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All questions of Economics for UPSC CSE Exam

Yield is measured as:
  • a)
    Crop produced on a given piece of land during a single year
  • b)
    Crop produced on a given piece of land during a single season
  • c)
    Crop produced and wasted on a given piece of land during a single season
  • d)
    Crop produced on a given piece of land during a single decade
Correct answer is option 'B'. Can you explain this answer?

Vikram Kapoor answered
  • To grow more than one crop on a piece of land during the year is known as multiple cropping.
  • It is the most common way of increasing production on a given piece of land. You have seen that one way of increasing production from the same land is by multiple cropping.
  • The other way is to use modern farming methods for higher yield. Yield is measured as crop produced on a given piece of land during a single season.
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Consider the following statements.
1. NDP at Factor Cost measure allows policy-makers to estimate how much the country has to spend just to maintain their current GDP
2. If the country is not able to replace the capital stock lost through depreciation, then GDP will fall
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'B'. Can you explain this answer?

Tanishq Roy answered
Explanation:

Both statements are incorrect. Let's analyze each statement individually:

Statement 1: NDP at Factor Cost measure allows policy-makers to estimate how much the country has to spend just to maintain their current GDP.

This statement is incorrect. NDP at Factor Cost is a measure used to estimate the net value of national income generated within a country during a specific period. It is calculated by deducting depreciation (i.e., the amount of capital stock lost) from the Gross Domestic Product (GDP). NDP at Factor Cost represents the actual income earned by the factors of production (i.e., labor and capital) within a country. It does not provide information about how much the country has to spend to maintain its current GDP. Therefore, statement 1 is incorrect.

Statement 2: If the country is not able to replace the capital stock lost through depreciation, then GDP will fall.

This statement is also incorrect. Depreciation refers to the decrease in the value of capital stock over time due to wear and tear, obsolescence, or any other factors. While depreciation can have an impact on the productivity and efficiency of capital, it does not directly determine the GDP. GDP is a measure of the total value of goods and services produced within a country's borders during a specific period. It is influenced by various factors such as consumption, investment, government spending, and net exports. Therefore, the inability to replace the capital stock lost through depreciation may affect the long-term growth potential of an economy, but it does not necessarily lead to an immediate fall in GDP. Hence, statement 2 is incorrect.

In conclusion, neither statement 1 nor statement 2 is correct.

In context of the public distribution system, Which of the following are correctly matched?
Name of the Scheme - Coverage Target Group
1. PDS - Universal
2. RPDS - Backward blocks
3. TPDS - Poorest of the poor
Which of the statements/statements are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
     All of them
Correct answer is option 'A'. Can you explain this answer?

K.L Institute answered
 Statement 1: PDS - Universal is correct. The original Public Distribution System (PDS) was designed to provide essential food items to the entire population, making it a universal coverage scheme.
Statement 2: RPDS - Backward blocks is correct. The Revamped Public Distribution System (RPDS) was introduced to improve the PDS in remote and backward areas, targeting those blocks specifically.
Statement 3: TPDS - Poorest of the poor is incorrect. The Targeted Public Distribution System (TPDS) aims to provide subsidized food grains to families below the poverty line (BPL) and above poverty line (APL) households, not exclusively to the "poorest of the poor." The "poorest of the poor" are specifically targeted under the Antyodaya Anna Yojana (AAY), which is a sub-scheme of TPDS.
Therefore, only statements 1 and 2 are correctly matched.
Correct Answer: a) 1 and 2 Only

Consider the following statements.
1. The food procured by the FCI is distributed through every ration shops among the poorer section of the society
2. Ration shops also known as Fair Price Shops
Which of the statements/statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'B'. Can you explain this answer?

Deepa Iyer answered
  • The food procured by the FCI is distributed through government regulated ration shops among the poorer section of the society.
  • This is called the Public Distribution System (PDS). Ration shops are now present in most localities, villages, towns and cities. There are about 5.5 lakh ration shops all over the country. Ration shops also, known as Fair Price Shops, keep stock of foodgrains, sugar, and kerosene for cooking.

Consider the following statements.
1. Money also acts as a convenient unit of account
2. The value of all goods and services can be expressed in monetary units
3. It is difficult to carry forward one’s wealth under the barter system
Which of these statements are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    All of them
  • d)
    1 and 3 Only
Correct answer is option 'C'. Can you explain this answer?

Pooja Shah answered
All of them

Explanation:

1. Money acts as a convenient unit of account because it provides a common measure of value across different goods and services. This makes it easier to compare the values of different items and make decisions about buying, selling, and investing.

2. The value of all goods and services can indeed be expressed in monetary units. This is because money serves as a common denominator that can be used to assign a specific value to any good or service. This allows for easier comparisons and trade.

3. It is difficult to carry forward one's wealth under the barter system because goods and services exchanged in a barter system are often perishable or not easily divisible. Money, on the other hand, is easily divisible and can be stored over time, allowing individuals to accumulate and carry forward their wealth more effectively.
 

Consider the following statements.
1. Absorptive capacity means the ability of the environment to absorb degradation
2. Today many resources have become extinct and the wastes generated are beyond the absorptive capacity of the environment
Which of these statement/statements is/are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'C'. Can you explain this answer?

Ojasvi Mehta answered
  • The rising population of the developing countries and the affluent consumption and production standards of the developed world have placed a huge stress on the environment in respect of its functions.
  • Many resources have become extinct and the wastes generated are beyond the absorptive capacity of the environment. Absorptive capacity means the ability of the environment to absorb degradation.
  • The result — we are today at the threshold of environmental crisis. The past development has polluted and dried up rivers and other aquifers making water an economic good.

Which of the following are the biotic elements.
1. Birds
2. Animals
3. Air
Which of the statement/statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'A'. Can you explain this answer?

Kavita Shah answered
  • Environment is defined as the total planetary inheritance and the totality of all resources. It includes all the biotic and abiotic factors that influence each other.
  • While all living elements—the birds, animals and plants, forests, fisheries etc.—are biotic elements, abiotic elements include air, water, land etc. Rocks and sunlight are all examples of abiotic elements of the environment.
  • A study of the environment then calls for a study of the inter- relationship between these biotic and abiotic components of the environment.

Consider the following statements.
1. When GDP rises, disposable income also rises but by less than the rise in GDP because a part of it is siphoned off as taxes
2. During a recession when GDP falls, disposable income falls less sharply, and consumption drop as much as it otherwise would have fallen had the tax liability been fixed
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both of them
  • d)
    Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?

Rahul Choudhury answered
  • When GDP rises, disposable income also rises but by less than the rise in GDP because a part of it is siphoned off as taxes. This helps limit the upward fluctuation in consumption spending.
  • During a recession when GDP falls, disposable income falls less sharply, and consumption does not drop as much as it otherwise would have fallen had the tax liability been fixed. This reduces the fall in aggregate demand and stabilises the economy.

Consider the following statements about Antyodaya Anna Yojana (AAY).
1. Under this scheme, all the BPL families are covered under the targeted public distribution system
2. Initially, Twenty-five kilograms of foodgrains were made available to each eligible family at a highly subsidised rate of 2 per kg for wheat and 3 per kg for rice
Which of the statements/statements are correct?
  • a)
    1 Only
  • b)
    Both 1 and 2
  • c)
    2 Only
  • d)
    None of them
Correct answer is option 'C'. Can you explain this answer?

Ias Masters answered
Antyodaya Anna Yojana (AAY) was launched in December 2000 to cover only the poorest among Below Poverty Line (BPL) families under the targeted public distribution system, not all BPL families. Only one crore of the poorest BPL families were identified initially.
  • Statement 1 is incorrect because the scheme did not cover all BPL families, just the poorest subset.
  • Statement 2 is correct. Initially, twenty-five kilograms of foodgrains were made available to each eligible family at highly subsidised rates of 2 per kg for wheat and 3 per kg for rice.The quantity was later increased to 35 kg per family per month from April 2002, and the scheme was expanded in subsequent years to include more families, but the original intent and implementation focused on the poorest among BPL families.

Assertion: The first seven five year plans gave importance to self-reliance which means avoiding imports of those goods which could be produced in India itself
Reason: It was feared that dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies.
Select the correct code:
  • a)
    Both A and R are true and R is the correct explanation of A.
  • b)
    Both A and R are true but R is not a correct explanation of A.
  • c)
    A is true but R is false.
  • d)
    A is false but R is true
Correct answer is option 'A'. Can you explain this answer?

Hitbullseye Cat answered
  • Self-reliance: A nation can promote economic growth and modernisation by using its own resources or by using resources imported from other nations. The first seven five year plans gave importance to self-reliance which means avoiding imports of those goods which could be produced in India itself.
  • This policy was considered a necessity in order to reduce our dependence on foreign countries, especially for food. It is understandable that people who were recently freed from foreign domination should give importance to self-reliance.
  • Further, it was feared that dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies.

Assertion: All the capital goods produced in a year constitute an addition to the capital stock already existing
Reason: The already existing capital stock suffers wear and tear and needs maintenance and replacement
Select the correct code:
  • a)
    Both A and R are true and R is the correct explanation of A.
  • b)
    Both A and R are true but R is not a correct explanation of A.
  • c)
    A is true but R is false.
  • d)
    A is false but R is true.
Correct answer is option 'D'. Can you explain this answer?

Meera Kapoor answered
  • Part of our final output that comprises capital goods constitutes gross investment of an economy. These may be machines, tools and implements; buildings, office spaces, storehouses or infrastructure like roads, bridges, airports or jetties.
  • But all the capital goods produced in a year do not constitute an addition to the capital stock already existing. A significant part of current output of capital goods goes in maintaining or replacing part of the existing stock of capital goods. This is because the already existing capital stock suffers wear and tear and needs maintenance and replacement.
  • A part of the capital goods produced this year goes for replacement of existing capital goods and is not an addition to the stock of capital goods already existing and its value needs to be subtracted from gross investment for arriving at the measure for net investment.

Consider the following statements
1. Members can take small loans from the group itself to meet their needs
2. The group charges interest on these loans but this is still less than what the moneylender charges
3. Loan is sanctioned in the name of the particular member and is meant to create self-employment opportunities for the members
Which of these statements are correct about Self Help Groups?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    3 Only
  • d)
    1 and 2 Only
Correct answer is option 'D'. Can you explain this answer?

Amit Kumar answered
  • The idea is to organise rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly.
  • Saving per member varies from Rs 25 to Rs 100 or more, depending on the ability of the people to save. Members can take small loans from the group itself to meet their needs. The group charges interest on these loans but this is still less than what the moneylender charges.
  • After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank. Loan is sanctioned in the name of the group and is meant to create self- employment opportunities for the members.
  • For instance, small loans are provided to the members for releasing mortgaged land, for meeting working capital needs (e.g. buying seeds, fertilisers, raw materials like bamboo and cloth), for housing materials, for acquiring assets like sewing machines, handlooms, cattle, etc. Most of the important decisions regarding the savings and loan activities are taken by the group members

Consider the following statements.
1. Externalities refer to the benefits a firm or an individual causes to another for which they are not paid
2. Externalities have the proper market in which they can be bought and sold
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'A'. Can you explain this answer?

Rahul Choudhury answered
  • Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalised).
  • Externalities do not have any market in which they can be bought and sold. For example, let us suppose there is an oil refinery which refines crude petroleum and sells it in the market.

The trade policy reforms were aimed at:
1. Dismantling of quantitative restrictions on imports and exports
2. Reduction of tariff rates
3. Removal of licensing procedures for imports
Choose from the following options.
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Rahul Choudhury answered
  • In order to protect domestic industries, India was following a regime of quantitative restrictions on imports. This was encouraged through tight control over imports and by keeping the tariffs very high.
  • These policies reduced efficiency and competitiveness which led to slow growth of the manufacturing sector. The trade policy reforms aimed at
    (i) dismantling of quantitative restrictions on imports and exports
    (ii) reduction of tariff rates and
    (iii) removal of licensing procedures for imports. Import licensing was abolished except in case of hazardous and environmentally sensitive industries.
  • Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001.

Which of the following are non-commercial sources of energy?
1. Firewood
2. Agricultural waste
3. Electricity
Choose from the following options.
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'A'. Can you explain this answer?

Kavita Shah answered
  • There are commercial and non-commercial sources of energy. Commercial sources are coal, petroleum and electricity as they are bought and sold. Noncommercial sources of energy are firewood, agricultural waste and dried dung.
  • These are non- commercial as they are found in nature/forests. While commercial sources of energy are generally exhaustible (with the exception of hydropower), non- commercial sources are generally renewable.
  • More than 60 per cent of Indian households depend on traditional sources of energy for meeting their regular cooking and heating needs. Note: This Data might have changed due to the introduction of Pradhan Mantri Ujjwala Yojana.

Consider the following statements.
1. Tax on imports is an example of trade barrier
2. Governments can use trade barriers to increase or decrease foreign goods only
Which of the statements/statements is/are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both of them
  • d)
    None of them
Correct answer is option 'A'. Can you explain this answer?

Suresh Reddy answered
  • Tax on imports is an example of a trade barrier. It is called a barrier because some restriction has been set up.
  • Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.
  • The Indian government, after Independence, had put barriers to foreign trade and foreign investment.
  • This was considered necessary to protect the producers within the country from foreign competition. Industries were just coming up in the 1950s and 1960s, and competition from imports at that stage would not have allowed these industries to come up.

Consider the following challenges in the Power Sector.
1. Electricity generated by various power stations is not consumed entirely by ultimate consumers
2. The installed capacity is over-utilised
Which of the statement/statements is/are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?

Suresh Reddy answered
  • Some Challenges in the Power Sector: Electricity generated by various power stations is not consumed entirely by ultimate consumers; a part is consumed by power station auxiliaries. Also, while transmitting power, a portion is lost in transmission.
  • What we get in our houses, offices and factories is the net availability. Some of the challenges that India’s power sector faces today are —
    (i) India’s installed capacity to generate electricity is not sufficient to feed an annual economic growth of 7–8 per cent. In order to meet the growing demand for electricity, India’s energy supply needs to grow at about 7 per cent. Even the installed capacity is under-utilized because plants are not run properly
    (ii) State Electricity Boards (SEBs), which distribute electricity, incur losses which exceed Rs 500 billion.

The accounting rule states that both sides of the account must balance. Hence if assets are greater than liabilities, they are recorded on the right hand side as:
  • a)
    Bad Loans
  • b)
    Reserves
  • c)
    Profits
  • d)
    Net worth
Correct answer is option 'D'. Can you explain this answer?

Nidhi Kaur answered
Understanding the Accounting Equation
In accounting, the fundamental equation states that Assets = Liabilities + Equity. This relationship ensures that a company's financial statements are balanced.
When Assets Exceed Liabilities
If assets are greater than liabilities, it indicates that the company has a surplus. This surplus is reflected in the equity section of the balance sheet.
Why Net Worth is Recorded on the Right Side
- Definition of Net Worth: Net worth represents the residual interest in the assets of the entity after deducting liabilities. In simpler terms, it is what the owners truly "own" after fulfilling all obligations.
- Balancing Principle: Since accounting requires that both sides of the equation balance, any surplus (assets exceeding liabilities) is recorded as net worth or equity.
- Classification in Financial Statements: Net worth is typically represented under shareholders' equity in the balance sheet, signifying the value attributable to shareholders.
Options Analysis
- a) Bad Loans: These are not an asset; they represent losses, reducing net worth.
- b) Reserves: While reserves are part of equity, net worth is a broader term encompassing all equity components.
- c) Profits: Profits contribute to net worth but are temporary; they affect retained earnings, not directly recorded as net worth.
- d) Net Worth: This accurately captures the essence of the surplus when assets exceed liabilities, making it the correct choice.
Conclusion
In summary, when assets exceed liabilities, the resulting surplus is accurately represented as "net worth" on the right side of the balance sheet, confirming the integrity of the accounting equation.

Consider the following statements about the Balance of Trade (BOT).
1. BOT is said to be in balance when exports of goods are more than the imports of goods
2. Export of goods is entered as a credit item in BOT, whereas import of goods is entered as a debit item in BOT
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both of them
  • d)
    None of them
Correct answer is option 'B'. Can you explain this answer?

Kavita Mehta answered
  • Balance of Trade (BOT) is the difference between the value of exports and value of imports of goods of a country in a given period of time.
  • Export of goods is entered as a credit item in BOT, whereas import of goods is entered as a debit item in BOT. It is also known as Trade Balance.
  • BOT is said to be in balance when exports of goods are equal to the imports of goods. Surplus BOT or Trade surplus will arise if a country exports more goods than what it imports. Whereas, Deficit BOT or Trade deficit will arise if a country imports more goods than what it exports.

Consider the following statements regarding the Environment
1. It assimilates waste
2. It sustains life by providing genetic resources and biodiversity
3. It also provides aesthetic services
Which of the statement/statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Deepa Iyer answered
  • The environment performs four vital functions
(i) it supplies resources: resources here include both renewable and non-renewable resources. Renewable resources are those which can be used without the possibility of the resource becoming depleted or exhausted. That is, a continuous supply of the resource remains available. Examples of renewable resources are the trees in the forests and the fishes in the ocean. Non-renewable resources, on the other hand, are those which get exhausted with extraction and use, for example, fossil fuel
(ii) it assimilates waste
(iii) it sustains life by providing genetic resources and biodiversity and
(iv) it also provides aesthetic services like scenery etc.

Which of the following are the features of the unorganised sector?
1. Small and scattered units which are largely outside the control of the government
2. There are rules and regulations but these are not followed
3. People may not be employed by anyone but may work on their own but they too have to register themselves with the government
4. People can be asked to leave without any reason
Choose from the following options.
  • a)
    1, 2 and 3 Only
  • b)
    2, 3 and 4 Only
  • c)
    1, 2 and 4 only
  • d)
    All of them
Correct answer is option 'C'. Can you explain this answer?

Kavya Shah answered
The features of the unorganised sector are as follows:

1. Small and scattered units which are largely outside the control of the government:
The unorganised sector consists of small-scale enterprises or businesses that are often informal and unregistered. These units are typically small in size and are spread across different locations. Due to their informal nature, they often operate outside the control and regulation of the government.

2. There are rules and regulations, but these are not followed:
Even though there are rules and regulations in place for the unorganised sector, they are often not followed or enforced effectively. This lack of compliance can lead to various issues such as exploitation of workers, unsafe working conditions, and non-payment of minimum wages.

3. People may not be employed by anyone but may work on their own, but they too have to register themselves with the government:
In the unorganised sector, many individuals work as self-employed or own small businesses. They may not be employed by anyone else, but they are still required to register themselves with the government to ensure some level of legal recognition and protection. Registration helps in accessing certain benefits and safeguards provided by the government.

4. People can be asked to leave without any reason:
One of the characteristics of the unorganised sector is the absence of job security. Workers in this sector are often employed on a temporary or casual basis, and they can be asked to leave without any reason. This lack of job security makes workers vulnerable and can lead to exploitation and uncertainty.

In summary, the unorganised sector is characterized by small and scattered units that operate largely outside the control of the government. There are rules and regulations in place, but compliance is often lacking. People in this sector may work on their own or be self-employed but still need to register themselves with the government. Additionally, the absence of job security in the unorganised sector allows employers to ask workers to leave without any reason.

Consider the following statements.
1. A consumption function describes the relation between consumption and income
2. The simplest consumption function assumes that consumption changes at a constant rate as income changes
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both of them
  • d)
    None of them
Correct answer is option 'C'. Can you explain this answer?

Meera Kapoor answered
  • The most important determinant of consumption demand is household income. A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes.
  • Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income it is called autonomous consumption. We can describe this function as: C C cY = + (4.1) The above equation is called the consumption function. households.

Consider the following statements regarding the reform policies.
1. It led to the establishment of private sector banks, Indian as well as foreign. Foreign investment limit in state run banks was raised to around 50 per cent
2. Those banks which fulfil certain conditions have been given freedom to set up new branches without the approval of the RBI
3. Banks have been given permission to generate resources from India and abroad
Which of the statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Meera Kapoor answered
  • The reform policies led to the establishment of private sector banks, Indian as well as foreign. Foreign investment limit in banks was raised to around 50 per cent.
  • Those banks which fulfil certain conditions have been given freedom to set up new branches without the approval of the RBI and rationalise their existing branch networks.
  • Though banks have been given permission to generate resources from India and abroad, certain managerial aspects have been retained with the RBI to safeguard the interests of the account-holders and the nation.
  • Foreign Institutional Investors (FII), such as merchant bankers, mutual funds and pension funds, are now allowed to invest in Indian financial markets.

Consider the following statements.
1. If we deduct the Personal Tax Payments and Non-tax Payments from Personal Income, we obtain what is known as the Personal Disposable Income
2. Personal Disposable Income is the part of the aggregate income which belongs to the households
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'C'. Can you explain this answer?

Anjali Rao answered
  • Personal Income (PI) ≡ NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.
  • However, even PI is not the income over which the households have complete say. They have to pay taxes from PI. If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income.
  • Thus Personal Disposable Income (PDI ) ≡ PI – Personal tax payments – Non-tax payments. Personal Disposable Income is the part of the aggregate income which belongs to the households.

Industrial Policy Resolution 1956 (IPR 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. This resolution classified industries into three categories. Consider the following statement regarding it.
1. The first category comprised industries which would be exclusively owned by the state
2. 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
3. The third category consisted of the remaining industries which were to be in the private sector
Which of the statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Meera Kapoor answered
  • Industrial Policy Resolution 1956 (IPR 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. This resolution classified industries into three categories.
  • The first category comprised industries which 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.
  • 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.
  • This policy was used for promoting industry in backward regions; it was easier to obtain 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.

Consider the following statements about Self Help Groups.
1. The SHGs promote thrift in small proportions by a minimum contribution from each member
2. From the pooled money, credit is given to the needy members to be repayable in small instalments at reasonable interest rates
Which of the statements is/are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'C'. Can you explain this answer?

Kavita Mehta answered
  • The institutional structure of rural banking today consists of a set of multi-agency institutions, namely, commercial banks, regional rural banks (RRBs), cooperatives and land development banks.
  • They are expected to dispense adequate credit at cheaper rates. Recently, Self-Help Groups (henceforth SHGs) have emerged to fill the gap in the formal credit system because the formal credit delivery mechanism has not only proven inadequate but has also not been fully integrated into the overall rural social and community development.
  • Since some kind of collateral is required, a vast proportion of poor rural households were automatically out of the credit network. The SHGs promote thrift in small proportions by a minimum contribution from each member. From the pooled money, credit is given to the needy members to be repayable in small instalments at reasonable interest rates. By March end 2003, more than seven lakh SHGs had reportedly been credit linked.

Consider the following statements.
1. If all the people of the economy increase the proportion of income they save the total value of savings in the economy will not increase
2. People become thriftier they end up saving less or same as before
Which of these statements are not correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?

Suresh Reddy answered
  • All the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged.
  • This result is known as the Paradox of Thrift – which states that as people become thriftier they end up saving less or the same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learnt. Let us continue with the example.
  • Suppose at the initial equilibrium of Y = 250, there is an exogenous or autonomous shift in peoples’ expenditure pattern – they suddenly become more thrifty.

Consider the following statements.
1. Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.
2. The terms of credit are same from one credit arrangement to another
Which of the statements is/are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'A'. Can you explain this answer?

Kavita Mehta answered
Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit. The terms of credit vary substantially from one credit arrangement to another. They may vary depending on the nature of the lender and the borrower.

Consider the following statements
1. The Reserve Bank of India supervises the functioning of formal sources of loans
2. Securities and exchange Board of India (SEBI) supervises The functioning of informal sources of loans
Which of the statements is/are not correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?

Sanjay Rana answered
  • The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive.
  • The RBI monitors the banks in actually maintaining cash balance. Similarly, the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.
  • Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc. There is no organisation which supervises the credit activities of lenders in the informal sector.

Consider the following statements.
1. Removing barriers or restrictions set by the government is what is known as liberalisation.
2. With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export.
3. The government imposes much less restrictions than before and is therefore said to be more liberal
Which of the statements/statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Krish Sengupta answered
Explanation:

Statement 1:
Removing barriers or restrictions set by the government is indeed known as liberalisation. Liberalisation refers to the process of reducing or eliminating government regulations and controls in various sectors of the economy.

Statement 2:
With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. This statement is correct as liberalisation of trade aims to promote free trade by reducing trade barriers such as tariffs, quotas, and import/export restrictions. This allows businesses to engage in international trade more freely and make decisions based on market demand and competitiveness.

Statement 3:
The government imposes much fewer restrictions than before and is therefore said to be more liberal. This statement is also correct. Liberalisation often involves reducing government control and intervention in economic activities. By imposing fewer restrictions, the government allows market forces to play a greater role in determining economic outcomes, which is a characteristic of a more liberal economic environment.

Conclusion:
All three statements are correct. Liberalisation involves removing government barriers or restrictions, allowing businesses to make independent decisions about import and export, and reducing government intervention in economic activities. Therefore, option D, which states that all the statements are correct, is the correct answer.

Net earning for the country which may be
1. Positive - if we have exported more in value terms than imported
2. Negative - If imports exceed exports in value terms
3. Zero - If exports and imports were of the same value
Which of the statement/statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Meera Kapoor answered
  • We know that the total money value of all such goods and services produced in a country in a year is called its gross domestic product for that year.
  • When we also consider what we pay for our imports and get from our exports we find that there is a net earning for the country which may be positive (if we have exported more in value terms than imported) or negative (if imports exceed exports in value terms) or zero (if exports and imports were of the same value).
  • When we add this earning (plus or minus) from foreign transactions, what we get is called the country’s gross national product for that year.

Consider the following statements.
1. GDP deflator does not include prices of imported goods
2. CPI does not includes prices of goods consumed by the representative consumers
Which of these statements are not correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?

Debanshi Menon answered
Explanation:

GDP deflator:
The GDP deflator is a measure of the average price level of goods and services produced in an economy. It is calculated by dividing nominal GDP (the value of all final goods and services produced at current prices) by real GDP (the value of all final goods and services produced at constant prices). The GDP deflator includes the prices of both domestically produced goods and imported goods.

CPI:
The Consumer Price Index (CPI) measures the average price level of goods and services consumed by the representative consumers in an economy. It is calculated by comparing the cost of a basket of goods and services at current prices to the cost of the same basket at base period prices. The CPI includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods.

Statement 1: GDP deflator does not include prices of imported goods
This statement is not correct. The GDP deflator includes the prices of both domestically produced goods and imported goods. It measures the overall price level in an economy, including the prices of goods and services produced both domestically and abroad.

Statement 2: CPI does not include prices of goods consumed by the representative consumers
This statement is also not correct. The CPI measures the average price level of goods and services consumed by the representative consumers. It includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods.

Conclusion:
Both statements are not correct. The GDP deflator includes the prices of both domestically produced goods and imported goods, and the CPI includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods. The correct answer is option 'B'.

Consider the following statements about National Rural Employment Guarantee Act 2005 (NREGA 2005).
1. Under NREGA 2005, all those who are able to, and are in need of, work are guaranteed 100 days of employment in a year by the government
2. If the government fails in its duty to provide employment, it will give unemployment allowances to the people
3. The types of work that would in future help to increase the production from land will be given preference under the Act
Which of the statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Jaya Nair answered
  • For the short-term, we need some quick measures. Recognising this, the central government in India made a law implementing the Right to Work in 200 districts of India and then extended to an additional 130 districts.
  • The remaining districts in rural areas were brought under the act with effect from 1 April, 2008. It is called National Rural Employment Guarantee Act 2005 (NREGA 2005).
  • Under NREGA 2005, all those who are able to, and are in need of, work are guaranteed 100 days of employment in a year by the government.
  • If the government fails in its duty to provide employment, it will give unemployment allowances to the people. The types of work that would in future help to increase the production from land will be given preference under the Act.

Which of the following are Maharatnas:
1. Indian Oil Corporation Limited
2. Steel Authority of India Limited
3. Hindustan Aeronautics Limited
Choose from the following options.
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'A'. Can you explain this answer?

Meera Kapoor answered
  • The Central Public Sector Enterprises are designated with different status. A few examples of public enterprises with their status are as follows:
    (i) Maharatnas – (a) Indian Oil Corporation Limited, and (b) Steel Authority of India Limited,
    (ii) Navratnas – (a) Hindustan Aeronautics Limited, (b) Mahanagar Telephone Nigam Limited; and
    (iii) Miniratnas – (a) Bharat Sanchar Nigam Limited; (b) Airport Authority of India and (c) Indian Railway Catering and Tourism Corporation Limited.
  • Many of these profitable PSEs were originally formed during the 1950s and 1960s when self-reliance was an important element of public policy.
  • They were set up with the intention of providing infrastructure and direct employment to the public so that quality end-product reaches the masses at a nominal cost and the companies themselves were made accountable to all stakeholders.
  • The granting of status resulted in better performance of these companies. Scholars allege that instead of facilitating public enterprises in their expansion and enabling them to become global players, the government partly privatised them through disinvestment.

Consider the following statements about the Monthly Per Capita Expenditure (MPCE).
1. This mechanism is helpful in identifying the poor as a group to be taken care of by the government, but it would be difficult to identify who among the poor need help the most
2. It groups all the poor together and does not differentiate between the very poor and the other poor
Which of the statements is/are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'C'. Can you explain this answer?

Ojasvi Mehta answered
  • There are many ways of measuring poverty. One way is to determine it by the monetary value (per capita expenditure) of the minimum calorie intake that was estimated at 2,400 calories for a rural person and 2,100 for a person in the urban area. Based on this, in 2011-12, the poverty line was defined for rural areas as consumption worth Rs 816 per person a month and for urban areas it was Rs 1,000.
  • Though the government uses Monthly Per Capita Expenditure (MPCE) as a proxy for income of households to identify the poor. State that a major problem with this mechanism is that it groups all the poor together and does not differentiate between the very poor and the other poor.

Which of the following sectors are categorised as the Tertiary sector?
1. Fishing,
2. Mining and quarrying
3. Tourism
4. Manufacturing
5. Transport
Choose from the following options.
  • a)
    1, 2, 3 and 4 Only
  • b)
    3, 4 and 5 Only
  • c)
    3 Only
  • d)
    3 and 5 Only
Correct answer is option 'D'. Can you explain this answer?

Anisha Singh answered
Tertiary sector:

The tertiary sector is the sector of the economy that provides services to its consumers. This sector includes a wide range of activities like banking, education, healthcare, hospitality, tourism, transportation, and others.

Sectors categorised as the Tertiary sector:

Out of the given options, the sectors categorised as the Tertiary sector are:

1. Tourism: Tourism is a service-based industry that includes transportation, accommodation, food and beverage, entertainment, and other related services. It is a vital source of revenue for many countries and regions around the world.

2. Transport: Transport includes the movement of goods and people from one place to another. It is an essential service that facilitates trade, commerce, and mobility.

Therefore, the correct answer is option 'D' - 3 and 5 Only.

Consider the following statements.
1. Sarva Siksha Abhiyan has been implemented to encourage attendance and retention of children and improve their nutritional status
2. Mid-day meal scheme is a significant step towards providing elementary education to all children in the age group of 6–14 years
Which of these statements are correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both of them
  • d)
    None of them
Correct answer is option 'D'. Can you explain this answer?

Shilpa Yadav answered
Statement 1: Sarva Siksha Abhiyan has been implemented to encourage attendance and retention of children and improve their nutritional status.

The first statement is incorrect. Sarva Siksha Abhiyan (SSA) is a flagship program of the Government of India implemented in 2000 to achieve universal elementary education. Its primary objective is to provide free and compulsory education to all children in the age group of 6-14 years. While SSA aims to improve access to education and ensure retention of children in schools, it does not specifically focus on improving their nutritional status.

Statement 2: Mid-day meal scheme is a significant step towards providing elementary education to all children in the age group of 6–14 years.

The second statement is incorrect. The Mid-day Meal Scheme (MDMS) is a centrally sponsored program launched in 1995 with the objective of improving the nutritional status of school children and encouraging their enrollment, attendance, and retention in schools. It provides free cooked meals to children studying in government and government-aided schools. While the scheme does contribute to the overall goal of providing elementary education, its primary focus is on improving the nutritional intake of children rather than directly providing education.

Therefore, both statements are incorrect.

In summary:
- Sarva Siksha Abhiyan (SSA) aims to achieve universal elementary education, but it does not specifically focus on improving the nutritional status of children.
- The Mid-day Meal Scheme (MDMS) focuses on providing nutritious meals to children to improve their health and encourage enrollment and attendance in schools, but it is not a direct initiative for providing elementary education.

Consider the following statements.
1. Chronic hunger is a consequence of diets persistently inadequate in terms of quantity and/or quality
2. Seasonal hunger is related to cycles of food growing and harvesting
Which of the statements/statements is/are not correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    None of them
Correct answer is option 'D'. Can you explain this answer?

Ameya Choudhary answered
Chronic hunger is a consequence of diets persistently inadequate in terms of quantity and/or quality. It is a long-term condition that occurs when individuals do not have access to sufficient food or a balanced diet on a consistent basis. This can result from various factors such as poverty, limited agricultural productivity, and unequal distribution of resources. Chronic hunger can lead to malnutrition and a range of health issues, affecting the overall well-being of individuals and communities.

Seasonal hunger, on the other hand, is related to cycles of food growing and harvesting. It occurs when there are fluctuations in food availability throughout the year due to seasonal changes in agricultural production. In many regions, especially those with rain-fed agriculture, food production is heavily dependent on specific seasons. During the lean seasons, when food stocks are low and new crops are yet to be harvested, people may experience temporary food shortages and go through periods of hunger.

Both chronic hunger and seasonal hunger are significant challenges that affect millions of people worldwide. They are interlinked and often coexist in many regions. However, it is important to note that the given statements are not incorrect, as they accurately describe the characteristics of chronic and seasonal hunger.

The correct answer, therefore, is option 'D' - None of them. Both statements 1 and 2 are correct. They provide insights into the different types of hunger, highlighting the causes and impacts of inadequate food access and availability. Understanding these distinctions is crucial for formulating effective strategies and policies to address hunger and malnutrition at various levels, including national and international efforts.

In conclusion, chronic hunger and seasonal hunger are both significant issues that affect individuals and communities. Chronic hunger is a consequence of persistently inadequate diets, while seasonal hunger is related to fluctuations in food availability due to cycles of food growing and harvesting. By addressing the root causes of these forms of hunger, it is possible to make progress towards achieving global food security and eliminating malnutrition.

Which of the following are correctly matched?
1. Availability - food production within the country, food imports and the previous years stock stored in government granaries.
2. Accessibility - food is within reach of every person
3. Affordability - an individual has enough money to buy sufficient, safe and nutritious food to meet one's dietary needs
Choose from the following options.
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Abhishek Das answered
Availability:
- Availability refers to the production and stock of food within a country, as well as food imports.
- It includes the quantity of food produced domestically and the amount of food imported from other countries.
- Additionally, it takes into account the previous year's stock of food stored in government granaries.
- Availability is an important factor in ensuring that there is a sufficient quantity of food to meet the needs of the population.

Accessibility:
- Accessibility refers to the physical access to food by individuals.
- It ensures that food is within reach of every person, regardless of their geographical location or socio-economic status.
- Accessibility includes factors such as transportation infrastructure, availability of markets, and distribution networks.
- It ensures that individuals have the means to physically obtain food when needed.

Affordability:
- Affordability refers to an individual's ability to purchase sufficient, safe, and nutritious food to meet their dietary needs.
- It takes into account the cost of food and an individual's financial resources or income.
- Affordability ensures that individuals have enough money to buy the food they need without compromising their overall well-being.
- It also considers the availability of affordable and nutritious food options in the market.

Correct Match:
- The correct match is option 'D' - All of them.
- All three factors - availability, accessibility, and affordability - are crucial in ensuring food security for a population.
- Availability ensures that there is an adequate quantity of food, accessibility ensures that individuals can physically access food, and affordability ensures that individuals can afford to purchase the food they need.
- These three factors are interconnected and complementary, and all are necessary to ensure that individuals have access to sufficient and nutritious food.

Another feature of high poverty rates has been the huge income inequalities. In context of this, consider the following statements.
1. One of the major reasons for this is the unequal distribution of land and other resources
2. Land reforms which aimed at redistribution of assets in rural areas have not been implemented properly
3. In order to fulfil social obligations and observe religious ceremonies, people in India spend a lot of money
Which of these statements are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Sakshi Pillai answered
Explanation:
The given statements are related to the issue of poverty and income inequality in India. Let us analyze each statement in detail:

Unequal distribution of land and resources:
One of the major reasons for income inequality in India is the unequal distribution of land and other resources. The land ownership pattern in rural areas is highly skewed, with a few large landowners holding the majority of the land and the majority of the population being landless or small landowners. This has resulted in a concentration of wealth and power in the hands of a few, leading to income inequality.

Improper implementation of land reforms:
Land reforms in India aimed at redistributing land and other assets in rural areas have not been implemented properly. The lack of political will, bureaucratic red tape, and resistance from vested interests have all contributed to the failure of land reforms. As a result, the concentration of land and resources in the hands of a few has continued, perpetuating income inequality.

Spending on social obligations and religious ceremonies:
In India, people spend a considerable amount of money on social obligations and religious ceremonies. While these are important cultural practices, they can also be a significant drain on household budgets, especially for those living in poverty. This can contribute to income inequality, as those who have more financial resources are able to spend more on these practices, while those who are poor may have to go into debt or forego these practices altogether.

Conclusion:
All three statements are correct and interrelated. Income inequality in India is a complex issue that is influenced by a range of factors, including historical patterns of land ownership, inadequate implementation of land reforms, and cultural practices that can be a significant drain on household budgets. Addressing these issues will require a concerted effort from policymakers, civil society, and communities across the country.

Consider the following statements about the Final Good.
1. It is ready to be sold finally to the consumers for final use
2. It will not pass through any more stages of production or transformations
3. Tea leaves purchased by the households are final goods
Which of these statements are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Meera Kapoor answered
  • A farmer producing cotton sells it to a spinning mill where the raw cotton undergoes transformation to yarn; the yarn is, in turn, sold to a textile mill where, through the productive process, it is transformed into cloth; the cloth is, in turn, transformed through another productive process into an article of clothing which is then ready to be sold finally to the consumers for final use.
  • Such an item that is meant for final use and will not pass through any more stages of production or transformations is called a final good. Because once it has been sold it passes out of the active economic flow. It will not undergo any further transformation at the hands of any producer.
  • It may, however, undergo transformation by the action of the ultimate purchaser. In fact many such final goods are transformed during their consumption. Thus the tea leaves purchased by the consumer are not consumed in that form – they are used to make drinkable tea, which is consumed. Similarly most of the items that enter our kitchen are transformed through the process of cooking.

Which of these are correctly matched?
1. The consumers does not increase consumption at all: MPC = 0)
2. Use entire change in income on consumption: MPC = 1
3. Use part of the change in income for changing consumption: 0 < mpc="" />< />
Choose from the following options.
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'D'. Can you explain this answer?

Suresh Reddy answered
  • When income changes, change in consumption ∆C can never exceed the change in income (Y) ∆. The maximum value which c can take is 1.
  • On the other hand, consumers may choose not to change consumption even when income has changed. In this case MPC = 0. Generally, MPC lies between 0 and 1 (inclusive of both values).
  • This means that as income increases either the consumers does not increase consumption at all (MPC = 0) or use entire change in income on consumption (MPC = 1) or use part of the change in income for changing consumption (0 < mpc="">< 1)="">

Consider the following statements about the secondary sector of the economy.
1. The secondary sector covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity.
2. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential
3. Transport and storage are the examples of this sector
Which of the statements/statements is/are correct?
  • a)
    1 and 2 Only
  • b)
    2 and 3 Only
  • c)
    1 and 3 Only
  • d)
    All of them
Correct answer is option 'A'. Can you explain this answer?

Rahul Desai answered
  • The secondary sector covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. It is the next step after primary. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential.
  • This could be in a factory, workshop or at home. For example, using cotton fibre from the plant, we spin yarn and weave cloth.
  • Using sugarcane as a raw material, we make sugar or gur. We convert earth into bricks and use bricks to make houses and buildings. Since this sector gradually became associated with the different kinds of industries that came up, it is also called the industrial sector.

If CRR = 40 per cent, with deposits of Rs 100, our bank will need to keep
  • a)
    Rs 60 as cash reserves
  • b)
    Rs 40 as cash reserves
  • c)
    Rs 20 as cash reserves
  • d)
    Rs 100 as cash reserves
Correct answer is option 'B'. Can you explain this answer?

Deepa Iyer answered
  • The RBI decides a certain percentage of deposits which every bank must keep as reserves. This is done to ensure that no bank is ‘over lending’. This is a legal requirement and is binding on the banks.
  • This is called the ‘Required Reserve Ratio’ or the ‘Reserve Ratio’ or ‘Cash Reserve Ratio’ (CRR).Cash Reserve Ratio (CRR) = Percentage of deposits which a bank must keep as cash reserves with itself. Apart from the CRR, banks are also required to keep some reserves in liquid form in the short term. This ratio is called Statutory Liquidity Ratio or SLR.

Consider the following statements.
1. There may be times when demand exceeds available output under conditions of low utilisation of labour and economy
2. The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function
Which of these statements are not correct?
  • a)
    1 Only
  • b)
    2 Only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?

Shail Gupta answered
Explanation:
To determine which statements are correct and which are not, let's analyze each statement separately.

Statement 1: There may be times when demand exceeds available output under conditions of low utilization of labor and the economy.
This statement is correct. In certain situations, such as during periods of economic downturn or when there is a significant amount of unused labor and resources, it is possible for demand to exceed the available output. This can lead to inflationary pressure and an imbalance in the economy.

Statement 2: The intervention of the government, whether to expand demand or reduce it, constitutes the stabilization function.
This statement is also correct. One of the key roles of government in a market economy is to stabilize the economy and promote economic growth. This can be done by implementing policies to either expand or reduce demand. For example, during periods of recession, the government may implement expansionary fiscal policies such as increasing government spending or reducing taxes to stimulate demand and boost economic activity. Conversely, during periods of inflation, the government may implement contractionary policies such as reducing government spending or increasing taxes to reduce demand and control price levels.

Therefore, both statements are correct.

Conclusion:
The correct answer is Option D) Neither 1 nor 2.

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