UGC NET Paper 2 Economics Mock Test - 4 - UGC NET MCQ

The correct answer is A strategy that is the best response to every possible strategy of the other players
Key Points

• A strategy that is the best response to every possible strategy of the other players. A dominant strategy is one that provides a higher payoff no matter what the other players do.
• In game theory, a dominant strategy is one that provides the best outcome for a player, no matter what strategies the other players choose. In other words, if a player has a dominant strategy, they can choose that strategy without even knowing what their opponents will do. 
• This is different from a "dominated" strategy, which is a strategy that, regardless of what any other players do, there exists at least one other strategy that yields a better outcome.
• However, it's important to note that not every game has a dominant strategy for each player. For example, in the classic "Prisoner's Dilemma" game, each player has a dominant strategy, but in many other games, players' best strategies depend on what they think their opponents will do.
• This often requires players to predict their opponents' strategies and make decisions accordingly, leading to the complexities and interesting dynamics we often see in strategic interactions.  

An economy witnesses a number of business cycles in its life. These business cycles involve phases of high or even low levels of economic activities. A business cycle involves periods of economic expansion, recession, trough, and recovery. The duration of such stages may vary from case to case.

The most commonly accepted theory of the business cycle is Hick's Business Cycle Theory.

• Hicks has developed his theory of trade cycle by combining interaction between multiplier and accelerator with Harrod-Domer growth model.
• In other words, Hicks combines Samuelsson’s multiplier–accelerator interaction model and the Harrod-Domer growth model to expound his own theory of trade cycle.
• He combines multiplier-accelerator interaction with growth theory since, in his opinion, business cycles, have historically taken place against the background of income growth, and therefore, the trade cycle theory should be linked with growth theory. 
• The Hicksian theory of trade cycle is regarded as a more modern and highly streamlined theory of trade cycle.
• Hicks has pointed out that there is a difference between the role of the accelerator at the upswing and its role at the downswing. On the downswing, the accelerator is inoperative because of excess capacity. This kind of role of an accelerator is regarded as a very important contribution by hicks.

Thus, option 2 is the correct answer.

Key Points

Therefore, it is clear from the above explanation that option 2) is the correct answer.

Objective function z = 5x₁ + 3x₂

Subjected to constraints

x₁ – x₂ = 2

x₁ + x₂ = 3

Solving by graphical method

Plotting the constraints on graph

So from the graph, it is clear that the solution is unbound.

In the year 1900, the phrase "neoclassical economics" was coined.

Key Points

•  According to neoclassical economics, a consumer's primary concern is to enhance personal satisfaction. 
•  According to neoclassical economics, a product or service has value above and beyond its production costs. 
• The primary concern of neoclassical economics is the effective allocation of finite productive resources.
• It also takes into account long-term resource expansion, which will allow for increased production of goods and services.
• According to neoclassical economics, the most essential factor in establishing the value of a product or service is its utility to consumers, not the cost of production.
• Scholars of Neoclassical economics are William Stanley Jevons, Carl Menger, and Léon Walras.

Thus, Statement II is the only Correct option. 

Additional Information

•  Neoclassical economics dominated microeconomics and together with Keynesian economics and established the neoclassical synthesis which dominated mainstream economics as "neo-Keynesian economics.
• It competed with new Keynesian economics as new classical macroeconomics in explaining macroeconomic phenomena, until it was identified as part of the new neoclassical synthesis with new Keynesianism.
• This theory is similar to rational behaviour theory which claims that people make logical decisions when it comes to money. 

The correct answer is Both 1 and 2.

• In News:
  • ​Despite accomplishments, global pressures are intensifying on India to commit more towards the Conference of the Parties (COP26), scheduled for November 2021 in Glasgow.

Key Points

• India’s accomplishments:
  • At the fifth anniversary of the Paris Agreement on Climate Change (December 2020). 
  • India was the only G20 nation compliant with the agreement. Hence, statement 1 is correct.
  • India has been ranked within the top 10 for two years consecutively in the Climate Change Performance Index. Hence, statement 2 is correct.
  • The Unnat Jyoti by Affordable LEDs for All (UJALA) scheme is the world’s largest zero-subsidy LED bulb programme for domestic consumers.
  • India provided leadership for setting up the International Solar Alliance, a coalition of solar-resource-rich countries, and the Coalition for Disaster Resilient Infrastructure.
• India’s performance:
  • Exceeding the NDC commitment: India is on track (as reports/documents show) to meet and exceed the NDC commitment to achieve 40% electric power installed capacity from non-fossil fuel-based sources by 2030.
  • Reduction in emission intensity of GDP: Against the voluntary declaration for reducing the emission intensity of GDP by 20%-25% by 2020, India has reduced it by 24% between 2005-2016.
  • More importantly, we achieved these targets with around 2% out of the U.S.$100 billion committed to developing nations in Copenhagen (2009), realized by 2015.
  • Renewable energy expansion: India is implementing one of the most extensive renewable energy expansion programmes to achieve 175 GW of renewable energy capacity by 2022 and 450 GW by 2030.

•  In the figure above, the cost and revenue curves are on the Y-axis and the quantity demanded is on the X-axis. Further, the marginal cost curve cuts the marginal revenue curve from below at Pt. E.  As per the figure, the average cost is higher then the average revenue. Therefore, loss of area dCEP₀ is created.
• A firm under short run can experience supernormal, normal and loss. In the long run, firm experience only normal profit due to freedom of entry and exit.

Hence, the correct answer is: The equilibrium state in the above figure shows loss. 

Concept:

• Value of any objective function like Z = ax + by at any point can be found by putting the values of x and y in the equation of objective function.
• For example value of Z = 3x + 4y at (2, 5) is Z = 3 × 2 + 4 × 5 = 6 + 20 = 26.

Calculation:

Given:

• The objective function is given as Z = 2x + 12y.
• The corner points are (8, 0), (7, 2), (5, 3), (3, 6) and (0, 9).  
• To find the maximum value (M) and minimum value m of the objective function, value of the objective function at each point should be calculated. These values are calculated and shown in the table below:

• Based on the table above, the minimum and maximum value of the objective function is 16 and 108.
• M = 108 and m = 16.
• Hence, we can write

• Hence, the correct answer is option 3. 

The correct answer is Both (A) and (R) are individually true but (R) is not the correct explanation of (A).

• A rise in the rate of economic growth due to the rising share of working-age people in the population is called a demographic dividend.
• According to United Nations Population Fund (UNFPA), demographic dividend means, "the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older)".
• It is the potential for economic gains when the share of the working-age population (15 years – 64 years) is higher than the non-working age group.

Key Points

• Jobless Economic growth leads to social unrest.
• Economic growth means an increase in real national income / national output.
• Economic growth is an increase in the production of economic goods and services, compared from one period of time to another.
• Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP).

Important Point

• India has 62.5% of its population in the age group of 15-59 years which is ever increasing and will be at the peak around 2036 when it will reach approximately 65%.
• India has one of the youngest populations in an ageing world.

The correct answer is Esther Duflo, Abhijit Banerji, and Michael Kremer.

• In 1968, Sveriges Riksbank (Sweden’s central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize. 
• The first prize in economic sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.

Important Points

•  Nobel Prize Economics 2019:

1. The 2019 Nobel Memorial Prize in Economics Sciences was awarded to Abhijit Banerjee, Esther Duflo, and Michael Kremer “for their experimental approach to alleviating global poverty.” Their experimental work has changed the culture of economics, especially development economics.
2. They adapted the method of randomized control trials (RCTs) to the field of development
3. Randomized controlled trials are experiments that apply an intervention to only a randomly selected portion of the target population so that you can compare the effects of the intervention against a group that didn’t receive it. 

Additional Information

1.  Michael Spence and Joseph E. Stiglitz, won the Nobel Prize for Economics in 2001 for laying the foundation for the theory of markets with asymmetric information.
2.  Robert J. Aumann and Thomas C. Schelling on the Nobel Prize for Economics in 2005“for having enhanced our understanding of conflict and cooperation through game-theory analysis”
3.  Paul Krugman on the Nobel Prize for Economics in 2008 “for his analysis of trade patterns and location of economic activity”

Hence, The Noble Prize of Economics in 2019 is given to Esther Duflo, Abhijit Banerji, and Michael Kremer.

The correct answer is- It would result in those slightly above the poorest segments falling into poverty

Key Points

•  The passage suggests that focusing solely on the poorest segments, to the exclusion of others, could lead to people just outside the bottom quintile falling into poverty due to neglect. The suggested criterion, therefore, aims at inclusive growth without ignoring those who are not in the bottom quintile, ensuring that policies target the broader spectrum of society.

The correct Answer is Inclusive growth.

 Key Points

•  The passage explicitly states that inclusive growth constitutes the defining concept behind the Government’s various economic policies and decisions. Inclusive growth involves ensuring that the benefits of economic growth are shared widely among the population, rather than being concentrated among a small segment.

Zero-Based Budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. Budgeters review every program and expenditure at the beginning of each budget cycle. Under it, no reference is made or considered of previous years. The budget request has to be evaluated thoroughly with its commencement from the zero-base. Therefore, following statements are relevant.
I.  Each item of expenditure is challenged in pre-budgeting review.
II. No minimum level of expenditure is allowed to be taken as given.

The correct sequential order is:  Adam Smith, Robert Malthus, J. S. Mill,  David Ricardo.

Keynes defines psychological law of consumption in terms of "the fundamental psychological law, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed, as a rule and on the average, to increase their consumption as their income increases but not by as much as the increase in the income." It simply means that Marginal Propensity to consume is positive but less than unity (>0 but <1).

They argued that the world economy was divided into the industrial "center" -- the United States and Western Europe -- and the commodity-producing "periphery." The terms of trade would always work against the periphery, meaning that the center would consistently exploit the periphery.

The major recommendations of the Raj Committee were:

(i) Imposition of Agricultural Holdings Tax (AHT) on agriculturists.

(ii) In the case of assessees paying non-agricultural tax, income from agriculture should be included in the total income for the purpose of calculating income tax.

(iii) Income from livestock, poultry, dairy farming etc., should be subject to tax.

(iv) An integrated taxation of agricultural property through wealth tax should be introduced.

(v) Capital gains tax on transfer of land should be imposed. According to Raj Committee, there were two basic defects in the present land revenue system.

The correct answer is a and c only.

• National Income - National income is a government bookkeeping system that measures a country's economic activity.

Key Points

• National Income Concept :

Gross Domestic Product (GDP) - 

• GDP is the monetary value of all finished goods and services produced within a country during a period of one year. Hence, Statement b is correct.
• GDP = C + G + I + (X - M) 
  • C = consumption
  • G = government spending 
  • I = Investment
  • X - M = net exports (Value of exports - Value of Imports)

Gross National Product (GNP) -

• It is the monetary value of all finished goods and services produced by a country's residents during a period of one year. Hence, Statement a is incorrect.
• GNP = GDP + Net factor income from abroad
  • Net factor income from abroad = Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy.

Gross Value Added (GVA) -

• It is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry, or sector. Hence, Statement c is incorrect.
• GVA = GDP+SP−TP
  • SP = Subsidies on products
  • TP = Taxes on products

Intermediate consumption - It is the value of the goods and services consumed as inputs by a process of production.

The correct answer is 1, 2 and 3.

Key Points

• It is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution. Hence, Statement 1 is correct.
• The Public Distribution System (PDS) evolved as a system of management of scarcity through the distribution of food grains at affordable prices.
• It helps in ensuring the Food and Nutritional Security of the nation.
• PDS is supplemental in nature and is not intended to make available the entire requirement of any of the commodities distributed under it to a household or a section of society.
• PDS is operated under the joint responsibility of the Central and the State Governments.  Hence, Statement 2 is correct.
• It maintains the buffer stock of food grains in the warehouse. Hence, Statement 3 is correct.
• The Central Government, through the Food Corporation of India (FCI), has assumed the responsibility for the procurement, storage, transportation, and bulk allocation of food grains to the State Governments.
• The operational responsibility including allocation within the State, identification of eligible families, Issue of Ration Cards, and supervision of the functioning of Fair Price Shops (FPSs), etc., rests with the State Governments.
• Under the PDS, presently the commodities namely wheat, rice, sugar, and kerosene are being allocated to the States/UTs for distribution.
• Some states/UTs also distribute additional items of mass consumption through PDS outlets such as pulses, edible oils, iodized salt, spices, etc.

• Many public sector firms incurred huge losses but continued to function because it is difficult to close a government undertaking even if it is a drain on the nation’s limited resources.
• A few of the public sector firms were originally private firms which were on the verge of closure due to losses; they were then nationalised to protect the jobs of the workers. Hence, statement 1 is incorrect.
• The proportion of GDP contributed by the industrial sector increased in the period from 11.8 per cent in 1950-51 to 24.6 per cent in 1990-91. Hence, statement 2 is correct.
• The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient.
• More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their products.

An indifference curve is the curve at every point of which the utility would remain same. The indifference curve of perfect complementary goods is 'L' shaped.'Left shoe' and 'Right shoe' can be considered as perfect complimentary goods.

The reserve capacity makes it possible to have constant SAVC within a certain range of output. It should be clear that this reserve capacity is planned in order to give the maximum flexibility in the operation of the firm.

1. Postage stamp pricing- Differential pricing
2. Loss leader- Product line pricing
3. Economic capacity- Equality of marginal and average cost
4. Reserve capacity- Constant average and marginal cost

Monetised deficit is the monetary support the Reserve Bank of India (RBI) extends to the Centre as part of the government's borrowing programme. In other words, the term refers to the purchase of government bonds by the central bank to finance the spending needs of the government.