Economics Test - 6

• 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 option 3, i.e. The concept of 'Paradox of Thrift' was given by John Maynard Keynes.

Paradox of Thrift:

• This concept talks about the ill effects of the personal savings of an individual on the economy.
• According to Keynes, During a recession in the economy, people tend to save more money as deposits rather than spending it.
• It leads to a decrease in aggregate demand and the production falls, due to which the wages are reduced to counterbalance the fall in production.
• Hence the amounts of money available in the hands of people decrease and ultimately their savings also fall.
• In turn, the amount of money available with banks to lend as loans will decrease and the economy will go into a deeper recession.
• The concept is a paradox because according to it the savings of people will decrease because of the increase in their savings.

The correct answer is Between 15 and 59 years old.

Demographic Dividend:

• According to United Nations Population Fund (UNFPA), demographic dividend means, "the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older)"
• .India has 62.5% of its population in the age group of 15-59 years which is ever increasing and will be at the peak around 2036 when it will reach approximately 65%.
• These population parameters indicate the availability of demographic dividend in India, which started in 2005-06 and will last till 2055-56.

Advantages Associated with Demographic Dividend:

• Better economic growth brought about by increased economic activities due to higher working-age population and lower dependent population. It will be channelised in the following ways:
  • Increased Labour Force that enhances the productivity of the economy.
  • Increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure.
  • The rise in women’s workforce that naturally accompanies a decline in fertility, and which can be a new source of growth.
  • Increase in the savings rate, as the working-age also happens to be the prime period for saving.
  • A massive shift towards a middle-class society, that is, the rise of aspirational class.
• The demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
• The country’s demographic-dividend phase lasted from 1964 to 2004.
• The rise in the workforce: With more than 65% of the working-age population, India will rise as an economic superpower, supplying more than half of Asia’s potential workforce over the coming decades.
• Effective policymaking: Fine-tuning the planning and implementation of schemes and programmes by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.

Challenges Associated with Demographic Dividend:

• Asymmetric demography: The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states and the demographic dividend will be fully realized only if India is able to create gainful employment opportunities for this working-age population.
• Lack of skills
• The informal nature of the economy in India is another hurdle in reaping the benefits of demographic transition in India.
• Jobless growth

The correct answer is a-3, b-2, c-1.

• A Person who is not gainfully employed in any productive activity and who is actively searching for employment is unable to find work is said to be unemployed. 
• In economics, unemployment is to be studied with respect to
  • Nature of job
  • Working-age group
  • Demand for and supply of labour
  • Prevailing wage rate
• The National Sample Survey Organization (NSSO) provides three different estimates of employment and unemployment based on different approaches/reference periods used to classify an individual’s activity status.
  1. Usual status approach with a reference period of 365 days preceding the date of the survey.
  2. Current weekly status approach with a reference period of seven days preceding the date of the survey.
  3. Current daily status approach with each day of the seven days preceding the date of the survey as the reference period.
• In order to find out whether an individual is employed or unemployed, it needs to be first determined whether s/he belongs to the ‘Labour Force’ or not, which in turn depends on the Activity Status of the individual during the chosen reference period.
  • The labour force (also called the workforce) is the total number of people employed or seeking employment in a country or region.
• Activity Status refers to the activity situation in which the individual is found during the reference period with respect to his participation in economic or non-economic activities.
• The NSSO defines the following three broad Activity Status 
  • Working (engaged in economic activity) i.e. ‘Employed’.
  • Seeking or available for work i.e. ‘Unemployed’.
  • Neither seeking nor available for work.
• Unemployment rate = (Unemployed  Workers / Total labor force) X 100
• Work participation rate = (Total Workers) / Total Population) X 100

Important Points 

• Types of Unemployment :
  • Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand. 
    • Example - Recession of 2008-2010
  • Structural unemployment comes through a technological change in the structure of the economy in which labour markets operate. 
    • Example - Automation of manufacturing, Artificial intelligence.
  • Frictional unemployment occurs as a result of people voluntarily changing jobs within an economy. 
    • Example - Searching for a new job, recruiting new workers, and matching the right workers to the right jobs all take time and effort, resulting in frictional unemployment.
  • Disguised unemployment is unemployment that does not affect aggregate economic output.
    • Disguised unemployment occurred usually in developing countries whose large populations create a surplus in the labour force.
    • Example - Agriculture (a farm where more people are working than required. The additional workers do not add any value to the output)

The correct answer is Increase migration of labour from rural to urban areas.

Key Points

• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 
  • It was passed in 2005.
  • The Acts guarantees the " Right To Work" and aims at enhancing the livelihood security of rural peoples.
  • The objectives of the scheme include:
    • The mandate of the Act is to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work. 
    • Ensuring social protection for the most vulnerable people living in rural India through providing employment opportunities
    • Ensuring livelihood security for the poor through the creation of productive assets like ponds, Well, roads, canals, etc., improved water security, soil conservation, and higher land productivity. 
    • Strengthening drought-proofing and flood management in rural India
    • Aiding in the empowerment of the marginalized communities, especially women, Scheduled Castes (SCs) and Scheduled Tribes (STs), through the processes of rights-based legislation. Hence, Statement 1 is correct.
    • Strengthening decentralized, participatory planning through the convergence of various anti-poverty and Ensuring livelihoods security. Hence, Statement 2 is correct.
    • Deepening democracy at the grassroots by strengthening the Panchayati Raj Institutions. Hence, Statement 3 is correct.
    • Effecting greater transparency and accountability in governance. 
    • Increase economic security.
    • Decrease migration of labour from rural to urban areas. Hence, Statement 4 is not correct.

The correct answer is National Statistical Office.

Key Points

Periodic Labour Force Survey (PLFS)

• PLFS is India’s first computer-based survey launched by the National Statistical Office (NSO) in 2017.
• It has been constituted based on the recommendation of Amitabh Kundu.
• PLFS has a two-fold objective:
  • To estimate the key employment and unemployment indicators (viz. Worker Population Ratio, Labour Force Participation Rate, Unemployment Rate) in the short time interval of three months for the urban areas only in the Current Weekly Status (CWS).
  • To estimate employment and unemployment indicators in both usual status and CWS in both rural and urban areas annually.
• Before PLFS the NSSO (previous name of NSO) used to bring the data related to employment and unemployment based on its quinquennial household socio-economic survey program.

Important Points

·  National Statistical Office

• NSO is the central statistical agency of the Government mandated under the Statistical Services Act 1980 under the Ministry of Statistics and Programme Implementation.
• It is responsible for the development of arrangements for providing statistical information services to meet the needs of the Government and other users for information on which to base policy, planning, monitoring, and management decisions.
• The services include collecting, compiling, and disseminating official statistical information.
• All business operations in NSO are done in compliance with international standards, procedures, and best practices.

The Correct Answer is Usual Status Unemployment.

• Usual Status Unemployment measure estimates the number of persons who remained unemployed for a major part of the year.

Key Points

• This measure gives the lowest estimates of unemployment.
• It is also known as open unemployment or chronic unemployment. 
• This concept used to determine the usual activity status of a person as employed or unemployed or outside the labour force.

 Additional Information

• Current Daily Status Unemployment
  • It considers the activity status of a person for each day of the preceding seven days.
  • The reference period here is a day. If a person did not find work on a day or some days during the survey week, he/she is regarded as unemployed.
  • Normally if a person works for four hours or more during a day, he or she is considered as employed for the whole day. The daily status unemployment is considered to be a comprehensive measure of unemployment.
• Weekly status unemployment
  • It measures unemployment with respect to one week.
  • A person is said to be employed for the week even if he/she is employed only for a day during that week.

• MGNREGA is the employment guarantee scheme of the Government of India.
• It guarantees 100 days of employment to the unskilled labour in rural areas.
• If the government is not able to provide work to such an individual within 15 days of his application, the individual is entitled to an employment allowance.
• It is the largest social security scheme of the world. 

The correct answer is Population.

Key Points

• Structural Unemployment: This unemployment arises when there is a mismatch between the worker’s skills and the availability of jobs in the market.
• Many people in India do not get jobs matching their skills or due to lack of required skills they do not get jobs and because of poor education level, it becomes important to provide them related training. 

Additional Information

Several important types of Unemployment:

• Disguised Unemployment - This is a type of unemployment where people employed are more than actually needed. 
• Technological Unemployment - the situation when people lose their jobs due to advancements in technologies.
• Frictional Unemployment - this is a situation when people are unemployed for a short span of time while searching for a new job or switching between jobs. 

The correct answer is Worker-Population ratio.

Key Points

• The employment-to-population ratio is defined as the proportion of an economy’s working-age population that is employed. As an indicator, the employment-to-population ratio provides information on the ability of an economy to create jobs.
• Worker Population Ratio is an indicator used for analyzing the employment situation in the country. This is also useful in knowing the proportion of population that is actively contributing to the production of goods and services in the economy.
• The employment-to-population ratio, also known as the “employment-population ratio,” is a macroeconomic statistic that measures the civilian labor force currently employed against the total working-age population of a region, municipality, or country. It is calculated by dividing the number of people employed by the total number of people of working age, and it is used as a metric of labor and unemployment.
• Compared with other measures of labor force participation, the employment-to-population ratio is not as affected by seasonal variations or short-term fluctuations in the labor market. As a result, it is often considered to be a more reliable indicator of job shrinkage or growth than the unemployment rate.