Economics Mock Test - 1

The correct answer is Socialist.

Chinese Economy is a type of Socialist Market Economy.

Key Points

• A mixed socialist market economy is the economy of the People's Republic of China.
• It is composed of state-owned enterprises (SOEs) and private companies, domestic and international, and uses economic planning.
• The framework is centered within a capitalist economy on the predominance of public ownership and state-owned enterprises.
• Jiang Zemin introduced the word "socialist market economy" to describe the aim of China's economic reforms during the 14th National Congress of the Communist Party of China in 1992. 

The correct answer is  Life expectancy, Educational attainment and per capita GDP.

Key Points

• Human Development Index is a composite index of -  Life expectancy, Educational attainment, and per capita GDP.

Additional Information

• HDR – Human Development Index
  • It is a humans development indicator that ranks countries by combining measures of the three dimensions:
    • Long and Healthy Life
    • Knowledge
    • Decent Standard of Living
  • A healthy life is measured by:
    • Life Expectancy at Birth
    • Knowledge is measured by

Expected Yea​rs of Schooling

• Mean Years of Schooling
  • Standard of Living is measured by
    • Gross National Income Per Capita (PPP)
  • India ranked 131 among 189 countries with a value of 0.647 in HDI 2020.
  • Life expectancy at birth in India between 1990 and 2018 increased by 11.6 years.
  • The mean year of schooling in India between 1990 and 2019 increased by 3.5 years, and expected years of schooling increased by 4.7 years.

The correct answer is Nagaland.

Key Points

• The 15th Indian Census was conducted in two phases- house listing and population enumeration.
• The 2011 census covered 640 districts, 5,924 sub-districts, 7,935 towns and more than 600,000 villages.
• Nagaland recorded negative population growth according to the 2011 Indian population census.
• It recorded minus 0.58% growth in population.
• The population growth was positive for the rest of the states given in options.
• The positive population growth rates are as follows:-
  • Goa- 8.23%
  • Haryana- 19.90%
  • Kerala- 4.91%

The correct answer is Fourth Five Year Plan

• The Fourth Five Year Plan was the first plan introduced by the Indira Gandhi government in the scenario of the pressure of drought, devaluation, and inflationary recession.
• The country was struggling with the population explosion, escalating unemployment, poverty, and a shackling economy.
• In addition, the condition in East Pakistan (now independent Bangladesh) was becoming worse as the Indo-Pakistani War of 1971 and Bangladesh Liberation War happened.
• Funds released mainly for the industrial development had to be utilized for the war effort. The consequence was that this plan duration was also no advantage over the third five-year plan.
• India fought yet one more war with Pakistan and aided in the establishment of Bangladesh. Required to tackle the condition of Bangladeshi refugees after the 1971 war.
• The nationalization of 14 primary Indian Banks was a workaround even during this war. This increased the confidence of the people in the banking sector and started higher mobilization of private savings into bank accounts.
• In the final period of this plan, India also conducted the Smiling Buddha underground nuclear test in 1974. This test was partially in answer to the US deployment of the Seventh Fleet in the Bay of Bengal to give warning to India against attacking West Pakistan and escalating the war. The international community took various harsh steps against India, which created an impact on the domestic economy.
• The Oil Crisis of 1973 escalated the oil and fertilizer rates resulting to a very high inflation.

The correct answer is Capitalist Society.

Key Points

• In Capitalist, Society the goods produced are distributed among the people on the basis of purchasing power (ability to buy goods and services).
• Capitalist Society
  • The theory of capitalist economy is given by Adam Smith in his book 'Wealth of Nations'.
  • In this economic society, the decisions of what to produce, how to produce, and at what price to sell are taken by the market by the private enterprises.
  • Keynes has suggested that the capitalist economy should move a few steps towards a socialistic economy,

Additional Information

•  Socialist Society
  • ​The idea of a socialist economic spread after the Bolshevik Revolution(1917).
  • It emphasised the collective ownership of the means of production i.e. property and assets.
  • It explained the major role of the state in running the economy.
  • the government—which owns or controls much of the economy's resources—decides the whats, whens, and hows of production.
  • Example: Russia, Norway, Sweden, Denmark, Iceland, and Finland
• Communist Society
  • It is a form of socialist society, which is also a form of state economy.
  • It mainly developed in China after 1949.
  • It advocated state ownership of all assets, including labor, and absolute power to the state in running the economy.
  • In this system, all property is communally owned, and each person receives a portion based on what they need.
  • Example: - China, Cuba, Laos and Vietnam.
• India is a mixed economy country.
  • ​Co-existence of Private and Public Sector
  • Private Property is allowed.
  • The government has some control, while the rest is up to supply and demand.

The correct answer is It indicates a total income shortfall that needs to be corrected to remove absolute poverty.

Key Points

•  Poverty:
  • Poverty is the social phenomenon in which a section of society is unable to fulfill its basic necessities of life.
  • There are two types of Poverty. one is absolute poverty and the other is relative poverty.
    • Absolute poverty 
      • In this type minimum commodities required for basic needs are identified and calculated in monetary terms.
      • Then population whose level of income is less than this monetary value will be below the poverty line and hence poor. 
      • It is expressed as a number of poor people as a proportion of the population. This measure is also called the Headcount Ratio.
    • Relative poverty:
      • This measure of Poverty is the relative measure of the top 5-10% population with the bottom 5-10% of the population.
      • It reflects the relative standards of poverty
      • It also calculates the inequality in society.
  • Poverty Gap:
    • It is the mean shortfall from the poverty line, given as a percentage of the poverty line.
    • It measures the intensity of poverty. 
    • It shows the extent to which individuals on average fall below the poverty line.
    • It indicates the total income shortfall that needs to be corrected to remove absolute poverty. Hence, option 3 is correct

The correct answer is Unemployment during the recessionary phase of the trade cycle

Key Points

• Unemployment occurs when a person who is actively searching for employment is unable to find work.
• It is often used as a measure of the health of the economy. 
• Types of Unemployment
• Disguised Unemployment:
  • The phenomenon when more people are employed than actually needed. Hence statement 1 is correct.
  • Example: agricultural and the unorganized sectors of India.
• Seasonal Unemployment:
  • Unemployment occurs during certain seasons of the year.
  • Example: Agricultural laborers.
• Structural Unemployment:
  • Unemployment arising from the mismatch between the jobs and the skills of the available workers in the market. Hence statement 2 is correct.
  • Many people do not get jobs due to a lack of requisite skills and due to the poor educational level.
• Cyclical Unemployment:
  • It is the result of the business cycle. Hence statement 3 is not correct.
  • Unemployment rises during recessions and declines with economic growth. 
• ​Technological Unemployment:
  • It is the loss of jobs due to changes in technology.
• ​Frictional Unemployment:
  • Frictional Unemployment is also known as Search Unemployment. Hence statement 4 is not correct.
  • It refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.
• ​Vulnerable Employment:
  • This means people are working informally without proper job contracts.
  • These persons are deemed ‘unemployed’ since records of their work are never maintained.

Infrastructure is the general term for the basic physical systems of a business, region, or nation. Infrastructure is generally understood as the basic building blocks required for an economy to function efficiently. 

The infrastructure sector primarily comprises of electricity, roads, telecommunications, railways, irrigation, water supply and sanitation, ports and airports, storing facilities, and oil and gas pipelines.

• Power is among the most critical component of infrastructure, crucial for the economic growth and welfare of nations. The existence and development of adequate infrastructure is essential for the sustained growth of the Indian economy.
• India’s power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. In order to meet the increasing demand for electricity in the country, a massive addition to the installed generating capacity is required.
• Under the Pradhan Mantri Gram Sadak Yojana, close to 57,000 km of roads will be built. That apart, NHAI would target to award projects for around 23,892 km with a total outlay of around ₹ 62,000 crore in FY 2018-19.
• Airports are a big area, particularly with the present government able to identify infrastructure bottlenecks. The budget document mentions that passenger traffic grew at 18% over the past 3 years and airlines have placed orders for about 900 aircraft. Continuing the focus on increasing air connectivity, the government proposed to increase the standards to accommodate 1 billion flights a year. 

NOTE- 

Food production from farm to fork, in general, simply means processing raw materials from the primary sector such as the farm and the sea into food in the food factories, fulfilling the consumer demand. The food then undergoes further preparation or minor processing before it is served for consumption. It does not come under Infrastructure.

The correct answer is Brundtland Commission Report.

• Sustainable development was developed for the first time in the Brundtland Commission Report in 1987.
• The Brundtland Report was published by the United Nations World Commission on Environment and Development in 1987.
• According to the report, "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

Additional Information

• The first Earth Summit, took place in Rio de Janeiro in June 1992.
• The Rio Declaration on Environment and Development, Agenda 21, Convention on Biological Diversity, Forest Principles and the Framework Convention on Climate Change came out of the 1992 Earth Summit.

The correct answer is Both 1 and 2.

Key Points

• The objective of Industrial policy 1956:
  • The expansion of the public sector.
  • Acceleration of public growth.
  • The building up of a large and growing Private sector.
  • The reduction of existing disparities in income and wealth.
  • To enhance gainful employment.
  • The prevention of private monopolies and the concentration of economic power of the field in different hands of a small number of individuals.

Additional Information

• The Industrial Policy Resolution (IPR) 1956 was adopted in order to achieve the aim of a socialist state with the government controlling the major strategic industries of the economy.
• The government kept indirect control on the industries in the private sector through the policy of industrial licensing.
• According to this resolution, the objective of the social and economic policy in India was the establishment of a socialistic pattern of society.

Important Points

The correct answer is Second.

• The Industrial Policy Resolution of 1956 formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. 

Additional Information

• Industrial Policy of 1956
  • Industrial Policy Resolution of 1956 (IPR 1956) is a resolution adopted by the Indian Parliament in April 1956.
  • It was the first comprehensive statement on the industrial development of India. 
  • It was regarded as the “Economic Constitution of India” or “The Bible of State Capitalism”.
  • The government revised its first Industrial Policy (i.e.the policy of 1948) through the Industrial Policy of 1956.
  • The 1956 Policy empha­sised the need to expand the public sector, to build up a large and growing coop­erative sector and to encourage the separation of ownership and management in private in­dustries and, above all, prevent the rise of pri­vate monopolies.
  • It provided the basic framework for the government’s policy regarding in­dustries till June 1991.

The correct answer is Wheat.

The Green Revolution in India was an introduction of High Yielding Varieties(HYV) of seeds for Wheat.

• HYV seeds are those seeds that produce huge quantities of crops particularly wheat and rice.
• The regular supply of water, maximum use of fertilizers, and use of pesticides in an accurate proportion are needed to use these seeds.
• HYV are seeds are of better quality than normal quality seeds.
• The yield from these seeds is slightly higher than the normal ones.
• These seeds have a good immune system to fight insects and other diseases.
• Under the new agricultural strategy, special emphasis has been placed on the development and widespread adoption of HYV seeds.
• The actual area under HYV by the end of the 7th plan was only 63.1 hectares.
• In 1998-99, the coverage rose to 78.4 million hectares.

• Current Account of Balance of payments does not include Investments.
• Current Account of Balance of payment is the sum of Balance of Trade, NetFactor income & Net Transfer payment.
• The current account of BOP is either positive meaning Surplus or Negative meaning Deficit.
• The current account has four components: trade, net income, direct transfer, Asset Income.

The Correct Answer is Grants given to Union Territories.

Key Points

• The balance of payments (BOP) is a report that summarizes all transactions between entities in one country and the rest of the world over a specified time span, such as a quarter or a year.
• The balance of payments (BOP), also known as the balance of foreign payments, is a tally of all transactions between individuals, companies, and government bodies within a country and those outside the country.
• Imports and exports of goods, services, and money, as well as transfer payments like foreign assistance and remittances, are all included in these transactions.
• The balance of payments divides transactions between the current account and the capital account.
• The capital account is sometimes referred to as the financial account because it is reported separately and is usually very small.
• The current account includes both product and service transactions, as well as investment gains and current transfers.
• The current account, capital account, and financial account are the three elements of the balance of payment. In ideal circumstances, the sum of the current account must balance with the total of the capital and financial accounts.

The correct answer is Reserve Bank of India.

Key Points

• In India, the Reserve Bank of India Act 1934 contains the enabling provisions for the Reserve Bank to act as the custodian of foreign reserves, and manage reserves with defined objectives.
• The powers of being the custodian of foreign reserves are enshrined, in the first instance, in the preamble of the Act.
• In 1946, India became a member of the International Monetary Fund (IMF) and from that time RBI has the responsibility of maintaining fixed exchange rates with all other member countries of the IMF.
• Foreign exchange reserves are assets like foreign currencies, gold reserve, SDR, and deposits with IMF, treasury bills, bonds, and other government securities.
• Most foreign exchange reserves are held in U.S. dollars, while China being the largest foreign currency reserve holder in the world.

Additional Information

The correct answer is predominantly by the market mechanism.

Key Points

• A fixed exchange rate 
  • It is a regime applied by a government or central bank that ties the country's official currency exchange rate to another country's currency or the price of gold.
  • The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.
  • The flexible rate of exchange is the rate that is determined by the supply-demand forces in the foreign exchange market. Hence, Option 1 is correct.
  • It is also called the free exchange rate as it is determined by the free play of supply and demand forces in the international money market.
  • The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.
  • Fixed exchange rates provide greater certainty for exporters and importers and help the government maintain low inflation.
  • Many industrialized nations began using the floating exchange rate system in the early 1970s.
  • Fixed rates provide greater certainty for exporters and importers. Fixed rates also help the government maintain low inflation, which, in the long run, keep interest rates down and stimulates trade and investment. 
  • Most major industrialized nations have had floating exchange rate systems, where the going price on the foreign exchange market (forex) sets its currency price. This practice began for these nations in the early 1970s while developing economies continue with fixed-rate systems.

• In September 2016, the Government of India approved the merger of the Railway Budget with the Union budget of India.
• The practice of a separate Railway Budget was started by the British in 1924 under the recommendation of a 10-member Acworth Committee.
• At that time the country’s gross domestic product (GDP) mostly depended on railway's revenue, in fact, then the Railway Budget was 84 percent of the general budget.
• In February 2016, Suresh Prabhu became the last railway minister to present a separate Railway Budget in the parliament.
• On 1 February 2017, Arun Jaitley became the first Finance Minister to present a combined railway and general budget.

The correct answer is Option 4.

Key Points

• The revenue budget comprises the revenue receipts of the government and the expenditure incurred in utilising the revenues. Hence, option 1 is incorrect.
• It gives the details of the sources from where the revenue is coming to the government. 
• Revenue receipts are divided into tax and non-tax revenue.
  • Tax revenues are taxes such as income tax, corporate tax, excise and other duties that the government levy.​
  • While non-tax revenue comprises the disinvestments that the government does in the companies where it is a stakeholder. 
• Revenue expenditure is expenditure done for the normal running of government departments and other services etc.
  • It is the expenditure that does not result in the creation of assets.
  • All grants given to state governments and other parties are also treated as revenue expenditure.
• ​The difference between revenue receipts and revenue expenditure is usually negative because the government spends more than it earns. Hence, option 3 is incorrect. 
  • It is termed as the revenue deficit. Hence, option 4 is correct.

Additional Information

• Borrowings, loans from a public or foreign government etc are included in capital receipts. Hence, option 2 is incorrect.

The correct answer is option 1 i.e First session (Budget).

• Article 87(1) of the Constitution provides that at the commencement of the first session after each general election to the House of the People and at the commencement of the first session of each year, the President shall address both Houses of Parliament assembled together and inform Parliament of the causes of its summons.
• In India, the Parliament conducts three sessions each year:
  • Budget session: February to May
  • Monsoon session: July to September
  • Winter session: November to December

The correct answer is Fiscal deficit - interest payment.

• The primary Deficit is measured by subtracting the interest payments from the fiscal deficit.
• Primary Deficit = Fiscal Deficit - Interest Payments
• Primary deficit is a measure of the current year's fiscal operation after excluding the liability of interest payment created due to borrowings of the past.
• Primary deficit is considered a tool to bring in more transparency in the government’s expenditure pattern.

• Revenue Deficit: Difference between total revenue expenditure and total revenue receipts.
• Budget Deficit: Difference between total expenditure and total receipts
• Monetised Deficit: Increase in the net RBI credit to the Union Government.

The correct answer is CPI (Consumer Price, Index, rural and urban, combined).

Key Points

• On 1 April 2014, the Reserve Bank of India adopted the Consumer Price Index (CPI) as a primary indicator of inflation.
• It was introduced in the first bi-monthly monetary policy statement for 2014-2015.
• It was adopted on the basis of the recommendations of the report of the Urjit R Patel Committee on the revision and strengthening of the monetary policy system.
• The Reserve Bank of India (RBI) used the Wholesale Price Index (WPI) to gauge and calculate indicative inflation estimates.
• This has been done essentially because it is the only indicator of prices at the national level and the CPIs have historically discussed prices faced by particular parts of society.
• The use of the CPI as a measure of inflation is intended to help measure inflation expectations since the CPI represents the cost of living.

The correct answer is Tiger.

Key Points

• Tiger is the animal present on the insignia of the RBI.
  • Insignia of the RBI consist of a tiger and palm tree.
  • Initially, Insignia of the RBI consist lion and palm tree, but later it was decided to replace the lion with the tiger.
  • Tiger is the national animal of India.

Additional Information

• Reserve Bank of India was formed on 1^st April 1935.
  • It is the central bank of India.
  • The recommendation of the Hilton Young Commission in 1926 leads to the formation of the Reserve Bank of India.
  • Reserve Bank of India is also called a "banker's bank".
  • RBI was nationalised on 1^st January 1949.
  • RBI issues all the currency notes above one rupee.
• Sir Osborne Smith served as the first governor of RBI.
• C. D Deshmukh served as the first Indian governor of RBI.
• Shaktikanta Das is the current governor of RBI.

The correct answer is the Lending of money to the public.

Key Points

• The lending of money to the public is not the function of RBI.
• Reserve Bank of India
  • The Reserve Bank of India is India's central bank and regulatory body under the jurisdiction of the Ministry of Finance, Government of India.
  • It is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
• Key functions of RBI are, banker's bank, the custodian of the foreign reserve, controller of credit, and managing the printing and supply of currency notes in the country.

• Major functions of the RBI are as follows:

  • Issue of Bank Notes
  • Banker to Government
  • Custodian of Cash Reserves of Commercial Banks
  • Custodian of Country's Foreign Currency Reserves
  • Lender of Last Resort
  • Central Clearance and Accounts Settlement
  • Controller of Credit (Controlling Inflation) Banking Supervision

The correct answer is RBI

• Repo rate is the rate at which the RBI lends money to the commercial banks in the country. It is decided by the RBI. 
• RBI works as a central monetary authority of India, like in any other Central Bank of any country, is empowered to guide, monitor, regulate, control, and promote the past, present, and future of the financial system of the country.
• RBI is performing such functions since 1935 after its inception as empowered by the Reserve Bank of India Act, 1934, and Banking Regulation Act, 1949.
• As a Central Bank of the country, the RBI performs a wide range of functions. Among various functions important are:
  1. Acts as the currency authority,
  2. Controls money supply and credit,
  3. Manages foreign exchange,
  4. Serves as a banker to the government,
  5. Builds up and strengthens the country’s financial infrastructure,
  6. Acts as the banker of commercial banks,
  7. Supervises banks.

The correct answer is all the finished goods and services produced within a country.

Important Points

Gross domestic product (GDP):

• The total monetary or consumer value of all finished goods and services produced within the boundaries of a country over a particular period of time is the Gross domestic product (GDP).
• GDP offers a country's economic snapshot, used to measure the size of an economy and the pace of growth.
• GDP can be measured using expenditure, production, or income in three ways.

The correct answer All of the above.

Key Points

• Macroeconomics refers to the branch of economics that deals with the performance, structure, and growth rate of the economy.
• Some of the important topics that are included in the study of macroeconomics include -

1. National Income
2. Price Indices
3. Savings
4. Investments
5. National and International finances.

Important Points 

• The founding father of macroeconomics is John Maynard Keynes.
• He was an English economist.
• He has contributed towards liquidity preference, AS-AD Model, and Demand-side economics.

The correct answer is Prime Cost Method.

• The Prime cost method is used to measure depreciation in the value of an asset. It assumes that the value of an asset decreases uniformly with time.
• The methods to calculate the GDP of a country are:
  • Value-added method: In this method, we calculate the monetary value added to the economy by all the final goods and services produced within a country. It includes value-addition from all sectors i.e. agriculture, manufacturing, and service sectors.
  • To get the exact GDP value from the Value-added method we must exclude the values added at intermediate stages. So, the final value of GDP as per the market value would be- GDP (as per the Value-added method) = Gross value of output – value of intermediate consumption. 
  • Income method: The income approach starts with the income earned from the production of goods and services. Under the income approach, we calculate the income earned by all the factors of production in an economy like  Land, Labour, Capital, and Management.
  • Formula : Net National Income = Wages + Rent + Interest + Profits
    To make it gross, we need to do two adjustments – Add depreciation of capital & Add Net Foreign Factor Income. NFFI is (income earned by the rest of the world in the country – income earned by the country from the rest of the world)
    GDP (Factor Cost) = Wages + Rent + Interest + Profits+ Depreciation + Net Foreign Factor Income
    This basically is the sum of the final income of all factors of production contributing to a business in a country before tax.
    Now if we add taxes and deduct subsidies, then it becomes GDP at Market cost.
    GDP (Market Cost) = GDP (Factor Cost)+ (Indirect Taxes – Subsidies).
  • Expenditure method: This approach is a converse of Income approach as rather than Income, it begins with money spent on goods & services. This measures the total expenditure incurred by all entities on goods and services within the domestic boundaries of a country.

    Mathematically, GDP (as per expenditure method) = C + I + G + (EX-IM)
    Where, C= Consumption Expenditure, I= Investment Expenditure (businesses spend money as they invest in their business activities. for example, buying land, machinery, etc), G =Government Expenditure on various activities, and (EX-IM) =Exports minus Imports, that is, Net Exports.

Explanation:

• Gross Domestic Product (GDP) shows total production within the boundaries of the country by both the citizens and foreigners, usually within a year.
• It is a geographical concept. 
• There are three different methods of calculating GDP:
• Income Method
• Expenditure Method
• Value Addition Method

The correct answer is option 4, i.e., supply is equal to demand

Key Points

• Equilibrium means a state of no change. Evidently, at the equilibrium price, both buyers and sellers are in a state of no change. Technically, at this price, the quantity demanded by the buyers is equal to the quantity supplied by the sellers. Both market forces of demand and supply operate in harmony at the equilibrium price.

Additional Information

• Graphically, this is represented by the intersection of the demand and supply curve. Further, it is also known as the market-clearing price. The determination of the market price is the central theme of microeconomics. That is why the microeconomic theory is also known as price theory.
• When the price of commodity increases, the sellers flock to the market with their products for an opportunity to earn higher profits. This creates a condition of excess supply, ultimately leading to a surplus of the particular product in its market.
• In order to sell this surplus, the sellers have to reduce the price. Effectively, the price continues to fall until it reaches the equilibrium level.
• When the price of a commodity decreases, the consumers sense an opportunity to buy the product at a lower price. This creates gives birth to excess demand in the product’s market.

The correct answer is Disguised Unemployment.

Key Points

• In such type of unemployment, the person seems to be employed but in actual he is not adding any productivity.
• The contribution of workers is zero or negligible to the total production which is mostly seen in rural areas.
• A condition of Disguised unemployment is created when there are more workers than usual to do a particular job.
• There is also a state of seasonal unemployment in the agricultural sector in rural India which is unemployment that occurs mostly in seasonal months of the year.
• Disguised unemployment and seasonal unemployment are the two most common types of unemployment found in rural India particularly in the farm sector.
• Under-employment is a condition under which employed people are contributing to productive activities less than they are capable of doing.

Educated unemployment is a serious threat to the development of the Indian nation and it is due to the following reasons:

• In urban areas especially, the growth of the industrial sector is very low leading the cause of unemployment as jobs are a rarity.
• Permanent jobs are also a rarity as it creates a feeling of depression among the students.

•  According to John Maynard Keynes, the volume of employment in a country depends on the level of 'effective demand' of people for goods and services.
• Earlier, the classical economists had said that there will always be full employment in a free enterprise capitalist economy because of the operation of Say’s Law and wage-price flexibility, but Keynes rejected the notion of full employment and termed it as a special case, not a general case.
• Keynes' theory of employment is demand deficient, that means he visualized the employment and unemployment from the demand side of the model.
• Later, he put all his concept of employment in his book titled - The General Theory of Employment, Interest and Money (1936). 

• An indifference curve, with respect to two commodities, is a graph showing those combinations of the two commodities that leave the consumer equally well off or equally satisfied—hence indifferent—in having any combination on the curve.
• An indifference curve maps the consumption bundles that the consumer views as equal. The consumer is equally as happy to consume at any point along the indifference curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. 
• The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. Graphically, the indifference curve is drawn as a downward sloping convex to the origin.
• 
• The above diagram shows the U indifference curve showing bundles of goods A and B. To the consumer, bundles A and B are the same as both of them give him equal satisfaction. In other words, point A gives as mu as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant.
• The slope of the indifference curve is the marginal rate of substitution (MRS).
• The MRS is the amount of a good that a consumer is willing to give up for a unit of another good, without any change in utility. If the consumer values apples, for example, the consumer will be slower to give them up for oranges, and the slope will reflect this rate of substitution.

The correct answer is Marginal rate of substitution.

Important Points

• The marginal rate of substitution (MRS)
  • The marginal rate of substitution (MRS) may be defined as the rate at which the consumer is willing to substitute one commodity for another without changing the level of satisfaction.
  • In other words, MRS can also be defined as the amount of a commodity that a consumer is willing to trade-off for another commodity, as long as the second commodity provides the same level of utility as the first one.
• Marginal Rate of Technical Substitution
  • The marginal rate of technical substitution (MRTS) is an economic theory that illustrates the rate at which one factor must decrease so that the same level of productivity can be maintained when another factor is increased.
  • The MRTS reflects the give-and-take between factors, such as capital and labor, that allow a firm to maintain a constant output. MRTS differs from the marginal rate of substitution (MRS) because MRTS is focused on producer equilibrium and MRS is focused on consumer equilibrium.
• Law of Diminishing Marginal Utility
  • ​The law of diminishing marginal utility explains that as a person consumes an item or a product, the satisfaction or utility that they derive from the product wanes as they consume more and more of that product.
  • For example, an individual might buy a certain type of chocolate for a while. Soon, they may buy less and choose another type of chocolate or buy cookies instead because the satisfaction they were initially getting from the chocolate is diminishing.
• Law of Equi-Marginal Utility
  • ​This law is based on the principle of obtaining maximum satisfaction from a limited income. It explains the behaviour of a consumer when he consumes more than one commodity.
  • The law states that a consumer should spend his limited income on different commodities in such a way that the last rupee spent on each commodity yield him equal marginal utility in order to get maximum satisfaction.

The correct answer is Decrease.

Key Points

• Tea and coffee are examples of Substitute goods.
• Those products which can be used by the consumer for the same purpose are known as substitute goods.
• A consumer perceives both goods as similar or comparable so that having more of one good causes the consumer to desire less of the other. 
• Other examples of substitute goods are
  • coke and Pepsi
  • McDonald's and burger king
  • Colgate and pepsodent

Additional Information

• Another type of good in microeconomics is Complementary goods.
• A complementary good is a product or service that adds value to another. In other words, they are two goods that are consumed together.
• Examples of complementary goods are
  •  car and petrol
  • cereal and milk
  • DVD and DVD player

• The tendency of the market to move towards the equilibrium is known as market mechanism. The balance thus formed between supply and demand is termed as market equilibrium.
• The demand curve is usually downward sloping. This shows that consumer tends to purchase more when the prices of a commodity are less.
• The supply curve is usually upward sloping. This shows that producers tend to sell more when the prices of a commodity are high.
• Price elasticity of supply is calculated as the percentage change in quantity supplied to the percentage change in price. Similarly, the Price elasticity of demand is calculated as the percentage change in quantity demanded to the percentage change in price.

Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of it.

Formulae:

Point of elasticity of demand = Percentage change in quantity/Percentage change in price

Percentage change in quantity = 400/1000 = 0.4

Percentage change in price = -2/12 = -0.166

The correct answer is option 3 i.e. Annual Financial Statement.

The Budget in constitution refers to as Annual Financial Statement. Article 112 deals with the annual financial statement.

• Budget is a statement covering estimated expenditure and receipts for the Government of India in a financial year.
• Other than that budget contains estimated revenue and capital receipts, ways to increase revenues, details for receipts and expenditure of closing financial year and economic and financial policy for the upcoming year.
• Earlier Government of India was having two budget, railway and general budget. It was separated in 1921.
• In 2016, Modi government merged the railway budget to the general budget and scraped the 92 years old practices.

The correct answer is China.

Key Points

• The Great Leap Forward (GLF) was a campaign initiated in 1958 in China.
• It was aimed to modernize China's economy. 
• The campaign was imitated towards the large-scale industrialization in the country not concentrated only in the urban areas. 
• The people were motivated to set up industries in their backyards.
• In the rural areas commune system was implemented.
• Under this system, people were engaged in collective farming.

The correct answer is Increase in exports.

Key Points

Devaluation of Currency:

• Devaluation is the deliberate downward adjustment of the value of a country's money relative to another currency, group of currencies, or currency standard.
• Countries that have a fixed exchange rate or semi-fixed exchange rate use this monetary policy tool.
• A weak domestic currency makes a nation's exports more competitive in global markets and simultaneously makes imports more expensive.
• It leads to an increase in exports and a decrease in imports. 
• Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products.
• This improvement in the terms of trade generally translates into a lower current account deficit (or a greater current account surplus), higher employment, and faster GDP growth. 
• The main effects of devaluation are:
  • Exports are cheaper to foreign customers
  • Imports are more expensive.
  • In the short term, a devaluation tends to cause inflation, higher growth and increased demand for exports.
• Generally, a devaluation is likely to contribute to inflationary pressures because of higher import prices and rising demand for exports. However, the overall impact depends on the state of the economy and other factors affecting inflation.

Additional Information

 Current account deficit -

• The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
• The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account.
• The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments (BOP).

The correct answer is 1 April 1935.

Key Points

• RBI was established on 1 April 1935. It was conceptualized based on the guidelines presented by Dr. Ambedkar to the "Royal Commission on Indian Currency & Finance” in 1925. Commission members found Dr. B. R. Ambedkar’s book "The Problem of the Rupee- It's origin and It’s Solution” an invaluable reference tool and the Central Legislative Assembly eventually passed these guidelines as the RBI Act 1934.

Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the value of ‘depreciation’.

NDP = GDP – Depreciation.

This way, NDP of an economy has to be always lower than its GDP for the same year, since

there is no way to cut the depreciation to zero. Hence Option A is the Correct Answer.

The correct answer is Equal to personal income minus Direct Taxes.

• Personal Disposable income is equal to personal income minus direct taxes. Disposable personal income (DPI), is the amount of money that households have available for spending and saving after income taxes have been accounted for.
• DPI= Personal Income− Direct Taxes​.
• For example, if a person earns Rs 100000 and the income tax is paid at the rate of 25 percent then he will have to pay Rs 25000 and he will be left with only Rs 75000. This Rs 75000 will be his disposable income.
• A higher disposable income represents that the income tax levied in a country is minimal and indirectly it also represents that the government of that country is prosperous and does not need a lot of money from the public for its operation.
• Disposable income is used by economists to measure and estimate various other related indicators like discretionary income, personal savings rates, marginal propensity to consume (MPC), and marginal propensity to save (MPS).
• Discretionary income is equal to disposable income minus payments for all the necessary items that one has to buy. Discretionary income can be spent on anything apart from necessary items and like luxury items or it can be saved or invested in a financial instrument. 
• Discretionary income is the first to shrink amid a job loss, pay reduction, or economic downturn. As a result, businesses that sell discretionary goods tend to suffer the most during recessions and are watched closely by economists for signs of both recession and recovery.
• The marginal propensity to consume (MPC) represents the percentage of disposable income that is spent, and the marginal propensity to save (MPS) represents the percentage of disposable income that is saved by an individual.