CUET PG Economics Mock Test - 1 - CUET PG MCQ

The correct answer is - X* = 10, Y* = 0

Key Points

• Utility Maximization
  • The consumer's utility function is U(X, Y) = 2X + Y.
  • This implies that the consumer derives more utility from consuming good X than good Y.
  • The budget constraint is given by X + 2Y = 10, which means the total expenditure on goods X and Y should not exceed 10.
  • To maximize utility, the consumer will allocate their budget such that the marginal utility per unit cost of each good is equal.
• Marginal Utility per Dollar
  • The marginal utility (MU) of X is 2 and the price of X is 1 (from the constraint equation).
  • The marginal utility (MU) of Y is 1 and the price of Y is 2 (from the constraint equation).
  • MU per dollar for X = 2/1 = 2.
  • MU per dollar for Y = 1/2 = 0.5.
  • Since MU per dollar for X is higher, the consumer will spend more on X to maximize utility.
• Budget Allocation
  • To find the optimal combination, solve the budget constraint: X + 2Y = 10.
  • If Y = 0, then X = 10 (since 10 + 2*0 = 10).
  • This combination (X* = 10, Y* = 0) maximizes the consumer's utility given the constraint.

Additional Information

Other Options

• A (X = 10, Y = 10): Violates the budget constraint (total cost = ₹30 ≠ ₹10).
• B (X = 0, Y = 5): Suboptimal, as Y yields less utility per rupee.
• D (X = 5, Y = 5): Also violates the budget constraint (total cost = ₹15 ≠ ₹10).

For inferior goods, the substitution effect and income effect of a price decrease act in opposite directions:

• Substitution Effect: When the price of an inferior good decreases, consumers substitute it for relatively more expensive goods, increasing its consumption.
• Income Effect: A price decrease effectively increases real income. For inferior goods, higher income leads to decreased consumption of the inferior good.

Key Points:

• Opposite Directions: The substitution effect (↑ consumption) and income effect (↓ consumption) work against each other.

• Aggregate Consumption:

  • For regular inferior goods, the substitution effect dominates, leading to an overall increase in consumption.

  • For Giffen goods (a subset of inferior goods), the income effect dominates, causing an overall decrease in consumption.

Why Other Options Are Incorrect:

• B/D ("same direction"): Incorrect because the effects oppose each other for inferior goods.
• C ("opposite directions and decrease"): Only true for Giffen goods, not all inferior goods. The question does not specify Giffen goods, so this is not universally applicable.

Conclusion:
For inferior goods in general, the substitution and income effects work in opposite directions, regardless of the final aggregate outcome. Thus, A is correct.

The correct answer is - Only I and II

Key Points

• Public Goods
  • Statement I: Public goods are non-rivalrous.
    • This means that one person's consumption of the good does not reduce the amount available for others.
    • For example, one person enjoying a public park does not reduce the enjoyment of others using the same park.
  • Statement II: Public goods are non-excludable.
    • This means that it is not possible to exclude anyone from using the good.
    • For instance, street lighting benefits everyone in the area, and it is not feasible to exclude anyone from its use.

Additional Information

• Roads
  • Statement III: Roads are a classic example of a pure public good.
    • This statement is not entirely accurate. While roads have characteristics of public goods, they can become congested and rivalrous at times, meaning their usage by one person can affect others, thus not fitting the pure definition of public goods.
    • Additionally, toll roads or private roads are excludable, as access can be restricted.

The correct answer is M1.Key Points

• M1 is the most liquid measure of money supply With respect to the four criteria of money supply in India, viz., M1, M2, M3, and M4.
• M3 is known as broad money since it comprises both liquid and time deposits, making it a broad category of money.
• M1 is referred to as narrow money since it only comprises 100% liquid deposits, which is a relatively limited definition of the money supply.
• Reserve Money (MO) is also known as central bank money, monetary base money, base money, or high-powered money.
• The formula for measuring the money supply in India's economy:

Additional Information

• The money supply is defined as currency in circulation plus deposits in commercial banks in the most basic sense.
• The total stock of money circulating in an economy is referred to as the money supply.
• In short, there are two types of money:
  • Central bank money (MO).
  • Commercial bank money (M1 and M3).
• Central bank money is designated as MO in money supply data, whereas commercial bank money is separated into M1 and M3 components. Post-office deposits are also included in the M2 and M4 components.

The correct answer is 'Power'

Key Points

• Power:
  • In statistics, the power of a test is the probability that the test correctly rejects a false null hypothesis (i.e., it detects an effect when there is one).
  • Power is calculated as 1 minus the probability of a Type II error (β), which is the error of failing to reject a false null hypothesis.
  • High power indicates a high probability of detecting an effect if there is one, making the test more reliable.

Additional Information

• Effect-size:
  • Effect size is a quantitative measure of the magnitude of the experimental effect. It is not related to the probability of rejecting the null hypothesis, but rather to the strength of the relationship or difference observed.
  • Common measures of effect size include Cohen's d, Pearson's r, and eta squared.
• Type II error (β):
  • A Type II error occurs when the test fails to reject a false null hypothesis. It is the opposite of power.
  • The probability of a Type II error is denoted by β, and as β decreases, the power of the test increases.
• Type I error (α):
  • A Type I error occurs when the test incorrectly rejects a true null hypothesis.
  • The probability of committing a Type I error is denoted by α, which is also known as the significance level of the test.

• 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, d) Promotion of import-substitution industrialization.

The promotion of import-substitution industrialization (ISI) is not considered a driver of economic globalization. In fact, ISI policies are typically associated with a more inward-looking and protectionist approach to economic development, which is in contrast with the principles of globalization that promote free trade, open markets, and integration with the global economy.

Import-substitution industrialization refers to a development strategy adopted by many developing countries in the mid-20th century, which aimed to reduce dependence on imports by promoting domestic industries through protectionist policies such as tariffs, import quotas, and subsidies. The goal was to build self-sufficient domestic industries and reduce reliance on foreign goods and products.

Key Points

1. Liberalization of Trade and Investment:
   • The gradual removal of barriers to international trade, such as tariffs, quotas, and other restrictions, has facilitated the free movement of goods, services, and capital across borders.
   • The proliferation of free trade agreements and the reduction of trade barriers by organizations like the World Trade Organization (WTO) have been major drivers of economic globalization.
2. Technological Advancements in Communication and Transportation:
   • Advancements in communication technologies, such as the internet, satellite communications, and mobile networks, have facilitated the rapid exchange of information, ideas, and data globally.
   • Improvements in transportation, including faster and more efficient modes of shipping, have reduced the costs and time associated with the movement of goods and people across borders.
3. Rise of Regional Trade Blocs:
   • The formation of regional trade blocs, such as the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN), has contributed to the integration of economies within regions and facilitated cross-border trade and investment.
4. Multinational Corporations and Foreign Direct Investment:
   • The growth of multinational corporations (MNCs) and their ability to operate and invest in multiple countries has been a driving force behind economic globalization.
   • Foreign direct investment (FDI) by MNCs has facilitated the transfer of capital, technology, and knowledge across borders, further integrating economies.
5. Deregulation and Privatization:
   • The trend towards deregulation and privatization of various sectors, such as telecommunications, energy, and transportation, has opened up new opportunities for international trade and investment.
   • Privatization has allowed for the participation of foreign companies and investors in previously state-controlled industries, fostering globalization.
6. Global Financial Integration:
   • The liberalization of capital markets and the free movement of financial resources across borders have facilitated the integration of global financial systems.
   • The growth of international financial institutions, such as the International Monetary Fund (IMF) and the World Bank, has also contributed to economic globalization.

Additional Information
In contrast to the drivers of economic globalization, import-substitution industrialization (ISI) policies were characterized by a more inward-looking and protectionist approach to economic development. The primary objective of ISI was to develop domestic industries and reduce reliance on imports by shielding them from foreign competition through various trade barriers and subsidies.

ISI policies were particularly popular among many developing countries in the post-World War II period, as they sought to achieve self-sufficiency and industrialization. These policies were often supported by economic theories that emphasized the need for state intervention and protection of infant industries until they could compete with established foreign firms.

However, over time, the limitations and drawbacks of ISI policies became evident. These included:

1. Limited Domestic Market: ISI policies focused on producing goods primarily for the domestic market, which often had limited purchasing power and size, hindering economies of scale and efficiency.
2. Inefficiencies and High Costs: Protected domestic industries often lacked incentives for innovation, productivity improvements, and cost-efficiency, resulting in higher prices for consumers.
3. Technological Stagnation: Lack of competition and exposure to international markets led to technological stagnation and a failure to keep pace with global technological advancements.
4. Trade Deficits: As domestic industries were unable to meet the demand for certain goods and services, countries continued to rely on imports, leading to trade deficits and balance of payments issues.
5. Limited Export Competitiveness: Domestic industries that were shielded from competition often struggled to compete in international markets, limiting export potential and foreign exchange earnings.

As a result of these limitations, many countries began to shift away from ISI policies towards more outward-oriented and market-friendly policies in the latter part of the 20th century. This shift involved measures such as trade liberalization, deregulation, privatization, and attracting foreign direct investment (FDI).

The transition from ISI to more open and globalized economies was driven by factors such as the need to access larger markets, improve competitiveness, attract foreign technology and investment, and promote export-led growth. International institutions like the World Bank and the International Monetary Fund (IMF) also played a role in encouraging developing countries to adopt more market-oriented reforms and integrate into the global economy.

While the shift away from ISI policies was not without challenges and social costs, it is widely recognized that embracing globalization and integration with the world economy has been a key driver of economic growth and development for many countries in recent decades.

Concept:

Let the two numbers as a and b.

A.M. =

G.M. =

Relation between AM and GM:
(G.M.)2 = (A.M.)(H.M.)

Calculations:

Given, the arithmetic mean of two numbers exceeds their geometric mean by 2 and the geometric mean exceeds their harmonic mean by 1.6.
⇒ A.M. = G.M. + 2 ....(1)
and G.M. = H.M. + 1.6
We know that, (G.M.)² = (A.M.)(H.M.)
⇒ (G.M.)2 = (G.M. + 2)(G.M. - 1.6)
⇒ (G.M.)2 = (G.M.)² + 0.4 G.M. - 3.2
⇒ 0.4 G.M. = 3.2
⇒ G.M. = 8 ....(2)
From equation (1), we get
⇒A.M. = 10 ....(3)
Consider, the two numbers as a and b.
then, G.M. = and A.M. =
From equation (2) and (3), we get
⇒ = 8 and = 10
⇒ ab = 64 and a + b = 20
⇒ a (20 - a) = 64
⇒ a² - 20a - 64 = 0
⇒ a =16 or a = 4
⇒ b = 4 or b = 16
Hence, the two numbers are 16 and 4.
Hence, The arithmetic mean of two numbers exceeds their geometric mean by 2 and the geometric mean exceeds their harmonic mean by 1.6. the two numbers are 16 and 4.

Observations:

1. The statement "A continuous random variable can take all values in an interval" is correct because A continuous random variable is a random variable where the data can take infinitely many values.
2. The statement "A random variable which takes a finite number of values is necessarily discrete." is correct because a discrete random variable is one which may take on only a countable number of distinct values such as 0,1,2,3,4,........
3. The statement "Construction of a frequency distribution is based on data which are discrete." is correct because we can not find frequency distribution if the data is continuous, hence the data is discrete.

The correct answer is - The weak axiom of revealed preference

Key Points

• The weak axiom of revealed preference
  • The weak axiom of revealed preference (WARP) is a fundamental concept in consumer theory.
  • It states that if a consumer chooses bundle X over bundle Y when both are available, then the consumer will not choose Y over X when both are available again.
  • This axiom ensures that a consumer's choices are consistent over time.
  • In other words, if X is chosen over Y, Y must not be a feasible alternative when X is chosen.

Additional Information

• The generalized axiom of consumer preference
  • This axiom extends the concept of consumer preference beyond the basic conditions of WARP.
  • It encompasses a broader range of scenarios and conditions under which consumer preferences are considered rational.
• The feasibility property
  • This term is not a standard concept in consumer theory.
  • It might refer to the set of all possible bundles a consumer can choose given their budget, but it is not related to revealed preference axioms.
• The strong axiom of revealed preference
  • The strong axiom of revealed preference (SARP) is a more stringent version of WARP.
  • It states that if a consumer prefers bundle X to Y, and Y to Z, then they must prefer X to Z directly or indirectly through a chain of preferences.
  • SARP ensures transitivity in a consumer's preferences, adding a layer of consistency over WARP.

The correct measure of Fiscal Deficit is

1. Fiscal deficit = Total expenditure - Total receipts (excluding borrowings)
2. Fiscal deficit = (Revenue expenditure + Capital expenditure) - (Revenue receipts + Capital receipts excluding borrowings).

Key Points

• When a government's spending exceeds its revenue, it results in a deficit. This deficit is an indicator of the economic health of a nation.
• To bridge the gap between expenditure and income, the government may need to cut down on certain expenses or find ways to boost revenue.
• Fiscal Deficit is the difference between total revenue and total expenditure of the government.
• It is an indication of the total borrowings needed by the government.
• While calculating the total revenue, borrowings are not included.

Additional Information

• Fiscal deficit = Total expenditure - Total receipts (excluding borrowings).
• The two major components of the budget deficit can be understood as

Revenues

1. The bulk of revenue comes from corporate taxes and income tax for the government which is greater than half of the tax revenues.
2. For various companies and NGOs, revenues come from the sale of goods and services.

Expenses

1. Government expenses include spending on healthcare, infrastructure, defense, pensions, and other items that contribute to the health of the overall economy.
2. Non-governmental organizations can include the sum that is spent on a daily basis for the growth of the company and its employees.

• Fiscal deficit = (Revenue expenditure + Capital expenditure) - (Revenue receipts + Capital receipts excluding borrowings)
• Fiscal deficit = (Revenue expenditure - Revenue receipts) + (Capital expenditure - Capital receipts excluding borrowings).

The correct option is Probability sampling allows for generalization while non-probability sampling does not

Key Points

• Probability sampling:
  • Probability sampling is a sampling method in which every member of the population has an equal chance of being selected for the sample.
  • This means that the sample is chosen randomly, using a well-defined sampling frame, and ensures that every member of the population has an equal chance of being selected.
  • This method is used in many types of research, including surveys and experiments, and provides a basis for making statistical inferences about the population.
• Non-probability sampling:
  • Non-probability sampling is a sampling method in which the probability of any particular member of the population being selected is unknown.
  • This type of sampling is often used when a complete list of the population is not available, or when certain members of the population are difficult to reach. Examples of non-probability sampling include convenience sampling, snowball sampling, and purposive sampling.
  • Non-probability sampling methods can be useful for exploratory research or when a rapid response is needed, but they may introduce bias and make generalization difficult.
• Generalization:
  • Generalization refers to the process of using a sample to make inferences about a larger population.
  • The goal of generalization is to draw conclusions about the population based on the information obtained from the sample.
  • This process assumes that the sample is representative of the population and that the data collected accurately reflect the characteristics of the population. Generalization is a fundamental aspect of statistical analysis, and it allows researchers to make predictions and test hypotheses about the population.
  • However, generalization can be challenging when the sample is not representative or when the population is heterogeneous, making it difficult to draw meaningful conclusions.

The correct answer is - Rising prices and falling or stagnant output

Key Points

• Stagflation
  • Stagflation is an economic condition characterized by the combination of stagnant economic growth, high unemployment, and high inflation.
  • It is considered unusual because inflation is not typically associated with stagnant economic growth.
  • In a stagflation scenario, prices of goods and services rise (inflation), but the overall output of the economy does not increase accordingly, leading to economic stagnation.
  • This term was first used during the 1970s when many advanced economies experienced this phenomenon, particularly after the oil shocks.

Additional Information

• Rising prices and rising output
  • This situation is generally associated with economic growth and is not indicative of stagflation.
  • When both prices and output rise, it suggests that there is demand-driven inflation, which is common in a growing economy.
• Falling or stagnant prices and rising output
  • This situation is typically seen in a deflationary environment, where technological advances or increased productivity lead to higher output without increasing prices.
  • It may also indicate an economy moving towards recovery or experiencing significant efficiency gains.
• Falling or stagnant prices and falling or stagnant output
  • This scenario is indicative of a recession or depression, where both prices and output are either falling or not growing.
  • It is often associated with low demand and high unemployment rates.

The correct answer is - Average variable cost

Key Points

• Average Variable Cost (AVC)
  • The shutdown point in the short run is the point at which the market price falls below the minimum AVC.
  • At this point, the firm's total revenue is insufficient to cover its variable costs, and continuing production would result in a greater loss than shutting down.
  • Shutting down means the firm would only incur fixed costs, which are already sunk costs.

Additional Information

• Average Fixed Cost (AFC)
  • AFC is the total fixed costs divided by the quantity of output produced.
  • It does not determine the shutdown point because fixed costs are incurred regardless of production levels.
• Total Fixed Cost (TFC)
  • TFC refers to the overall fixed costs a firm must pay even if no production occurs.
  • These costs are irrelevant to the shutdown decision in the short run.
• Average Total Cost (ATC)
  • ATC is the sum of average fixed costs and average variable costs.
  • While it is important for long-run profitability, it does not dictate the shutdown point in the short run.

The correct answer is - 341 and 121.1

Key Points

• Cost Function
  • The cost function is given by C = q³ + 2q² + q + 1.
  • To find the marginal cost (MC), we need to differentiate the cost function with respect to q.
  • MC = dC/dq = 3q² + 4q + 1.
• Marginal Cost at q = 10
  • Substitute q = 10 into the marginal cost function:
  • MC = 3(10)² + 4(10) + 1 = 300 + 40 + 1 = 341.
• Average Cost
  • The average cost (AC) is given by the total cost divided by the quantity produced.
  • AC = C/q.
  • First, find the total cost when q = 10:
  • C = (10)³ + 2(10)² + 10 + 1 = 1000 + 200 + 10 + 1 = 1211.
  • Now, calculate the average cost:
  • AC = 1211 / 10 = 121.1.

Additional Information

• Marginal Cost (MC)
  • Marginal cost represents the change in total cost that arises when the quantity produced changes by one unit.
  • It is derived by differentiating the total cost function with respect to quantity.
• Average Cost (AC)
  • Average cost is the total cost divided by the number of goods produced.
  • It helps in understanding the cost per unit of output.

The correct answer is - Rs.150 crores.

Key Points

• Initial Information
  • The GDP of the economy is Rs.100 crores.
  • The aggregate saving is Rs.30 crores.
  • Autonomous aggregate investment initially is Rs.30 crores.
  • Investment increases to Rs.45 crores.
• Marginal Propensity to Save (MPS)
  • MPS is the ratio of aggregate savings to GDP.
  • MPS = Aggregate Savings / GDP = 30/100 = 0.3.
• Marginal Propensity to Consume (MPC)
  • MPC is 1 - MPS.
  • MPC = 1 - 0.3 = 0.7.
• Investment Multiplier
  • The multiplier (k) is calculated as 1/(1-MPC).
  • k = 1 / (1 - 0.7) = 1 / 0.3 = 3.33.
• Change in Investment
  • Change in Investment = New Investment - Initial Investment.
  • Change in Investment = 45 - 30 = Rs.15 crores.
• Change in GDP
  • Change in GDP = Multiplier * Change in Investment.
  • Change in GDP = 3.33 * 15 = Rs.49.95 crores.
• New GDP
  • New GDP = Initial GDP + Change in GDP.
  • New GDP = 100 + 49.95 ≈ Rs.150 crores.

Additional Information

• Option Analysis
  • Option 1 (Rs.100 crores): This assumes no change in GDP despite the increase in investment, which is incorrect.
  • Option 2 (Rs.130 crores): This assumes an incorrect multiplier effect or miscalculation of the impact of the investment change.
  • Option 3 (Rs.145 crores): This also assumes an incorrect multiplier or partial calculation of the investment effect.
  • Option 4 (Rs.150 crores): This is the correct calculation based on the multiplier effect and the change in investment.

The correct answer is (A) and (C).

Key Points

(A) Money supply is a stock concept. → Correct statement.
The money supply is a stock concept, meaning it refers to the total amount of money in circulation at a given point in time.

(C) Money supply is the currency (cash and coins) with the public and demand deposit in banks. → Correct statement.
The money supply is the currency (cash and coins) held by the public, as well as demand deposits in banks. Demand deposits are funds held in checking accounts that can be withdrawn on demand by depositors.

(B) Money supply is a flow concept. → Incorrect statement.
The money supply is not a flow concept, meaning it does not refer to the rate at which money is flowing through an economy.

(D) Money supply is the currency held with banks. → Incorrect statement.
The money supply includes currency held by the public and demand deposits in banks, not currency held with banks.

(E) Money supply is the concept of real flow. → Incorrect statement.
The money supply is not a concept of real flow, but rather a concept of monetary flow.

Hence, the correct answer is (A) and (C).

The correct answer is A - 3, B - 1, C - 4, D - 2.

Key Points

• The Lorenz Curve
  • It indicates income distribution.
  • It is a graphical representation of the distribution of wealth or of income.
  • It was developed in 1905 by Max O. Lorenz to represent the inequality of wealth distribution.
• The Phillips curve
  • It is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship.
  • The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
  • However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
• Engel Curves
  • It is the locus of all points representing the quantities demanded of the goods at various levels of income.
  • In microeconomics, an Engel curve describes how household expenditure on a particular good or service varies with household income.
• The Laffer Curve
  • It describes the relationship between tax rates and total tax revenue, with an optimal tax rate that maximizes total government tax revenue.
  • Typically, it has an inverted-U shape.
• Hence, Option 3 is correct.

Here is the extracted text from the image:

P(H) = x, P(T) = 1 - x

P(4H, 1T) = P(5H)
⁵C₁(x)⁴(1 - x)¹ = ⁵C₅x⁵
5(1 - x) = x
6x = 5
x = 5/6

P(at most 2H)

= P(0H, 5T) + P(1H, 4T) + P(2H, 3T)

= ⁵C₀(1/6)⁵ + ⁵C₁(1/6)⁵ + ⁵C₂(5/6)³(1/6)³

= 1/6⁵(1 + 25 + 250) = 276/6⁵

= 46/6⁴

• According to the Keynesian theory of money demand, if people think that interest rates will drop in the future, they will increase the amount of money they own. According to Keynes, the three factors that make up money demand are the transactional drive, the cautious motive, and the speculative motive.
• The speculative motivation is very pertinent to your query.
• People's expectations for future changes in interest rates are related to the speculative motivation for holding money. According to Keynes, people may decide to store more cash if they anticipate that interest rates will drop in the future in order to take advantage of lower interest rates to make investments or other financial decisions.

Hence, The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that interest rates are about to fall.

The correct answer is - (B), (D), (C), (A)

Key Points

• Drain of Wealth
  • The term "Drain of Wealth" was popularized by Dadabhai Naoroji in the late 19th century.
  • It refers to the process of British economic exploitation in India, where a significant portion of India's wealth was transferred to Britain.
  • This concept highlighted the economic impact of colonial rule on India.
• Monopolies Inquiry Commission
  • The Monopolies Inquiry Commission was established in 1964.
  • Its purpose was to investigate the extent and impact of monopolistic and restrictive trade practices in India.
  • The commission's findings influenced the development of the Monopolies and Restrictive Trade Practices (MRTP) Act of 1969.
• White Revolution
  • The White Revolution, also known as Operation Flood, was launched in 1970.
  • It was initiated by the National Dairy Development Board (NDDB) to make India self-sufficient in milk production.
  • Dr. Verghese Kurien, known as the father of the White Revolution, played a key role in its success.
• New Economic Policy - Liberalisation
  • The New Economic Policy was introduced in 1991 by the government of India.
  • This policy marked the beginning of economic liberalisation, privatisation, and globalisation in India.
  • It aimed to open up the Indian economy to global markets and reduce the role of the state in economic activities.

Additional Information

• New Economic Policy - Liberalisation
  • This policy was a turning point in India's economic history, leading to significant economic growth and development.
  • It included measures such as reducing tariffs, deregulating markets, and encouraging foreign direct investment (FDI).
• White Revolution
  • The White Revolution transformed India from a milk-deficient country to the world's largest milk producer.
  • It improved the income of rural dairy farmers and contributed to rural development.

The correct answer is - The bargaining power of the labour unions decreases with rise in unemployment and The bargaining power of the capitalists increases with rise in unemployment

Key Points

• The bargaining power of the labour unions decreases with rise in unemployment
  • When unemployment rises, there are more people looking for jobs than there are available positions. This surplus of labor reduces the bargaining power of workers and their unions.
  • Lower bargaining power means that workers are less able to demand higher wages, leading to a decrease in inflationary pressures.
• The bargaining power of the capitalists increases with rise in unemployment
  • Higher unemployment gives employers (capitalists) more leverage in wage negotiations because they have a larger pool of potential employees to choose from.
  • This increased bargaining power allows employers to keep wages low, which in turn helps to keep inflation in check.

Additional Information

• Phillips Curve
  • The Phillips Curve illustrates the inverse relationship between the rate of unemployment and the rate of inflation within an economy.
  • The theory suggests that with economic growth comes inflation, which in turn should lead to lower unemployment.
• Other Options
  • The bargaining power of the labour unions increases with rise in unemployment: This is incorrect because high unemployment typically weakens labor unions' ability to negotiate higher wages.
  • The bargaining power of the capitalists decreases with rise in unemployment: This is incorrect because unemployment typically strengthens employers' negotiating positions.

Functions of the World Trade Organisation:

• At the heart of the Organisation are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. The goal is to help producers of goods and services, exporters, and importers conduct their business. The WTO’s overriding objective is to help trade flow smoothly, frets, fairly, and predictably.

Key Points
With these objectives in mind, we can state the following six specific functions:

1. It shall facilitate the implementation, administration, and operation of the WTO trade agreements, such as multilateral trade agreements, plurilateral trade agreements.
2. It shall provide a forum for negotiations among its members concerning their multilateral trade relations.
3. It shall administer the ‘Understanding on Rules and Procedures’ so as to handle trade disputes.
4. It shall monitor national trade policies.
5. It shall provide technical assistance and training for members of the developing countries.
6. It shall cooperate with various international organizations like the IMF and the WB with the aim of achieving greater coherence in global economic policy-making.

The WTO was founded on certain guiding principles—non-discrimination, free trade, open, fair and undistorted competition, etc. In addition, it has special concern for developing countries.

• Rethinking Harrod's "knife-edge" Using numerical simulations and the hopf bifurcation theorem * According to Harrod (1939), the permitted rate of growth is a singular moving equilibrium, but also one that is "extremely unstable." This is known as the Instability Principle or Harrod's knife-edge instability.
• Depending on the initial and final levels, turnpike theory is a collection of economic ideas that describe the best course for accumulation (typically capital accumulation) in a system.
• J.R. Hicks originally used the phrase "super-multiplier" in his business cycle theory. The goal was to demonstrate how changes in induced investment and matching changes in income are related.
• The term "Golden Rule Level of Capital," which was first used by Edmund Phelps and is represented by the symbol k*g, refers to the steady-state value of k that maximises consumption per worker.

Hence, Super Multiplier-J.M. Keynes Concept - Economist pairs is not correctly matched.

Bayes’ theorem

• It states that the conditional probability of an event, based on the occurrence of another event, is equal to the likelihood of the second event given the first event multiplied by the probability of the first event.

Central Limit theorem

• It explains that the sampling distribution of the mean will always be normally distributed, as long as the sample size is large enough.

Chebyshev’s theorem

• This estimates the minimum proportion of observations that fall within a specified number of standard deviations from the mean.

Gauss- Markov theorem

• It states that when the linear regression model satisfies the first six classical assumptions, then ordinary least squares OLS regression produces unbiased estimates that have the smallest variance of all possible linear estimators.

​Hence, option 4 is the correct answer.

The correct answer is - Constant marginal rate of substitution

Key Points

• Utility Function: U(x, y) = 2x + 3y
  • The utility function given is linear in form, which is a key characteristic.
  • This linear form indicates that the marginal utilities of x and y (partial derivatives) are constants.
  • The marginal utility of x is 2, and the marginal utility of y is 3, regardless of the levels of x and y.
  • The Marginal Rate of Substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.
• Constant Marginal Rate of Substitution
  • For this utility function, MRS = MUx / MUy = 2 / 3.
  • Because both MUx and MUy are constants, the MRS is also constant at 2/3.
  • Thus, the MRS does not change with changes in the quantities of x and y, indicating a constant MRS.

Additional Information

• Diminishing Marginal Rate of Substitution
  • This occurs when the MRS decreases as the consumer substitutes one good for another. Typically seen in convex indifference curves.
• Increasing Marginal Rate of Substitution
  • This is rare in consumer theory and would imply the consumer is willing to give up an increasing amount of one good to obtain more of another, often associated with concave indifference curves.
• Zero Marginal Rate of Substitution
  • This would imply that the consumer is not willing to substitute any amount of one good for another, indicating perfect substitutes or indifference between goods.

The correct answer is 1-P, 2-Q, 3-S, 4-R.

Key Points

• First Five Year Plan:
  • ​ It was launched for the duration of 1951 to 1956, under the leadership of Jawaharlal Nehru.
  • It was based on the Harrod-Domar model with a few modifications.
  • Its main focus was on the agricultural development of the country.
  • This plan was successful and achieved a growth rate of 3.6% (more than its target of 2.1%).
  • At the end of this plan, five IITs were set up in the country.
• Second Five Year Plan:
  • ​It was made for the duration of 1956 to 1961, under the leadership of Jawaharlal Nehru.
  • It was based on the P.C. Mahalanobis Model made in the year 1953.
  • Its main focus was on the industrial development of the country.
  • This plan lagged behind its target growth rate of 4.5% and achieved a growth rate of 4.27%
  • However, this plan was criticized by many experts and as a result, India faced a payment crisis in the year 1957.
• ​Third Five Year Plan:
  • ​It was made for the duration of 1961 to 1966, under the leadership of Jawaharlal Nehru.
  • This plan is also called ‘Gadgil Yojna’, after the Deputy Chairman of Planning Commission D.R. Gadgil.
  • The main target of this plan was to make the economy independent. The stress was laid on agriculture and the improvement in the production of wheat.
• ​Sixth Five Year Plan:
  • ​Its duration was from 1980 to 1985, under the leadership of Indira Gandhi.
  • The basic objective of this plan was economic liberalization by eradicating poverty and achieving technological self-reliance.
  • It was based on investment Yojna, infrastructural changing, and trends to the growth model.
  • Its growth target was 5.2% but it achieved a 5.7% growth.

The correct answer is - Rs.30

Key Points

• Ex-post Aggregate Saving
  • Ex-post aggregate saving is the actual saving in the economy, which equals actual investment in equilibrium.
  • In equilibrium, savings must equal investment. Given that the autonomous investment is Rs.30, the ex-post saving in equilibrium must also be Rs.30.
• Impact of Saving Propensity
  • Average Saving Propensity (ASP) is the ratio of total savings to total income.
  • In the initial equilibrium, with a GDP of Rs.100 and ASP of 30%, the savings would be Rs.30, matching the investment.
  • If ASP increases to 40%, it implies that households intend to save more out of their income.
  • However, in equilibrium, savings still need to equal investment. Since the investment remains at Rs.30, the equilibrium saving remains Rs.30.

Additional Information

• Concept of Equilibrium in an Economy
  • Equilibrium in an economy is achieved when aggregate demand equals aggregate supply.
  • In the context of saving and investment, equilibrium implies that the amount saved by households (savings) is equal to the amount invested by firms (investment).
• Autonomous Investment
  • Autonomous investment is the level of investment that does not change with the level of income or output in the economy.
  • It is determined by factors such as technology, interest rates, and business expectations.

The correct answer is - (A) - (III), (B) - (II), (C) - (I), (D) - (IV)

Key Points

• Apple farmer who has his orchard next to a beekeeper (A - III)
  • This scenario represents a positive production externality. The apple farmer benefits from the pollination provided by the beekeeper's bees, which increases the productivity of his orchard.
• Villages downstream from a manufacturing plant (B - II)
  • This scenario represents a negative consumption externality. The villages downstream suffer from the pollution caused by the manufacturing plant, which negatively affects their health and quality of life.
• An unvaccinated family living next door to a family who has received the COVID-19 vaccination (C - I)
  • This scenario represents a positive consumption externality. The vaccinated family indirectly protects the unvaccinated family by reducing the overall transmission of the virus.
• Rice farmer who has his field next to a chemical plant (D - IV)
  • This scenario represents a negative production externality. The rice farmer’s crop may be damaged or contaminated due to the chemicals from the neighboring plant, which negatively affects his production.

Additional Information

• Positive Production Externality
  • Occurs when a producer’s activities result in benefits to others without compensation. Example: Beekeeping increases crop yields for nearby farmers.
• Negative Consumption Externality
  • Occurs when the consumption of goods or services imposes costs on others. Example: Smoking in public places harms non-smokers.
• Positive Consumption Externality
  • Occurs when the consumption of a good or service benefits others. Example: Vaccination reduces the spread of contagious diseases.
• Negative Production Externality
  • Occurs when a producer’s activities impose costs on others. Example: Pollution from a factory affects nearby residents and farmers.

Given
The probability of getting plumbing contract = P(A) = 2/3
Probability of getting not electric contract P(B̅) = 5/9
Probability of getting atleast one contract P(A U B) = 4/5

Calculation
The probability of not getting electric contract = 1 - P(B̅)
⇒ = 1- 5/9 = 4/9
Probability of getting both the contracts P(A ∩ B) = P(A) + P(B) - P(A U B)
⇒ P(A ∩ B) = 2/3 + 4/9 - 4/5
⇒ (90 + 60 - 108)/135
∴ The probability that he will get both the contracts P(A ∩ B) is 14/45