Economics Mock Test - 2

The correct answer is Option 4.

Key Points

• China’s reform and opening-up policies of 1978 introduced private business and market incentives to what was a state-led communist system.
• Prior to 1978, the private sector was virtually non-existent; today, private firms contribute to approximately 70 percent of China’s GDP.
• To get to this point, China underwent vast changes to its economic system over the past 40 years.
• Despite the breadth of the changes, however, China’s economic reforms have been characterized by gradualism and experimentalism, or “crossing the river by feeling the stones” as Deng famously once said.
• Special Economic Zones (SEZs) typified this gradualism and experimentalism, where the government piloted new reforms in geographically contained areas.

The correct answer is Option 4.

Key Points

• The One-child policy, an official program initiated in the late 1970s and early ’80s by the central government of China, the purpose of which was to limit the great majority of family units in the country to one child each.
• The rationale for implementing the policy was to reduce the growth rate of China’s enormous population. It was announced in late 2015 that the program was to end in early 2016.
• The one-child policy produced consequences beyond the goal of reducing population growth. Most notably, the country’s overall sex ratio became skewed toward males—roughly between 3 and 4 percent more males than females.
• Traditionally, male children (especially firstborn) have been preferred—particularly in rural areas—as sons inherit the family name and property and are responsible for the care of elderly parents.
• When most families were restricted to one child, having a girl became highly undesirable, resulting in a rise in abortions of female fetuses (made possible after ultrasound sex determination became available), increases in the number of female children who were placed in orphanages or were abandoned, and even infanticide of baby girls.

The correct answer is Option 3.

Key Points

• China's GDP at $18 trillion is almost five times India's GDP at $3.2 Trillion as of 2022. 
• In 1987, the GDP (Nominal) of both countries was almost equal; even in ppp terms, China was slightly ahead of India in 1990. 
• China crossed the $1 trillion mark in 1998, while India crossed nine years later in 2007 on an exchange rate basis.
• Both countries have been neck-to-neck in gdp per capita terms till 1990. As per both methods, India was richer than China in 1990. In 2021, China is almost 5.4 times richer than India on the nominal and 2.58 times richer in the ppp method.
• The per capita rank of China and India is 63rd and 147th, resp, in nominal. The per capita rank of China and India is 76th and 130th, resp, in ppp.
• As of 2022, With $3.2 tn, India's GDP is around ten times higher than Pakistan's gdp of $340 bn. In nominal terms, the gap is wider (above ten times) than ppp terms (8.3 times). India is the 7th largest economy in the world in nominal method and 3rd largest economy in ppp method. 
• Both countries have been neck-to-neck in gdp per capita terms. From 1960 to 2006, India was richer than Pakistan for only five years. GDP per capita of Pakistan was 1.54x of India in 1970. Margin is being wider in favor of India since 2009. In 2020, India's per capita income was 1.56 times higher than Pakistan's on an exchange rate basis, with an all-time high of 1.63x in 2019. 2006 is the previous year when Pakistan was richer than India.

The correct answer is physiological density.

• The total population per net cultivated area of a country refers to its physiological density.​

Key Points

• Physiological density or Real Population density is the number of people per unit area of arable land.
• A higher physiological density suggests that the available agricultural land is being used by more and may reach its output limit sooner than a country that has lower physiological density.
  • ​Egypt is a notable example of physiological density reaching that of Bangladesh despite much desert.
• It measure is helpful while studying population pressure and overcrowding.

Additional Information

•  Agricultural density: is the number of farmers per unit area of farmland.
  • ​It is one of the three measures of statistical analysis for population density in Demography
  • It is useful in recognizing trends in population growth, development and stability.
• Livestock density: It is defined as the ratio of total livestock to total utilised agriculture area of a farm, region or country.​
  • ​It is an indicator of the intensity of Live Stock production.
• ​Population density: It is the measurement of population per unit area or unit volume.
  • ​It is frequently applied to living organisms mostly Humans.

The correct answer is Sri Lanka.

Key Points

• The Human Development Index measures three basic dimensions of human development: long and healthy life, knowledge, and a decent standard of living. Four indicators are used to calculate the index: life expectancy at birth, mean years of schooling, expected years of schooling, and gross national income per capita.

Figure: HDI rankings in South Asia 2020

The correct answer is Tendulkar Committee.

Key Points

Tendulkar Committee (2009):-

• The expert group constituted by the Planning Commission and, chaired by Suresh Tendulkar, was constituted to review methodology for poverty estimation.
• The Tendulkar committee was constituted in December 2005, submitted its report in November 2009 and its recommendations were formally accepted only in 2011.
• This committee chaired by Suresh Tendulkar gave the following recommendations - 
  • A shift away from calorie consumption-based poverty estimation.
  • A uniform poverty line basket (PLB) across rural and urban India
  • A change in the price adjustment procedure to correct spatial and temporal issues with price adjustment
  • Incorporation of private expenditure on health and education while estimating poverty

VM Dandekar and N Rath:-

• Based on the data from the National Sample Survey (NSS) data VM Dandekar and N Rath made a systematic assessment of poverty in 1971.
• While the previous estimations had stressed subsistence living or basic minimum needs as a criterion for the poverty line, VM Dandekar and N Rath suggested that the poverty line’s criteria must be based on the expenditure that would provide 2250 calories per day both in rural and urban areas.

The correct answer is Option 4.

Key Points

• Human capital is the intangible collective resources possessed by individuals and groups within a given population.
• These resources include all the knowledge(Education), talents, skills, Health (abilities), experience, intelligence, training, judgment, and wisdom possessed individually and collectively, the cumulative total of which represents a form of wealth available to nations and organizations to accomplish their goals. Land is not amongst the components of Human Capital.
• Human capital is available to generate material wealth for an economy or a private firm. In a public organization, human capital is available as a resource to provide for public welfare.
• How human capital is developed and managed may be one of the most important determinants of economic and organizational performance.

The correct answer is 1982.

Key Points

• National Bank for Agriculture and Rural Development (NABARD) was established on 12 July 1982 by an Act of the Parliament.
• National Bank for Agriculture and Rural Development (NABARD) is an apex regulatory body for the overall regulation and licensing of regional rural banks and apex cooperative banks in India.
• It is under the jurisdiction of the Ministry of Finance, Government of India.
• The bank has been entrusted with "matters concerning policy, planning, and operations in the field of credit for agriculture and other economic activities in rural areas in India".
• NABARD is active in developing & implementing Financial Inclusion.

Additional Information

• The headquarters of NABARD is in Mumbai.
• The agency executive of NABARD is Harsh Kumar Bhanwala.
• The chairperson of NABARD is Govinda Rajulu Chintala, IAS. 

• India has the second-largest road network in the world.
• The National Highways Authority of India (NHAI) began in 1995.
• It is an autonomous body under the Ministry of Surface Transport.

Important Points

NHAI has taken up some major projects in the country under different phases:

• Golden Quadrilateral is a high-density traffic corridor that connects four big metro cities of India i.e. Delhi-Mumbai-Chennai-Kolkata.
  • It is designated as one of the longest highways in the world.
  • It was former Prime Minister Atal Bihari Vajpayee's first dream project and is enshrined as the biggest infrastructure intervention in the roadways sector in post-Independent India.
• North-South and East-West Corridors: 
  • The North-South corridor aims at connecting Srinagar in Jammu and Kashmir with Kanyakumari in Tamil Nadu. 
  • The East-West corridor has been planned to connect Silchar in Assam with the port town of Porbandar in Gujarat with 3,640-km of road length.

From the above, it is clear that four major cities are connected by Golden Quadrilateral i.e. Delhi-Mumbai-Chennai-Kolkata.

The correct answer is 17 goals and 169 targets.

Key Points

Sustainable Development Goals:

The United Nations General Assembly adopted the "2030 Agenda for Sustainable Development" in 2015, with global goals.

The 193 members of GA  adopted the framework "Transforming our world: the 2030 Agenda for Sustainable Development" with 17 goals & 169 targets.

• These goals were aimed to wipe out poverty, fight inequality & tackle climate change in the next 15 years.
• This Agenda is a plan of action for people, the planet, and prosperity.
• It also intends to strengthen universal peace in larger freedom.
• They seek to realize the human rights of all & to achieve gender equality & the empowerment of all women.

The Division for Sustainable Development Goals in the United Nations Department of Economic and Social Affairs (UNDESA) acts as the Secretariat for the SDGs.

Important Points

Those 17 goals are:

1. Take urgent action to combat climate change & its impact.
2. ​End poverty in all its forms everywhere.
3. Reduce inequalities within & among countries.
4. Achieve gender equality & empower all womens' & girls.
5. Zero hunger.
6. Good health & well-being.
7. Quality Education.
8. Clean water & sanitation.
9. Affordable & clean energy.
10. Decent work & economic growth.
11. Industry, Innovation & Infrastructure.
12. Sustainable Cities & Communities.
13. Responsible consumption & Production.
14. Life below water.
15. Life on Land.
16. Peace, Justice & Strong Institutions.
17. Partnership for the goals.

Transforming our world: the 2030 Agenda for Sustainable Development

• The 2030 Agenda for Sustainable Development was adopted at the United Nations Summit in New York from 25 to 27 September 2015.
• The Agenda is a broad and universal policy agenda, with 17 Sustainable Development Goals (SDGs), with 169 associated targets that are integrated and indivisible.
• Building on the Millennium Development Goals (MDGs), the 2030 Agenda seeks to guide the Member States to transform their approach to achieve inclusive, people-centred and sustainable development with no one left behind.
• They are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social and environmental. The inter-linkages and integrated nature of the SDGs are of crucial importance in ensuring that the purpose of the new Agenda is realized.
• If we realize our ambitions across the full extent of the Agenda, the lives of all will be profoundly improved and our world will be transformed for the better.

The correct answer is Subsistence agriculture.

• Indian Agriculture
  • Agriculture plays a vital role in the Indian economy. 
  • Over 70 percent of rural households depend on agriculture.
  • Agriculture is an important sector of the Indian economy as it contributes about 17% to the total GDP and provides employment to around 58% of the population.
  • Indian agriculture has registered impressive growth over the last few decades. 
  • The foodgrains production has increased from 51 million tonnes (MT) in 1950-51 to 250MT during 2011-12 highest ever since independence
  • The share of agriculture in GDP increased to 19.9 percent in 2020-21 from 17.8 percent in 2019-20.
  • The last time the contribution of the agriculture sector in GDP was at 20 percent was in 2003-04.
  • The predominant type of Indian agriculture is subsistence agriculture. Hence, Option 4 is correct.
  • In this, farmers grow food to feed themselves and their dependents.

Additional Information

• Features of intensive subsistence agriculture:
  • Small Holdings:
    • It is practiced in a smaller piece of land to meet the personal need first and sell the rest of it is in surplus.
  • Very Intensive Farming: 
    • Due to the very limited space of usable land for agriculture, farmers try to make as much as possible with their crops.
    • The farming is so intensive that they sometimes practice double- or treble-cropping.
  • Requires Much Hand Labour:
    • The intensive subsistence farmers don’t use much technology in their farming nor much machinery and thus much hand labour is required.
    • These farmers usually use traditional techniques and simple tools to produce the best products possible.
  • Use Of Animal And Plant Manures:
    • Farmers often use every available type of manure such as farm wastes, rotten vegetables, animal dung, human excreta, etc.

Prior to 1960, farmers in the country used to cultivate traditional varieties of wheat and rice.

• These varieties had a very low yield per hectare. In 1950 and 1960, to increase food production, the various agricultural inputs such as seeds, irrigation facilities, fertilizers, and pesticides were systematically improved.​
• Before independence, the economy was 95% dependent on agriculture and the revenues earned from agriculture.
• Concerning agriculture, the situation of the Indian economy on the eve of independence was disheartening.
• Agriculture, even after being the most important sector, was facing economic deterioration and stagnation in the economy.​ 

Key Points

• The Indian economy was facing the adverse effects of the zamindari system, which is the practice of making farmers work and collect rent as tax, irrespective of the situation before independence. 
• The scarcity of agricultural resources led to the stagnancy in agriculture.
• The commercialization of agriculture meant moving from growing goods for their consumption to growing for the market.
• The existence of middlemen prevented the development of the economic condition of the farmers, which caused stagnation in the agriculture sector.

​So, we can say that the condition of the Indian Agriculture Sector before independence is Stagnation.

The correct answer is Second five Year Plan.

• The Second five-year plan followed the Mahalanobis model. 
• Mahalanobis model is a financial advancement model upheld by the Indian analyst, Prasanta Chandra Mahalanobis in the year 1953. 
• Establishment of hydroelectric force ventures and 5 steel factories at Durgapur, Bhilai and Rourkela. 

​Key Points

• The objective of this project is as follows:
  • To enhance a socialistic pattern of society as envisaged at the Avadi summit of India National Congress of India.
  • To increase the Indian economy by 25% expansion in employment and reduction of inequality.
  • To increase the rate of investment from 7% to 11% of GDP.
  • Expansion of industrialization special focus on heavy Industry.
• Achievement:
  • The growth rate during the second plan was 4.2% but it was targeted at 4.5%.
  • Establishment of hydroelectric force ventures and 5 steel factories at Durgapur, Bhilai and Rourkela. 
  • The Nuclear Energy Commission was formed in 1958 under the execution of Homi Bhaba. 
  • Goodbye Institute of Fundamental Research was perceived as an examination organization.
  • In the year 1957, an ability search and grant program was begun to discover youthful gifted understudies to instruct for work in the atomic force.
  • There is an acute shortage of foreign exchange reserves which lead to primary development targets.
  • There are Inflation and low agriculture production during the Second Five Plan.

The correct answer is Twelfth Five year plan

Key Points

• Planning Commission was replaced by a new institution – NITI AAYYOG on January 1, 2015, with emphasis on ‘Bottom–Up’ approach to envisage the vision of Maximum Governance, Minimum Government, echoing the spirit of ‘Cooperative Federalism.
• 12^th Five-year plan was underway from 2012-2017.
• Administrative Setup
  • Chairperson: Prime Minister
  • Vice-Chairperson: To be appointed by the Prime-Minister
  • Governing Council: Chief Ministers of all states and Lt. Governors of Union Territories.
  • Regional Council: To address specific regional issues, Comprising Chief Ministers and Lt. Governors Chaired by Prime Minister or his nominee.
  • Ad-hoc Membership: 2 members in ex-officio capacity from leading Research institutions on a rotational basis.
  • Ex-Officio membership: Maximum four from the Union council of ministers to be nominated by the Prime minister.
  • Chief Executive Officer: Appointed by Prime-minister for a fixed tenure, in rank of Secretary to Government of India.
  • Special Invitees: Experts, Specialists with domain knowledge nominated by Prime-minister.

Additional Information

The correct answer is The policy was used for promoting industry in backward regions.

Key Points

• Industrial Policy resolution 1956
  • In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted.
  • This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. Hence, Statement 1 is not correct.
  • This resolution classified industries into three categories.
    • The first category comprised industries that would be exclusively owned by the state
    • The second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units
    • The third category consisted of the remaining industries which were to be in the private sector; Hence, Statement 2 is not correct.
  • Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses.
  • No new industry was allowed unless a license was obtained from the government. Hence, Statement 4 is not correct.
  • This policy was used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area. In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff.
  • The purpose of this policy was to promote regional equality. Hence, Statement 3 is correct.

The correct answer is Option 3.

Key Points

• Managed floating exchange rate:
  • It is a combination of a flexible exchange rate system and a fixed-rate system.
  • Under this, central banks sometimes intervene by selling foreign currencies in the exchange to stabilize the domestic currency, this is called dirty floating.
  • Hence option 3 is the correct answer.

Additional Information

• Fixed-Rate or Fixed Float:
  • Under this system, the Central bank decides the official exchange rate.
  • A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen, or a basket of currencies).
  • In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.
• Flexible Rate or Free Float:
  • When the exchange rate is decided by the market force (demand and supply of currency), it is called the flexible exchange rate. 

The incorrect answer is Social Account

Key Points  Balance of Payments:

• The balance of payments (BOP), sometimes known as the balance of international payments, is a statement of all transactions that take place between entities in one country and the rest of the world over a certain time period, such as a quarter or a year.
• It outlines all transactions between individuals, businesses, and government entities within a country and individuals, businesses, and government bodies outside the country.

 Components of balance of payment:

Important Points 1. Current Account:

• The current account measures a country's balance of trade as well as the impact of direct payments and net income on its economy.
• When residents of a country make purchases, these funds supply the country with the savings and income it requires to fund purchases, business activity, and infrastructure spending.
• The current account balances when a country's consumer expenditure is sufficient to cover these activities. 
• The four major components of a current account are goods, services, income, and current transfers.

2. Capital account:

• ​On a national level, the capital account indicates a country's balance of payments.
• The capital account records the net change in a country's assets and liabilities over the course of a year.
• Economists will be able to tell if a country is a net importer or exporter of capital based on the capital account balance.

3. Official settlement account: 

• Official settlement accounts reflect the current account and capital account of central banks in international balance of payments accounting.
• Reserve asset inflows or outflows bring the ledger back into balance when there is either a balance of payments deficit or surplus. The official settlement account reflects this.
• Types of transactions include those involving gold, foreign exchange reserves, bank deposits, and special drawing rights among other items are included in this account.

The current account on the balance of payments measures the inflow and outflow of goods, services and investment incomes.

1. Trade in goods (visible balance)

2. Trade in services (invisible balance) e.g. insurance and services

3. Investment incomes e.g. dividends, interest and migrants remittances from abroad

4. Net transfers – e.g. International aid, grants etc

The correct answer is  0.

The sum of all transactions recorded in the balance of payments must be zero. However, exchange rate fluctuations and differences in accounting practices may hinder this in practice.

• The reason is that every credit appearing in the current account has a corresponding debit in the capital account, and vice-versa.
• It is depicted as follows:

• The balancing item, which may be positive or negative, is simply an amount that accounts for any statistical errors and assures that the current and capital accounts sum to zero.
• The current account shows the net amount of a country's income if it is in surplus, or spending if it is in deficit. 
• The capital account records the net change in ownership of foreign assets.
• A country's international accounts is made of balance of payments and its net international investment position.
• If a country exports an item (a current account transaction), it effectively imports foreign capital when that item is paid for (a capital account transaction).

The correct answer is Option 1.

Key Points

• Devaluation means the reduction in the official value of a currency in relation to other currencies. So, finally it will lead to a decline in the external value of the currency. 
• Devaluation is employed to eliminate persistent balance-of-payments deficits.
• For example, a devaluation of currency will decrease prices of the home country’s exports that are purchased in the import country’s currency. While making the exported goods cheaper for other countries, devaluation also increases the prices of imports purchased in the home country.
• If the demand for both exports and imports is relatively elastic (that is, the quantity purchased is highly responsive to changes in price), the country’s income from exports will rise, and its expenditure for imports will fall. Thus, its trade will be more in balance and its balance of payments improved.

The correct answer is Primary Deficit.

• 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 in the process of bringing in more transparency in the government’s expenditure pattern.

Additional Information

• 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 option 3

Key Points

• Receipts from taxes on property and capital transaction
• Receipts from taxes on property and capital transaction are the parts of Revenue Receipts.
• The difference between Capital Receipts and Revenue Receipts is listed below:

Key Points

Revenue expenditure of the Government:

• Revenue Expenditure is that part of government expenditure that does not result in the creation of assets.
• Payment of salaries, wages, pensions, subsidies, and interest fall in this category as revenue expenditure examples.
• Also, note that revenue expenses are incurred by the government for its operational needs.
• Modern governments collect huge sums of money.
• Expenditure of these large amounts has become an extremely complex task.
• Apart from spending on salaries and pensions, the government also spends on the construction of schools, colleges, hospitals, roads, bridges, railways, airports and seaports.
• It also incurs expenses on securing the country from internal and external enemies.

Hence, Payment of interest is revenue expenditure of the Government.

The correct answer is  Zero-based Budget.

Key Points

• The zero-based budget is known as the Sunset Budget System.
• This means before sunset of the financial year every department has to submit a zero-based budget. It contains details of the activities of each department.
• Zero Based budgeting was developed in 1969 by Peter Pyre of the USA.
• It was first applied by Governor Jimmy Carter in the fiscal year 1973.
• This system provides more scrutiny and transparency in the budgeting process.
• In India, this practice was initiated in the Department of Science and Technology in 1983.
• In 1986, the Indian government adopted this technique of budgeting.

The correct answer is Revenue Deficit excluding Grants in aid for the creation of assets to states.

• The calculation of the effective revenue deficit was introduced Union Budget in the year 2010-11
• Every year the Central Government gives grants to State Governments and Union Territories with the legislature.
• With these grants, the State government and Union Territories also creates capital assets but these things are not added in the capital expenditure of the  Central Government.
• To capture this expenditure the new formula of Effective Revenue Deficit was evolved.
• Effective Revenue Dificit= Revenue Deficit - Grants in aid for the creation of capital assets.

​Additional Information

• Budget Deficit= Total Expenditure -Total Receipts
• Revenue Deficit= Revenue Expenditure and Revenue Receipts
• Fiscal Deficit= Total Expenditure-Total Receipts except borrowing and other liabilities.

• SMART Money Is the term used for credit cards.
• Credit cards are sometimes considered as smart money since they enable transactions without the need for physical cash and that, too, in a convenient manner.
• It is plastic money that is used to pay for products and services at over 20 million locations around the world.

The correct answer is  M1 + Net time deposits of commercial banks.

Key Points

• The total stock of money in circulation among the public at a particular point of time is called money supply.
• Money supply, like money demand, is a stock variable.
  • A stock variable is a quantity that is measurable at a particular point in time.
• M1 = CU + DD
  • CU = currency (notes plus coins) held by the public.
  • DD = net demand deposits held by commercial banks.
  • The word ‘net’ implies that only deposits of the public held by the banks are to be included in the money supply.
  • The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply.
• M2 = M1 + Savings deposits with Post Office savings banks
• M3 = M1 + Net time deposits of commercial banks
• M4 = M3 + Total deposits with Post Office savings organizations (excluding National Savings Certificates).

Additional Information

• RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3, and M4.
• M1 and M2 are known as narrow money.
• M3 and M4 are known as broad money.
• These measures are in decreasing order of liquidity.
  • M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all.
  • M3 is the most commonly used measure of the money supply. It is also known as aggregate monetary resources.

The correct answer is All of the above

• 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.
• Few other important functions of RBI include:
  • Reserve Bank of India under the RBI Act, Section 22 is solely accountable for the issuance of currency notes excluding the rupee one-note issued by the Finance Secretary of the Government of India. 
  • RBI acts as a banker to commercial banks.
  • RBI conducts banking and financial operations of the Government of India and advises on various financial and economic issues.
  • While handling the Government business, RBI maintains government accounts, advises on monetary matters including financial aspects, besides carrying out Government business as and when required.
  • It provides financial accommodation to the cooperative banking sector for financing special sectors of the economy like agriculture etc.
  • Bank performs the function of the controller of the exchange value of the rupee vs. the US dollar.
  • Acts As a counselor and manager of banking and financial system, RBI appoints CEOs of Banks and put its members of the Boards of the Bank to guarantee proper Governance and well-defined banking practices.

The Correct Answer is Option 1, i.e Governor of Reserve Bank of India.

Monetary Policy Committee:

• The Monetary Policy Committee is responsible for fixing the benchmark interest rate in India.
• It determines the policy interest rate required to achieve the inflation target.
• The main objective of Monetary policy is to maintain financial stability and ensure an adequate flow of credit.
• The Committee comprises of 6 members:
  • Of these, three members are from RBI while three other members are nominated by the Central Government.
  • In case of a tie, the RBI governor has casting vote to break the tie.
  • Chairman of the Monetary Policy Committee is the governor of RBI.

• Marginal propensity to consume refers to the ratio of change in consumption expenditure to change in total income.
• MPC = Change in consumption (ΔC) / Change in Income (ΔY)
• The marginal propensity to consume lies between 0 to 1 as we know incremental income is either spent on consumption or saved for future use.
• If the entire income is consumed, i.e. ΔS = 0, then MPC = 1 and if entire additional income is saved, i.e. ΔC = 0, then MPC = 0. So, 2 is the correct answer.

The correct answer is Employment of more persons in a job which can be accomplished by lesser number of person.

Key Points

• Disguised Unemployment:
  • It is a phenomenon wherein more people are employed than actually needed.
  • It is primarily traced in the agricultural and the unorganised sectors of India​.
  • The marginal productivity of labour is zero.

​​​ Additional Information

• Seasonal Unemployment:
  • It is unemployment that occurs during certain seasons of the year.
  • Agricultural labourers in India rarely have worked throughout the year.
• Structural Unemployment:
  • It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.
  • Many people in India do not get the job due to a lack of requisite skills and due to the poor education level, it becomes difficult to train them.
• Cyclical Unemployment:
  • It is the result of the business cycle, where unemployment rises during recessions and declines with economic growth.
  • Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies.
• Technological Unemployment:
  • It is the loss of jobs due to changes in technology.
  • In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year on year.
• Frictional Unemployment:
  • Frictional Unemployment also called Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.

the correct answer is Option 3.

Key Points

• Deflation sets in when aggregate supply exceeds aggregate demand, Recession sets in.
• This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks.
• Either way there is a tendency for output to move closer to the current level of demand.

The correct answer is Personal demand.

Key Points

• Aggregate demand measures the total amount of demand for all finished goods and services produced in an economy.
• Aggregate demand is expressed as the total amount of money spent on those goods and services at a specific price level and point in time.
• Aggregate demand consists of all consumer goods, capital goods (factories and equipment), exports, imports, and government spending.

The correct answer is Dadabhai Naoroji.

• Dadabhai Naoroji was the first to determine national income.
• He is also known as the grand old man of India.

Key Points

• He was also an unofficial ambassador of India.
• In the UK, he was a member of the house of Commons in 1892.
• He was the first Indian to become a member of the British parliament.
• He was born in Bombay.
• He was the co-founder of the Indian National Congress.
• He was an academician, politician, and trader.
• He propounded the theory of wealth drain from India.
• He was born in a Parsi family.
• Maharaja of Baroda, Sayajirao Gayakwad patronised him.
• The London society in 1865 was launched by him.

TB Solution:

The correct answer is 2 i.e. Factor Cost. 

Explanation:

• The value of total produced goods and services i.e. national income of any economy is calculated on either of the two parameters - ‘factor cost’ or the ‘market cost’.
• Factor cost is basically the input costs (like raw material, interest on loans if taken, labourer wages, etc) the producer or the manufacturer has to bear during the process of producing goods. Factor cost is also termed as ‘factory price’. So in a way, it can also be termed as the ‘price’ of the commodity from the producer’s side. 
• Now when we add the taxes (indirect) to the factory cost we get ‘market cost’. So it means the cost at which the goods reach the market, i.e., showrooms (the tax paid by the producers to the union government in India). After adding the state government taxes (SGST) to it we get 'market price’ or factor price. 
• Before 2015 officially India calculated the national income at factor cost(however the data regarding market cost was also released) but after 2015, CSO has switched over to calculating it at market price (i.e., market cost). 
• The market price is calculated by adding the product taxes (both the state and central taxes) to the factor cost. 

The correct answer is Karnataka.

Key Points

• The states with the highest growth in the gross domestic product over the last four financial years are as follows
  • Haryana
  • Gujarat
  • Karnataka
  • Telangana
• They have even surpassed that of the nation as a whole.

Additional Information

• The state economies that grew significantly lower than the national average are
  • Rajasthan
  • Jharkhand
  • Punjab
  • Chhattisgarh

Explanation:

• Net National Product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period. H
• It is the equivalent of the based on to Gross National Product (GNP) minus the amount of GNP required to purchase new goods to maintain existing stock, otherwise known as depreciation.

The Correct Answer is The Gross Domestic Product (GDP) that is calculated at the current market price.

Key Points

• GDP is the final value of all the goods and services produced in a country in a given year.
• Nominal gross domestic product is the gross domestic product (GDP) evaluated at current market prices.

Additional Information

• Real GDP, on the other hand, is calculated by taking a base year as a determinant.
• Real GDP adjusts for price changes due to inflation/deflation.
• The main difference between nominal GDP and real GDP is the adjustment for inflation.
• A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange.
  • It uses cryptography functions to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency.

• The degree of elasticity of demand helps in defining the shape and slope of a demand curve. Therefore, the elasticity of demand can be determined by the slope of the demand curve. The flatter the slope of the demand curve, the higher the elasticity of demand.
• When demand is perfectly elastic (or elasticity of demand is infinity), equilibrium price remains unchanged with an increase or decrease in supply. When demand is perfectly elastic, buyers will only buy at one price and no other.
• Perfectly elastic demand is a theoretical concept and cannot be applied in a real situation. However, it can be applied in cases, such as a perfectly competitive market and homogeneity products. In such cases, the demand for a product of an organization is assumed to be perfectly elastic.
• From an organization’s point of view, in a perfectly elastic demand situation, the organization can sell as much as it wants as consumers are ready to purchase a large quantity of products. However, a slight increase in price would stop the demand.
• Hence, if elasticity of demand is infinity, equilibrium price remains the same no matter supply increases or decreases.

The correct answer is Marshall.

Key Points

•  Indifference curve:
  • An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent.
  • Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.
  • Typically, indifference curves are shown convex to the origin, and no two indifference curves ever intersect.
  • Standard indifference curve analysis operates on a simple two-dimensional graph.
  • Each axis represents one type of economic good.
  • Along the indifference curve, the consumer is indifferent between any of the combinations of goods represented by points on the curve because the combination of goods on an indifference curve provides the same level of utility to the consumer.
  • The slope of the indifference curve is equal to the marginal rate of substitution.

Additional Information

• Property of indifference curves:
  • The indifference curve convex to the origin.
  • The indifference curves, higher is the level of satisfaction.
  • The indifference curve is downward sloping.
  • Two indifference curves cannot intersect each other.
  • As we move down the indifference curve from left to right, the slope of the indifference curve tends to Decline.
  • Two indifference curves cannot cut each other because Each indifference curve represents a different level of satisfaction.

Important Points

• Alfred Marshall:
  • Alfred Marshall was the dominant figure in British economics (itself dominant in world economics) from about 1890 until his death in 1924.
  • His specialty was microeconomics—the study of individual markets and industries, as opposed to the study of the whole economy.
  • In his most important book, Principles of Economics, Marshall emphasized that the price and output of a good are determined by both supply and demand: the two curves are like scissor blades that intersect at equilibrium. 

• People seek the highest level of utility, which means that they wish to be on the highest possible indifference curve. However, people are limited by their budget constraints, which show what tradeoffs are actually possible. The solution to this problem, i.e. the combination of goods and services that will maximize an individual’s total utility given their budget, is called the consumer equilibrium. The consumer is in equilibrium when he maximizes his utility, given his income and the market prices.
• A budget line is a graphical representation of various combinations of two goods that a consumer can afford at specified prices of the products at a particular income level. A budget line can be drawn on the basis of the expenditure plan.
• Consumer equilibrium exists at the point on the indifference curve where the budget line is tangent to the curve. Thus, at the equilibrium point, the slope of the budget line is equal to the slope of the indifference curve.

The correct answer is <1

Key PointsPrice Elasticity

•  Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price
• Price Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price.
• A good is elastic if a price change causes a substantial change in demand or supply.
• A good is elastic if a price change causes a substantial change in demand or supply.

Important Points Relationship between total revenue and elasticity

• Due to the concept of demand elasticity, the function of TR is graphed as a downward opening curve.
• When the price rises, the quantity decreases. The original price and quantity, as well as the slope of the demand curve, determine whether overall revenue will increase or decrease.
• If the percentage increase in quantity is greater than the percentage decrease in price, overall revenue will grow as a result of the increase in quantity. Whether a product's demand is elastic or inelastic is determined by the percentage change in price and quantity.

• When demand is inelastic (price elasticity <1), price and total revenue have a positive relationship, which means that as price rises, total revenue rises as well.
• When demand is elastic (price elasticity > 1), price and total revenue have a negative relationship, meaning that price increases lead to lower total revenue.
• When demand is unit elastic (price elasticity = 1), price changes have no effect on total revenue. When the demand elasticity is 1, the overall revenue is maximised.

The correct answer is negative.

• Complementary goods have a negative cross-price elasticity.

Key Points

• Complementary goods are those goods that are used together to meet a particular need. For example, cars and petrol, tea and sugar.
• Complementary goods are those which are useless in the absence of other goods and which are demanded jointly.
• There would always be an inverse relationship between the price of complementary goods and demand for a given commodity.
• In the case of complementary goods, if there is an increase in the price of a commodity, the consumer also reduces his demand for the complementary goods.

Additional Information

• Substitute Goods:
  • Substitute goods can be used in place of other goods and give the same satisfaction to a consumer.
  • There would always exist a direct relationship between the price of substitute goods and demand for a given commodity.
  • It means with an increase in the price of substitute goods, the demand for a given commodity also rises and vice-versa.
  • For example, Pepsi and Coke, tea and coffee are substitutes for each other.

The correct answer is Scarcity.

Key Points

• Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have.
  • Therefore, this variation between supply and demand leads to the formation of central problems of an economy.
  • The three basic central economic problems are regarding the allocation of resources.
    • what to produce, how to produce, and for whom to produce.
  • Solutions to scarcity :
    • economic growth. reduce our wants, use our existing resources wisely 
  • Causes of scarcity
    • Demand-induced – High demand for resources.
    • Supply-induced – supply of resource running out.
    • Structural scarcity – mismanagement and inequality.
    • No effective substitutes.

Additional Information

• Poverty entails more than the lack of income and productive resources to ensure sustainable livelihoods. 
  • Poverty creates many economic costs in terms of the opportunity cost of lost output, the cost of welfare provision, and the private and external costs associated with exclusion from normal economic activity.
  • Its manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion as well as the lack of participation in decision-making.
• Economic inequality most often refers to disparities in wealth and income.
  • Gross annual income refers to all earnings before any deductions are that may exist in certain societies.
  • Economic inequality is a metric that many jurisdictions and governments monitor to assess the impact of policy changes.
• Unemployment occurs when a person who is actively searching for employment is unable to find work.
  • four types of unemployment:
    • Demand deficient,  frictional, structural, and voluntary unemployment
  • The unemployment rate is a percentage and calculated by dividing the number of unemployed individuals by the number of all currently employed individuals in the labor force.

The correct option is 2 i.e., Socialist Economy.

• Socialist Economy:
  • Socialist Economy, government decides what goods are to be produced in accordance with the needs of society.
  • In a socialist economy, the entire foundation is based on socio-economic objectives. 
  • The main aim of the Socialist Economy is the welfare of society.
• Mixed Economy:
  •  Mixed Economy is defined as an economic system blending elements of market economies with elements of planned economies, free markets with state interventionism.
  • In western economies, the term Mixed Economy refers specially to a capitalist economy.
•  Capitalist Economy:
  • Capitalist Economy is the economy in which private actors own and control property in accord with their interests, and demand and supply.
  • The essential feature of capitalism is the motive to make a profit.

The production possibilities curve is also known as the Transformation curve.

• Production possibilities curve is a curve that shows various combinations of two goods that can be produced within the given resources.
• It is a graphical representation showing all the possible options of output for two products that can be produced using all factors of production.
• Here all the given resources are fully and efficiently utilized per unit time.
• It illustrates economics concepts like allocative efficiency, economies of scale, opportunity cost, productive efficiency, and scarcity of resources.
• The production possibilities curve is also known as transformation because when we really transform one good into another by shifting resources from one use to another.

 Thus, we can conclude that the Production possibilities curve is also known as Transformation Curve.

The correct answer is The economy has to sacrifice some production of one commodity in order to increase the production of another commodity.

• Production Possibility Frontier is a curve which shows the relation in production of two commodities in an economy with limited resources.
• It plots the production of two products (one taken on the x-axis and the other on the y-axis) according to all the possible combinations of the available resources.
• The intercepts of this curve on either axis represents the production of that product only (Zero production of the other one).
• As one moves along the curve, it can be observed that when the production of other products comes into play, that of the first product starts decreasing.
• Hence it can be clearly said that the production of one commodity has to be sacrificed in order to increase the production of another commodity.

The correct answer is Economic recession

Key Points Production Possibility Curve: 

• The maximum output of two items utilizing a fixed amount of input is measured by a production possibilities curve.
• Any combination of the four components of production, comprising natural resources (including land), labour, capital goods, and entrepreneurship, is used as an input.
• While drawing the production possibilities curve, we will assume that the economy can only manufacture two items and that the amounts of factors of production and technology available to the economy are fixed. 

Important Points Shift in Production Possibility Curve:

• When the PPC moves outward, the economy is growing.
• When it moves inwards, it means the economy is contracting as a result of a failure in resource allocation and production capability. This is the stage in the economy known as Economic recession
• A decreasing economy could be caused by a shortage of supply or a technological gap.

The correct answer is option 2, i.e. Low marginal propensity to consume.

Marginal propensity to consume (MPC) is defined as the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.

• Keynesian theory states that increasing investment or government spending increases consumers’ income, and they will, in turn, spend more.
• This additional spending will generate additional production, creating a continuous cycle via a process known as the Keynesian multiplier.
• The higher the MPC, the higher the multiplier—the more the increase in consumption from the increase in investment; similarly, the lower the MPC, the lower the multiplier.

The correct answer is 1 and 2 only.

Key Points

• Money Supply:
  • The total stock of money in circulation among the public at a particular point in time is called money supply.
  • It needs to be noted that the total stock of money is different from the total supply of money.
  • Supply of money is only that part of the total stock of money that is held by the public at a particular point in time.
  • The circulating money involves the currency, printed notes, money in the deposit accounts and the form of other liquid assets.
  • RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
  • M1 = CU + DD
  • M2 = M1 + Savings deposits with Post Office savings banks
  • M3 = M1 + Net time deposits of commercial banks
  • M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates)
  • CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks.
  • The word ‘net’ implies that only deposits of the public held by the banks are to be included in the money supply.
  • The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply.
  • M1 and M2 are known as narrow money. M3 and M4 are known as broad money.
  • Broad Money (M3)
  • M3 = M1 + Time deposits with the banking system (M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other deposits with RBI)
  • Hence, Option 1 is correct.
  • M4 = M3 + All deposits with post office savings banks
  • These gradations are in decreasing order of liquidity.
  • M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all.
  • M3 is the most commonly used measure of the money supply. It is also known as aggregate monetary resources.