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

The correct answer is  a-1, b-2, c-3, d-4 
Key Points

• (a) Contingent Valuation Method (CVM) - (1) Estimates the value of environmental goods based on people's willingness to pay in hypothetical scenarios.
  • CVM uses surveys to ask individuals how much they would be willing to pay for specific environmental services.
  • These scenarios are hypothetical, but the responses can provide estimates of how much value individuals place on those services. 
• (b) Travel Cost Method (TCM) - (2) Estimates the value of environmental goods based on the costs individuals incur to access or visit them.
  • The TCM uses the cost of travel (like transportation, time, and admission fees) to estimate the value of a specific site or amenity.
  • The idea is that these costs represent the price people are willing to pay to visit the site. 
• (c) Hedonic Pricing Method (HPM) - (3) Estimates the value of environmental goods based on the implicit prices revealed in the market for related goods.
  • HPM is used to estimate economic values for ecosystems or environmental services that directly affect market prices.
  • It is most commonly applied to variations in housing prices that reflect the value of local environmental attributes. 
• (d) Choice Experiment Method (CEM) - (4) Estimates the value of environmental goods by presenting individuals with choices and assessing their preferences.
  • CEM involves presenting individuals with hypothetical scenarios involving a set of alternative situations and asking them to choose their preferred one.
  • The choices made by individuals can then be used to infer the value they place on different environmental attributes.

In conclusion, the appropriate matching of environmental valuation methods with their descriptions is a-1, b-2, c-3, d-4. 

Duvvuri Subbarao, Raghuram Rajan, Urjit Patel, Shaktikanta Das

Key Points

• Dr. Duvvuri Subbarao served as the 22nd Governor of the RBI from September 5, 2008, to September 4, 2013.
• Dr. Raghuram Rajan served as the 23rd Governor of the RBI from September 4, 2013, to September 4, 2016.
• Dr. Urjit Patel served as the 24th Governor of the RBI from September 4, 2016, to December 10, 2018.
• Shri Shaktikanta Das took office on December 12, 2018, as the 25th Governor of the RBI, and he is the current governor as of the last update in September 2021.

• A buffer stock plan, also known as intervention storage or the "ever-normal granary," is an effort to employ commodity storage to stabilise prices across the board or in a specific (commodity) market.
• Property rights are frequently defined as the ability to possess something, like land or a car, and dispose of it whatever one pleases. This, however, is but one component of property rights that emphasises the sole right to possession.
• In order to regulate traffic through the use of road pricing and as a usage-based taxation method to supplement the purchase-based Certificate of Entitlement system, Singapore introduced the Electronic Road Pricing (ERP) system.
• An ineffective distribution of commodities and services on the open market is referred to as market failure. The individual incentives for rational behavior do not result in rational outcomes for the collective in a market failure.

Hence, (A) - (3), (B) - (2), (C) - (1), (D) - (4) is correct.

The correct answer is A and D only.
Key Points

A. Kerala has been consistently ranked at the top in the Human Development Index (HDI) among all states in India since the 1990s.

• The HDI is a composite index that measures achievements in health, education, and income.
• Kerala's high HDI score is due to its success in achieving high levels of literacy and education, improving healthcare outcomes, and reducing poverty.
• The state has a literacy rate of 96.2%, which is the highest in India, and has made significant strides in reducing infant mortality and improving life expectancy.
• Kerala's focus on social welfare and public services has been cited as a model for other states in India.

D. India has been ranked in the medium HDI category as per the latest HDI report. The HDI value for India is 0.645, which ranks it at 131 out of 189 countries. The HDI value ranges from 0 to 1, with values closer to 1 indicating higher human development

Additional Information

C. Odisha is not among the top five states in the HDI category. As per the latest HDI report, the top five states in terms of HDI are Kerala, Chandigarh, Goa, Delhi, and Puducherry.

B. States showing higher total literacy rates have huge gaps between male female literacy. -

• This is generally false.
• While there may be discrepancies between male and female literacy rates in certain states, it is not a universal rule that higher literacy states have a huge gap between male and female literacy rates. In fact, in states like Kerala which has high literacy rates, the gap between male and female literacy rates is relatively small.

As per the report, Per capita income in Himachal Pradesh is the second highest in the country – an impressive achievement given that more than 90 percent of its residents live in rural areas.

• Principles of Political Economy and Taxation was written by David Ricardo (1817).
• The General Theory of Employment, Interest and Money was written by John Maynard Keynes (1936).
• Value and Capital was written by John Richard Hicks (1939).
• A Revision of Demand Theory was written by Harry Johnson (1956).

Concept:

Effect size:

• Effect size is a statistical concept that measures the strength of the relationship between two variables on a numeric scale. 

Experimental and controlled group:

• An experimental group is a group that receives the variable being tested in an experiment. 
• The control group is the group in an experiment that does not receive the variable one is testing.

Explanation:

• Now to find the effect size, we have both the mean value and the standard deviation
• It is commonly evaluated using Cohen’s D method, where the standard deviation is divided by the difference between the means pertaining to two groups of variables.
• Let mean E= 15, mean C= 12, and SD= 5
• Therefore:
  • Effect size(Δ) = (mean E - mean C)/ S.D 
    =(15-12)/5
    =3/5=0.6

Thus, if the mean of the experimental group is 15, the mean of the control group is 12 and the standard deviation of the control group is 5 then the effect size (Δ) will be 0.6.

Additional Information:Example of effect size:

• If we have data on the height of men and women and we notice that, on average, men are taller than women, the difference between the height of men and the height of women is known as the effect size. 
• The greater the effect size, the greater the height difference between men and women will be. 
• Statistic effect size helps us in determining if the difference is real or if it is due to a change in factors

Calculation:

Here, for solving this LPP problem, converting all inequality constraints to equality constraints.

x = 4

y = 6

3x + 2y = 18

Now, plotting these on the graph,

The shaded region will be optimum region.

Now, finding value of objective function at all points

Z(0) = 0 + 0 = 0

Z(A) = Z(4, 0) = 6 × 4 + 0 = 24

Z(B) = Z(4, 3) = 6 × 4 + 10 × 3 = 54

Z(C) = Z(2, 6) = 2 × 6 + 6 × 10 = 72

Z(D) = Z(0, 6) = 0 + 6 × 10 = 60

So, the maximum value of objective function is 72.

• Public goods are those that are neither rivalrous (one person's consumption does not affect their availability to others) nor excludeable (it is challenging to exclude people from enjoying the good).
• When someone may take advantage of a public good without paying for it, it creates a free rider problem. People may be tempted to "free ride" on the contributions of others, which could result in inadequate provision of the common good.
• When one manufacturer or seller controls the market for a specific commodity or service, there is a monopoly. The producer has substantial control over the product's pricing in a monopoly. 
• When a person's actions produce favorable effects on people who are not directly connected to the transaction, this is referred to as having external benefits (positive externalities). 

Hence, Public good - Problem of free rider, Non-rival and non-exclusive in consumption- Public parks, Monopoly-Price of commodity will be greater than marginal cost, External benefits- Government gives subsides.

The correct answer is 1 only.

Key Points

• National Income is the value of total goods & services produced in an economy over a given period of time. 
• The National Income can be measured by Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI). Net National Product (NNP), Net National Income (NNI) and Per-Capita Income (PCI).
• The Net Domestic Product is the GDP calculated after adjusting the weight of the value of 'depreciation'. Hence, statement 1 is correct.
• In India, the Ministry of Commerce and Industry announces the rates by which assets depreciate and a list is published, which is used by the different sections of the economy to determine the real levels of depreciation in different assets.
• The Gross National Product (GNP) is the GDP of a country added with its 'income from abroad'.
• The GNP is the 'national income' according to which the IMF ranks the countries in terms of the volumes-at Purchasing Power Parity. Hence, statement 2 is not correct.
• Items included in the National Income-
  • Goods produced for self-consumption
  • Estimated rent of the self-occupied property
• Items not included in National Income-
  • Intermediate goods
  • Transfer payments (unilateral payments made without expectations of return; like gifts, unemployment allowance, donations, etc)
  • Sale and purchase of old goods and existing services (shares are not included unless they are through an IPO)
  • Windfall gains
  • Black money
  • Work done by housewives
• Hence, statement 3 is not correct.

The correct answer is Both 1 and 3.Key Points

• A central bank balance sheet is a reflection of its various functions, particularly its role as a monetary authority and as a banker to the Government and banks.
• The structure of assets and liabilities of the Reserve Bank of India (RBI) is, more or less, in line with the balance sheet followed by most central banks. 

Assets of the Reserve Bank of India:

• Rupee securities (including treasury bills)
  • It includes the government securities held by the Issue and Banking departments. 
  • In Issue Department, rupee securities along with rupee securities include government securities of that 'foreign country maturing within ten years of the Issue Department plus investment in government securities of the Banking Department. Hence, statement 1 is correct.
• Loans and Advances
  • The Reserve Bank gives loans and advances to the Central & State Governments, commercial and cooperative banks and others in terms of Sections 17 and 18 of the Reserve Bank of India Act, 1934. Hence, statement 3 is correct.
  • Reserve Bank provides loans and advances to the Central Government to meet the temporary gap between receipts and payments. 
  • These advances are termed as ways and means advances that are fixed from time to time in consultation with the Government. 
• India's Foreign Exchange Reserves
  • Comprise Foreign Currency Assets, Gold, SDR and Reserve Bank position with International Monetary Fund (IMF).
  • Foreign currency assets include investments in US Treasury bonds, Bonds/Treasury Bills of other selected governments, deposits with foreign central banks, foreign commercial banks etc.
• Gold coin bullion
  • It represents the gold coin bullion of the Issue Department and Banking Department.
  • The gold reserves of the Issue Department and Banking Department are valued at a value close to international market prices on a monthly basis. 

Liabilities of RBI:

• Currency notes
  • Issued by the Reserve Bank are the Reserve Bank’s liability and this constitutes the liabilities of the Issue Department.
  • Total notes issued are the sum of Notes in circulation and Notes held in the Banking Department of the Bank. Hence, statement 4 is not correct.
•  Paid-up Capital and Reserve Fund
  • The Capital of the Bank, of 0.05 billion dollars, is held by the Government of India and reserve funds i.e. Credit (Long-term Operations) Fund, National Agricultural Credit (Stabilisation) Fund, and National Industrial Credit (Long-term Operations) Fund of the Bank are part of other liability. Hence, statement 2 is not correct.

Additional Information

• Loans and advances to the State Governments comprise ways and means of advances granted under Section 17(5) of the Reserve Bank of India Act, 1934. 
• The minimum balances to be maintained by the State Governments with the Bank and this is revised from time to time.
• This item mainly represents the investment of RBI in Non-Government securities.
• The major items under this head are an investment in DICGC share capital, Bharatiya Reserve Bank Note Mudran share capital, NABARD share capital, National Housing Bank share capital etc.

This tends to make workers supply more labour (the "substitution effect"). However, also as the real wage rate rises, workers earn a higher income for a given number of hours. If, beyond a certain wage rate, the income effect is stronger than the substitution effect, then the labour supply curve bends backward.

In economics, the excess burden of taxation, also known as the deadweight cost or deadweight loss of taxation, is one of the economic losses that society suffers as the result of taxes or subsidies. Economic theory posits that distortions change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the average cost of funds or the marginal cost of funds (MCF). Excess burdens were first discussed by Adam Smith.

In regression, the R² coefficient of determination is a statistical measure of how well the regression predictions approximate the real data points. An R² of 1 indicates that the regression predictions perfectly fit the data.

The correct answer is option 2 i.e Balance of Payment

Balance of Payment:

• It is defined as the statement which records all transactions made between residents of a country and the rest of the world during any given period.
• Transactions related to both goods and services are recorded.

Component of BoP:

•  Current account
•  Capital account
•  Financial account

Current account: 

• An account which records the export and import of merchandise and unilateral transfers done during the year by a nation.
• It reflects the Net Income of the country.
• It deals with the receipt and disbursements of cash and non-capital items.

Capital Account:

• An account which records the trading of foreign assets and liabilities during the year by a country.
• It reflects the net change in ownership in national assets.
• It deals with the sources and application of capital.

The balance of payment always balances since every transaction has to be settled to ensure total debits equal total credits

Balance of Trade: 

• Balance of Trade is a statement that captures the country's export and import of goods with the remaining world.
• Transactions are related to goods only.
• It is a component of Current Account of Balance of Payment

The incorrect answer is RBI started functioning from 1938.

Key Points

RBI

• The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934. Hence, Option 4 is incorrect.
• It is India's central bank and regulatory body responsible for regulation of the Indian banking system.
• The Banking Regulation Act, 1949 empowers the Reserve Bank of India to inspect and supervise commercial banks.
• The Reserve Bank of India Act, 1934 requires the Central Government to entrust the Reserve Bank with all its money, remittance, exchange and banking transactions in India and the management of its public debt. 
• The Reserve Bank of India is the custodian of the country's foreign exchange reserves and is vested with the responsibility of managing their investment. Hence, Option 1 is correct.
  • The legal provisions governing management of foreign exchange reserves are laid down in the Reserve Bank of India Act, 1934. 
• Under the Reserve Bank of India, Act,1934 (RBI Act,1934) (as amended in 2016), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.
  • Section 45ZB of the amended RBI Act, 1934 provides for an empowered six-member monetary policy committee (MPC) to be constituted by the Central Government.
• The National Housing Bank (NHB), once a wholly-owned subsidiary of Reserve Bank of India (RBI), has now been taken over by the government.
• Consequent to the revision in the composition of share capital between Government of India and RBI, NABARD today is fully owned by Government of India. Hence, Option 3 is correct.

Hence, it can be concluded that "RBI started functioning from 1938." is incorrect.

The correct answer is option 2. 

Key Points

SANKALP

• Skills Acquisition and Knowledge Awareness for Livelihood Promotion (SANKALP) Scheme is a World Bank loan assisted programme of the Ministry of Skill Development and Entrepreneurship (MSDE) with three key Result Areas (RA), namely, Hence, statement 1 is correct. 
  • Institutional Strengthening at Central, State, and District levels;
  • Quality Assurance of skill development programmes; and
  • Inclusion of marginalized population in skill development programmes.
• SANKALP aims to implement the mandate of the National Skill Development Mission (NSDM). Hence, statement 3 is correct 
• The Objective of the project is to enhance institutional mechanisms for skills development and increase access to quality and market-relevant training for the workforce.
• It is a Centrally Sponsored Scheme that is collaborated with the World Bank. Hence, statement 2 is not correct.
• It is implemented by the Union Ministry of Skill Development & Entrepreneurship.
• It has a special focus on decentralized planning and quality improvement.
• It focuses on the overall skilling ecosystem covering both Central & State agencies. Hence, statement 4 is not correct.

The second paragraph clearly states that income recovered from such sources is crucial for the government to steer its social programmes and fund public expenditure at a time when the country’s direct and indirect tax collections are below target.

The first paragraph clearly indicates that Black Money Act is for retrieving the unaccounted illegal income.

The upper portion of the kinked demand curve is relatively more elastic. The kinked-demand curve is a demand curve comprised of two segments, one that is relatively more elastic, which results if a firm increases its price, and the other that is relatively less elastic, which results if a firm decreases its price.

Neo-classical production function has following characteristics:

1. Positive and diminishing marginal productivity of the factors.
2. Constant return to scale.
3. Satisfies Inada conditions.

Bretton Woods established a system of payments based on the dollar, which defined all currencies in relation to the dollar, itself convertible into gold, and above all, "as good as gold" for trade. U.S. currency was now effectively the world currency, the standard to which every other currency was pegged.

Capital receipts refer to those receipts which either create a liability or cause a reduction in the assets of the government. They are non-recurring and non-routine in nature.