UGC NET Paper 2: Economics 24th Nov 2021 Shift 1 (Previous Year Paper)

The correct answer is A, C and D only

Key PointsRational Expectations Model: 

According to the rational expectations' hypothesis, people make decisions based on their rational nature, the facts at hand, and their prior experiences.

The rational expectations' theory is a concept and theory used in macroeconomics.

The rational expectations' theory is used by economists to explain anticipated economic phenomena like interest rates and inflation rates.

Important Points According to Rational Expectations Model: 

• Monetary policy cannot affect output and employment.
• Unanticipated changes will affect real variables in the very short run
• There is equilibrium in the markets
• Economic agents use all relevant available information to form their expectations

The correct answer is A and B only

Key Points

• National Initiative for Developing and Harnessing Innovations(NIDHI): The programme NIDHI would help the startups with initial / ignition funding and hence would be called Startup-NIDHI.
• NIDHI, an umbrella program was pioneered by the Department of Science & Technology (DST), Government of India, for nurturing ideas and innovations (knowledge-based and technology-driven) into successful startups.
• Startup-NIDHI aims to support 20 student startups each year financially.
• Startup-NIDHI would financially support each of the selected startups with Rs 10.00 lakhs which will be given as ignition grant/award.
• The startups essentially have to be student startups and should be a student startup of IEDC/NewGen IEDC. Startups selection would be through a national level competition.

The correct answer is A and C only

Key Points FDI - A foreign direct investment (FDI) occurs when a business or investor from outside the country buys a stake in the company.

Important Points FDI in India in FY 2020:

• FDI in India was 81.97 billion USD in the year 2020 which was 10% more than the FDI equity inflow grew by 19% in the F.Y. 2020-21last financial year.
• FDI equity inflow grew by 19% in the F.Y. 2020-21.
• In terms of top investor countries, ‘Singapore’ is at the apex with 29%, followed by the U.S.A (23%) and Mauritius (9%) for the F.Y. 2020-21.
• The services sector is the largest sector of India with 16% of total inflow.
• ‘Computer Software & Hardware’ has emerged as the second top sector during F.Y. 2020-21.

The correct answer is A and B only

Important PointsA. According to the accelerator model, investment demand is proportional to change in income

• The accelerator theory is an economic postulation whereby investment expenditure increases when either demand or income increases.
• The acceleration principle explains why an increase in national income frequently leads to an increase in investment spending that is greater than proportionate and why the amount of investment spending is dependent less on the level of business activity as a whole than on whether it is increasing or decreasing.
• Hence, this statement is true.

B. The higher the real interest rate, the higher is the rental cost of capital

• The rental cost of capital is the implicit price that the firm charges itself for the assets that it owns, and it is proportional to the price that it would have to pay to rent an equivalent asset in a competitive market.
• Hence, this statement is true.

C. Investment is a stock variable:

• A stock variable can be defined as variables whose value is instant rather than accumulated over some time. Examples of stock variables include wealth, loan, and capital.
• Investment is not a stock variable as its value is accumulated over time.
• Hence, Hence, this statement is false.

D. The real rate of interest is equal to the nominal rate of interest plus the inflation rate.

• With a low inflation rate, a simplified version of the Fisher equation can be implemented.
• It states that the nominal interest rate is approximately equal to the real interest rate plus the inflation rate (i = R + h).
• Hence, this statement is false.

Therefore, the correct statements are A and B only

The correct answer is A and B only

Important Points A. Degree of linear association is measured between two variables.

Explanation:

• The correlation coefficient (ρ) is a measure that determines the degree to which the movement of two different variables is associated.
• Hence, this statement is true.

B. Predictability is not part of correlation analysis

Explanation:

• “Correlation” is non-lagged correlation analysis and “prediction” is 1 epoch lagged correlation between predictor variables and performance.
• Hence, it can be said that Predictability is not part of correlation analysis.
• Therefore, this statement is also true.

C. Spearman has no contribution to correlation analysis:

Explanation:

• Spearman has contributed to correlation analysis by his Spearman's Rank Correlation.
• Spearman Ranks correlation is a non-parametric measure of rank correlation (statistical dependence between the rankings of two variables).
• It assesses how well the relationship between two variables can be described using a monotonic function.
• Hence, this statement is false.

D. Cause and effect relationship is established through correlation analysis:

Explanation:

• Correlation cannot establish a cause and effect relationship.
• The reason why correlation may not equal causation is that there is some third variable (Z) that affects both X and Y at the same time, making X and Y move together.
• Hence, this statement is false.

Therefore, Only A and B are correct statements.

The correct answer is A, B, C and D

Key Points Balance of Payment:

• The country's economic dealings with the rest of the world for a given time period, often a year, are documented in the balance of payments (BoP).
• It is a comprehensive accounting balance sheet that covers both debit and credit transactions for the entire nation.
• When the current account balance is totally financed by foreign lending and the non-reserve capital account is equal to zero, the country is considered to be in balance of payments equilibrium.
• A balance of payments deficit means the country imports more goods, services, and capital than it exports. It must borrow from other countries to pay for its imports.

Important PointsCorrection of deficit balance of payment:

1. Import controls: To correct the deficit balance of payment the imports must be reduced. Implementation of the import control measures will result in curbing imports in the country and will therefore correct the deficit balance of payment.
2. Export promotion:  To correct the deficit balance of payment the exports of the country should be increased, and the export promotion measures will help in increasing the exports in the country.
3. Foreign exchange control: Foreign exchange control result in rationing of the foreign exchange by the central bank which will limit the supply of the foreign currency in the country. Rationing will allow use of foreign currency for only specific purposes which will ultimately reduce the deficit balance of payment.
4. Devaluation: Devaluation is the deliberate reduction in the external value of the currency country. Devaluation will result in expensive imports and will motivate the exporters to export more. Hence, the balance of payment fill improve in case of deficit

The correct answer is C and D only

Key Points Gender Budgeting:

• To ensure that women and men equally benefit from development, gender budgeting is a potent instrument for achieving gender main streaming.
• An established definition of gender budgeting refers to “a gender-based assessment of budgets, incorporating a gender perspective at all levels of the budgetary process and restructuring revenues and expenditures in order to promote gender equality”
• It is a continuous process to keep a gender perspective in mind while formulating policies and programmes, putting them into action, and reviewing them.
• It is not an accounting exercise.
• Gender Budgeting includes dissection of the Government budgets to establish its gender differential impacts and to ensure that gender commitments are translated in to budgetary commitments.
• Gender budgeting is the way for women empowerment to bridge the gap that exists between man and woman

The correct answer is A, B, C and D

Key Points Environmental Evaluation:

The component of planning that analyses and evaluates the potential effects on the human environment of alternate solutions to resource problems is called the environmental evaluation (EE), which the NRCS traditionally referred to as an environmental assessment.

Important PointsA. Travel cost method measures the recreational values of Environmental Resources

• The travel cost method is a popular surrogate market strategy that uses data on time and travel expenses to calculate demand curves for recreational sites.
• This curve is then used to calculate the value of the website to all users, or the surplus of consumers.
• This method is frequently employed to assess the recreational value of public parks and other wilderness places.
• Hence, this statement is true.

B. Hedonic pricing is used for environmental amenities associated with property values

• The hedonic pricing method is most often used to value environmental amenities that affect the price of residential properties.
• It is most commonly applied to variations in housing prices that reflect the value of local environmental attributes.
• Hence, this statement is true.

C. Replacement cost method is used by substituting natural resources with man-made equipment.

• This cost-based technique calculates the possible costs for replacing or repairing a productive asset that would be harmed by a project or other development.
• The replacement cost method requires information on the degree of substitution between the man-made good and the natural resource
• Hence, this statement is true.

D. Defensive expenditure deals with preventive measures:

• The preventive expenditure method is a cost based valuation method that uses data on actual expenditures made to alleviate all environmental problems
• Often, costs may be incurred to mitigate the damage caused by an adverse environmental impact.
• Additional defensive or preventive expenditure could be taken as a minimum estimate of the mitigation of benefits beforehand.
• Hence, this statement is true.

The correct answer is A and D only

Key Points The Environmental Kuznets Curve:

• A hypothetical correlation between different measures of environmental degradation and per capita income is known as the environmental Kuznets curve (EKC).
• According to the environmental Kuznets curve, economic growth initially causes the environment to deteriorate, but after a certain amount of economic growth, a society starts to better its relationship with the environment, and the amount of environmental degradation declines.
• EKC hypothesis intends to represent a long term relationship between economic growth and pollution.
• The relationship between Income and Environmental damages take the shape of an inverted U.

Important Points Shape of Environmental Kuznets Curve:

The incorrect Statements are B and D only

Key Points Cobb‐Douglas production function:

• Paul H. Douglas and C.W. Cobb's empirical examination of the American manufacturing sector served as the foundation for the Cobb-Douglas production function.
• For the whole output of the manufacturing industry, it is a linear homogeneous production function of degree one that accounts for the two inputs of labour and capital.
• The Cobb-Douglas production function is expressed as: $Q = AL^aC^\beta$
• where Q is output and L and С are inputs of labour and capital respectively. A, a and β are positive parameters where = a > O, β > O.

Important Points Properties:

1. C – D production function exhibits constant returns to scale.
2. The C-D production function tells that the AP & MP of factors is a function of the ratio of the factors**.** The Curves representing average and marginal productivity of inputs are downward sloping
3. The MRS LK can be derived from the C-D production function. MRS LK = ∂Q/∂L  ÷  ∂Q /∂K
4. The Elasticity of factors substitution of the C-D production function is equal to unity.
5. The application of Euler’s theorum to distribution in an other property of the C-D production function.

Isoquant:

• An isoquant shows the combinations of z₁ and z₂ that can produce a given level of output (q₀)
  

 f(z₁ , z₂) = q₀

• Each isoquant represents a different level of output
• All isoquants are negatively sloped.

Isoquants for a Cobb-Douglas production function

The correct answer is A, C and D only.

Key Points

Factor-Price Equalization Theorem:

• The factor-price equalisation theorem is the fourth significant theorem derived from the Heckscher-Ohlin (H-O) model.
• According to the theorem, as output good prices are equalised between nations as they move to free trade, the prices of the factors (labour and capital) will also be equalised between nations.
• The assumption is that free trade will globally equalise both worker salaries and capital rents.

Important Points Conditions assumed by the Factor Price Equalization theorem:

• The countries are characterized by different factor endowments.
• The industries are characterized by different factor intensities
• Each country will export the commodity which uses its abundant factor
• There is perfect competition in the commodity markets as well as in the factor markets in all the regions.
• There are no restrictions on trade, that is, free trade policy is followed by all the countries
• The consumer’s preferences as well as the demand patterns and positions are unchanged.
• The transport cost element is ignored.
• There are stable economic and fiscal policies in the participating nations.
• There are constant returns to scales in each region.
• There is tendency towards complete specialisation.

The correct answer is A, C and D only

Key Points Zero Based Budgeting (ZBB):

• With zero-based budgeting (ZBB), instead of starting with the prior budget and making adjustments as needed, all expenses must be justified for a new period or year starting from scratch with a zero base.
• The tactical implementation of a company's strategic plan is budgeting, including ZBB.
• An organization must translate its long-range plan into a specific set of anticipated revenues and expenses that can be measured to track performance in order to achieve the financial and operational goals in the strategic plan.

Important Points

Features of Zero-Based Budgeting (ZBB):

• Any decision unit's management must first provide justification for the budget allocation to that decision unit. Without mentioning the previous amount of spending in his decision unit, he should explain his request.
• Decision packages are identified as activities, and the latter is subsequently prioritized.
• Decision packages are assessed through a methodical study that links them to expressly stated company objectives.
• Preparing the budget, neglecting the history of expenditure

Advantages of Zero-Based Budgeting (ZBB):

• It gives the business a methodical means to assess operations and activity programs, and it enables management to allocate resources in accordance with the importance of various programs.
• It makes it possible to approve departmental budgets using it as a foundation.
• Instead of being susceptible to any arbitrary cuts or increases in budget estimates, consider cost-benefit ratios.
• Subsequent budget cycles do not have to be based on a complete recycling of budget inputs if decision packages are connected in order of priority.

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

Key Points The correct match is given below:

Important Points

Perfect competition: 

Following are the characteristics of perfect competition:

• Large number of buyers and sellers
• Homogenous product is produced by every firm
• Free entry and exit of firms
• Zero advertising cost
• Consumers have perfect knowledge about the market
• All the factors of production, viz. labour, capital, etc, have perfect mobility in the market
• No government intervention
• No transportation costs
• Each firm earns normal profits and no firms can earn super-normal profits.
• Every firm is a price taker.

Monopoly:

Following are the characteristics of Monopoly:

• Single seller
• No close substitutes
• Barriers to entry
• Price maker

Monopolistic competition:

Following are the characteristics of Monopolistic competition:

• There are many firms.
• Freedom of entry and exit.
• Firms produce differentiated products. Real or perceived differences in products exist.
• Firms have price inelastic demand; they are price makers because the good is highly differentiated
• Firms make normal profits in the long run but could make supernormal profits in the short term
• Firms are allocative and productively inefficient.

Oligopoly:

Following are the characteristics of Oligopoly:

• Interdependence of firms on each other
• Advertising is a powerful instrument in the hands of an oligopolist.
• Cut-throat competition among the firms
• Barriers to Entry of Firms prevail
• Large companies produce goods with little or no difference.

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

Key Points

The correct match is given below:

Important Points Menu cost: 

• When a company alters the prices it offers to its customers, it incurs menu costs.
• The traditional illustration is a restaurant that must physically print new menus if the prices of its meals change.
• The major lesson to be learned from menu costs is that some costs are fixed.
• Menu costs usually are the result of inflation. For Example: if the cost of food, rent, or wages goes up, a restaurant will have to raise its prices to pay for the extra cost and to make the same profit

Quantitative Easing: 

• Quantitative easing is a method of monetary policy employed by central banks.
• A central bank will buy securities in an effort to lower interest rates, boost the money supply, and encourage more lending to individuals and businesses.
• During a financial crisis, the objective is to boost economic activity and maintain credit availability.

Pump-Pricing:

• Pump pricing is a fiscal policy measure used by the government.
• Pump pricing is the process of boosting an economy through public expenditure, interest rate and tax cuts, usually during a recession.

Phillips Curve:

• The Phillips curve suggests there is a trade-off between inflation and unemployment, at least in the short term.
• If there is inflation in an economy, the central bank may increase interest rates.
• Lower aggregate demand will result from lower investment and consumer expenditure as a result of higher interest rates.
• This fall in aggregate demand will lead to lower inflation.

The Correct answer is A ‐ II, B ‐ IV, C ‐ I, D ‐ III

Key Points The correct match is given below:

Important Points

Carl Friedrich Gauss: The ordinary least squares (OLS) estimator has the lowest sampling variance among the class of linear unbiased estimators in statistics, provided that the errors in the linear regression model are uncorrelated, have equal variances, and have an expectation value of zero. This is known as the Gauss-Markov theorem (or simply Gauss theorem for some authors).

Multicollinearity: Multiple independent variables in a model that are correlating from a statistical concept known as multicollinearity. If a pair of variables have a correlation coefficient of +/- 1.0, they are said to be perfectly collinear. Less trustworthy statistical inferences will come from multi collinearity among independent variables.

Mode: The category or score that appears the most frequently in the distribution of data is identified by the mode, a measure of central tendency, in the distribution of data.

Correlation coefficient: Karl Pearson's coefficient of correlation is defined as a linear correlation coefficient that falls in the value range of -1 to +1. Value of -1 signifies strong negative correlation while +1 indicates strong positive correlation.

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

Key Points The correct Match is given below:

Important Points Convex Function :

• A function of two variables for which the line segment between any two points on the function lies entirely below the curve representing the function. (the function is convex when the line segment lies above the function).
• A convex function has an increasing first derivative, making it appear to bend upwards.

 Input - Output Analysis: 

• Input–output analysis, economic analysis developed by the 20th century Russian-born U.S. economist Wassily W. Leontief, in which the interdependence of an economy’s various productive sectors is observed by viewing the product of each industry both as a commodity demanded for final consumption and as a factor in the production of itself and other goods.
• Hawkins – Simon conditions ensure the viability of the system. If B is the technology matrix Hawkins – Simon conditions are
• the main diagonal elements in I – B must be positive and​
• |I – B| must be positive.

Linear Programming: 

• The term "linear programming" (LP), sometimes known as "linear optimization," refers to a technique for maximising profits or minimising costs in a mathematical model where the requirements are represented by linear connections.

Marginal Propensity to Consume:

• Marginal Propensity to Consume (MPC) measures the proportionate rise in the consumption with increase in income.
• Marginal Propensity to Consume or MPC is dependent on the income level
• The marginal propensity to consume is equal to ΔC / ΔY,
• The marginal propensity to consume is the derivative of a consumption function.

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

Key Points The correct match is given below:

Important PointsA. Canons of Taxation:

• Canons of taxations are the guiding rules and principle to make tax collection system effective and functional.
• The government must create the framework for efficient and straightforward tax collection. Consequently, in order to achieve the same, a certain set of guidelines and standards must be followed.
• Adam Smith gave four canons in his famous book named ‘Wealth of Nation’.
• These four canons are also called as the Adam Smith’s canons of taxations.
• Canon of Equality
• Canon of Certainty
• Canon of Convenience
• Canon of Economy

B. Canon of Public Expenditure:

• The following canons of public expenditure have been laid down by Prof. Findlay Shirras:
• Canon of Benefit
• Canon of Economy
• Canon of Sanction
• Canon of Surplus

C: Effective Incidence of Tax by U. K. Hicks: 

• Mrs. Ursula Hicks has classified incidence of taxation in to—Formal incidence and Effective incidence.
• Effective incidence refers to the difference between economic order relating to income distribution, consumption pattern, and allocation of resources before taxation and after taxation
• Mrs. Hicks says,” In order to discover the full economic consequences of a tax, we have to draw and compare two pictures- one of the economic set up(distribution of consumers’ wants and incomes, and allocation of factors) as it is with the tax in question; the other of a similar economic set up, but without the tax.

D. Benefit received approach of Public Expenditure by Erik Lindahl:

• In the philosophy of taxation from public finances, there is a notion known as the benefit principle.
• It uses taxes to cover the cost of providing public goods based on a political commitment to pay for the benefits obtained.
• The theory is sometimes compared to how prices work to distribute private commodities.
• The benefit approach was initially created by two economists from the Stockholm School, Knut Wicksell (1896) and Erik Lindahl (1919), to evaluate the effectiveness of taxes and evaluate fiscal policy.

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

Key Points The correct match is given below:

Important Points

Supply-side economics

• Supply-side economics holds that increasing the supply of goods translates to economic growth for a country.
• In supply-side fiscal policy, practitioners often focus on cutting taxes, lowering borrowing rates, and deregulating industries to foster increased production.

Demand side Economics:

• Demand-side economics hold that demand for goods and services drives economic growth.
• Supply-side economics (also known as classical economic theory) states that the production of goods and services is the main force driving economic growth.

Opportunity cost:

• With the help of this theory, Haberler tries to explain the theory of comparative advantage of international trade on the basis ofopportunity cost.
• In Haberler's words, "the marginal cost of a given quantity (x) of a commodity, say, A must be regarded as the quantity of commodity, say, B must be forgone in order that X, instead of (X-1) units of A can be produced. The exchange ratio on the market between A and B must equal their costs in this sense of the terms."
• According to the opportunity cost theory, the cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one additional unit of the fixed commodity

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

Key Points The correct match is given below:

Important Points Security Exchange Board of India (SEBI):

The securities market in India is regulated by SEBI, a statutory organisation.

• The basic functions of Sebi is to protect the interests of investors in securities and to promote and regulate the securities market.
• The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.

National Securities Depository Ltd (NSDL):

• National Securities Depository Limited (NSDL) is an Indian central securities' depository, based in Mumbai.
• It was founded in August 1996 as the country's first electronic securities' depository.
• Through its nationwide network of Depository Participants, or DPs, and online platforms, NSDL offers a comprehensive range of services to investors, stock brokers, custodians, issuer firms, Savings account current account Business correspondence, etc.

Credit Rating Information Service of India Ltd (CRISIL):

• A part of the American company Global, CRISIL (originally Credit Rating Information Services of India Limited) is an Indian analytical company that offers ratings, research, and risk and policy advising services.
• The first credit rating agency in India was CRISIL, which was established in 1988 by the joint venture of ICICI and UTI with capital contributions from SBI, LIC, and United India Insurance Company. S&P, a US-based credit rating organisation, purchased the majority of the company's shares in April 2005.

Investment Information and Credit Rating Agency of India (ICRA):

• ICRA Limited (ICRA) is a credit rating and independent investment information company based in India.
• Initially known as Investment Information and Credit Rating Agency of India Limited, it was founded in 1991.
• It was a joint-venture between Moody's and various Indian commercial banks and financial services companies.

Confusion Points

• SEBI was established with statutory powers in 1992.
• NSDL was established in 1996.
• CRISIL was established in 1987.
• ICRA was established in 1991.

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

Key Points The correct match is given below:

Important Points Adam Smith - Division of Labour:

• According to a famous statement made by Adam Smith in The Wealth of Nations, the division of labour is limited by the size of the market.
• This is so that each person can specialise in their line of work while still having access to a wide variety of goods and services
• Therefore, lowering trade barriers causes the division of labour to rise, which in turn promotes economic growth.

R. Rodan - Theory of Big Push:

• In development economics or welfare economics, the big push model highlights that a firm's choice to industrialise or not depends on its expectations of what other enterprises would do.
• It describes when industrialization would occur and makes use of oligopolistic market structure and economies of scale.
• This theory proposes that a 'bit by bit' investment programme will not impact the process of growth as much as is required for developing countries.
• The originator of this theory was Paul Rosenstein-Rodan in 1943.

W. W. Rostow - Traditional Society:

• Rostow's stages of economic growth model is one of the major historical models of economic growth.
• It was published by American economist Walt Whitman Rostow in 1960.
• The model postulates that economic growth occurs in five basic stages, of varying length: The traditional society, The preconditions for take-off, The take-off, The drive to maturity, The age of high mass-consumption.

Karl Marx - Reserve army of labour

• Reserve army of labour is a concept in Karl Marx's critique of political economy.
• Marxists referred to the ranks of the unemployed who, in the absence of any serious options, are willing to work for extremely low wages in temporary positions as the reserve army of labour.
• The presence of a reserve army of labour promotes bourgeois interests and exploits proletariat members.

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

Key Points

The correct match is given below:

Important Points Non use Value: Non-use value is the value that people assign to economic goods (including public goods) even if they never have and will never use it. It is distinguished from use value, which people derive from direct use of

the good.

Non-use value as a category may include:

Option value - the value placed on individual willingness to pay for maintaining an asset or resource even if there is little or no likelihood of the individual actually ever using it, occurring because of uncertainty about future supply. Example: Search of Alternative fuels is necessary because traditional sources are non-renewable

Bequest value-values placed on individual willingness to pay for maintaining or preserving an asset or resource that has no use now, so that is available for future generations. Example: Conserving the Environment for benefit of the future generation

Existence value- an unusual and somewhat controversial class of economic value, reflecting the benefit people receive from knowing that a particular environmental resource, such as Antarctica

Additional Information

• Wood from the forest is useful as timber has direct use value.
• Insects are important as they help in pollination has indirect use value.

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

Key Points The correct match is given below:

Important PointsNIRVIK:

• The NIRVIK Scheme (also known as Niryat Rin Vikas Yojana) is a scheme implemented under the Export Credit Guarantee Corporation of India (ECGC) with a view to ease lending of loans and enhance credit availability to small-scale exporters.

Ayushman Bharat:

• Ayushman Bharat Yojana or Pradhan Mantri Jan Arogya Yojana is a health scheme of the Government of India, which was implemented across India on 23 September 2018.
• The scheme was announced by Finance Minister Arun Jaitley in the budget session of 2018.
• The objective of this scheme is to provide health insurance to the economically weaker people (BPL holders).

Pradhan Mantri Urja Ganga project (PMUJ)

• Pradhan Mantri Urja Ganga project was inaugurated by Prime Minister Narendra Modi in his constituency Varanasi, Uttar Pradesh.
• To provide piped cooking gas to the households of Varanasi within next two years and to millions others in neighbour states after one more year.

Perform, Achieve and Trade (PAT):

• Perform, Achieve, and Trade (PAT) is a regulatory tool to lower Specific Energy Consumption (SEC) in energy-intensive businesses, along with a market-based method to improve cost effectiveness through certification of excess energy savings that can be traded.

The correct answer is B, A, D, C

Key Points Consumer Behaviour:

• The study of people, groups, or organisations and all the behaviours connected to the acquisition, consumption, and disposal of products and services is known as consumer behaviour.
• Consumer behaviour refers to how a person's feelings, attitudes, and preferences influence their purchasing decisions.

Important Points Law of demand: 

• Charles Davenant (1656–1714) originally articulated the well-known law of demand in his article "Probable Methods of Making People Gainers in the Balance of Trade (1699)".
• The law of demand holds that, all other things being equal (cetris peribus), the relationship between price and quantity demanded for any good or service is inverse.
• A product's price increase causes a decrease in consumer demand for that same product.

Law of diminishing marginal utility:

• The Law of diminishing marginal utility was first formulated by Herman Gossen in the year 1854.
• Later on, it was popularized by Alfred Marshall.
• H. Gossoon stated in 1854 that "all things remaining equal, marginal utility becomes lower and smaller as the more units of a person owns of a commodity."

Indifference Curve Analysis:

• Indifference Curve Analysis was developed by Francis Ysidro Edgeworth in his seminal 1881 book.
• According to indifference curve analysis, the rational consumer has a variety of these points of indifference based on their budget and other important aspects that influence their choices between two commodities.

Revealed Preference Analysis:

• Revealed preference is a theory offered by American economist Paul Anthony Samuelson in 1938.
• It claims that the strongest predictor of a person's preferences is their conduct as a consumer, income and item cost being maintained constant.

The correct answer is D, A, C, B

Important Points Formulation of hypothesis: A precise, testable, predictable assertion supported by theoretical guidance and/or past data is necessary when formulating a hypothesis. Numerous research designs can result in the formulation of a hypothesis.

Data Collection: Primary data collection needs to be preceded by a great level of preparation and pilot data collection may be required in case of questionnaires. Primary data collection is not a compulsory stage for all dissertations, and you will skip this stage if you are conducting desk-based research

Testing of hypothesis: The process of hypothesis testing involves putting an analyst's presumption about a population parameter to the test. The type of data used and the purpose of the study will determine the methodology the analyst uses. Using sample data, hypothesis testing is done to determine whether a claim is plausible.

Policy prescription: Lastly, if the theory seems to make sense and the econometric model was not refuted on the basis of the hypothesis test, we can go on to use the theory for policy prescription.

The correct answer is B, C, D, A

Important Points Kitchin cycle:

• This theory was given by Joseph Kitchin (1861 - 1932).
• The duration of  Kitchin cycle is 40 months.
• The theory states that the market gets flooded with commodities as growth accelerates. When demand declines, prices drop and the produced commodities. When demand declines, prices drop and the produced commodities get accumulated in inventories. But there is a delay between this and when entrepreneurs must reduce output.

Jugular cycle:

• This theory was given by Clément Juglar (1819-1905).
• The duration of Jugular cycle is 7-11 years
• The theory says in addition to Kitchin's lagging inventory signal, there is an additional lagging fixed investment signal.
• The Jugular cycle-says we're at the beginning of an upswing in capital investment,

Kuznets cycle:

• This theory was given by Simon Kuznets (1901-1985)
• The duration of Kuznets cycle is 15-25 years.
• This theory says as a country develops, there is a market-driven cycle that at first increases inequality, and then decreases it after a certain average Income is attained.
• The Kuznets cycle indicates that given current high income inequality, the U.S. should be at a new stage of development.

Kondratiev cycle: 

• This theory was given by Joseph Schumpeter (1883-1950)
• The duration of Kondratiev cycle 50-60 years.
• Shumpeter cycles actually revolve around - periodic("clusters of innovation"
• Schumpeter's cycle says we're on the downswing from the most recent innovation cluster.

The correct order is B, D, A, C, E

Key Points

The correct answer is B, A, C, D

Key Points

Important Points Kisan Credit Card:

• In order to ensure that all eligible farmers are provided with hassle free and timely credit for their agricultural operation, Kisan Credit Card (KCC) scheme was introduced in 1998.
• Its objective was to meet the short term credit requirements for cultivation of crops, post harvest expenses, produce marketing loan, consumption requirements of farmer household, working capital for maintenance of farm assets and activities allied to agriculture like dairy animals, inland fishery etc. investment credit requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc

Soil Health Card Scheme:

• Soil Health Card Scheme has been introduced in year 2015 to assist State Governments to issue soil health cards to all farmers in the country.
• Soil health card will provide information to farmers on nutrient status of their soil along with recommendation on appropriate dosage of nutrients to be applied for improving soil health and its fertility
• Its objective was to provide information to farmers on soil nutrient status of their soil and recommendation on appropriate dosage of nutrients to be applied for improving soil health and its fertility.

Pradhan Mantri Fasal Bima Yojana:

• “Pradhan Mantri Fasal Bima Yojana (PMFBY) has been approved for implementation from Kharif 2016 along with pilot Unified Package Insurance Scheme (UPIS) and Restructured Weather Based Crop Insurance Scheme (RWBCIS).
• Under the PMFBY, the premium rates to be paid by farmers are very low and balance premium will be paid by the Government, to be shared equally by State & Central Government, to provide full insured amount to the farmers against crop loss on account of natural calamities.
• It covers all food grains, oilseeds and annual commercial/Horticultural crops

Doubling Farmers' income program:

• The Government of India in its annual budget of 2016-17 set a policy target of doubling farmer's income by 2022.
• The economic think-tank at Niti Aayog has put forth a four-point action plan to double the incomes of India’s farmers
• The measures of the four point action plan includes:
• remunerative prices for farmers by reforming the existing marketing structure;
• raising productivity
• reforming agriculture policy
• relief measures.

The correct answer is Both A and R are true and R is the correct explanation of A

Key Points Technical Progress:

• Finding new and better ways to produce commodities is referred to as technical progress.
• Technology advancements boost the productivity of labour, capital, and other production elements.
• The conversion of inputs into outputs is referred to as technology.

Important Points Assertion A: New capital accumulation is the vehicle of technical progress

Explanation:

• According to F.H. Hahn and R.C.O. Mathews, new capital accumulation is regarded as the vehicle of technical progress.
• Technical progress does not enhance the productivity of machines that already exist, but it does raise the productivity of machines constructed in any period relative to machines built in any prior period.
• Hence, the Assertion is true.

Reason R: Technical progress is embodied in new machines

Explanation:

• Embodied technical change refers to improvements in the design or quality of new capital goods (machines) or intermediate inputs.
• Technical progress fosters inventions and improvements in machines.
• Thus, new improved technology is embodied in investment in the new machines.
• Hence, Reason is also true and is correct explanation of Assertion.

The correct answer is D, B, A, C

Key Points GATT :

• General Agreement on Tariffs and Trade (GATT), set of multilateral trade agreements aimed at the abolition of quotas and the reduction of tariff duties among the contracting nations
• The General Agreement on Tariffs and Trade (GATT) covers international trade in goods.

Important Points During the GATT (General Agreement on Tariffs and Trade) years 9 rounds of tariff negotiations were held between 1947 and 1994:

• Geneva (1947)
• Annecy (1949)
• Torquay (1950-51)
• Geneva (1956)
• Geneva (1960-61)
• Kennedy Round (1964-67)
• Tokyo Round (1973-79)
• Uruguay Round (1986-94)
• Doha Round (2001 - 2015)

Additional Information Geneva Round- The first round, with 23 countries meeting in Geneva in 1947, led to the establishment of GATT itself, as well as some 45,000 reductions in participants' customs duties. It was held in preparation for the Havana conference.

Kennedy Round- GATT trade rounds were getting longer and more complicated. In the sixth, the Kennedy Round, participation surged to more than 60 countries - 66 nations attended the opening ceremony, pictured here, on 4 May 1964 in Geneva.

Uruguay Round- The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as "contracting parties".

Doha Round- The Doha Development Agenda, also known as the Doha Round, was formally launched in November 2001.

The correct answer is D, B, C, A

Important Points D. Chakravarty Committee: 

• Chakravarty Committee was formed to review the working of the monetary system.
• The Sukhamoy Chakravarty Committee was formed in December 1982.

B. Goiporia Committee:

• The Goiporia Committee was set up in 1990 by the Reserve Bank of India (RBI).
• The Goiporia committee was given the mandate of exploring and giving recommendations for improving customer service in the banks.

C. Narasimham Committee‐1:

• Narasimhan Committee is related to Banking structure reforms.
• The Narasimham Committee  was established under former RBI Governor M. Narasimham in August 1991 to look into all aspects of the financial system in India

A. Urjit Patel Committee:

• Urjit Patel Committee was set up to give recommendations on revising and strengthening the monetary policy framework.
• This committee was set up by former RBI governor Raghuram Rajan in the year 2013.

The correct answer is C, D, B, A

Important Points PQLI - The Physical Quality of Life Index (PQLI)

• The Physical Quality of Life Index (PQLI) is a compilation of intricate social relationships without any predetermined weights or biases imposed by theory.
• It was developed for the Overseas Development Council in the mid-1970s by Morris David Morris,

HDI - Human Development Index:

• The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living.
• The HDI is the geometric mean of normalized indices for each of the three dimensions.
• In 1990, Pakistani economist Mahbub ul Haq developed the HDI, which the United Nations Development Program then utilised to gauge the nation's development (UNDP).

MPI - Multidimensional Poverty Index:

• The Oxford Poverty & Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP) created the Global Multidimensional Poverty Index (MPI) in 2010[, which uses health, education, and standard of living indicators to assess the prevalence and severity of poverty experienced by a population.

SDG's - Sustainable Development Goals

• A set of 17 interconnected global goals known as the Sustainable Development Goals (SDGs) or Global Goals is intended to serve as a "common blueprint for peace and prosperity for people and the planet, now and into the future."
• The UN General Assembly (UN-GA) established the SDGs in 2015, with the goal of achieving them by 2030.

The correct answer is ​A, B, C, D

Key Points

Important Points Alagh Committee(1979): 

• A task team organised by the Planning Commission, led by YK Alagh, developed a poverty level for rural and urban areas based on nutritional requirements and associated consumption costs.
• The price level was to be adjusted for inflation in order to determine poverty estimates for the following years.

Lakdawala Committee (1993):

Task Force led by DT Lakdawala, based on the supposition that the poor's consumption habits are reflected in the basket of products and services used to produce the Consumer Price Index-Industrial Workers (CPI-IW) and Consumer Price Index-Agricultural Laborers (CPI-AL).

It made the following suggestions:

• Calorie consumption should serve as the foundation for calculating consumption expense.
• The CPI-IW for urban areas and the CPI-AL for rural regions should be used to create and update state-specific poverty lines.
• Estimates of poverty based on National Accounts Statistics are no longer scaled.

Tendulkar Committee (2009):

The Planning Commission established an expert panel, led by Suresh Tendulkar, to evaluate the methodology for estimating poverty and solve the following issues with the prior approaches:

• Consumption patterns were correlated with the 1973–1974 poverty line baskets (PLBs) of commodities and services, but since that time, the poor's consumption habits have undergone major changes that were not represented in the poverty estimates.
• Price Adjustment for Inflation: There were problems with the price adjustment for inflation, both geographically (across regions) and chronologically (across time).
• Health and Education Expenditure: Earlier poverty limits were developed with the understanding that health and education would be funded by the government.

Rangarajan Committee (2014):

• The group was established against a backdrop of widespread opposition to the Planning Commission's proposed poverty limit for rural areas of ₹22 per day.
• Its objective was to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India.
• To make suggestions regarding how these poverty estimates can be connected to eligibility and entitlements under the various Government of India initiatives.

The correct answer is ​Both A and R are correct and R is the correct explanation of A.

Important Points Assertion A: A lumpsum tax imposed on a monopolist cannot be shifted to the consumers.

Explanation:

• A monopolist is the seller of the product whose no close substitute is available in the market.
• He is a market dominator and has full control of the market.
• He is the price maker and can also perform price differentiation.
• If he pays tax in lumpsum, he cannot shift this burden to consumer.
• A monopolist has the power to influence the price of the product, but a lumpsum tax does not affect the marginal cost of production.
• Hence, the Assertion is true.

Reason R: The lumpsum tax becomes a part of his fixed cost, and it does not affect the marginal cost of production.

Explanation:

• The lumpsum tax paid by the monopolist is taken into account of his fixed cost.
• Due to this, his marginal cost of production does not get affected and there is no shift in cost curve.
• Hence, Reason is also true.

The correct answer is Both A and R are correct and R is the correct explanation of A

Important Points

Assertion A: There is no incentive for a profit maximising producer to supply public goods.

Explanation:

• A good or service that is provided to all members of a society is referred to as a public good.
• A public good has two key characteristics: it is non-excludable and non-rivalrous.
• Non-excludable means that it is costly or impossible for one user to exclude others from using a good.
• Non-rivalrous means that when one person uses a good, it does not prevent others from using it.
• There is no incentive for a profit maximising producer to supply public goods.
• Hence, the Assertion is true.

Reason R: If he produces it, he is unable to exclude people from consuming it and hence he cannot charge a price.

Explanation:

• The two characteristics of a public good i.e., it is non-excludable and non-rivalrous results in no incentive for a profit maximising producer to supply public goods.
• A private producer will neither be able to exclude people from using it if he supplies it nor will be able to charge a price.
• Chance may arise that he supplies a public good and is purchased by one but used by everyone.
• Hence, Reason is also true and correct explanation of Assertion.

The correct answer is A, B, C, D

Key Points United Nations Framework Convention on Climate Change:

• The UNFCCC came into effect on March 21, 1994.
• Nowadays, almost everyone can join.
• Parties to the Convention are any of the 197 nations that have ratified it.
• The UNFCCC's ultimate goal is to prevent "dangerous" human involvement with the climate system.

Important Points Copenhagen Conference: 

• The Copenhagen Summit, also known as the 2009 United Nations Climate Change Conference, took place from December 7 and 18, 2009, at the Bella Center in Copenhagen, Denmark.
• The conference featured both the 5th session of the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP-5) and the 15th session of the Conference of the Parties (COP-15) to the United Nations Framework Convention on Climate Change (UNFCCC).

Doha Conference:

• The 2012 United Nations Climate Change Conference was the 18th yearly session took place from Monday 26 November to Saturday 8 December 2012, at the Qatar National Convention Centre in Doha.
• Meeting of the Parties (CMP) to the 1997 Kyoto Protocol, which was created in accordance with the UNFCCC's charter, and Conference of the Parties (COP) to the 1992 United Nations Framework Convention on Climate Change (UNFCCC).

Paris Conference:

• An international agreement on climate change known as the Paris Agreement, often known as the Paris Accords or the Paris Climate Accords, was adopted in 2015.
• It encompasses financing, adaptation, and mitigating climate change.
• At the 2015 United Nations Climate Change Conference in the vicinity of Paris, France, the Agreement was negotiated by 196 parties.

Katowice Conference

• The 24th Conference of the Parties to the United Nations Framework Convention on Climate Change was the 2018 United Nations Climate Change Conference, often known as the Katowice Climate Change Conference or COP24.
• It was held between 2 and 15 December 2018 in Katowice, Poland.
• The conference's objective was to have a full implementation of the Paris Agreement.

The correct answer is Statement l is correct but statement ll is incorrect

Key Points Ordinary Least Squares regression (OLS):

A popular method for calculating the coefficients of linear regression equations that represent the connection between one or more independent quantitative variables and a dependent variable is ordinal least squares regression (OLS) (simple or multiple linear regression).

Important Points OLS Assumption :

1. The linear regression model is “linear in parameters.”

When the dependent variable (Y) is a linear function of independent variables (X's) and the error term, the regression is linear in parameters and not necessarily linear in X's.

Hence, Statement I is true.

2. The error term has a constant variance (no heteroscedasticity)

• The variance of the errors should be consistent for all observations.
• In other words, the variance does not change for each observation or for a range of observations.
• This preferred condition is known as homoscedasticity (same scatter).
• If the variance changes, we refer to that as heteroscedasticity (different scatter).

Hence, Statement II is false.

Additional Information Other Assumptions for OLS Model:

• The error term has a population mean of zero.
• All independent variables are uncorrelated with the error term
• Observations of the error term are uncorrelated with each other
• No independent variable is a perfect linear function of other explanatory variables
• The error term is normally distributed

The correct answer is 2014-2016

Important Points The fourth statement of the passage says ***"*During the transition period (between the self‐imposed disinflationary glide‐path since 2014 and adoption of the FIT) both realized inflation and expectations followed a declining path, which resulted in a positive association between them."

In accordance with the above statement, it can be concluded that 2014‐2016 has been described as the transition period of monetary policy.

The correct answer is Inflation expectations anchored in a weak‐form in the post FIT period.

Important Points The third statement of the passage says "Further, empirical evidence suggests that inflation expectations of professional forecasters and households were anchored, in weak‐form, in the post‐FIT period, though households' expectations did not necessarily lie within the inflation tolerance band"

In accordance with the above statement, it can be concluded that Inflation expectations anchored in a weak‐form in the post FIT period.

The correct answer is Index monetary policy transparency for India

Important Points The first statement of the passage says "The study titled, "Monetary Policy Transparency and Anchoring of Inflation Expectation in India" constructs an index of monetary policy transparency for India and examines the role of transparency in anchoring inflation expectations."

In accordance with the above statement, it can be concluded that Index monetary policy transparency for India has been constructed.

The correct answer is Degree of policy transparency increased but after coming into force of FIT.

Important Points The second line of passage says "Empirical results show that the degree of policy transparency has indeed increased substantially since the adoption of Flexible Inflation Targeting (FIT) in 2016"

In accordance with the above statement, it can be concluded that empirical evidence has shown the degree of policy transparency increased but after coming into force of FIT.

The correct answer is 

Important Points

The third statement of the passage says "Further, empirical evidence suggests that inflation expectations of professional forecasters and households were anchored, in weak‐form, in the post‐FIT period​,* though households' expectations did not necessarily lie within the inflation tolerance band"*

In accordance with the above statement, it can be concluded that Both of professional forecasters and Households were empirically tested.

The correct answer is Production subsidy

Important Points The sixth statement of the passage says,"Third, what trade protection in the form of import tariff can do an equivalent production subsidy to the infant industry can do better."

The seventh statement of the passage says,"The reason is that a purely domestic distortion such as this should be overcome with a purely domestic policy such as direct production subsidy to the infant industry".

The Eight Statement of the passage says,"A production subsidy is also a more direct form of aid, and it is easier to remove than an import tariff"

In accordance with the above statements, it can be concluded that the most appropriate instrument of trade protection.

The correct answer is Improper functioning of the capital markets

Important Points The Fourth line of the passage says,'First, such an argument is more justified for developing nations, where capital markets may not function properly'

In accordance with the above statement, it can be concluded that Developing countries are characterised by Improper functioning of the capital markets.

The correct answer is Lack of know‐how and initial small level of output

Important Points The second statement of the passage says, "It holds that a nation may have a potential comparative advantage in a commodity, but because of lack of knowledge and the initial small level of output, the industry cannot successfully compete with more established foreign firms. ​"

In accordance with the above statement, it can be concluded that the obstacles for an industry to compete with more established foreign firms are due to lack of know‐how and initial small level of output.

The correct answer is A direct tax

Important Points

The tenth statement of the passage says "Similarly, a direct tax would also be better than a tariff to discourage activities that give rise to external diseconomies because the tax does not distort relative prices and consumption."

In accordance with the above statement, it can be concluded that a direct tax effective in preventing external diseconomies.

The correct answer is production subsidy

Important Points The Eight Statement of the passage says,"A production subsidy is also a more direct form of aid, and it is easier to remove than an import tariff"

The ninth statement of the passage says, "A better policy would be to provide a direct subsidy to the industry"

In accordance with the above statement, it can be concluded that Production subsidy is a direct aid to domestic industry.

The correct answer is Economies of scale

Key Points

• Economies of scale means that production gets cheaper when more units are produced (up to a certain point).
• The savings come from spreading the cost of production over a larger number of units.

Important Points

• Economy of scale, in economics, the relationship between the size of a plant or industry and the lowest possible cost of a product.
• When a factory increases output, a reduction in the average cost of a product is usually obtained. This reduction is known as economy of scale.
• Increased labour supply, better specialization, improved technology, and discovery of new resources or better implementation of existing ones all can increase output and lead to economy of scale.
• Economies of scale are the advantages that can sometimes occur as a result of increasing the size of a business. For example, a business might enjoy an economy of scale concerning its bulk purchasing.
• By buying a large number of products at once, it could negotiate a lower price per unit than its competitors.

The correct answer is Variation of risk attached with each alternative

Key Points

• Risk is generally perceived as the possibility of facing a misfortune or a loss.
• In other words, it is the potential that a choice or a decision made will bring an undesirable outcome.
• Like your decision to drive a car on the road involves the risk of your car meeting an accident and hence incurring damage or loss.
• That is , risk is involved with uncertainty of happening or not happening of an event.
• Such uncertain situations are often connected to some associated probabilities of occurrence or non-occurrence of an event.

Important Points

• When uncertainty is involved, altogether a different decision-making process will be followed. Consider an agent who is to make a choice between two possible investment projects offering different payoffs with respective probabilities
• In a situation of decision under uncertainty, if a consumer faces equal expected income from two alternatives, then s/he will take decision on the basis of variation of risk attached with each alternative

The correct answer is Inverse

Key Points

Phillips Curve:

Phillips curve, graphic representation of the economic relationship between the rate of unemployment (or the rate of change of unemployment) and the rate of change of money wages.

Important Points

• The Phillips curve postulates that unemployment can be lowered (output can be increased) but only at the cost of higher wages (inflation) or conversely, wage growth (inflation) can be lowered only at the cost of higher unemployment (lower output). The conduct of monetary policy hinges around this exploitable trade-off.
• In “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957” (1958), Phillips found that, except for the years of unusually large and rapid increases in import prices, the rate of change in wages could be explained by the level of unemployment.
• Simply, a climate of low unemployment will cause employers to bid wages up in an effort to lure higher-quality employees away from other companies.
• Conversely, conditions of high unemployment eliminate the need for such competitive bidding; as a result, the rate of change in paid compensation will be lowered.

The term money illusion was first coined by American economist Irving Fisher in his book “Stabilizing the Dollar.” Fisher later wrote an entire book dedicated to the topic in 1928, titled “The Money Illusion.”

Important Points

• Money illusion posits that people have a tendency to view their wealth and income in nominal dollar terms, rather than recognize their real value, adjusted for inflation.
• Economists cite factors such as a lack of financial education and the price stickiness seen in many goods and services as triggers of money illusion.
• In economics, money illusion, or price illusion, is the name for the human cognitive bias to think of money in nominal, rather than real, terms.
• In other words, the face value of money is mistaken for its purchasing power at a previous point in time.

 Additional Information

• Milton Friedman was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy.
• Robertson worked closely with John Maynard Keynes in the 1920s and 1930s, during the years when Keynes was developing many of the ideas that later were incorporated in his General Theory of Employment, Interest and Money.
• John Maynard Keynes, 1st Baron Keynes, CB, FBA was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of business cycles

The correct answer is Interaction between multiplier and accelerator

Important Points

Super-multiplier

• The term ‘super-multiplier’ was first coined by J.R. Hicks in his business cycle theory. The object was to show the relationship between change in induced investment and the corresponding change in income.
• To be more specific, it indicates the ratio between the two changes, i.e., in investment and in equilibrium output.
• In fact, if we know the super-multi­plier, we can easily calculate the level of income that would correspond to any fixed (exogenous) level of autonomous investment.
• Theory of multiplier, Keynes has shown how the effect of increase and decrease in investment on output and employment get magnified when the multiplier is working during either the upswing or downswing of a business cycle.
• The relationship can be expressed as follows:

∆Ia → (multiplier) → ∆Y → (accelerator) → ∆Ib → (K) → ∆Y → …

Where an initial increase in autonomous investment (Ia) works through the multiplier to cause an increase in income (∆Y),  and this works through the accelerator to cause a greater change in induced investment (lb), which, in turn, increases income still more and so the action and the interaction continue.

• The process is super-cumulative because one initial increase (or decrease) will set off a snowball effect where income and investment interact to magnify the impact at each successive level

Hence, Interaction between multiplier and accelerator correctly describes the concept of 'Super Multiplier'

The correct answer is 1250

Key Points Equilibrium level of output: The equilibrium level of the national income is defined as that point where the aggregate supply and the aggregate demand are equal to each other.

Aggregate Demand: Aggregated demand means the total demand for final goods & services in an economy. Formula: AD = C + I + G + (X-M)

Aggregate Supply: Aggregate supply is the money value of total output available in the economy for purchase during a given period. Aggregate supply refers to the total production of goods and services in an economy. Which expressed AS = C + S, i.e., Y = C + S

Important Points

I = 50 + 0.2 Y (Given)

S = -150 + 0.4 Y (Given)

G = 50 (Given)

 At Equilibrium Level

AD = AS

C + I + G = C + S

I + G = S ('C' cancelled on both sides)

50 + 0.2 Y + 50 = -150 + 0.4 Y

(Solving for Y)

50+150 +50 = 0.4Y - 0.2Y

250 = 0.2 Y

Y = 250/0.2

Y = 1250

Equilibrium level of national income is 1250

The correct answer is Classical dichotomy

Key Points

• The concept of dichotomy alludes to the idea that the financial side of the economy may be heavily influenced by nominal factors, however, the real side, would not be influenced in that manner.
• The real variables rely on the supply side of the economy.
• So, in effect classical dichotomy suggests that economic variables can be divided into two groups: nominal variables and real variables.

Important Points

• Classical dichotomy is a view of classical economics that presumes that output, employment, and other such factors which are termed as real variables, must be independent of financial variables.
• Thus, this would lead to the role of money as being a medium that makes the exchange of commodities more efficient and simpler. So real variables in an economy are independent of monetary factors and nominal ones are determined by monetary factors.
• According to the idea of classical dichotomy, real and nominal variables are separate.
• An economy in effect displays classical bifurcation allowing economists to study real variables such as real interest rate and output, without considering their nominal equivalents, the interest rate, and the money value of output.
• In particular, this simply means that real GDP and other real variables can be determined without the information about the level of nominal money supply or the inflation rate.

The correct statement is If an LPP has two optimum solutions, then it has also infinite number of optimum solutions.

Key Points

Linear Programming Problem (LPP):

• Linear programming or linear optimization is a process which takes into consideration certain linear relationships to obtain the best possible solution to a mathematical model.
• It involves problems with maximising profits, minimizing expenditures, using resources efficiently, etc.

Important Points

• If A is a primal problem and B is its dual, then dual of B is A. This called Duality Theorem
• If an LPP has two optimum solutions, then it has also infinite number of optimum solutions.

The correct answer is The ratio between export prices and import prices

Key Points

Net Barter Terms of Trade: It is the ratio (expressed as a percentage) of relative export and import prices when volume is held constant. 

Important Points

• The basic concept is that of the Net Barter Terms of Trade (NBTT). This refers to the price of exports to the price of imports, namely Pc/Pm = P where PC is the price of South's exports, and Pm of its imports.
• The NBTT is a ratio of two money prices.
• Fixing one will cause the other to adjust to it at the market clearing relative price.
• It, therefore, doesn't follow that fixing one price necessarily implies a deterioration in the terms of trade.
• Net barter terms of trade index is calculated as the percentage ratio of the export unit value indexes to the import unit value indexes, measured relative to the base year 2000.

The correct answer is Flow variables

Key Points

• BOP is a flow concept as it is measured over (during) a period of time.
• Since BOP is measured over a time interval, it can be said that they have an element of time attached to them. Similarly, current account is also a flow variable.

Important Points

• The term ‘balance of payments is the’ sum or aggregate of its current account and capital account.
• Current account and capital account will always move in the opposite directions.
• A deficit on current account will always meet with a matching surplus on capital account, and conversely a surplus on current account will match with a deficit on current account. And in the ultimate analysis, an economy’s BOP will be in balance i.e., there will be no deficits and surpluses in aggregate.
• The capital account also includes the flow of taxes, purchase and sale of fixed assets etc., by migrants moving out/into a different country. The deficit or surplus in the current account is managed through the finance from the capital account and vice versa.

The correct answer is Import competing industries

Key Points

The tariff removal is expected to decrease consumer prices and increase consumer demand, decrease the import price of manufactured goods imports and in turn increase manufactured goods imports, increase domestic production to meet the increase in consumer demand (which could increase exports), and increase GDP.

Important Points

• If free trade were maintained in the face of the import surge, unemployment and its associated costs would be incurred, but these costs are likely to be temporary.
• Eventually workers will find alternative employment opportunities in other industries and the adjustment costs will dissipate.
• The benefits of free trade in the form of lower prices for consumers would be permanent benefits. Lower prices would presumably prevail period after period into the future.
• This means that even if the one-period benefits of eliminating unemployment exceed the one-period costs of protection, this may not hold if evaluated over multiple periods.

The correct answer is Must occur in the elastic range of the partner country's offer curve

Key Points Optimum Tariff:

• According to the economists' optimal tariff theory, countries that are typically big, powerful importers of products can use tariffs to influence the global prices of those items.
• The concept of optimum tariff concerns large countries that carry the bulk of the purchasing power for various goods.
• The less elastic the foreign offer curve, the higher will be the optimum tariff.
• Therefore, it must occur in the elastic range of the partner country's offer curve

The correct answer is Displacement Effect.

Key Points Displacement Effect:

• When a social disturbance occurs, the government raises taxes to increase revenue and increases public expenditure to meet the social disturbances.
• This creates a displacement effect by which low taxes and expenditures are replaced by higher tax and expenditure levels.
• The movement from the older level of expenditure and taxation to a new and higher level is the displacement effect.
• However, after the disturbance ends, the people get used to the newly emerged level of tax tolerance and makes the people willing to support higher level of public expenditure.
• As a result, the new level of public expenditure and public revenue stabilise but are soon destabilised by another new disturbance which causes another displacement effect.

The correct answer is equal to one

Key Points Harrod's view on Neutral Technical Progress:

• Prof. Harrod has defined neutral technical progress in his book “Towards a Dynamic Economics”
• His definition is based on capital output ratio. According to him, neutral technical progress is one which leaves capital output ratio unchanged, provided that rate of profit remains constant.
• Thus, Harrod’s neutrality of technical progress requires the constancy of both the rate of profit r and capital output ratio K/Y.

Hicks' view on Neutral Technical Progress:

• According to Prof. Hicks, neutrality is “An invention which raises the marginal productivity of labour and capital in same proportion”.
• Thus, a technical change is neutral if the ratio of marginal product of capital to that of labour remains unchanged at constant capital labour ratio.

Important Points It is possible for technical progress to be both Hicks-neutral and Harrod-neutral if the production function has constant unit elasticity of substitution, i.e. s = 1.

The correct answer is 17.857

Important Points

Total population of city X = 2800000

Total no. of live births = 50000

$\text {Crude birth rate}= \frac {\text {Total no. of live births}}{\text {Total population of city}} \times1000$

$\text {Crude birth rate}= \frac {\text {50000}}{\text {2800000}} \times1000$

$\text {Crude birth rate}= \frac {\text {50000}}{\text {2800000}} \times1000$

$\text {Crude birth rate}= 17.857$

The crude birth rate per 1000 population = 17.857

The correct answer is Providing property rights to polluters and pollutees

Key Points Coasian compromise resolution:

Coasian compromise resolution is based on the assumption that personal property rights are established and that individuals or groups participating in the process of environmental degradation achieve the 'efficient solution' by mutual agreement.

If property rights are given to those who are suffering due to environmental degradation, then in such a situation, those polluting the environment will have the motivation to compromise, and they will be in a position to pay the other damaged people because their marginal benefit is passed on to others will be more than marginal cost.

The correct answer is Himachal Pradesh

Key Points In the census 2011, Himachal Pradesh has the highest percentage of rural population.

The correct answer is 2011‐12

The base year for India's GDP calculation is 2011-12

Important Points GDP at constant Prices:

• Gross domestic product (GDP) at constant prices refers to the volume level of GDP.
• Constant price estimates of GDP are obtained by expressing values in terms of a base period.
• In theory, the price and quantity components of a value are identified and the price in the base period is substituted for that in the current period.

The correct statement is "Establishments which make new hires will get a subsidy to cover retirement fund contribution by employees and employers for 2 years"

Important Points Atmanirbhar Bharat Rozgar Yojana:

• Under the 'Atmanirbhar Bharat Rozgar Yojana' launched on 12 November 2020, establishments creating new employment will get subsidies for two years for the contribution of employers and employees to the retirement fund.
• On 9th December 2020 the Union Cabinet chaired by the Prime Minister gave its approval.
• The purpose of this scheme is to provide employment to new employees and proposes to encourage employers to re-employ low-income persons (registered with EPFO) to low-income groups who have lost their jobs during the COVID-19 pandemic.

The correct answer is 41

Key Points

• The 15th Finance Commission (FC) has recommended that During the period from 2021-22 to 2025-26, 41 per cent of the divisible tax pool of the Center should be given to the states.
• Under Article 280 of the Indian Constitution, the President of India appointed The 15th Finance Commission under the chairmanship of N.K. Singh.
• This was the first Finance Commission, which for the first time made recommendations on the basis of the 2011 Census, and it is the first commission after the Ninth Finance Commission to give recommendations for 6 years (2020-26).

The correct answer is Agriculture and Allied sectors

Key Points

• Agriculture and Allied sector of the economy registered highest growth rate in the second quarter of 2020‐21 as per estimate of NSO.
• Agriculture, with its allied sectors, is the largest source of livelihoods in India.
• 70 percent of its rural households still depend primarily on agriculture for their livelihood, with 82 percent of farmers being small and marginal.

The correct answer is B and C only

Key Points Investment multiplier:

• The investment multiplier is an important part of economic theories suggested by notable economist John Maynard Keynes.
• investment multiplier refers to the increase in the aggregate income of the economy as a result of an increase in the investments done by the government in the form of new projects.

The following formula can represent the multiplier:

K = ΔY / ΔI

Where,

ΔY = Increase in GDP or National Income

ΔI = Increase in Investment

K = 1/ 1- MPC = 1/ MPS

Where,

Where k = Investment Multiplier

MPC = Marginal Propensity to Consume

MPS = Marginal Propensity to Save

Important Points

The correct answer is A**, B and D only**

Key Points Non-Random Sampling:

• A subjective (i.e., non-random) way of selecting units from a population is known as non-probability sampling.
• Non-probability sampling is a quick, simple, and affordable method of collecting data because it doesn't call for a whole survey frame.

Important Points

• If observations are selected purposively, it is called a method of non-random sampling
• If observations are selected in an ad‐hoc manner, it is called a method of non‐random sampling
• If observations are selected on the basis of judgment, it is called a method of non‐random sampling.

Thus, Purposive sampling is a non-probability sampling method and it occurs when “elements selected for the sample are chosen by the judgment of the researcher.

The correct answer is A, B and C only

Key Points A. Lorenz Ratio: 

• A Lorenz ratio is a ratio representation of income inequality or wealth inequality.
• Lorenz curves, along with their derivative statistics, are widely used to measure inequality across a population.

B. Theil's Index:

• Theil index is a metric that has been used to evaluate racial segregation in addition to economic inequality and other economic issues.
• The Theil index calculates the population's entropic "distance" from the "ideal" egalitarian society where everyone earns the equal amount of money.

C. Palma Ratio: 

• The Palma ratio is calculated by dividing the percentage of total income obtained by the 10% of persons with the highest disposable income by the 40% of people with the lowest disposable income.

The correct statement is A only

Important Points

 A. Ministry of Environment and Forests in India was established in 1985

• The Ministry of Environment and Forests (MoEF) is the nodal agency in the administrative structure of the Central Government for planning, promotion, co-ordination and overseeing the implementation of India's environmental and forestry policies and programmes
• Department of Environment was formed in 1980 which turned into the Ministry of Environment and Forests in 1985.
• Hence, this statement is true.

B. Central Pollution Control Board was established in 1984

• The Central Pollution Control Board (CPCB), statutory organisation, was constituted in September, 1974 under the Water (Prevention and Control of Pollution) Act, 1974.
• Its function is to 
• to promote cleanliness of streams and wells in different areas of the States by prevention, control and abatement of water pollution, and
• to improve the quality of air and to prevent, control or abate air pollution in the country.
• Hence, this statement is false

C. Environment Protection Act was enacted in 1990

• The Environment (Protection) Act was enacted in 1986 with the objective of providing for the protection and improvement of the environment
• The Environment (Protection) Act, 1986 authorizes the central government to protect and improve environmental quality, control and reduce pollution from all sources, and prohibit or restrict the setting and /or operation of any industrial facility on environmental grounds.
• Hence, this statement is false

D. National Environment Appellate Authority Act was passed in 1977

• National Environment Appellate Authority Act was passed in 1997
• The National Environment Appellate Authority (NEAA) was set up by the Ministry of Environment and Forests to address cases in which environment clearances are required in certain restricted areas.

Mistake Points

According to the Official Answer key released by UGC, this question will not be considered for evaluation as the options given does not represent the correct answer.

Hence, the option has been changed,

The correct answer is A, C and D only

Important Points 

A. Crop diversification within agriculture sector:

• Crop diversification refers to the addition of new crops or cropping systems to agricultural production on a particular farm taking into account the different returns from value-added crops with complementary marketing opportunities.
• There has been structural change in agriculture sector of India in terms of crop diversification.
• Hence, this statement is true.

B. Diversification from livestock to crop husbandry

• In India there has been a diversification from crop husbandry to livestock.
• Hence, this statement is false.

C. Diversification from non-commercial crops to commercial crops.

• In India there has been diversification from non-commercial crops to commercial crops.
• Indian farmers have slowly shifted from growing wheat, rice, jawar and maize to Cocoa, Coffee, Cotton, Oilseeds, Opium, Rubber
• Hence, this statement is true.

D. Diversification from traditional inputs to modern inputs.

• Indian farmers have moved towards farming using modern inputs like HYV seeds and High value commodities.
• Indian agriculture is diversifying during the last two decades towards High-Value Commodities (HVCs) i.e., fruits, vegetables, milk, meat, and fish products
• Hence, this statement is true.

The correct answer is J Curve Theory

Key Points J Curve Theory:

• ​J curve theory explains the effect of devaluation on balance of trade.
• A J Curve is an economic theory that states that, under certain conditions, a country's trade deficit will initially worsen after its currency depreciates, mostly because higher import prices will have a greater influence on total nominal imports in the near term than the reduced number of imports.
• The nominal trade deficit initially grows after a devaluation, as prices of exports rise before quantities can adjust.
• Then, as quantities adjust, there is an increase in imports as exports remain static, and the trade deficit shrinks or reverses into a surplus forming a “J” shape.
• Apart from trade deficits, the J Curve idea can be applied to other fields such as private equity, medicine, and politics.

Important Points

The correct answer is Geometric Mean

Key Points

The  phenomenon of clustering around a central value in a frequency distribution is called 'Central Tendency'.

Important Points 

Geometric Mean :

• It is the mean of n values of a variable computed as the nth root of their product. Geometric Mean is most suitable for averaging ratio and proportional rates of growth, while
• Arithmetic mean or Harmonic mean can be used to find average rates like price, speed, etc. depending upon the nature of the given condition.
• The Geometric Mean (GM) is the average value or mean which signifies the central tendency of the set of numbers by finding the product of their values. Basically, we multiply the numbers altogether and take the nth root of the multiplied numbers, where n is the total number of data values.
• The geometric mean is the average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio. It is technically defined as "the nth root product of n numbers.

Additional Information

• The average or the arithmetic mean, or simply the mean when there is no ambiguity, is the most common measure of central tendency. It is defined as the sum total of all values in the sample divided by the number of observations. It is debted by a bar above the symbol of the variable being averaged.
• Harmonic Mean : It is the inverse of the arithmetic mean of the reciprocals of the observations of a set.
• Median of a distribution locates a central point which divides a distribution into two equal halves, i.e., it is the middle most value among a set of observations.

Confusion Points

• When analysing data that is additive in nature, such as weight, height, or income, the arithmetic mean is typically used as a measure of central tendency.
• The arithmetic mean may not be a suitable measure of central tendency when dealing with data that is proportional or multiplicative in nature, such as rates, proportions, or ratios.
• The geometric mean is an appropriate measure of central tendency for data that is proportional or multiplicative in nature, such as rates, proportions, or ratios.

The correct answer is not correlated

Key Points Xi = explanatory variable/ Independent Variable

U i = error term 

Important Points Assumptions of the Classical Linear Regression Model:

• The regression model is linear, correctly specified, and has an additive error term.
• The error term has a zero population mean.
• All explanatory variables are uncorrelated with the error term.
• Observations of the error term are uncorrelated with each other (no serial correlation).
• The error term has a constant variance (no heteroskedasticity).
• No explanatory variable is a perfect linear function of any other explanatory variables (no perfect multicollinearity).
• The error term is normally distributed (not required).

The correct answer is Lump‐sum tax

Key Points Monopolist:

• A monopolist is the seller of the product whose no close substitute is available in the market.
• He is a market dominator and has full control of the market.
• He is the price maker and can also perform price differentiation.

Important Points Monopolist and Lump-sum Tax:

• If a monopolist pays tax in lump sum, he cannot shift this burden to the consumer. The incidence of tax will be entirely on himself.
• The lump sum tax paid by the monopolist is taken into account of his fixed cost.
• Due to this, his marginal cost of production does not get affected and there is no shift in cost curve.

The correct answer is Narasimham Committee - II

Key PointsLiquidity Adjustment Facility (LAF) 

• The Reserve Bank of India (RBI) uses a liquidity adjustment facility (LAF) to let banks borrow money through repurchase agreements (repos) or lend money to the RBI through reverse repo agreements.
• LAF is a monetary policy tool used largely by the Reserve Bank of India (RBI) that controls the liquidity or money supply in the economy.
• Liquidity Adjustment Facility was recommended by the Narasimhan Committee II on Banking Reforms and was introduced by the RBI in 1998.
• There are two main components of Liquidity Adjustment Facility (LAF):
• Repo Rate: It is the rate at which the Reserve Bank of India (RBI) lends to other banks.
• Reverse Repo Rate: It is the rate at which the Reserve Bank of India (RBI) borrows from commercial banks.

Additional InformationC. Rangarajan Committee: The government set up the Rangarajan Committee in 2013 to review the Tendulkar Committee methodology for estimating poverty and clear the ambiguity over the number of poor in the country.

Raghuram Rajan Committee: Raghuram Rajan Committee on Financial Sector Reforms was a committee constituted by the Government of India in 2007 for proposing the next generation of financial sector reforms in India.

Bimal Jalan Committee: The Reserve Bank of India (RBI) in November 2018 had constituted a six-member committee, chaired by former governor Dr Bimal Jalan, to review the current economic capital framework (ECF), after the Ministry of Finance asked the central bank to follow global practices.

The correct answer is Labour Augmenting

Key Points Harrod‐neutral technical progress:

• Technical progress which increases the efficiency of labour, so that the labour force in efficiency units increases faster than the number of workers available.
• Technical progress of this form is thus labour-saving.
• It is contrasted with Hicks-neutral technical progress, where the efficiency of all factors increases in the same proportion.
• The Harrod-neutral production function can be written as 
  

Y = F [K, L . T(t)]

The correct answer is A and B only

Important Points A. An identity matrix is a square matrix

• Identity Matrix is the matrix which is n × n square matrix where the diagonal consist of ones and the other elements are all zeros. It is also called as a Unit Matrix or Elementary matrix.
• Hence, this statement is true.

B. An identity matrix when gets transposed remains an identity matrix

• The transpose of a matrix is found by interchanging its rows into columns or columns into rows.
• An identity matrix is a square matrix whose diagonal entries are all equal to one and whose off-diagonal entries are all equal to zero.
• The unique characteristic of an identity matrix is that it is symmetric, that is, equal to its transpose.
• Hence, this statement is true.

C. (A.B)T = AT.BT where A and B are matrices

• If the product AB is defined, then the transpose of the product is equal to the product of the transposes in the reverse order.
• Therefore, (A.B)T = BT.AT
• Hence, this statement is false.

D. (A-1)T = (AT)-1 where A is a matrix

• If A is a nonsingular matrix then (A-1)T = (AT)-1
• Hence, this statement is false.

The correct answer is A, C and E only

Key Points Money Supply: The money supply is the total amount of money in the form of cash, coins, and balances in bank accounts that are in circulation in an economy. Reserve Bank of India follows M0, M1, M2, M3 and M4 monetary aggregates to measure money supply.

Important Points A. Purchase of government securities from the public by Central Bank.

• Purchase and sale of government securities from/to the public by the Central Bank is known as Open market Operations.
• When the Central Bank purchases government securities from the public, there is an increase in the money supply in the economy.
• It results in increase in expenditure by the public and prices increase.

B. Deposit of currency in Commercial Banks by the public

• Deposit of money by the public in the commercial banks directs the money flow from the public to banks.
• Hence, money supply is decreased in the economy.

C. Borrowing by the government from the Central Bank

• When government borrows money from the Central bank, it spends the money on the public such as building bridges, dams etc
• This results in an increase in the money supply due to an increase in employment.

D. Sale of government securities to the public by the Central Bank

• Sale of government securities to the public by the Central Bank directs the money flow from the public to banks.
• Public buy these securities for safe investment.
• Hence, money supply decreases.

E. Minting of more money by the Central Bank for circulation.

• Minting of more money by the Central Bank for circulation results in increase in money supply.
• This method is known as deficit financing.

Hence, A, C and E only increases money supply.

The correct answer is MRSXY decreases

Key Points Indifference Curve**:**

• A graphical representation of a combination of products that gives a consumer a similar level of satisfaction and renders them indifferent is called an indifference curve.
• Every point on the indifference curve indicates that a person or consumer has no preference between the two goods because they provide him with equivalent utility.

Marginal Rate of Substitution:

• The quantity of a good that a customer is prepared to consume in comparison to another good, provided that the new item is as satisfying, is known as the marginal rate of substitution (MRS).
• The indifference theory use MRS to study consumer behaviour.

Important Points 

• The IC curve shows how much of Good X is substituted for Good Y.
• As we move down the Indifference curve, the units of good X increases and units of good Y decreases implying decreasing MRS_xy

The correct Answer is 86.67

Important Points Sampling distribution of mean based on a sample of 13 units.

This means

 $n = 13$ which is less than 30, so we can use T-distribution.

$N = 49$

 $\sigma ^2_\text {Sample variance}= 5$5 

 $\sigma^2 _\text{Pop variance}= ?$  ?

$\sigma ^2_\text {Sample variance}= \frac {\sigma^2 _\text{Pop variance}} {\text {Sample Size}} (\frac {N-n}{N-1})$

$5= \frac {\sigma^2 _\text{Pop variance}} {\text {13}} (\frac {49-13}{49-1})$

$\frac{5 \times 13 \times 48}{36}= {\sigma^2 _\text{Pop variance}}$

${\sigma^2 _\text{Pop variance}} = 86.67$ (Answer)