UGC NET Paper 2 Economics Mock Test - 10 - UGC NET MCQ

The correct answer is 2 and 3 only.

Key Points

• As per the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State.
• Accordingly, the RBI has entered into agreements with 29 State Governments and one Union Territory (UT of Puducherry) for management of their public debt.
• In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
• Treasury Bills (T-bills) Treasury bills or T-bills, which are money market instruments, are short-term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 days, 182 days, and 3.64 days.
• Treasury bills are zero-coupon securities and pay no interest.
• They are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of 100/- (face value) may be issued at say 98.20, that is, at a discount of say, 1.80 and would be redeemed at the face value of 100/-.

The correct answer is option 4.

Key Points

Cash Reserve Ratio:

• Scheduled commercial banks are required to keep a certain percentage of their Net Demand and Time Deposits with RBI under the RBI Act of 1934.
• If Cash Reserve Ratio is increased, the banks have to deposit more money with RBI.
• So, the resource available to banks for lending will come down.
• The money supply will come down. Hence, option 2 is not correct.

Statutory Liquidity Ratio:

• Scheduled commercial banks are required to keep a certain percentage of their net time and demand deposits in their vault itself.
• It need not be deposited with RBI.
• This reserve is a precautionary measure. It prevents banks from lending all their deposits which is too risky.
• Like CRR, increasing SLR will decrease the money supply and vice versa. Hence, option 4 is correct.

Repo rate and Reverse repo rate:

• These are liquidity adjustment facilities by RBI and is a short-term credit control measures.
• It is to absorb the excess liquidity in the economy.
• Repo rate is the rate at which commercial banks borrow from RBI by mortgaging their dated Government securities and Treasury bills.
• So if Repo is increased, banks either reduce the borrowing from RBI or borrow at a higher rate and charge higher interest rates among customers. So it decreases the money supply.
• If the repo rate is decreased, the reverse will be the case. Hence, options 1 and 3 are not correct.
• The reverse repo rate is the rate at which RBI borrows from commercial banks by mortgaging its dated government securities and treasury bills.

The correct answer is B. "When MC is less than AVC or ATC, it will pull AVC and ATC downward," and D. "When MC is above AVC and ATC, it will push AVC and ATC upwards.

Here is a detailed explanation for each of the choices:

• Option A is incorrect. The AVC curve intersects the ATC curve at its minimum point, but this doesn't necessarily coincide with the minimum point of the MC curve.
• Option B is correct. When MC (Marginal Cost) is less than AVC (Average Variable Cost) or ATC (Average Total Cost), it indicates that the cost of producing an additional unit (MC) is less than the average cost so far. This will pull the average cost downward, as the overall average cost decreases with the addition of a lower-cost unit.
• Option C is incorrect. It's true that the MC curve intersects the AVC and ATC curves. However, this happens at their minimum points, not their maximum points, showing the level of output where average costs are minimized.
• Option D is correct. It denotes that when MC is above AVC and ATC, the cost of producing the additional unit is more than the average cost. This drags average cost upwards.
• Therefore, the correct options are B and D, as these accurately express the relationship between MC, AVC, and ATC in short run.

Linear Programming:

• Linear programming is used for the optimization of our limited resources when there is the number of alternate solutions possible for the problem.
• The general LPP (Linear programming problems) calls for optimizing (maximizing/minimizing) a linear function for variables called the objective function subject to a set of linear equations and/or in equalities called the constraints or restrictions.
• The standard form of LPP is

Compared to the previous fiscal year,  the 'Manufacturing' sector's growth rate changed in the current fiscal year has increaed.

The GDP at constant prices increased from Q2 of 2023-24 to Q2 of 2024-25 is $ 1.7 trillion

The correct answer is 1, 2 and 3Key PointsWage Determination in Labour Market:

• In the labour market, households are the suppliers of labour and the demand for labour comes from firms whereas in the market for goods, it is the opposite. 
• Here, it is important to point out that by labour, we mean the hours of work provided by labourers and not the number of labourers. 
• The Wage Rate is determined at the intersection of the demand and supply curves of labour where the demand for and supply of labour balance. Hence statement 1 is correct.
• The firm being a profit maximiser will always employ labour upto the point where the extra cost she incurs for employing the last unit of labour is equal to the additional benefit she earns from that unit.
• The extra cost of hiring one more unit of labour is the wage rate ( w).
• For each extra unit of labour, she gets an additional benefit equal to marginal revenue times marginal product which is called Marginal Revenue Product of Labour (MRP_L ).
• As long as the VMP_L is greater than the wage rate, the firm will earn more profit by hiring one more unit of labour, and if at any level of labour employment VMP_L is less than the wage rate, the firm can increase her profit by reducing a unit of labour employed. Hence statement 2 is correct.
• Given the assumption of the law of diminishing marginal product, the fact that the firm always produces at w = VMP_L implies that the demand curve for labour is downward sloping. 
• To explain why it is so, let us assume at some wage rate w₁, demand for labour is l₁. 
• Now, suppose the wage rate increases to w₂.
• To maintain the wage-VMP _L equality, VMP _L should also increase. 
• The price of the commodity remaining constant b, this is possible only if MP _L increases which in turn implies that less labour should be employed owing to the diminishing marginal productivity of labour. 
• Hence, at a higher wage, less labour is demanded thereby leading to a downward-sloping demand curve. Hence statement 3 is correct.
• To arrive at the market demand curve from individual firms’ demand curve, we simply add up the demand for labour by individual firms at different wages and since each firm demands less labour as wage increases, the market demand curve is also downward sloping.

Wage is determined at the point where the labour demand and supply curves intersect.

Therefore the correct matching is, A-IV, B - III, C - II, D - I

Given:

QC(QC) Is not a vector space

Calculation:

Let us take u = √3 and v = -√3 

⇒ u + v = √3 - √3 = 0 not belongs to Q^c

⇒ u + v not belong Qc  for all u, v ∈ Qc

∴ option 2 is correct.

The correct answer is [32.29, 36.21].

Key Points 

• Confidence interval is a range of values that is likely to contain the true population mean with a certain level of confidence.
• The formula for calculating a confidence interval for the mean is:
• mean ± (critical value x standard deviation / square root of sample size).
• The level of confidence is often expressed as a percentage (e.g. 95% confidence) and determines the width of the interval.
  • A higher level of confidence results in a wider interval, while a lower level of confidence results in a narrower interval.

Additional Information

•  A 95% confidence interval provides a range of values that is likely to contain the true population mean with a probability of 95%.
• For a 95% confidence interval, the critical value for a t-distribution with 99 degrees of freedom (100-1) is approximately 1.98.
• So, the 95% confidence interval can be calculated as:
  • 
• So, the 95% confidence interval for the mean age of accidents in a city during last year is [32.29, 36.21].

Important Points 

• The critical value used in the calculation of the confidence interval depends on the level of confidence and the degrees of freedom (sample size minus 1).
• The sample mean and standard deviation are estimated values and may not exactly reflect the true population mean and standard deviation.
• Understanding the concept of confidence intervals and how to calculate them is important for data analysis and interpretation, as it provides a way to estimate and quantify the uncertainty in a measurement or estimate.

The correct answer is C, D, B, A

Important Points PQLI - The Physical Quality of Life Index (PQLI)

• The Physical Quality of Life Index (PQLI) is a compilation of intricate social relationships without any predetermined weights or biases imposed by theory. 
• It was developed for the Overseas Development Council in the mid-1970s by Morris David Morris,

HDI - Human Development Index:

• The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living.
• The HDI is the geometric mean of normalized indices for each of the three dimensions.
• In 1990, Pakistani economist Mahbub ul Haq developed the HDI, which the United Nations Development Program then utilised to gauge the nation's development (UNDP).

MPI - Multidimensional Poverty Index:

• The Oxford Poverty & Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP) created the Global Multidimensional Poverty Index (MPI) in 2010[, which uses health, education, and standard of living indicators to assess the prevalence and severity of poverty experienced by a population.

SDG's - Sustainable Development Goals

• A set of 17 interconnected global goals known as the Sustainable Development Goals (SDGs) or Global Goals is intended to serve as a "common blueprint for peace and prosperity for people and the planet, now and into the future."
• The UN General Assembly (UN-GA) established the SDGs in 2015, with the goal of achieving them by 2030.

• Trend is depicted by time series.
• Coefficient of variation means (S.D./Mean) x 100.
• Mean = np is a binomial distribution.
• Symmetric distribution is a normal distribution.

The correct answer is 'option 2'

Key Points

• Cobb–Douglas production function is a particular functional form of the production function.
• It is used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and the amount of output that can be produced by those inputs.
• A commonly discussed form of the long-run production function is the Cobb-Douglas production function which is an example of linear homogenous production functions.

The cobb-Douglas production function is 

1. Y = total production (the real value of all goods produced in a year or 365.25 days)
2. L = labour input (person-hours worked in a year or 365.25 days)
3. K = capital input (a measure of all machinery, equipment, and buildings; the value of capital input divided by the price of capital)
4. A = Total factor productivity
5. α and β are the output elasticity of capital and labour, respectively. These values are constants determined by available technology.

The Cobb-Douglas production function can be applied to derive laws of returns to scale, as per the following schedule

Analysing the points:

(a) It is the long period production function

• This is correct as discussed below. Cobb-Douglas production function is in fact one of the examples of long-run production functions. 

(b) It is a short period production function

• This cannot be true as we have already discussed that it is a long-run production function.

(c) It is based on increasing returns to scale

• As you can see from the table below that this production function discusses all kinds of returns to scale. Hence this cannot be true. 

(d) Output elasticities with respect to factors are constant

• This is clear from point number 5 in the key points. Hence, this is a valid point with respect to production function. 

Therefore, the correct answer is '(a) and (d)'

Concept:

• Vector Quantity:-  Physical quantities that have magnitude and direction and obey triangle law are called vector quantities.
• Example: Displacement, Velocity, etc.

Additional Information 

• The velocity of a moving object is defined as the displacement of the object in the unit time interval.
• It is a vector quantity and its SI unit is meter/second.
• Acceleration of an object is defined as the rate of change of velocity of the object.
• It is a vector quantity and its SI unit is (m/s²)
• ∴ The correct answer is 20 m/s².

The correct answer is 1 and 2.

Key Points.

• The Reserve Bank of India recently announced that retail investors can now invest directly in the government's primary and secondary bond market by opening gilt accounts with the national banks and monetary policy regulators. This structural reform will deepen the bond market in  India. 
• In August 2005, RBI introduced an anonymous screen-based order matching module called Negotiated Dealing System-Order Matching (NDS-OM). Hence, statement 2 is correct.
• This is an order-driven electronic system, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants. 
• Access to NDS-OM by the retail segment, comprising of individual investors having Demat account with depositories viz. NSDL and/or CDSL, desirous of participating in the G-Sec market is facilitated by allowing them to use their Demat accounts for their transactions and holdings in G-Sec. Hence, statement 1 is correct.
• This access would be facilitated through any of the existing NDS-OM primary members, who also act as Depository Participants for NSDL and/or CDSL.
• The scheme seeks to facilitate efficient access to the retail individual investor to the same G-Sec market being used by the large institutional investor in a seamless manner.

Additional Information

• Central Depository Services (India) Ltd (CDSL), is the first listed Indian central securities depository based in Mumbai. Central Depository Services (India) Limited (CDSL) was initially promoted by BSE Ltd. which thereafter divested its stake to leading banks.
• CDSL received the certificate of commencement of business from the Securities and Exchange Board of India (SEBI) in February 1999. Hence, statement 3 is incorrect.
• Government of India securities (G-sec), State Development Loans (SDL) and Treasury Bills (T-Bills are issued in the primary market through auctions conducted by the Reserve Bank of India (RBI).
• An investor, depending upon eligibility, may bid in an auction under Competitive Bidding or Non-Competitive Bidding.
• To encourage retail investors in G-sec, SDL and T-Bills, the facility of non-competitive bidding (NCB) has been introduced.
• Under the scheme, eligible retail investors apply for a certain amount of securities in an auction without mentioning price/yield.
• Such bidders are allotted securities at the weighted average price/yield of the auction.
  RBI conducts an auction usually every week to issue G-sec, SDL and T-Bills

The correct answer is Inflation.

Key Points

• Deflation
  • It occurs when asset and consumer prices fall over time.
  • It is a negative inflation rate.
  • It is often used to express a declining economy.
  • Real interest rates become too high.
  • It increases the burden of debt and reduces the disposable income of indebted people.
• Inflation
  • It refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing etc.
  • A certain level of inflation is required in the economy to ensure that expenditure is promoted and hoarding money through savings is demotivated.
  • As the spending increases, the demand also increases which leads to inflation.
  • Hence, Economic growth is usually coupled with inflation.
• Stagflation
  • It is an economic event in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.
  • It can also be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).
• Hyperinflation
  • It is a term to describe rapid, excessive, and out-of-control general price increases in an economy.
  • It has two main causes: an increase in the money supply and demand-pull inflation.
  • It can occur in times of war and economic turmoil in the underlying production economy, in conjunction with a central bank printing an excessive amount of money.

The correct answer is Accepts substitution between man-made capital and natural capital.

• Accepts substitution between man-made capital and natural capital is the weak sustainability approach of sustainable development.

Key Points

• Weak sustainability 
  • ​Weak sustainability postulates the full substitutability of natural capital whereas the strong conception demonstrates that this substitutability should be severely seriously limited due to the existence of critical elements that natural capital provides for human existence and well-being.
  • Thus Weak sustainability is an idea within environmental economics that states that 'human capital' can substitute 'natural capital'.
  • Weak sustainability has been defined using concepts like human capital and natural capital.
  • Human capital incorporates resources such as infrastructure, labour and knowledge.
  • Natural capital covers environmental assets such as fossil fuels, biodiversity and other ecosystem structures.
  • In very weak sustainability, the overall stock of man-made capital and natural capital remains constant over time.
  • An example of weak sustainability could be mining coal and using it for the production of electricity.

Additional Information

• Strong sustainability
  • ​Strong sustainability assumes that economic and environmental capital is complimentary, but not interchangeable.
• The Sustainable Development Goals (SDGs)
  • The Sustainable Development Goals (SDGs) were launched with a transformative approach from earlier Millennium Development Goals.
  • They include the issues of human rights, inequality, gender empowerment and concessional finances (low-interest-rate loans) for inclusive development.

The correct answer is 'Option 4'

Key Points

• A market failure occurs when there is an inefficient allocation of resources.
• It happens when the true cost of a good is not reflected in the price.
• This might be because a third party benefits but does not pay for that benefit.
• Or, it could arise due to a cost that is imposed on a third party without their consent and compensation.

Let's discuss the factors in question one at a time in light of the definition provided above:

1. A: Asymmetric Information: Is a factor of market failure. It falls in one of the categories. Asymmetric information leads to the selling of a product at a value which it does not hold. Hence, this does cause an imbalance and inefficient allocation of resources and thus market failure.
2. B: Public Goods: The quality of public goods includes both non-rival and non-excludable and thus there is a free-rider problem and the consumer benefits but does not pay the price. Hence, they do cause market failure. 
3. C: Externality: Externalities are market imperfections where the market offers no price for service or disservice. The presence of externalities in consumption and production also leads to market failure.
4. D: Lack of demand: when there is simply a lack of demand there is no inefficiency in the allocation of resources. Neither is any other element of market failure fulfilled when there is simply a lack of demand in the market. Therefore, this is the only reason out of the given which does not cause market failure. 

Therefore 'Lack of Demand' is the correct option. 

Additional Information

Few causes and examples of externalities include:​

• Negative Externalities- such as pollution and alcohol;
• Positive Externalities- such as education and health;
• Imperfect Information- for example, a second-hand car is sold as new;
• Monopolies- such as Government Monopolies sometimes;
• Merit goods- such as education and libraries;
• De-merit goods- such as smoking, etc; and
• Public goods-such as law, defense, etc. 

•  An electronic trading platform where traders enter buy and sell orders using computer screens is referred to as a screen-based trading system.
• These technologies can considerably decrease the amount of time it takes to complete deals, lower transaction costs, reduce the probability of human error, and increase transparency, which lowers the danger of fraud.
• In a screen-based trading system, the electronic platform uses order-driven matching to match the buy and sell orders of various players. Due to the execution of orders based on price and priority, buyers and sellers are efficiently and automatically matched.

Hence, Both (A-Screen based trading system cuts down on time, cost and risk of error as well as on the chances of fraud.) and (R-Screen based trading system electronically matches the buyer and seller in an order driven system.​) are true and (R) is the correct explanation of (A)

The correct answer is P = f(J, R, S).

Key Points

•  The hedonic wage equation is a part of wage-differential approach to the environmental valuation. 
• The hedonic wage equation is used to measure the level of risk of life and death and other hazards faced by worker at a particular job and thus variations in the wage rate.
• The general hedonic wage equation is expressed as P = f(J, R, S)
  • ​P refers to the payment derived from the job,  J refers to some attributes related to job such as leaves and holidays, working hours, additional benefits related to extra efforts, illness, etc. R refers to risk of death, and S refers to required skills to perform the job. 
• ​The hedonic wage approach comes under the revealed preference methods of environmental valuation. 

​​The general hedonic wage equation can be expressed as P = f(J, R, S)

Additional Information

• Environmental goods are valued based on different approaches. Revealed Preference method is one of the mostly used method to value environmental goods. 
  • It helps to reveal how much consumers values an environmental good by examining their transection of goods in the market which is directly or indirectly related to the environmental quality. 
  • Different methods for different type of goods come under Revealed Preference method such as Travel Cost method, Hedonic Price method, Preventive Expenditure method, Surrogate market, Wage-differential approach, etc.

​​The general hedonic wage equation can be expressed as P = f(J, R, S).

The main feature of the Ninth Five Year Plan India is that at its onset, our nation crossed the fifty years of independence and this called for a whole new set of development measures. There was a fresh need felt for increasing the social and economic developmental measures. The government felt that the full economic potential of the country, yet to be explored, should be utilized for an overall growth in the next five years. As a result, in the Ninth Five Year Plan India, the emphasis was on human development, increase in the growth rate and adoption of a full scale employment scheme for all. For one such development to promote the social sectors of the nation and to give utmost importance to the eradication of poverty.

Both the monopolist and the consumers can be made better off. This means that the outcome of a monopoly is Pareto INefficient because either the supplier or the consumers or, in fact, both parties can be made better off without the other being made worse off. Both (A) and (R) are correct and rightly explained.

Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

Zero Elasticity; a perfectly inelastic demand curve. The vertical line shows that at any price, the quantity demanded remains the same. The measured elasticity is zero.

The Law Of Diminishing Marginal Utility states that all else equal as consumption increases the marginal utility derived from each additional unit declines. Marginal utility is the incremental increase in utility that results from consumption of one additional unit.

Important Points Meade's model of economic growth:

• Meade's model analyses the relationship between income, capital and labour and technology.
• This model is also known as "Model of steady growth".
• He explain the relationship between growth rate of population and income growth not growth rate of savings. 
• Features/assumptions of Meade's model:
• There is a closed economy.
• Perfect competition prevails in economy.
• Production is subject to law of constant returns.
• Only two commodities- consumption good and capital good is produced and there is perfect substitution available in these goods.
• Full employment of land, labour and machinery.

Hence, it can be concluded Meade's model do not explain the relationship between growth rate of population and growth rate of savings.

The correct answer is 'Both 1 and 2'.

Key Points

• 1. Saving rate has been reduced by population growth because of the increase in the burden of dependency.
  • It is widely recognized that population growth reduces savings as the population aged below 15 years depends on the working-age population (15-64 years) for survival.
  • Rapid population growth leads to a high ratio of children to working adults and diverts household income from savings towards consumption expenditure.
  • The increasing burden of dependency (caused as a result of rapid population growth) outweighs any increase in the savings rate.

​Thus, the statement is correct.

• Rapid growth in population implies a falling land-human ratio.
  • In India, the land-to-per-person ratio is 0.0024 while at the global level, it is 0.011.
  • Rapid population growth implies increased pressure on land resources.
  • India occupies 2.4% of the world's total land area with its 3.28 million square kilometer area and holds 17.5% of the world's population.
  • A rapid increase in population, the total land area being fixed, results in a falling land-human ratio which gives rise to the problems of land degradation and poses a threat to food security.

Thus, the statement is correct.

On the basis of the above information, it can be concluded that both the given statements are correct.​