Ramesh Singh Test: Economics - 1 - UPSC MCQ

Correct Answer: a) 1 only

Explanation:

Gross Domestic Product (GDP) at market cost is the total value of goods and services produced within a country, measured at prices including indirect taxes (such as sales tax, VAT, excise duty) and excluding subsidies.

1. Statement 1: Correct. If the government increases indirect taxes on goods and services, the market prices will rise due to the additional tax burden. This increase in market prices will cause GDP at market cost to rise because the final value includes these higher indirect taxes.

2. Statement 2: Incorrect. If the government decreases indirect taxes, the market prices would decrease as goods and services become cheaper. This would lead to a decrease in GDP at market cost.

3. Statement 3: Incorrect. GDP at market cost is influenced by changes in indirect taxes. So, it would not remain constant if indirect tax rates change.

Thus, the correct answer is (a) 1 only.

 

 

 

4o

- Statement-I: GDP is indeed a widely-used metric for comparing global economies, and the IMF ranks nations based on their GDP sizes. This is a correct statement.

- Statement-II: India's ranking as the world's fifth-largest economy at exchange rates and third-largest at purchasing power parity (PPP) is also accurate. However, this statement does not directly explain the significance or use of GDP in global comparisons, hence it does not explain Statement-I.

Therefore, both statements are individually correct, but Statement-II does not provide an explanation for Statement-I.

Both Statement-I and Statement-II are accurate in describing the field of economics. Statement-I emphasizes the essence of economics in terms of resource utilization and distribution among individuals, while Statement-II elaborates on the decision-making processes involving various entities that influence how resources are utilized within a society. Statement-II further elucidates how the choices made by individuals, firms, governments, and organizations impact the overall resource allocation and utilization within a community. Thus, both statements are correct, and Statement-II logically explains Statement-I in the context of economic studies.

The correct answer is 4. Mixed economy. 

• A mixed economy is a type of economy that combines elements of both market-based systems and government intervention.
• In a mixed economy, there is a blend of free market principles and government regulations and controls.
• This combination allows for both private ownership and control of resources as well as government intervention to correct market failures, provide public goods, and promote social welfare.
• The term "dual economy" is sometimes used to describe the coexistence of both a market sector and a non-market sector within a mixed economy.

Statement-I correctly outlines the emergence of the mixed economic system in the late 1930s, where market economies integrated policies from non-market economies to recover from economic downturns like the Great Depression. This is historically accurate.
Statement-II accurately reflects the shift in the World Bank's stance towards recognizing the importance of state intervention in the economy, departing from its previous emphasis on free market principles. The World Bank's acknowledgment of the necessity of state involvement aligns with the evolution of economic systems towards a blend of market and non-market principles, as seen in mixed economies.
Therefore, both statements are correct, and Statement-II logically complements and explains the emergence of mixed economies following the Depression.

Food security means availability, accessibility and affordability of food to all people at all times.

• Poor households are more vulnerable to food insecurity whenever there is a problem with the production or distribution of food crops.
• Food security depends on the Public Distribution System (PDS) and government vigilance and action at times, when this security is threatened.

1. Market Economy - Laissez-faire policy: Correct. A market economy operates on the principles of laissez-faire, emphasizing minimal government intervention and relying on market forces to regulate economic activities.

2. Non-Market Economy - Emphasis on wealth exchange: Incorrect. A non-market economy, such as socialism or communism, does not emphasize wealth exchange. Instead, it focuses on state control of resources and production, aiming for the well-being of all citizens and preventing economic inequality through state ownership and planning.

3. Socialist Model - State control of natural resources: Correct. In a socialist model, the state controls natural resources, which are utilized for the benefit of society as a whole.

4. Communist Model - State control of labor and resources: Correct. In a communist model, the state controls both labor and resources, ensuring that production and distribution are managed centrally by the state to achieve a classless society.

Thus, three pairs are correctly matched: 1, 3, and 4.

Statement-I highlights that the economy can be likened to a snapshot of economic activity, capturing a specific moment in time. This snapshot concept suggests a dynamic and evolving system under observation.
Statement-II emphasizes the enduring nature of economic principles, notwithstanding the variability of economies due to a multitude of social and economic factors. It explains how despite the consistency of economic principles, the manifestation of these principles can differ significantly across various economies.
In this context, both statements are accurate, with Statement-II providing a complementary explanation to Statement-I. The dynamic nature of economies is underscored by the fact that economic principles remain stable while their implementation and outcomes can vary based on the unique circumstances of each economy.

Incorrect statement is 2 only.
Lionel Robbins called economics a science of scarcity not J.M.Keynes. In his landmark essay on the nature of economics, Lionel Robbins defined economics as. “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” 

- Statement-I: The primary sector involves activities like mining and agriculture, which are directly related to the exploitation of natural resources. This statement is correct.

- Statement-II: The tertiary sector includes services such as education and healthcare. This statement is also correct.

- Both statements accurately describe their respective sectors in an economy.

- Statement-II does not explain Statement-I, as they refer to different sectors. Therefore, the correct answer is C: Both statements are correct, but Statement-II does not explain Statement-I.

Achieving a classless society is a feature of command economy. 

The phrase invisible hand was introduced by Adam Smith in his book 'The Wealth of Nations'. He assumed that an economy can work well in a free market scenario where everyone will work for his/her own interest.
He explained that an economy will comparatively work and function well if the government will leave people alone to buy and sell freely among themselves. He suggested that if people were allowed to trade freely, self-interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand.
The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically is the invisible hand.

In communism all economic resources are publicly owned and controlled by the government. Individuals hold no personal property or assets. Communism does not encourage entrepreneurship.

Every asset undergoes depreciation. Government (Ministry of commerce and industry) announces the rates by which assets depreciate. Different rate of depreciation is set by different countries depending on their geography, climate, economic conditions etc. 

Socialism is a system based on public ownership (also known as collective or common ownership) of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs.
In communism, most property and economic resources are owned and controlled by the state /government. Under socialism, all citizens share equally in economic resources (Collective ownership). 

1. Gross Domestic Product (GDP) : Total value of all final goods and services produced within a nation's boundaries during a one-year period

- This is correctly matched. GDP indeed measures the total value of all final goods and services produced within a country's borders in a given year.

2. Net Domestic Product (NDP) : GDP adjusted for exports and imports

- This is incorrectly matched. NDP is actually GDP minus depreciation, not adjusted for exports and imports.

3. Gross National Product (GNP) : GDP plus 'income from abroad'

- This is correctly matched. GNP is calculated by adding the GDP to the net income received from abroad.

4. Net National Product (NNP) : GNP minus depreciation

- This is correctly matched. NNP is derived by subtracting depreciation from GNP.

Thus, pairs 1, 3, and 4 are correctly matched, while pair 2 is not.

Answer: Option C

1. Lionel Robbins: Defined economics as the study of managing limited resources.

- Correct. Lionel Robbins is known for defining economics as the study of managing limited resources. He emphasized the allocation and scarcity of resources.

2. Economics: Often called the "dismal science."

- Correct. Economics is frequently referred to as the "dismal science," a term that stems from its often pessimistic predictions and challenging subject matter.

3. Economic activities: Only involve non-monetary transactions.

- Incorrect. Economic activities involve monetary transactions. Examples include getting a job, buying and selling, and conducting business, all of which involve money and an economic motive.

4. Humanities: Economics is interconnected with other disciplines within humanities.

- Correct. Economics is indeed interconnected with other disciplines within humanities, adopting an interdisciplinary approach to study human activities.

Thus, pairs 1, 2, and 4 are correctly matched, while pair 3 is not.

Answer: Option B

- Statement 1 is correct: The market economy was indeed first tested in the United States in 1777, which led to its spread across Euro-America.

- Statement 2 is incorrect: In a market economy, the government does not play a significant role in regulating the market. Instead, the market is determined by forces of demand and supply with minimal government intervention, following the laissez-faire policy.

- Statement 3 is correct: The Great Depression did highlight the limitations of the market economy and necessitated some government intervention. This led to the development of the mixed economic system, incorporating elements from non-market economies as proposed by John Maynard Keynes.

Thus, the correct answer is Option C: 1 and 3 Only.

Transfer payments such as pensions, scholarships, subsidies etc are excluded from GDP calculations because there is no production of any goods or services in exchange of such payments. Remittances (Money sent home from emigrants working abroad) are also not included in the GDP. This is because, in GDP estimations, only those goods and services produced within a country are included. 

1. Primary Sector : Mining - Correct. The primary sector includes economic activities involving natural resource exploitation such as mining, agriculture, and oil exploration.

2. Secondary Sector : Education - Incorrect. The secondary sector involves the processing of raw materials from the primary sector, typically through manufacturing and industrial activities. Education belongs to the tertiary sector.

3. Tertiary Sector : Banking - Correct. The tertiary sector encompasses service production, including activities like education, healthcare, banking, and communication.

4. Quaternary Sector : Research and Development - Correct. The quaternary sector is known as the 'knowledge' sector and includes activities related to education, research, and development.

Thus, three pairs (1, 3, and 4) are correctly matched.

1. John Maynard Keynes - Father of Microeconomics: Incorrect. John Maynard Keynes is known as the father of Macroeconomics, not Microeconomics.

2. Microeconomics - Bottom-up approach: Correct. Microeconomics analyzes the economy from the bottom-up, focusing on individual and specific economic units.

3. Macroeconomics - Examines inflation and growth dynamics: Correct. Macroeconomics deals with broader economic factors like inflation and growth.

4. Econometrics - Applies statistical and mathematical methods to economic analysis: Correct. Econometrics involves the application of statistical and mathematical methods to analyze economic data and test hypotheses.

Thus, three pairs are correctly matched.

1. The first statement is incorrect. Economics is not solely the study of how societies use resources to produce valuable commodities. It also involves the distribution of these commodities among different people. A more comprehensive definition includes how individuals, firms, governments, and organizations make choices that determine a society's resource utilization. Therefore, this statement is too narrow and does not capture the full scope of economics.

2. The second statement is correct. Defining economics is indeed complex and contentious, and common definitions do revolve around how societies use and distribute resources. This statement accurately reflects the broader understanding of the field of economics.

3. The third statement is also correct. Economic activities are broadly defined as all activities involving money. This includes getting a job, buying and selling, and conducting business, all of which are driven by economic motives or gains. Hence, this statement correctly identifies the nature of economic activities.

Therefore, the correct answer is Option D: 2 and 3 Only.

Statement-I correctly identifies the emergence of Market Economy as the first formal economic system post traditional economies, tracing back to Adam Smith's work in 1776. Statement-II correctly links Non-Market Economy to Karl Marx's ideas, highlighting the socialist and communist variants of this economic system. The socialist model controlled natural resources, while the communist model controlled labor and resources, aligning with Marx's ideologies. Hence, both statements are accurate, and Statement-II effectively provides additional context that complements Statement-I.

Statement 1 is correct. Macroeconomics indeed emerged as a distinct field with the publication of John Maynard Keynes' seminal work, "The General Theory of Employment, Interest and Money," in 1936. This book laid the foundation for macroeconomic theory and analysis.

Statement 2 is incorrect. Microeconomics is concerned with the specifics, such as individual consumer choices and income, and it analyzes the economy from a bottom-up approach, not a top-down approach. The top-down approach is characteristic of macroeconomics, which looks at the overall economy, including issues like inflation and growth dynamics.

Statement 3 is correct. Econometrics is a core area of economics that applies statistical and mathematical methods to economic data in order to test hypotheses and forecast future trends. It is crucial for conducting sophisticated analyses in both microeconomics and macroeconomics.

Therefore, the correct answer is Option B: 1 and 3 Only.

An industrial economy is defined by the secondary sector, which encompasses economic activities involving the processing of raw materials from the primary sector. This sector typically includes manufacturing and serves as the primary employer in many Western developed nations, leading to their industrialization. In such economies, the processing and manufacturing of goods play a central role in driving economic growth and development.

• Statement 1 is correct. The primary sector includes activities such as mining, agriculture, and oil exploration, where natural resources are exploited.
• Statement 2 is incorrect. The secondary sector is concerned with the processing of raw materials from the primary sector, not the service industry. The service industry falls under the tertiary sector.
• Statement 3 is incorrect. The tertiary sector is associated with services like education, healthcare, banking, and communication, not the processing of raw materials.
• Thus, only Statement 1 is correct.

The core focus of economics, as highlighted in the text, is the study of how societies utilize resources to produce valuable commodities and distribute them among different individuals. This emphasizes the crucial role of economics in understanding how resources are managed and allocated within a society to meet the needs and wants of its members.

GDP is the total value of all goods and services produced in a country in a given year irrespective of them being sold or not. 
Intermediate goods are not included in the calculation of a country's GDP. The reason for not including them in the GDP is because it will lead to counting the value of the goods twice, and the norm is to count the price of final goods only once.
GDP is a measure of growth and not progress: GDP indicates growth that is quantitative. Qualitative aspects such as development, progress and well being are not taken in to account.

Introduction:
The economic system that has led to an increase in inequality, class conflicts, and economic depressions is capitalism. Capitalism is an economic system where individuals and businesses operate for profit and private ownership of resources and means of production is emphasized.
Key Points:
Here are the key points explaining how capitalism has contributed to the mentioned issues:
1. Inequality:
- Capitalism promotes the accumulation of wealth in the hands of a few individuals or corporations.
- The pursuit of profit often leads to income and wealth disparities between the rich and the poor.
- The gap between the rich and the poor tends to widen over time, resulting in increased inequality.
2. Class Conflicts:
- Capitalism creates a social divide between the bourgeoisie (owners of capital) and the proletariat (working class).
- The bourgeoisie control the means of production, while the proletariat sells their labor for wages.
- This unequal power dynamic can lead to class conflicts as the interests of the capitalists and workers often diverge.
3. Economic Depressions:
- Capitalist economies are characterized by business cycles, including periods of economic booms and busts.
- The pursuit of profit can lead to overproduction, speculation, and financial crises.
- During economic depressions, businesses may fail, unemployment rises, and overall economic activity declines.
Conclusion:
Capitalism, with its emphasis on profit, private ownership, and market competition, has resulted in increased inequality, class conflicts, and economic depressions. However, it is important to note that the extent and impact of these issues can vary depending on the specific policies and regulations implemented within a capitalist system.

The core purpose of economics is to manage limited resources in the face of perpetual scarcity. Economics deals with the allocation of scarce resources to fulfill unlimited wants and needs. This fundamental principle guides economic decision-making at both individual and societal levels, ensuring that resources are utilized efficiently to address various needs and wants.