375

​Thus, the headcount ratio in state A and state B is 0.375 respectively.

Additional Information

• The number of households living below the poverty threshold is households with a monthly per capita consumption expenditure (MPCE) of less than the value of Z, i.e..Rs. 800.

The correct answer is State-A: 0.0133, State-B: 0.119

Key Points

• Poverty gap 
• The poverty gap is defined as the extent to which individuals on average fall below the poverty line, and expresses it as a percentage of the poverty line,
• It is the measure of the average difference between poor households' income and the poverty line.
• Formula to calculate poverty gap ratio
• Poverty Gap Ratio (PGR) = 1 / N [( Z - t ) / Z
• Here, N is the total number of households
• Z is the poverty line MPCE cut-off
• t is the monthly per capita consumption expenditure (MPCE) of below-poverty-line households

​ 

Important Points

• Numerical explanation 
• Using the formula for PGR, the poverty gap ratio for state A (having three households living below the poverty line) will be calculated as under:
• PGR = 1 / N [( Z - t ) / Z] + 1 / N [( Z - t ) / Z] + 1 / N [( Z - t ) / Z]
• PGR = 1 / 8 [ 800-750 ] / 800 + 1 / 8 [ 800 - 775 ] / 800 + 1 / 8 [ 800 - 790 ] / 800
• PGR = 1 / 8 [ 50 / 800 ] + 1 / 8 [ 25 / 800 ] + 1 / 8 [ 10 / 800 ]
• PGR = 0.1328125
• Rounding off 0.1328125, we will get 0.0133

Thus the poverty gap ratio for state A is 0.0133.

• Using the formula for PGR, the poverty gap ratio for state B (having three households living below the poverty line) will be calculated as under:
  
• PGR = 1 / N [( Z - t ) / Z] + 1 / N [( Z - t ) / Z] + 1 / N [( Z - t ) / Z]
• PGR = 1 / 8 [ 800-550 ] / 800 + 1 / 8 [ 800 - 600 ] / 800 + 1 / 8 [ 800 - 490 ] / 800
• PGR = 1 / 8 [ 250 / 800 ] + 1 / 8 [ 200 / 800 ] + 1 / 8 [ 310 / 800 ]
• PGR = 0.119

Thus, the poverty gap ratio for state B is 0.119

The correct answer is lower than that in State B.

Key Points

• Squared poverty gap ratio (SPGR)
• The squared poverty gap ratio, also known poverty severity index, is calculated by averaging the square of the poverty gap ratio.
• Squared poverty gap ratio formula
• SPGR = (PGR)²

Important Points

• Calculation of the squared poverty gap ratio
• Squared poverty gap ratio (SPGR) for state A = ( PGR for state A )²
• SPGR for state A = ( 0.0133 )² = 0.000176
• Squared poverty gap ratio (SPGR) for state B = ( PGR for state B )²
• SPGR for state B = ( 0.119 )² = 0.01416

From the above calculations, it can be concluded that the squared poverty gap ratio in state A is lower than the squared poverty gap ratio in state B.

The correct answer is environmental goods are non-rival and non-excludable in consumption.

Key Points

• Market failure
• Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market.
• Public goods and market failure
• Market failure occurs in the case of public goods because public goods are non-rival and non-excludable in consumption.
• Non-rivalrous consumption means that the goods are allocated efficiently to the whole population if provided at zero cost.
• Non-excludable consumption means that public goods non-payers cannot be excluded from their consumption.
• Examples of public goods
• Education, infrastructure, defense services, environment, and healthcare services are some major examples of public goods.
• Environmental goods which include clean water, public parks, rivers, mountains, forests, etc. are also a type of public goods.

Thus, market failure occurs in the case of most environmental goods because, being public goods, these are non-rival and non-excludable in consumption.

Additional Information

• Rivalry and excludability are the features of private goods.

The correct answer is Tamil Nadu, Kerala, Maharashtra, Gujarat

Key Points

• Most urbanized states as per Census 2011
• As per the Census 2011, Tamil Nadu was the most urbanized state with 48.4 % of the urban population, followed by Kerala with 47.7 %, Maharashtra with 45.2%, and Gujarat with 42.6% of the urban population.
• These four states together contributed to about one-third of the total urban population of India in 2011.

Important Points

• As per the Census 2011, the percentage of people living in urban areas was 31.16 %.
• As per the Census 2011, the percentage of people living in rural areas was 68.84 %.

Additional Information

• In India, the responsibility of conducting the decennial Census rests with the Office of Registrar General and Census Commissioner, India under the Ministry of Home Affairs, Government of India.

The correct answer is 75% of the rural population.

Key Points

• National Food Security Law (National Food Security Act, 2013)
• The basic concept of food security is to ensure that all people at all times should get access to basic food for their active and healthy life and is characterized by the availability, access, utilization, and stability of food.
• Through the Public Distribution System and Targeted Public Distribution System, the enactment of the National Food Security Act (NFSA) 2013 on the 5th of July, 2013 marked a paradigm shift in the approach to food security from welfare to a rights-based approach.
• Coverage and Entitlement under NFSA
• National Food Security Act covers up to 75 % of the rural population and 50 % of the urban population under Antyodaya Anna Yojana (AAY) and priority households.
• Antyodaya Anna Yojana households are entitled to 35 kg of food grains per family per month.
• Priority households are entitled to 5 kg of food grains per person per month.

Additional Information

• Foodgrains under NFSA were to be made available at subsidized prices of Rs. 3, Rs.2, and Rs.1 per kg for rice, wheat, and coarse grain respectively for a period of three years from the date of commencement of the Act, i.e., July 13, 2013.
• Thereafter, prices were to be fixed by the Central Government from time to time, but not exceeding the MSP (Minimum Support Price).

The correct answer is 1994.

Key Points

• Full Convertibility of the Indian Rupee
• One of the most important measures for integrating the Indian economy with the global economy was to make Indian currency fully convertible, I.e., allow it to determine its own exchange rate in the international market without official intervention.
• The 1993-94 Budget introduced full convertibility of the Indian rupee on the trading account and switched to a unified exchange rate system.
• India achieved full convertibility on the current account in August 1994 when the Reserve Bank of India accepted obligations under Article VIII of the IMF, under which India is committed to forsaking the use of exchange restrictions on current international transactions as an instrument for managing the balance of payments.

Thus, The RBI made the Indian rupee fully convertible in current account transactions related to goods and services in the year 1994.

Additional Information

• Full convertibility implies that one can buy any foreign currency by exchanging the Indian rupee in the international market without any prior approval from the central authority.

The correct answer is Commercial paper.

Key Points Capital market:

• A capital market is a financial market in which investors buy and sell financial securities, such as bonds and shares.
• These transactions take place through various exchanges.
• Stock exchange board of India is the main authority which regulates the capital market in India.
• The primary function of this market is to bring together investors who buy securities with those who sell them,
• The different instruments of capital market are:
• Equity shares: These shares ae the prime source of finance for public limited company.
• Preference shares: These are the secondary source of finance.
• Debentures: These are unsecured investment options.
• Gold ETF: It is also an instrument of capital market.
• Hence, commercial paper is not the instrument of capital market in India.

The correct answer is [GM]2 = HM × AM

Key Points AM stands for Arithmetic mean, GM stands for geometric mean and HM stands for harmonic mean.

• Arithmetic mean is the number that is achieved by dividing the sum of values of set by number of values in set.
• Geometric means for given number of values of set of values containing n observations is the nth root of product of values.
• Harmonic mean is defined as the reciprocal of the arithmetic mean of the given data values.
• The relationship between AM, HM AND GM is
• [GM]2 = HM × AM
• Square of geometric means is the product of harmonic means and arithmetic mean.
• Hence, option 3 is correct.

The correct answer is 48%.

Key Points Coefficient of determination:

• The r^2 indicates the proportion of total variance in the dependent variable that is explained or accounted for by the variation in the independent variable.
• Independent variable is that variable which is exogenous and is not dependent on any variable.
• Dependent variable is that variable which is endogenous and is dependent on other variables.
• In question, the Bxy=0.6 Byx-0.8
• $r=\sqrt(0.8\times(0.6))$
• r^2=0.48
• r=48%
• Hence, option 2 is correct.

The correct answer is (a), (b), and (c).

Key Points

• The Asia-Pacific Economic Cooperation (APEC) is a regional economic forum founded in 1989 to capitalize on the Asia-Pacific region's growing interconnectedness. The 21 members of APEC want to increase regional prosperity by fostering balanced, inclusive, sustainable, creative, and secure growth and by speeding up regional economic integration.
• To achieve these objectives, APEC member economies devised a framework in 1995 in Osaka, Japan, that identifies trade and investment liberalization, business facilitation, and economic and technical cooperation as the three core areas of cooperation, also known as the "Three Pillars" of APEC.
• APEC facilitates the movement of products, services, investments, and people across borders. Members promote this trade by facilitating speedier border customs procedures, improving business climates behind the border, and unifying legislation and standards across the region.

Hence, three pillars of the Asia-Pacific Economic Cooperation (APEC) are trade and investment liberalization, business facilitation, and economic and technical cooperation.

The correct answer is the country is willing to be a member of the World Bank and willing to pay subscription.

Key Points

• The International Monetary Fund (IMF) is a 190-country institution that promotes global monetary cooperation, financial stability, international trade facilitation, high employment and sustainable economic growth, and poverty reduction around the world.
• The prospective member must be a sovereign country with complete sovereignty over its foreign affairs, and it must be willing and able to meet the obligations of membership outlined in the IMF's Articles of Agreement—its charter.
• Members are required to share information on international financial, fiscal, economic, and exchange policies. Members must refrain from imposing restrictions on the exchange of domestic currency for foreign currency.

Hence, the provision under the membership clause of the IMF is that any country can become a member, if the country is willing to be a member of the World Bank and willing to pay subscription.

The correct answer is national defense.

Key Points

• Public goods are goods or services that benefit all members of society and are frequently given free of charge through public taxation.
• Private commodities, which are essentially scarce and must be purchased independently by individuals, are the polar opposite of public goods.
• Law enforcement, national defense, and the rule of law are examples of public goods. Public goods also include more basic necessities like clean air and water.
• Almost everywhere, the government plays a substantial role in delivering goods such as national defense, infrastructure, education, security, and fire and environmental protection. These items are frequently referred to as "public goods."
• A public good must meet two main criteria: it must be non-rivalrous and non-excludable. Non-rivalrous products are those that do not run out as more people consume them; non-excludability goods are those that are available to all citizens.

Hence, National defense is an example of a public good.

The correct answer is taxation effect.

Key Points

• When there is a social disturbance, the government raises taxes to boost revenue and increases public spending to address the social disturbance. This has the effect of replacing low tax and expenditure levels with greater tax and expenditure levels. This is known as displacement effect.
• The lack of revenue in comparison to required governmental expenditure results in an inspection effect. The government and the people must assess the revenue position and find a solution to the major issues that have arisen, as well as agree on the necessary adjustments to finance.
• When an economy is experiencing economic growth, central government economic activities tend to grow faster than state and local government economic activity. This is referred to as the concentration effect.

Hence, taxation effect is not part of Wiseman and peacock hypothesis.

The correct answer is cutting taxes and boosting government spending.

Key Points

• The government must implement an expansionary fiscal policy in order to curb recession and to raise aggregate demand in the economy and thus aid to prevent a recession.
• This can be accomplished by lowering taxes while increasing government spending.
• ​Reduction in taxes- A reduction in taxes enhances the consumer's disposable income, which aids in increasing consumption spending. Because of the increase in the consumption function, the aggregate demand curve will shift. National income and employment will both rise, while unemployment will fall.
• Government expenditures should be increased through infrastructure projects such as road construction, dam construction, irrigation work, and so on. The general public provides government with numerous goods and services. The output of these public works boosts consumer purchasing power.

Hence, during recession cutting taxes and boosting government spending is initiated.

The correct answer is profit-wage relation and labour productivity. 

Key Points 

• John Robinson growth model:
• The theory of economic growth and capital accumulation has given by Mrs. John Robinson in 1956.
• She considered capital as an engine of growth. Mrs. Robinson has given the concept of golden age equilibrium.
• This model defines how the population influences capital accumulation and output.

Important Points

• Income point of view:
• National income of an economy is the sum of wages and profit.
• Y = WN + PK
• W = real wage rate, N = number of worker employed, P = profit, K = amount of capital
• P = $(Y - WN)/K$
• Here, profit rate depends on the difference between labor productivity and the real wage rate which is divided by the capital-labor ratio. 
  
• Expenditure point of view:
• National income is the combination of consumption and investment.
• Y = C + I
• As we know that according to Keynes, S = I
• but according to this model, S = PK
• Now we can write the above equation as I = PK
• change in k = PK
• P = $change in k/k$
• Here profit rate is equal to the growth rate in the capital.
• After concluding both points of view, capital accumulation depends upon the profit-wage relation and labor productivity.
• Therefore, correct answer is profit-wage relation and labour productivity.

The correct answer is Solow Model. 

Key Points

• The Solow Growth Model:
• It takes technology as an exogenous model of economic growth, and examines changes in an economy's output level over time as a result of fluctuations in the rates of population growth, savings growth, and technological advancement.
• Hence the correct answer is Solow model.

Key Points

Endogenous growth theory: Endogeneous growth theory considered that initially, economic growth is the result of internal factors, not external factors. Endogenous growth theory is associated with Lucas, Romer, and Rebelo.

Hence the correct answer is option (1).

The correct answer is using linkages between variations in house prices.

Key Points

• Hedonic pricing method 
• The hedonic pricing method is used for the determination of the economic value of an ecosystem service or external factor that may influence the market price of an environmental good or an asset.
• This method is commonly applied in the valuation of properties, such as houses, and accounts for economic costs or benefits, which may influence the overall value of the environmental asset or, a residential property.
• Hedonic price valuation is quantitative and relies on statistical analysis and informed model specifications.
• The hedonic pricing method is used to estimate economic values for ecosystems or environmental services that directly affect market prices.
• This method is most commonly applied to variations in housing prices that reflect the value of local environmental attributes.

Thus, The 'hedonic price' method measures the value of environmental assets by using linkages between variations in house prices.

Important Points 

• **Hedonic price function, **P = F (Loc, Type, Size, View, Neigh)
• Here the price of a residential property (P), is the function of its location relative to a local urban center (LOC), the type of property (TYPE), the size of the plot (SIZE), the quality of its view (VIEW), and its neighborhood characteristics (NEIGH) such as proximity to school, hospital and crime rate.

Additional Information

• WTP and WTA
• WTP (Willingness to Pay to obtain a specific good) and WTA (Willingness to Accept to give up a specific good) are the two approaches used in the contingent valuation method of assigning values to environmental resources.

The correct answer is Lok Adalats, Labour Courts and Labour Relations Commission.

Key Points 

• The Second National Commission on Labour 
• In order to bring labour reforms, the Government of India constituted the Second National Commission on Labour under the Chairmanship of Hon’ble Shri Ravindra Varma on the 15th of October 1999.
• The Commission was given two-point terms of reference, i.e.-
• to suggest rationalization of existing laws relating to labour in the organized sector;
• to suggest ‘umbrella’ legislation for ensuring a minimum level of protection to the workers in the unorganized sector.
• The Three-tier system of the Second National Commission on Labour 
• The Second National Commission has recommended a three-tier system of Lok Adalats, Labour Courts and the Labour Relations Commission.
• The Lok Adalats and Labour Courts deal with individual grievances and complaints.
• The Labour Relations Commission deals with both individual problems and issues related to collective bargaining where a settlement cannot be reached through bilateral negotiations.

Thus, Second National Commission on Labour has recommended a three-tier system including Lok Adalats, Labour Courts and Labour Relations Commission.

Additional Information

• The First National Commission on Labour
• The first National Commission on Labour was set up on 24 December 1966 under the Chairmanship of Justice P.B. Gajendragadkar.
• The Commission submitted its report in the month of August 1969 after a detailed examination of all aspects of labour problems, both in the organised and unorganised sectors of the Indian economy.

The correct answer is the scheme will be applicable from 1st April 2019.

Key Points

• PM Kisan Samman Nidhi scheme
• The Government launched a Central Sector Scheme Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) to provide income support to all small and marginal landholding farmer families to supplement their financial needs for procuring various inputs related to agriculture and allied activities as well as domestic needs.
• Under the scheme, the entire financial liability towards the transfer of benefits to targeted beneficiaries is borne by the Government of India.
• This scheme became operational in India on 1st December 2018.

Thus, 'The scheme will be applicable from 1st April 2019' is not part of the 'PM Kisan Samman Nidhi' scheme as announced on 1-02-2019.​

Important Points

• Benefits of the scheme 
• Under the scheme, landholder farmer families with total cultivable holdings of up to 2 hectares are provided a benefit of Rs.6000 per annum per family payable in three equal installments of Rs. 2000 each, every four months.
• The income support benefit is directly credited into the bank accounts of the beneficiaries.

Additional Information

• Period-wise payments under the scheme
• Payments for the period December-March 2021-22 stood at Rs. 11,15,98,715
• Payments for the period April-July 2022-23 stood at Rs. 11,27,60,560
• Payments for the period August-September 2022-23 stood at Rs. 8,84,56,693

The correct answer is Service sector has the largest share in the GDP

Key Points

• The service sector has the largest share of the GDP 
• As per the Economic Survey 2021-22, the services sector contributes over 50 percent to India’s GDP.

Thus, this statement is correct.

• The service sector has the largest share of employment
• The services sector provides employment to about 23% of India's total population.
• The largest employer is the agriculture sector, which provides employment to around 60% of the population.

Thus, this statement is incorrect.

• ​The service sector's growth has been higher than the growth of the agriculture sector
• As per the Economic Survey 2021-22, the share of the services sector in the Gross Value Added stood at 53 %.
• This shows that the growth rates or the combined Gross Value Added by the other sectors (agriculture and industry) stood at 47 %.

Thus, this statement is correct.

• Productivity per worker in the service sector is the highest
• As per the reports published by the Reserve Bank of India, In the services sector, financial and business services, which has the largest inter-linkages with other sectors, productivity has been high.

Thus, this statement is correct.

Hence, out of the given statements, 'Service sector has the largest share in employment' is incorrect with reference to the service sector of the Indian economy.

​

The correct answer is Both (A) and (R) are true and (R) explains (A).

Key Points National income: It is the sum total of all the commodities and output produced in a country for a given period of time.

• In India, the share of non commodity sector that is the service sector is increasing day by day.
• Non commodity sector played an important role in India's GDP and output level.
• Service sector importance has been increasing in employment of India also.
• It also played an importance role in Structural and occupational structures.
• Agriculture's share has reduced in India over the last years. This is due to the reason that people have started migrating to urban areas.
• Industry sector is the second growing sector in India. no doubt, it is playing an important role in GDP and output level but its share is less than service sector.
• Hence,  assertion is true because share of non commodity sector has been increasing in India.
• The reason is also true that Industry and agriculture has been growing at relatively lower pace.
• Hence, both assertion and reason are true and R is correct explanation of A.