UGC NET Paper 2: Economics 3rd Dec 2019 Shift 1 (Previous Year Paper)

The correct answer is 42-69.

Key Points

• An overall evaluation of India's progress is provided by the SDG index. The status of social, economic, and environmental factors at the national and state levels is captured by this index using a collection of 62 carefully chosen indicators, which aids in the formation of informed policy.
• Scores can range from 0 to 100. When a state's index score is greater than 65, it is categorized as a Front Runner; when it is 50–64, it is a Performer; when it is less than 50, it is an Aspirant; and when it is 100, it is an Achiever, meaning the state has met the 2030 national target. A saw value of 0 indicates the poorest performance.
• The SDG Index Score for States and UTs, respectively, ranges from 42 to 69.

​Hence, 42-69 is the range of the SDG index score for states in India.

The correct answer is the range of the index is 0 to 1.

Key Points

• To monitor the progress of all the States and UTs in achieving 13 of the 17 SDGs (excluding Goals 12, 13, and 17 due to the lack of comparable data across States UTs),
• NITI Aayog has developed a single measurable indicator. This SDG index offers a comprehensive evaluation of India's development.
• This index aids in the creation of informed policies as it captures the status of 62 carefully chosen social, economic, and environmental characteristics at the national and state levels. The range of scoring is 0 to 100.

Hence, the range of the index is 0 to 1 is not correct about the SDGs Index constructed by NITI Aayog.

The correct answer is Millennium Development Goals.

Key Points

• The General Assembly endorsed the 2030 Agenda for Sustainable Development, which consists of 17 Sustainable Development Goals, in September 2015. (SDGs).
• The new Agenda emphasizes a holistic approach to attaining sustainable development for all, building on the idea of "leaving no one behind."
  

Eleven times in the SDGs, disability and people with disabilities are explicitly mentioned.

• The SDGs include mention to disability in a number of areas, including those dealing with inequality, human settlement accessibility, growth and employment, education, and data collecting and monitoring.
• Although not all goals specifically mention "disabled," they are nonetheless important to ensuring the inclusion and development of people with impairments An infographic displaying the 17 SDGs' explicit inclusion of the concept of disability. For people with disabilities worldwide, the recently implemented 2030 Agenda for Sustainable Development holds great hope
• The SDGs are being implemented for the first time in 2016.

Hence, Millennium development goals is not true for Sustainable Development Goals.

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

Key Points

• SDG index offers a comprehensive evaluation of India's development. This index aids in the creation of informed policies as it captures the status of 62 carefully chosen social, economic, and environmental characteristics at the national and state levels.
• The range of scoring is 0 to 100. States with index scores of greater than 65 are categorized as Front Runners, while those with scores between 50 and 64 are considered Performers, and those with scores below 50 are classified as Aspirants.
• States with index scores of 100 are categorized as Achievers, meaning they have achieved the national target set for 2030.
• The worst performance is indicated with a saw of 0. For States, the SDG Index Score runs from 42 to 69, while for UTs, it is between 57 and 68.

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

The correct answer is a and b.

Key Points

• The Government of India launched the Swachh Bharat Mission, Swachh Bharat Abhiyan, or Clean India Mission in 2014 as a national initiative to end open defecation and enhance solid waste management.
• The Swachh Bharat Mission's goal is to eradicate or drastically reduce open defecation. Each year, thousands of children lose their lives as a result of open defecation. The Swachh Bharat Mission will take the initiative to set up a responsible system for observing latrine use in addition to building latrines.
• On May 1, 2016, the Honourable Prime Minister Shri Narendra Modi introduced the Pradhan Mantri Ujjwala Yojana at Ballia, Uttar Pradesh. Under this program, BPL families will receive 5 Cr LPG connections with a support of Rs. 1600 each connection.

Hence, Swachh Bharat Mission and Pradhan Mantri Ujjwala Yojana schemes contribute to India’s progress towards the SDGs.

Key Points

 Goods and Service Tax (GST):

Goods and Services Tax, commonly known as GST is an indirect comprehensive tax, levied on goods and services sold for domestic consumption.

• In India, GST was introduced at midnight on 1st July 2017 by the President of India.
• GST has been introduced in order to simplify the indirect tax system by replacing multiple indirect taxes levied by State and Central Government.
• The GST subsumes several taxes which include central excise duty, service tax, additional customs duty, surcharge, value-added tax, entertainment tax, etc.

Important Points Components of GST:

• CGST is a tax levied on Intra State supplies of both goods and services by the Central Government and will be governed by the CGST Act. SGST will also be levied on the same Intra State supply but will be governed by the State Government.
• SGST is a tax levied on Intra State supplies of both goods and services by the State Government and will be governed by the SGST Act.
• Union Territory Goods and Services Tax or UTGST is levied by the Union Territory governments. It refers to the tax levied on the intra-Union Territory supply of goods and services. It is governed by the UTGST Act and is levied along with CGST.
• IGST is a tax levied on all Inter-State supplies of goods and/or services and will be governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in both cases of import into India and export from India.

The correct answer is 'The demand for a commodity is inelastic and supply is perfectly elastic'

Key Points

The burden of the tax (tax incidence)

• The burden of tax or tax incidence is the effect of a particular tax on the distribution of economic welfare among buyers and sellers.
• The burden of tax can be shifted only through sales and purchase transactions, and therefore only through variations in prices.
• The extent of price variations is determined by the relative degrees of demand and supply elasticities of the concerned commodity.

Important PointsThe demand and supply theory of tax shifting

• According to the theory, the tax burden will be shared between the buyer and seller in the ratio of the elasticity of supply to the elasticity of demand of the taxed commodity.
• Thus, Tax Incidence = Buyer's share of incidence/Seller's share of incidence = E_S / E_D.
• The higher the elasticity of supply as compared to the elasticity of demand, the higher will be the buyer's share of incidence or the higher will be the burden of tax on the buyer.
• The burden of the tax will be fully borne by the buyer if the elasticity of demand is zero (perfectly inelastic) and the elasticity of supply is perfectly elastic. In this case, the demand curve will become a vertical straight line parallel to the y-axis, and an upward shift in the supply curve will automatically lead to an increase in the price to be paid by the buyer.

Hence, The whole burden of a tax will be borne by the consumer if the demand for a commodity is inelastic and the supply is perfectly elastic.

The correct answer is only (a) and (b).

Key Points

Meaning of money supply

• The total stock of money circulating in an economy is referred to as the money supply. It involves currency, printed notes, money in deposit accounts, and other liquid assets.
• In the context of the Indian economy, the total money supply is categorized into four measures on the basis of liquidity. These four measures are M1, M2, M3, and M4.

Important Points The M1 measure of the money supply

• M1 = Currency with public + Demand deposits with commercial banks + Other deposits with RBI
• M1 is the most liquid measure of the money supply.

The M2 measure of money supply

• M2 = Currency with public + Demand deposits with commercial banks + Other deposits with RBI + Savings deposits of post office savings banks

The M3 measure of money supply

• M3 = Currency with public + Demand deposits with commercial banks + Other deposits with the RBI + Time deposits with banks.

The M4 measure of money supply

• M4 = Currency with public + Demand deposits with commercial banks + Time deposits with commercial banks + Other deposits with RBI + Deposits with post office savings banks.
• Therefore, M4 = M3 + Deposits with post office savings banks.
• M4 is the broadest measure of the money supply.

Hence, on the basis of the above categorization, the components of the M4 measure of money supply in the Indian economy are broad money and all deposits with post office savings banks.

Additional Information

• The M3 measure of the money supply is the most commonly used measure in India.
• M1 and M2 measures are collectively termed narrow money.
• M3 and M4 measures are collectively termed broad money.
• National Savings Certificate is a government-backed investment scheme that offers guaranteed returns and tax savings.
• National saving certificates can be purchased at any Indian post office branch. This investment scheme is not a component of money supply measures.

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

Key PointsBASEL III norms

• Basel III is an internationally agreed set of measures developed by the Basel Committee on banking supervision in response to the financial crisis of 2007-09.
• The purpose of Basel III measures is to strengthen the regulation, supervision, and risk management of banks.
• Basel III norms or standards are minimum requirements that apply to internationally active banks.
• The BASEL III framework deals with capital adequacy in banks, stress testing, and market liquidity risk. ​

Important Points 

Main pillars of BASEL III norms:

Minimum Capital requirements 

• Capital Conservation Buffer: Financial institutions are required to maintain a capital conservation buffer of 2.5% to combat future periods of stress, bringing the total common equity requirement to 7% (4.5% common equity requirement and 2.5% capital conservation buffer).
• Countercyclical Capital Buffer: It is a countercyclical buffer with a range of 0% and 2.5% of common equity. This buffer serves as a complementary buffer to the capital conservation buffer.
• Higher Common Equity Tier 1 constitutes an increase from 2% to 4.5%.
• The minimum Total Capital Ratio remains at 8.00 %.
• The introduction of the capital conservation buffer has increased the total amount of capital that a financial institution must hold to 10.5% of risk-weighted assets, of which 8.5% must be tier 1 capital. Tier 2 capital instruments are harmonized, and tier 3 capital has been abandoned.

Supervisory review process

Four key principles of the supervisory review process are-

• Principle 1: Banks should have a process for assessment of overall capital adequacy in relation to the risk profile and a strategy for maintaining their capital levels.
• Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy assessments and strategies, and their ability to monitor and ensure compliance with regulatory capital ratios. Supervisors should take necessary supervisory action if they are not satisfied with the outcomes of this process.
• Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to permit banks to hold capital in excess of the minimum requirements.
• Principle 4: Supervisors should intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should take immediate remedial actions if capital is not restored at the required minimum levels.

Market discipline

• The purpose of Pillar 3 (market discipline) is to complement the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). The Committee aims to promote market discipline by implementing a set of disclosure requirements that will allow market participants to assess key information about the scope of application, capital, risk exposures, risk assessment processes, and the capital adequacy of the institution.

Hence, minimum capital requirements, the supervisory review process, and market discipline are the main pillars of BASEL III norms.

The correct answer is (a) and (c).

Key PointsKaldor's model of growth 

• The growth model attempts to explain how changes in the investment-to-income ratio will bring changes in the relative shares of wages and profits in the national income.
• Kaldor treats national income or output (Y) as the aggregate of wage payments (W) and profits (P).

          Y = W + P

Important PointsBasic assumptions of Kaldor's model 

• Kaldor assumes that total savings (S) in the ex-ante sense is equal to the sum of savings out of wage income (S_w) and savings out of profits (S_P).

          S = S_w + S_p

• One of the basic assumptions of Kaldor's model is the existence of full employment of resources.
• On account of the unequal distribution of income and wealth, the income of the wage class remains less than the income (profits) of capitalists.
• It is known that the higher the income, the higher the propensity to save and vice-versa. Thus, in Kaldor's model, the marginal propensity to save out of wages and the marginal propensity to save out of profits are assumed to be constant but are not equal to each other.
• The marginal propensity to save out of wages remains less than the marginal propensity to save out of profits.

Thus, Kaldor's model incorporates the assumptions that total savings include savings out of wages and savings out of profits; and; output consists of wages and profits.

 Additional InformationEquation for Kaldor's model

$\frac{P}{Y}=\frac{1}{s_p-s_w}. \frac{I}{Y}-\frac{s_w}{s_p-s_w}$

The equation demonstrates that so long as S_w and S_P are constant and S_P is greater than S_W, an increase in the investment-income ratio will result in an increase in the share of profit in income.​

The correct answer is (a) and (d).

Key Points

 Balanced growth doctrine

• The doctrine hypothesizes that the government of an underdeveloped economy needs to make large investments in a number of industries simultaneously.
• Western economists like Ragnar Nurkse, A.W. Lewis, Rosenstein Rodan, and Allyn Young have advocated the strategy of balanced growth for underdeveloped economies.

Important Points A.W. Lewis's views on balanced growth

• A.W. Lewis's version is associated with development programmes. He is of the view that all the sectors in an economy should grow simultaneously so as to maintain a balance between agriculture and industry, between human capital and material capital, and, between imports and exports.

Ragnar Nurkse's views on balanced growth

• Ragnar Nurkse opines that a synchronized application of capital resources to a wide range of industries is essential for market expansion and for breaking the vicious circle of poverty in underdeveloped economies.

Thus, the economists associated with the balanced growth doctrine are A.W. Lewis and Ragnar Nurkse.

Additional Information

• Economist H.W. SInger is a supporter of the unbalanced growth doctrine and is not associated with the balanced growth doctrine.
• American professor of Economics, R. Nelson is famous for his theory of the low-level equilibrium trap, but he is not associated with the balanced growth doctrine.

The correct answer is (a) and (c).

Key Points

Social-cost benefit analysis

• Social cost-benefit analysis helps to estimate the potential viability of developmental projects for the welfare of society as a whole.
• The analysis takes into account, the full spectrum of costs and benefits, including social and environmental factors that affect society as a whole, as a result of an intervention.

Internal rate of return (IRR)

• The internal rate of return is the discount rate or rate of interest that makes the sum of all cash flows equal to zero.
• It is used to estimate the profitability of alternative potential investments.
• Formula to calculate the internal rate of return:

$0=\mathrm{NPV}=\sum_{t=1}^T \frac{C_t}{(1+I R R)^t}-C_0$

Where,

• C_t =Net cash inflow during the period t
• C₀ =Total initial investment costs
• IRR = The internal rate of return
• t = The number of time periods

Social discount rate 

• Social discount rate is used to put a present value on costs and benefits that are to be accrued on a later date.
• It is calculated as r = d + ng, where, r is the social discount rate; d is time preference; n is the elasticity of marginal utility of consumption; g is the growth rate.

Net present value

• Net present value is the difference between the present value of cash inflows and the present value of cash outflows during a period of time.

Shadow price

• Shadow price is the monetary value assigned to those goods and services that do not have a definite market value, for example, public goods and services.

Important Points

• Investment should be made only when the internal rate of return is greater than the social discount rate because a higher internal rate of return implies that an investment project will add more social value.If the net present value is zero, this implies that the potential investment project will neither be profitable, nor it will result in losses.
• Shadow prices play a significant role in social cost-benefit analysis.

Thus, on the basis of the above discussion, it can be concluded that for the viability of projects, IRR should be greater than the social discount rate and shadow prices are used for the calculation of benefits and costs in the case of social goods.

The correct answer is Only (d).

Key Points

World Trade Organization

• World Trade Organization (WTO) is an international organization that deals with the global rules of trade between nations.
• This organization was created under Uruguay Round negotiations during the period 1986-1994.
• World Trade Organisation is the successor of the General Agreements on Tariffs and Trade (GATT).​​
• The goal of WTO is to ensure that trade flows as smoothly, predictably and freely as possible.

Important Points

Green and blue box subsidies (A part of WTO Agreements on Agriculture)

Green box subsidies

• These are the domestic support measures that have minimum impact on trade and thus, are allowed without any restrictions. These subsidies are in the form of general government services, minimum support prices for farmers, payments under environmental programmes, etc.

Blue box subsidies  

• These are the subsidies that are linked to programmes that limit production by the imposition of production quotas or encouraging farmers to set aside land for other purposes.

Thus, World Trade Organization is related to the green/blue box subsidies.

• The agricultural subsidies are put by WTO into three boxes, i.e., The green box, the blue box, and the amber box.
• Amber box subsidies are those that are supposed to distort free trade and must be reduced.

Additional InformationWTO Fact File:

• Headquarters: Geneva, Switzerland
• Established on: 1 January 1995
• Number of member nations: 164

The correct answer is (b), (c), (a).

Key Points

• Demography
• Demography is the statistical analysis of the human population which studies a variety of variables related to the population like population size, growth rate, distribution, density, the composition of the population, and their spatial and temporal disparities.
• Theory of Demographic Transition
• The theory of demographic transition was propounded by W.S. Thomson and F.W. Notestein and was popularised by C.P. Blacker and Karl Marx.
• In the words of E.G. Dolan, ***"Demographic transition refers to a population cycle that begins with a fall in the death rate, continues with a phase of rapid population growth, and concludes with a decline in the birth rate".*​

Important Points

• C.P. Blacker's version:
• According to C.P. Blacker, every economy passes through five stages of population development. These are-
• The high stationary phase is characterized by high fertility and mortality rates.
• The early expanding phase is characterized by high fertility and high but declining mortality.
• The late expanding phase with declining fertility rate but with mortality rate declining more rapidly.
• The low stationary phase with low fertility is balanced by an equally low mortality rate.
• The declining phase with low mortality rate, lower fertility rate, and an excess number of deaths over births.

Thus, the correct order of the stages of demographic transition associated with economic development is as follows:

• Low birth rate with a low death rate.
• High birth rate with a high death rate.
• High birth rate with a low death rate.

The correct answer is both (a) and (b).

Key Points

National Agricultural Insurance Scheme

• The National Agricultural Insurance Scheme (NAIS) was introduced in India during the Rabi season of the year 1999-2000, as a replacement scheme for the Comprehensive Crop Insurance Scheme (CCIS).
• The scheme was implemented by the General Insurance Corporation (GIC) on behalf of the Ministry of Agriculture.

Important Points

The main objective of the National Agricultural Insurance Scheme (NAIS) is to protect the farmers against losses suffered by them due to crop failure on account of national calamities

• The main objective of the scheme is to protect the farmers against losses suffered by them due to crop failure on account of natural calamities like drought, flood, hailstorm, cyclone, fire, pest/ diseases, etc. so as to restore their creditworthiness for the upcoming season.

Thus, this statement is correct.

The National Agricultural Insurance Scheme (NAIS) is available to all the farmers both loanee and non-loanee irrespective of their size of holding

• The Scheme covers the following groups of farmers, irrespective of the size of holdings:
• All farmers (on a compulsory basis) growing notified crops and availing Seasonal Agricultural Operations (SAO) loans from Financial Institutions i.e. Loanee Farmers.
• All other non-loanee farmers (on a voluntary basis) growing notified crops and who opt for the Scheme.

Thus, this statement is also correct.

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

 Important Points

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

Key Points (A) Paris climate agreement: Paris agreement came in COP21 in the year 2015.

• In this agreement, it was decided to limit the increase in global average temperature to well below 2*c
• The main aim of the agreement is to strengthen the global response to the threat of climate change.
• It is a legally binding international treaty adopted by 196 parties.
• It covers climate change mitigation, adaptation and finance.

(B) Rio earth summit: The Rio summit was a conference held in Rio de Janeiro in 1992.

• It highlighted how different social, economic and environmental factors are interdependent and evolve together.
• The primary objective was to produce a broad agenda and new blueprint for international action on environmental and developmental issues.
• A significant accomplishment of this summit was an agreement on the climate change convention which lead to the Kyoto protocol and the Paris agreement.

(C) Brundtland commission: Brundtland commission came in 1987 which results in the Brundtland report.

• The aim was to help direct the nations of the world towards the goal of sustainable development.
• The report was named 'Our common future.
• It was formed to examine issues relating to economic development, labour practices and environmental protection.

(D) Kyoto protocol: Kyoto protocol came under COP3 and came into force in 2005.

• It is an agreement under United Nations Framework Convention On Climate Change(UNFCC)
• The objective was to achieve stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.
• The Kyoto protocol agreement was signed by 192 countries.

Important PointsFrom the above discussion, the correct chronology is:

c) Brundtland commission-1987

b) Rio earth summit-1992

d) Kyoto protocol-2005

a) Paris agreement-2016

Key Points(a) Nationalization of commercial banks: Commercial banks got nationalized for the first time on July 19, 1969.

• The nationalization of commercial banks is announced by Prime Minister Indira Gandhi and in this 14 banks got nationalized.
• These banks are Allahabad Bank, Indian Overseas Bank, Canara bank, Bank of India United bank of India, Bank of Maharashtra Bank of Baroda, Union Bank, UCO Bank, Dena Bank, Syndicate bank, Central Bank of India PNB and Indian Bank.
• The objective behind the Nationalization of Banks was to serve better the needs of the development of the economy in conformity with national policy objectives.

(b) Establishment of Narsimha Committee on Banking system: Narsimha committee on banking system came into existence in 1991.

• The main recommendations of this committee are:
• The committee recommended National recognition of 8 to 10 banks nationwide.
• Deregulation of interest rates.
• Reduction in Statutory liquidity ratio(SLR).
• A quasi-autonomous body under RBI for supervising banks and financial institutions.
• Setting up asset reconstruction fund.

(c) FEMA act: Foreign Exchange Management Act came into existence in 1999.

• The main objective of the FEMA act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and promoting the development and maintenance of the foreign exchange market in India.
• To help facilitate external trade and payments in India.
• FEMA Act replaced FERA Act which came into existence in 1973.
• FEMA Act made all criminal offences civil offences.

(d) EXIM Bank: EXIM Bank( Export-Import bank of India) came into existence in 1982.

• This bank serves as a growth engine for industries and SMEs through a wide range of products and services.
• The founder of EXIM bank is Shahjahan Kabir.
• It is India's leading export financing institute that engages in integrating foreign trade and investment with the country's economic growth.
• It is a wholly-owned subsidiary of the Indian Government.

Important Points Thus, from the above discussion, the correct chronological order is:

(a) Nationalization of commercial banks-1969

(d) EXIM Bank- 1982

(b) Narsimha committee on banking system-1991

(c) FEMA Act-1999

Key PointsClassical model: The term Classical is given by Karl Marx. In the Classical model, there is the assumption of the flexibility of wages, interest and prices which is also known as wage-price flexibility. The Classical model assumes a long period in which there is full employment in the economy without inflation.

Important Points

Assertion(A): In the Classical model, investment demand is regarded as autonomous of changes in income or employment.

• This statement states that investment demand is not the function of changes in income and employment but according to the classical model, investment demand is not autonomous of changes in income and employment i.e., investment demand is a function of changes in income or employment.

Thus, the Assertion is false.

Reason(R): It is wage-price flexibility which brings full employment in the classical model.

• This statement states that there are automatic competitive forces in the economic system that tend to maintain full employment and make the economy produce output at that level in the long run. when AD>AS or AD<AS prices and wages change accordingly to maintain full employment in the economy as per the assumption of a classical model.

Thus,(R) is true.

Therefore, the correct answer is (A) is false but (R) is true.

Important Points

Assertion(A): For certain goods, the expenditure by the consumer decreases. 

• This statement is correct in the case of inferior goods, the expenditure by the consumer decreases for certain goods when their income rises.
• An inferior good is a good whose demand decreases with an increase in income i.e.. when their income increases, they demand fewer goods. Inferior goods are just the opposite of normal goods.
• For example Inferior goods such as canned products, frozen dinners, and instant noodles. when people have less money, they tend to buy these products, but when their income increases, they often give this up for more expensive items.

Therefore, Assertion(A) is correct.

Reason(R): For such goods, the income elasticity of demand is high.

• An economic indicator of how responsive the amount demanded of a good or service is to a change in income is called income elasticity of demand.
• This reason is incorrect because in case of inferior goods, the income elasticity of demand is low, i.e., when income rises, their demand reduces for such goods.

Therefore, Reason(R) is false.

Thus the correct answer is (A) is true but (R) is false.

Key PointsGeometric Mean: The geometric mean is a mathematical average that is defined as the nth root of the product of all n values of the given dataset.

G.M. = ⁿ√ X₁.X₂.X₃.......X_n

• X₁, X₂, X₃.....X_n are the various values of the series;
• n is the number of items; and;
• G.M. is the geometric mean.

Important Points  Assertion (A): Geometric Mean is theoretically considered the best average to Construct Index Numbers

• The geometric mean is generally used to calculate the average percentage increase in prices, national income, population, sales, etc.
• The index number is a statistical technique used to provide a value for comparing magnitudes of aggregates of related variables and to measure the changes in these magnitudes over time.
• As geometric mean measures the relative changes, it finds a special application in index numbers and is considered as the best average to construct index numbers.

Hence, the assertion is correct​.

Reason (R): Geometric mean is used if the range of observations are extremely large

• If the number of items in a given series is very large, it becomes difficult to calculate the geometric mean with the above formula.
• In case of very large observations, the following formula is used to calculate the geometric mean:$G.M. = Antilog [∑ log X / n]$
• Geometric mean can be used if the range of observations is extremely large, but it may result in inaccurate results as it includes the calculation of log values.

Hence, the reason is correct.

Thus, we can conclude from the above discussion that both assertion and reason are correct, but the reason provided above is not the correct explanation of the assertion.

Key Points

The correct match is given below:

Important Points

Optimum population:

• The theory of Optimum population was given by Edwin Cannan.
• The theory comes after the Malthusian theory of population.
• According to the theory, a population is said to be optimum or ideal when combined with other variable resources yields maximum returns or income.
• It studies the relationship between changes in population and per capita income.
• It determines the ideal size of the population at which per capita income will be at its maximum.

Transaction cost:

• A transaction cost is a cost involved in an economic exchange during the purchase of goods and services.
• These costs are hidden costs.
• It is related to Ronald Coase as he found that transition cost is very essential to exchange.
• As per Coase's theorem, if transaction costs are low and property rights are clearly defined, the market will work properly even in the presence of externalities.

Demographic transition:

• The demographic transition theory was given by Frank Notestein in 1945.
• It shows the changing patterns of mortality, fertility, and growth rates.
• It shows the relationship between economic development and population growth.

Sustainable development:

• The concept of sustainable development was given in Brundtland's report in 1987.
• It means that it fulfils the needs of present generations without compromising the ability of future generations to meet their own needs.
• It focuses on economic development, social progress, and climate and environment.

Key Points (A) Hayek's theory of investment: This theory came into existence in 1941.

• This theory is also known as Monetary-over investment theory.
• It focuses on the imbalances between actual and desired investments.
• Hayek stated that investment and consumption patterns should match with each other to bring equilibrium to the country.
• He made a distinction between the natural rate of interest and the money rate of interest. It is the rate of interest charged by banks or lenders. It depends upon the demand and supply of money.
• It considers overinvestment in the capital goods sector as the only cause of the business cycle.

 (B) Fisher's theory of investment: This theory came into existence in 1906.

• Fisher's theory of investment is also known as Fisher's separation theorem.
• It states that a firm's investment choices or decisions are independent of the investment of the firm owners..
• A firm should be concerned about maximizing profit rather than trying to achieve the diverging objectives of the firm owner.
• The investment decision is independent of the financing decision.

 (C) Jorgenson's theory of investment: This theory came into existence in 1963.

• It is the modern theory of investment and lays the micro foundation for aggregate investment function.
• This theory is also known as the neo-classical theory of investment.
• The decision criteria of the firm are where:
• MPK>RENTAL= Production firms earn profit by hiring K.
• MPK=RENTAL=Production firms maximize their profit.
• Where MPK = addition to the total product by one extra unit of real capital.
• Rental firms buy capital and give it on rent to producing firms.

 (D) Markowitz's theory of investment: This theory came into existence in 1952.

• Markowitz wrote his theory in his paper "Portfolio selection''.
• According to him, most investments are either high risk and high return or low risk and low.
• He argued that investors can achieve their best results by choosing an optimal mix of the two based on an assessment of their individual tolerance to risk.
• The method that risk-averse investors can use is by constructing diversified portfolios that maximize their returns without acceptable levels of risk.

Important Points From the discussion above, the correct chronological order of theories are:

(b) Fisher's theory of investment-1906

(a) Hayek's theory of investment-1941

(d) Markowitz theory of investment -1952

(c) Jorgenson's theory of investment - 1963

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

Key Points 

Hence, the correct chronological order is Theory of absolute cost⇒Theory of Comparative Cost⇒Theory of Opportunity Cost⇒Factor Price Equalisation Theorem.

The correct answer is (a), (b), (d), (c)

Key PointsDas capital: Marx has written "Das capital: A critique of the political economy'' in 1867.

• Das capital is a description of how the capitalist works and how the capitalist system works and how Marx claims it will destroy itself.
• Marx has set out his ideas on class struggle- how the workers of the world would seize power from the ruling elites.
• The edition of Das capital has three volumes.

Value and capital: Hicks has written 'Value and capital in 1939.

• This book focuses on microeconomic theory.
• It aims to establish the market equilibrium of the goods demanded in the economy using the ordinal utility approach.
• This book includes 19chapters.
• This book is the extension of consumer theory for individual and market equilibrium.

Capital and Growth: Hicks has written this book in 1965.

• This book is based on a comparative study of dynamic economics.
• Hicks was considered one of the most important and influential economists of the 20^th century.
• In 1972, he received the Nobel prize in Economic sciences.

Accumulation of capital: Robinson has given the Accumulation of capital in1956. 

• Capital accumulation refers to an increase in assets from investments or profits.
• This book has 37 chapters.
• He extended Keynes's theory to the long-run issues of growth and capital accumulation.

Important PointsFrom the discussion above, the correct chronology is

(b) Value and capital-1939

(a) Das capital- 1867

(d) Accumulation of capital-1956

(c) Capital and growth-1965 

Confusion Points

According to the official answer key provided by the UGC, this question remains cancelled and marks are awarded to all candidates who appeared in the test.

Key PointsDisguised unemployment is a phenomenon where more people than required are employed in a job, but their marginal productivity remains minimal to near zero.

Important PointsAssertion (A): Disguised unemployment is present in India

• In the context of the Indian economy, disguised unemployment is found in the agricultural and unorganized sectors like street vendors, domestic servants, etc.
• The agricultural sector provides employment to more than 51 % of the total population in India.
• This percentage also includes those who are disguisedly unemployed.

Hence, the assertion is correct.

Reason (R): Agricultural productivity at the margin is close to zero

• Zero marginal productivity is the basic characteristic of disguised unemployment.
• For instance, if for harvesting an agricultural crop, ten labourers are required, but fifteen people are engaged in the work, this means that five people are disguisedly unemployed. The level of output will not be affected if these five people are removed from work.
• The marginal productivity of these five labourers remains nil.

Hence, the reason is correct.

Thus, on the basis of the above discussion, it can be concluded that both assertion and reason are correct, and the reason is the correct explanation of the assertion.

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

Key Points

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

Key Points

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

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

Key PointsReverse repo rate, Repo rate, Marginal Standing Facility Rate, and Statutory Liquidity Ratio are the monetary policy tools used by the Reserve Bank of India to regulate inflation and liquidity in the economy.

Important Points

These rates are arranged in ascending order (i.e., minimum to maximum):

• Reverse Repo Rate
• Repo Rate
• MSFR (Marginal Standing Facility Rate)
• SLR (Statutory Liquidity Ratio)

Hence, the correct sequence is Reverse Repo Rate. Repo Rate. MSFR, and SLR.

Key Points

Inflation: Inflation implies a persistent increase in the general price level of goods and services in an economy and a resultant decrease in purchasing power of money.

Repo-Rate: Repo rate is the interest rate at which the Reserve Bank of India lends funds to commercial banks against the pledge of government securities.

Important Points Assertion (A): In order to control inflationary tendencies, RBI raises the repo rate

• In order to control the rate of inflation, the Reserve Bank of India raises the repo rate.
• An increase in repo rate implies an increased cost of borrowings for commercial banks, thus, banks are discouraged to borrow funds from RBI.
• An increase in the repo rate ultimately results in a decrease in the money supply, which decreases public spending and inflation is reduced.

Hence, the assertion is correct.

Reason (R): By doing so, RBI wishes to control consumption demand

• An increase in the repo rate results in a decrease in the money supply.
• Borrowings become costlier as a result of an increase in the cost of borrowing, as a result, people in an economy are also discouraged to borrow funds from commercial banks.
• Alternatively, along with an increase in the interest rate on loans, the interest rate on deposits also rises.
• As a result, people are encouraged to save more and this ultimately results in a fall in consumption demand, and hence, the rate of inflation starts declining.

Hence, the reason is correct.

Thus, from the above discussion, it can be concluded that both assertion and reason are correct and the reason is the correct explanation of the given assertion.

Key Points

Inclusive growth implies economic growth which creates employment opportunities gar all the sections of society and also helps in reducing poverty.

It ensures equal access to the essential amenities like healthcare, food security, education, water and sanitation, electricity, employment, environmental protection and financial inclusion.

Important Points

Assertion (A): Inclusive growth is a must for a country like India

• India is a developing g economy characterised by low rates of economic growth, huge disparities of income distribution, unequal access to basic amenities and an ever increasing gap between the rich and the poor.
• Inclusive growth can pave the way for all round development of a country like India.
• Government initiatives like Skill India, Mkae in India, Ayushman Bharat, have proved to be significant in augmenting employment rates and development of healthcare sector.
• It can be surely stated that provision of employment opportunities and increased access to healthcare facilities form the basis for economic growth and development of an economy.

Hence, the assertion is correct.

Reason:  India is an open economy with a significant external sector

• It is true that despite challenges, India has made a significant progress in the external sector, i.e., export-import and international capital movements.
• Exports from India have been on an upward trend along with an increased inflow of capital and foreign exchange reserves.
• But, on the other side, India's external debt has also shown a rise of 3.9 % as in September 2021.
• Imports by India have also remained high in comparison to exports resulting in a negative trade balance.

Hence, the reason is correct, but it is not in line with the given assertion.

Thus, from the above discussion, it can be concluded that both the assertion and reason are correct, but the reason is not the correct explanation of the given assertion.

Key PointsThe Coase Theorem is a legal and economic theory regarding property rights developed by economist Ronald Coase, which states that bargaining of property rights between individuals or groups will lead to an optimal and efficient outcome.

Important Points

Assertion (A): Parties to a dispute over property rights will be able to negotiate an economically optimal solution.

• The Coase theorem states that under the right economic conditions, parties to a dispute over property rights will be able to negotiate an economically optimal solution, regardless of the initial distribution of the property rights.
• The Coase theorem offers potentially useful criteria to resolve conflicts between competing businesses or other economic users of limited resources.
• The Coase theorem is applied when there exist conflicting property rights. The Coase theorem argues that under ideal economic conditions, where there is a conflict of property rights, the involved parties can negotiate terms that will accurately reflect the full costs and underlying values of the property rights, resulting in the most efficient outcome.

Hence, the assertion is correct.

Reason (R): There are efficient, competitive markets and there are no transaction costs

• Application of the Coase theorem requires the existence of competitive markets.
• Application of the Coase theorem will result in an efficient outcome only when the transaction costs are nil., i.e.., the information regarding economic conditions must be free of cost and symmetrical.

Hence, the reason is also correct.

Therefore, we can conclude from the above discussion that both assertion and reason are correct, and the reason is the correct explanation of the assertion.

Key Points

Here option (1) is correct because the below sixth statement says that ''Dynamic economies of scale refer to the induced effect that output growth has on capital accumulation'' and the embodiment of new technological progress in the capital.

Option (2) is also correct because the below sixth statement says that Dynamic economies of scale refer to the induced effect that output growth has on capital accumulation and '' the embodiment of new technical progress in capital''. 

Option (3) is incorrect here because the below fourth statement says that '' if activities outside the industry. such as agriculture and petty services. are subject to diminishing returns''. with the marginal product of labour less than the average product. 

Option (4) is correct here because the below third statement says that '' if resources are drawn from these activities into the industry as the industry expands, the average product of labor will rise in non-industrial activities''.

Hence, option (3) is incorrect.

Key Points

Statement (a) is correct because below the figure ninth statement says that differences in the growth of GDP are largely accounted for by differences in the rate of growth of labour productivity ''there must be an association between the growth of industry and the growth of labour productivity''.

Statement (b) is incorrect because below the figure ninth statement says that differences in the growth of GDP are largely accounted for by differences in the rate of growth of labour productivity ''there must be an association between the growth of industry and the growth of labour productivity''.

Statement (c) is correct because below the figure ninth statement says that ''differences in the growth of GDP are largely accounted for by differences in the rate of growth of labor productivity''. 

Statement (d) is also incorrect because the below tenth statement says that '' if there are increasing returns to scale in the industry in both static and dynamic then a relation is to be expected between the growth of industrial output and the growth of labor productivity in the industry.'' Static economies of scale refer to the economies of large-scale production whereby the mass production of commodities allows them to be produced at a lower average cost.

Hence, statements (a) and (c) are correct.

Key Points

Statement (a) is correct because from the below diagram statement two states that ''The point where this line cuts the 45-degree line gives the average growth rate that divides countries into those where the shares of the industry are falling and are growing slowly. and those where the share of industry is rising and are growing fast''.

Statement (b) is incorrect because from the first passage the fifth statement says that ''a close association across countries between the growth of industry and the growth of GDP''. It doesn't mean that the GDP growth rate is the cause of the industrial growth rate.

Statement (c) is correct because from the first passage sixth statement says that ''GDP growth is faster the greater the excess of industrial growth relative to GDP growth that is when the share of industry in total GDP is rising the fastest''.

Statement (d) is incorrect because from the below figure the fifth statement says that ''the point where the regression line cuts the 45-degree line is approximately 4.5 percent''.

Hence, statements (a) and (c) are correct.

Key Points

Option (1) is correct from the first passage statement two says that In very poor countries there is virtually no industrial activity at all, while ''the middle- and high-income countries devote 20-40 percent of resources to industry''.

Option (2) is correct from the first passage statement four says that in all other countries living standards have risen rapidly only as ''resources have shifted out of agriculture into industry and sophisticated services''.

Option (3) is incorrect from the first passage statement four says that in all other countries living standards have risen rapidly only as ''resources have shifted out of agriculture into industry and sophisticated services''. The shift of resources is not uniform in the agriculture industry.

Option (4) is incorrect because from the first passage statement three says that Only three countries in the world have become rich in agriculture alone: ''Australia. New Zealand and Canada''.

Hence, option (3) is the incorrect statement.

Key Points

The first statement says,''there seems to be a close association across countries between living standards and the share of resources devoted to industrial activities at least up to a certain point''. It is based on a global level.

Hence, option (3) is the correct statement.

Key Points The correct match is given below:

Important Points

Linear programming:

• Linear programming was introduced by Dantzig in 1947.
• It is a technique to determine the optimal allocation of limited resources meets the given objectives.
• The resources can be men, materials, or machines and the objective may be to maximize or minimize a given function.

Input-output analysis:

• Input-output analysis at first represented by W. W. Leontief in 1951.
• It is also said to be a Leontief model.
• It is a technique of studying the production structure considering the mutual interdependence of various sectors.
• It is a planning and forecasting technique.

CES production function:

• It constant elasticity of the substitution production function is at first given by Solow and later mode given by Arrow, Chenery, and Minhas in 1961.
• It is a two-factor model, labour and capital.
• It demonstrates how changes in technology and/or organisational structure cause the efficiency parameter to shift the production function. The distribution parameter (alpha) and the capital intensity factor coefficient (theta), which determine the relative shares of each factor in the total output, are also shown.
• Two types of production functions with either elasticity of factor-substitution equal to zero and infinity are rarely found in the production process of the industrial world.
• It may be expressed in the form: $\mathrm{Q}=\mathrm{A}\left[\mathrm{aC}^{-\theta}+(1-\alpha) \mathrm{L}^{-\theta}\right]^{-1 / \theta}$
  

where Q is the total output, С is capital, and L is labour. A is the efficiency parameter indicating the state of technology and organisational aspects of production.

Consumer behaviour analysis:

• Consumer behaviour theories are given by Marshall, Hicks, Slutsky, and Samuelson.
• Consumer behaviour deals with maximizing the utility of consumers with constraints of income.
• A consumer behaviour analysis helps you identify how your customers decide on a product or a service
• The Slutsky effect is related to consumer behaviour.
• Slutsky's version of the substitution effect states that, when a good's price changes and a consumer's real income or purchasing power grows, the consumer's income will change by an amount equal to the change in purchasing power that results from the price shift.

Key Points

The correct match is given below:

Important Points

CAPART:

• Its full form is a council for the advancement of people's action and rural technology.
• It is a major promoter of rural development.
• It was launched in 1986.
• It promotes rural technology.
• It comes under the ministry of rural development which interfaces between the government and NGOs that seek to improve the quality of life in rural areas of India.

SIDO:

• Its full form is a small industrial development organization.
• It was formed in 1973.
• Its main function is to formulate, monitor, and coordinate the policy and program in the development of small-scale industries.

NAFED:

• Its full form is the national agricultural cooperative marketing federation of India limited.
• It was formed in 1958.
• Its main function is to promote and develop agricultural marketing and processing.
• Its focus is on marketing activities of agriculture, horticulture, and forest.
• It promotes all activities related to agriculture like marketing, processing, and storage.

AGMARK:

• Its full form is agricultural marketing.
• It is a certification mark for agricultural products in India.
• It is issued by the directorate of marketing and inspection which is an agency of the government of India.
• It is compulsory for fats spread products and edible oils.
• It gives the quality assurance of the agriculture products.

Key Points

Theory of consumer:

• Consumer theory deals with consumer behavior or consumer welfare.
• The consumer can be maximized their utility by the consumption of goods with their given income and attain maximum welfare.

Important Points

Various theories of consumer:

Cardinal theory:

• This is the first theory of consumer behaviour that is given by Marshall, and Pigou in the 1870s.
• According to cardinal theory, the utility can be measured in numbers.
• Marginal utility is also measurable in terms of money.
• The marginal utility of money is constant and based on an introspective method.

Ordinal theory:

• This theory is the second theory that came into existence after the cardinal theory.
• This is given by Hicks in 1936.
• According to hicks, the utility can be measured in order.
• It implies that the consumer is capable of simply 'comparing the different levels of satisfaction.

Revealed preference theory:

• This is the third theory of consumer behaviour which is given by Samuelson in 1938.
• It has a preference hypothesis as a basis of his theory of demand.
• The theory states that suppose when a consumer chooses a combination A, it means he considered all other alternative combinations which he could have purchased to be inferior to A.

Linear expenditure system:

• It is introduced by Stone and Frisch in 1954.
• This system deals with groups of commodities rather than individual commodities when added yielding consumer expenditure.
• It describes demand in terms of a linear expenditure equation that is a linear function of income and prices.
• This model is highly popular in aggregating econometric models because it provides a flexible method of modelling consumption functions at an aggregate level.

The correct order is Cardinal Theory ⇒ Ordinal Theory ⇒ Revealed Preference Theory ⇒ Linear Expenditure System.

Key PointsThe CES production function

• The Constant Elasticity of Substitution (CES) production function was popularised by K. Joseph Arrow, Hollis B. Chenery, and B.S. Minhas.
• The general form of the CES function is given as $Q=A\left[\alpha_1 K^{-\beta}+\alpha_2 L^{-\beta}\right]^{-h / \beta}$
• In this production function, Q is output, K is capital stock, L is labour input, A is efficiency parameter, α₁ is capital intensity factor, α₂ is labour intensity factor, β is the substitution parameter whose value lies between -1 and ∞, and, h is the degree of homogeneity.
• Elasticity of substitution (E_S) = 1 / 1 + β.

Important PointsAssertion (A): CES production function covers large class of production functions.

• The constant elasticity of substitution production function is a generalised production function.
• When β = -1 and Es = ∞, this function takes the form of linear production function.
• When β = ∞ and E_S = 0, this function takes the form of Leontiff type production function.
• When β = 0, and E_S = 1, this function takes the from of Cobb-Douglas production function.

The CES production function is based on larger parameters. Thus, the CES function has wider scope and applicability.

Hence, the assertion is correct.

Reason (R): CES production function has the property of constancy of elasticity of factor substitution

• In the CES production function, β is the factor substitution parameter whose value ranges between -1 and ∞.
• The elasticity of factor substitution (E_s) = (1 / 1+ β) which is assumed to be constant.
• It is due to the constancy of elasticity of substitution that CES production takes the form of different types of production functions.

Hence, the reason is also correct.

**Thus, it can be concluded from the above discussion that both the assertion and reason are correct, and the reason is the correct explanation of the given assertion.**​

Important Points​Assertion (A): Intellectual Property Rights were brought into the Uruguay Round Trade Negotiations

• World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated during the 1986-94 Uruguay Round, introduced intellectual property rights into the multilateral trading system for the first time.
• The agreement on Trade-Related Intellectual Property Rights (TRIPS) covers copyright and related rights, industrial designs, patents, trademarks, geographical indications, layout designs of integrated circuits, and trade secrets.
• The agreement also covered living organisms including animals, plants, and plant genes for the purpose of patenting.

Hence, the assertion is correct.

Reason (R): International trade restrictions can be used to discourage the violation of intellectual property rights.

• The 2021 National Trade Estimate Report on foreign trade barriers classifies foreign trade barriers into eleven categories. These categories include government-imposed measures and policies that restrict the international exchange of goods and services.
• These trade barriers also include intellectual property protection (e.g., inadequate patents, copyrights, and trademark regimes and inadequate enforcement of intellectual property rights).

Hence, the reason is correct but is not the correct explanation of Assertion.

On the basis of the above information, it can be concluded that both the assertion and reason are correct, but the reason is not the correct explanation of the assertion.

Key Points

The correct match is given below:

Important Points

Treasury bills:

• It is also called T bills.
• It is an alternative to investment.
• It is issued by the government with the help of RBI.
• It is an instrument for short-term borrowing.
• They have a maturity of less than 1 year.
• They are related to the money market.

Commercial papers:

• They are unsecured and negotiable money market instruments.
• They are issued by highly rated private companies to raise short-term funds for meeting working capital requirements of directly from the market instead of borrowing from banks.
• Here prior approval from RBI is required for a company to issue commercial paper in the market.

Repo rate:

• The Repo rate is the rate at which the RBI offers short-term loans to commercial banks against government securities.
• It is also called a repurchase rate because an agreement is signed by both parties stating that the securities will be repurchased by a commercial bank on a given date at a pre-determined price.

SDRs:

• Special drawing rights are issued by IMF.
• It is an interest-bearing thing.
• It is reviewed after every 5 years.
• SDR is determined by members' quota in IMF.

The correct answer is T. Haavelmo. L.R. Klein. H. Theil. A.L. Nagar

Key Points 

Therefore, the correct chronological sequence is T. Haavelmo ⇒ L.R. Klein ⇒ H. Theil⇒ A.L. Nagar.

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

Key Points

Hence, the correct sequence is Taxation Enquiry Commission (Mathur Committee)⇒The Direct Tax Enquiry Committee (Wanchoo Committee)⇒The Indirect Tax Enquiry Committee (Jha Committee)⇒Tax Reforms Committee (R.J. Chellaiah Committee).

Key Points

Public debt

• Public debt is defined as “Obligations of governments, particularly those evidenced by securities to pay certain sums to the holders at some future date.”
• Public debt is an instrument of fiscal policy of the government of India.

Internal and external debt

• The borrowings by the government may be sourced from within the country or from outside the country or both.
• On this basis, public debt can be categorised into internal debt and external debt.
• Internal debt is the amount owed to lenders within the country.
• External Debt is the amount owed to foreign lenders or lenders outside the country.

Burden of public debt

• The burden of public debt refers to the sacrifice that the debt imposes on the community through a rise in taxation, effected for financing the repayment of the principal amount and annual interest on the public debt.

Important PointsE.D. Domar's views on burden of public debt

• According to Prof. E.D. Domar, the burden of public debt is defined as the ratio of total debt to the total national income.
• Burden of public debt = Public debt / National income
• If the total amount of national income remains constant and the total amount of public debt increases, the burden of the debt would increase.
• If the national income increases by a constant amount, then in spite of an increase in the volume of public debt, the burden of public debt will decrease, provided, the rate of increase in income is greater than the rate of increase in volume of public debt.
• As the national income increases, the total amount of tax collected by the government also increases, and thus larger and larger amounts of public debt may impose comparatively lesser amount of burden.
• E.D. Domar claimed that interest payment on public debt should be considered as burden of debt.
• He opined that as interest on public debt as a proportion of national income increases, a larger part of national income has to be taxed to pay that interest.

A.C. Piguo's views on burden of public debt (Theory of shifting of burden)

• A.C. Piguo was more concerned about the question whether public debt financing imposes a burden upon the future generations.
• According to Piguo's thesis, if public debt is financed by taxation, the first-generation hands on to the future generations nothing but tax receipts.
• If public debt is financed by bond issue, the first-generation hands over bonds to the second generation along with a tax liability in the form of payment of interest on bonds and redemption of bonds.
• The welfare of the second generation depends upon the pool of real stock of capital left for consumption.
• The smaller the size of real capital stock left for consumption of future generations, the more will be the burden of public debt on future generations.

Thus, the problem of public debt has been dealt by E.D. Domar and A.C. Piguo.

Key Points

Fiscal deficit:

• It is a situation in which total expenditure is more than total receipts except borrowing. It is excess of total expenditure over total receipts but excluding borrowing. It indicates borrowing of country.
• Fiscal deficit = Total expenditure - Total receipts (Less borrowing)

Budget deficit:

• It indicates the excess expenditures in the economy. It is the difference between total expenditure and total receipts.
• Budget deficit = Total expenditure - total receipts

Revenue deficit: 

• When we have more revenue expenditure than revenue receipts. If the government is not able to cover day-to-day expenditures and day-to-day receipts then we have a revenue deficit.
• Revenue deficit = Revenue expenditure - Revenue receipts

Primary deficit: 

• It is the difference between fiscal deficit and interest payment. It shows how much government borrowing is going against the payment of expenses other than interest payments.
• Primary deficit = Fiscal deficit - Interest payment

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

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

Important Points 

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

The correct answer is Quesnay, Karl Marx, Leontief, Hawkins-Simon.

Important Points

Quesney's Version:

• The technique of input-output analysis was first introduced by Quesney during the 18th century.

Karl Marx's Version:

Karl Marx's version of the input-output analysis is a 2-sector model which consists of the following sectors: Sector I-Capital goods sector; Sector II-Consumer goods sector.

• Karl Marx's version reflects the most fundamental economic structures, i.e. the ratio of labour to capital and the ratio of wages to profits.
• Karl Marx's version is based on the input-output tables of China which was introduced in 1869.

Leontief's Version:

• Wassily Leontief was a Soviet-American economist, who developed the first systematic version of input-output analysis in the year 1930.
• Wassily Leontief was awarded the Nobel Prize in Economics in 1973 for his contribution to the concept of input-output analysis.
• Leontief's contribution to the concept of input-output analysis is highly acclaimed, and hence the analysis is popularly named as the "Leontiff Input-Output Model' and he was popularly known as the father of input-output analysis.

Hawkins-Simon Conditions:

• The Hawkins-Simon conditions are the viability conditions of the input-output model.
• These conditions were introduced by David Hawkins and Herbert A. Simon in the year 1949.
• Hawkins-Simon conditions have been developed to ensure that the solution of the input-output model does not contain any negative value.
• These conditions are: 
• The determinant of the matrix (I-A) should be positive.
• All the diagonal elements of the matrix (I-A) should be positive.

Hence, the correct chronological order is Quesnay ⇒Karl Marx⇒ Leontief⇒ Hawkins-Simon.

The correct answer is option 4.

Key Points Average cost:

• It is the per unit cost o production obtained by dividing the total cost by the total quantity.
• $AC=\frac{TC}{Q}$
• It is U shaped curve.
• AC has its minimum point at which AC=MC, also known as the break-even point.

Marginal cost:

• It is the additional cost incurred by a firm during a production process.
• $MC=\frac{\bigtriangleup TC}{\bigtriangleup Q}$
• It is also U shaped curve.
• MC at its minimum point cuts the ATC curve at which MC=ATC.

Average variable cost: 

• The average variable cost is the variable cost per unit in the production process.
• $AVC=\frac{TVC}{Q}$
• Variable costs include raw materials, production supplies, packages etc. These costs keep changing in the short run and long run.
• AVC has its minimum point at which MC=AVC.

Average fixed cost:

• The cost remains constant in the short run whereas, in the long run, it can change.
• It is the fixed per unit cost in the production process.
• The shape of AFC is a rectangular hyperbola.
• AFC does not have its minimum point as it is constant.
• $AFC=\frac{TFC}{Q}$

Hence, it can be concluded that out of these cost curves, AFC does not have its minimum point. Option 4 is correct.

The correct answer is Both (1) and (2).

Key Points

• Adverse selection,
• This is applicable in case of incomplete information.
• Adverse selection occurs when either of the party, i.e.. either buyer or seller do not have complete information regarding any product or individual.
• It is a situation when the other parties have more information related to any product and you have incomplete information.

Additional Information 

• Insurance Market: 
• An insurance is a contract between insurers (who provide insurance) and policyholders (who purchases insurance policies).
• Issue of adverse selection occurs when one party does not share all the information he has with the other.
• The policyholder has full information regarding his health or his property's health or car's health. But he may not share all the information with the insurance company.
• There arises the problem of adverse selection.
• Credit Market:
• There are two parties involved in a credit market, the creditor and the debtor. The creditor gives his money at some decided rate of interest.
• The debtor takes money for any kind of investment.
• In this situation, an adverse selection problem arises, because the creditor does not know whether his money is being utilized in productive investment or not whether it is risky, or may he will not get his interest and amount of money back.

Hence, the problem of adverse selection is encountered in both markets for insurance and the market for credit.

The correct answer is negatively related to interest rate.

Key Points

• Inventory approach:
• This approach is given by William J. Baumol in his article "The transaction demand for cash: An inventory theoretic approach" in November 1952.
• According to this approach, they emphasized that the transactions demand money is also a function of the rate of interest.
• If the rate of interest on bonds rises, the firm will find it profitable to interest on securities and optimal cash balances will be lower.
• On the other hand, if the rate of interest falls, the firm will not invest more in securities and optimal cash balances will be higher.

Hence, the inventory approach to the transaction demand suggests that the transaction component of the demand for money is negatively related to the interest rate.

The correct answer is option 1.

Key Points Order condition: This condition is based on the counting rule of the variables included and excluded from the particular equation. It is a necessary but no sufficient condition for the identification of an equation.

For an equation to be identified, the total number of variables excluded from it must be equal to or greater number of endogenous variables in model less one.

Important Points If, K-M=G-1, The equation is exactly identified.

K-M>G-1, The equation is over-identified.

K-M<G-1, The equation is under-identified.

• In an equation, G= total number of equations( total number of endogenous variables)
• K= number of total variables in the model
• M= Number of variables included in a particular equation.

Hence, for an exactly identified equation, the order condition that should be fulfilled is that equation must exclude one less than the total number of endogenous variables in the model.

Key Points Normal probability curve or Normal distribution: 

• The normal distribution is a continuous probability distribution in which Mean = Median = Mode.
• It is a bell-shaped curve named after Karl Gauss.
• The total area covered by the normal curve is equal to unity or 1.
• The percentage distribution of the area under the normal curve is:
• $\mu\pm1.96\sigma$ covers 95% area.
• $\mu\pm2.58\sigma$ covers 99% area.
• $\mu\pm0.67\sigma$ covers 50% area.
• In most experiments, 95% significance is accepted as the level of significance or level of accuracy.

Hence under the Normal Probability Curve, the area within the range of μ - 1.96 σ and μ +1.96 σ (where μ = mean, σ = standard deviation) is 95%.

The correct answer is 500.

Key Points Autonomous investment:

• It refers to an investment which is not dependent on the level of income in the economy.
• Its main purpose is to increase the welfare in the economy.

Saving function: 

• The saving function is dependent on the rate of interest.
• It has a positive relationship with the rate of interest.
• When income is zero, there is some consumption and that amount resorts through savings.
• Y=C+S
• People spend some proportion of their income on consumption and the remaining on saving.

Consumption function: 

• Consumption is dependent on income.
• when income increases, consumption also increases.
• Y=C+S

Additional Information

 In this question, S = -20 + 0.2Y

I=100

Savings =investment,

 -20 + 0.2Y = 100

0.2Y = 120

Y = 120/0.2

Y = 600

Also, Y = C+S,

putting the value of Y in the saving function

$S=-20+0.2 \times 600$

S = 100, Y = 600

C = 600 - 100 = 500

Hence, the equilibrium level of consumption is 500. The saving function S = -20 + 0.2 Y and autonomous investment (I) = Rs. 100 million.

The correct answer is option 1.

Key Points Friedman's quantity theory of money: 

• Friedman published an Article," The quantity theory of money- A Restatement" published in 1956.
• Friedman states that his quantity theory is a theory of demand for money and not a theory of output, income, or prices.
• Changes in aggregate spending are primarily determined by changes in the money supply.
• Friedman considers 5 different forms in which wealth can be held, namely, money(M), Bonds(B), Equities(E), Physical human goods(G), and human capital(H).
• An increase in the supply of money will leave people holding cash balances in excess of the amounts they want.
• This theory does not assume that velocity is constant as did the older quantity theory, but rather that the demand is highly stable.

Thus, Friedman's Modern Quantity Theory of Money concludes that changes in aggregate spending are primarily determined by changes in the money supply.

The correct answer is N. Kaldor.

Key Points

• Compensation criterion:
• This principle is also known as the Kaldor-Hicks criterion and is attributed to Kaldor during the 1930s.
• According to this principle, there are two states state 1 and state 2.
• State two is socially preferable to state one of those who gain from such a move can compensate those who lose, i.e., if gainers can bribe the losers to accept state two and yet be better off in state two.
• It was mainly to judge the changes in social welfare when an economic change benefits some people and harm other.

Additional Information 

• There are some assumptions of this compensation criterion such as:
• The tastes and preferences of people do not change.
• Individuals are best judges o their own.
• Social welfare depends on the level of distribution and level o production.

Hence, The 'Compensation Criterion' which says that state A is socially preferable to state B if those who gain from the change can compensate the losers and yet end up with surplus welfare gain is attributed to Kaldor.

Key Points Analysis of variance(ANOVA):

• Analysis of variance is a statistical method that separates observed variance data into different components to use for additional tests.
• It enables us to infer whether the population from which we have drawn more than two samples are having the same mean values.
• By testing the significance of the difference between more than two samples means we make such inferences.

F-test:

• F-test is used by a researcher in order to carry out the test for the equality of the population variances.
• It is used by the researcher to determine whether or not the two independent estimates of the population variances are homogenous in nature.
• To test the equality of variances, we use F-test.

Hence, ANOVA is carried out by using F-test.

Additional Information Z-test- Z-test is used when the sample size is more than 30.

• It is used to evaluate whether a finding or association is statistically significant or not.

T-test- T-test is used to compare the means of two groups. The T-test is used for a small sample size, less than 30.

Chi-square test- It is a type of non-parametric test which is used to determine whether there is a notable difference between normal frequencies and the observed frequencies.

Key Points

**Income **multiplier:

The Income multiplier shows the change in the gross domestic product (GDP) of a country due to injection or investment in the economy. An increase in Income is always more than an increase in investment, this additional increase in income is the Income multiplier effect. 

Important Points

The income multiplier is shown as K=$\frac{1}{1-MPC}$

MPC is the slope of equation =$\frac{\text {Change in C}}{\text{Change in Y}}$

**Equation 1:**C = 100+0.5Y, k=$\frac{1}{1-0.5} =\frac{1}{0.5}=2$

Equation 2: C = 50+0.8Y, k=$\frac{1}{1-0.8}=\frac{1}{0.2}=5$

**Equation 3:**C = 200+0.75Y, k=$\frac{1}{1-0.75}=\frac{1}{0.25}=4$

Equation 4: C = 50+0.4Y, k=$\frac{1}{1-0.4}=\frac{1}{0.6}= 1.67$

**Hence, Equation: C = 200 +.75 Y **has an income multiplier of 4.

Key Points Bootstrapping technique:

• It is a general, distribution-free method that is used to estimate parameters of interest from data collected from studies or experiments.
• It is often referred to as the resampling method because it is carried out by repeatedly drawing samples from the original data that occurred.

Thus, this technique is used to obtain a sampling distribution of parameters of interest.

Important Points Bootstrapping technique is a useful estimation technique when,

• The formulas that are to b used for calculating estimates are based on assumptions that can not be verified.
• The computational formulas hold only for large samples and are not valid for small samples.
• The computational formulas do not exist.

Key Points 

Matrix: A Matrix is a set of numbers arranged in rows and columns so as to form a rectangular array.

Diagonal matrix: If all the elements, except the principal diagonal, in a square matrix, are zero, it is known as a diagonal matrix.

• A diagonal matrix is always a square matrix.
• The diagonal matrix elements are characterized by this general form: $a_ij$ where i=j

Important Points 

To find the inverse of the diagonal matrix, the short trick is to reciprocate the diagonal values.

For example, to find the inverse of this matrix, take the reciprocal of diagonal elements 2,4,5,1= 1/2,1/4,1/5,1/1.

$\begin {bmatrix} 2 &0& 0 &0 \\ 0&4&0&0\\ 0&0&5&0 \\ 0&0&0&1 \end{bmatrix}$= \(\begin{bmatrix} \frac{1}{2} & 0 & 0 & 0 \[0.4em] 0 & \frac{1}{4} & 0 &0 \[0.4em] 0 & 0 & \frac{1}{5} & 0\ 0 & 0 & 0 & \frac{1}{1} \end{bmatrix}\)

Inverse =$\begin {vmatrix} 0.5&0&0&0\\ 0&0.25&0&0\\ 0&0&0.2&0\\ 0&0&0&1 \end{vmatrix}$

The correct answer is option A.

Key Points Harrod growth model:

• R.F. Harrod has presented his model in his publication " An essay on Dynamic theory(1931)" and " Towards a dynamic theory"(1948).
• Assumptions of Harrod model:
• Constant returns to scale holds.
• The level of ex-ante aggregate saving is a constant proportion of aggregate income.
• The overall effect of technical progress is neutral.
• $S_t= aY_t$, $I_t=b(Y_t-Y_t-1)$
• $S_t=I_t$
• $aY_t=bY_t-b(Y_t-1)$
• $bY_(t-1)$=$bY_t-aY_t$
• $bY_t-1=Y_t(b-a)$
• $\frac{b}{b-a}= \frac{Y_t}{Y_t-1}$
• $\frac{b}{(b-a)}>0$ Growth condition for Harrod model.

The correct answer is option 1.

Key Points Total cost: 

• Total cost is the sum of all costs incurred by a firm in producing a certain level of output.
• It is expressed as a combination of all fixed costs and variable costs.
• Total costs= Fixed costs+ Variable costs.

Marginal cost:

• Marginal cost is the additional cost involved in the production of one unit of the commodity.
• It is defined as the change in total cost that comes from making an additional cost.
• Marginal cost is calculated by derivation of the total cost.

Important Points In this example,$C=\frac{1}{10}q^3-3q^2+50q+300$

 MC=$\frac{3q^2}{10}- 6q+50$

At q=10, MC= $\frac{300}{10}-60+50$

=30+50-60= 20

Hence, MC at q=10 is 20.

The correct answer is option 3.

Key Points Cobb- Douglas production function:

• The cobb Douglas production function was proposed by Wicksell  and tested against statistical evidence by Cobb and Douglas in 1928.
• Features of Cobb- Douglas production function:
• It is a linear homogenous function.
• It is characterized by unit elasticity of substitution i.e. Elasticity of substitution = 1.
• If $\alpha+\beta$= 1, it exhibits constant returns to scale.
• If $\alpha+\beta$> 1, it exhibits increasing returns to scale.
• If $\alpha+\beta$<1, it exhibits decreasing returns to scale.
• Isoquants are negatively sloped and convex to the origin.
• Elasticity of output with respect to labor shows the response in output with respect to one unit change in labor input.

Important PointsFor a Cobb-Douglas production function Q = 100 L0.7 K0.3., 

$\alpha+\beta$=1, 0.7+0.3=1.

Thus, Cobb Douglas production function do not have zero elasticity of factor substitution.

The correct answer is option 1.

Key Points Terms of trade: 

• Terms of trade are the relative price of exports in terms of imports and are defined as the ratio of export prices to import prices.
• The concept of terms of trade is given by Taussig in 1927.
• Terms of trade=$\frac{P_x}{P_m}$
• It is also known as commodity terms of trade.

Single Factoral terms of trade:

• This concept is given by Jacob Viner.
• It is determined by multiplying the commodity terms of trade with the productivity index in the domestic export sector.
• It is expressed as $\frac{P_x}{P_m}*Z_x$

Important Points  $P_x$= 170, Pm = 190 and $Z_x$ = 152