CUET PG Economics Mock Test- 5 - CUET PG MCQ

Option (d) is correct here,If a homogenous function is homogenous of degree n, then the marginal productivities of the
Factors will be of degree n-1.
Let us derive this and prove the statement.
We have the function,
q = A K^α L^β
Thus, its MPL is:
∂q/∂L = β A K^α L^(β-1)
Let both capital and labor be increased by λ.
Thus,
MPL = β A (λK)^α (λL)^(β-1)
MPL = β A λ^α K^α λ^(β-1) L^(β-1)
MPL = β A λ^{(α + β -1)} K^α L^(β-1)
MPL = λ^{(α + β -1)} (β A K^α L^(β-1))
MPL = λ^(6-1)
MPL = λ⁵ (answer)
Thus, the homogeneity of MPL is 5.

Option (b) is correct here, Let us understand this answer with the help of a diagram,

Here in this diagram as we can see the firm is not producing below the level of AVC as that region is considered to be a shut-down zone for the firm, thus the point above AVC and the upward-rising portion of the MC curve is known as the supply curve of the Perfect competition firm.

MRS. Joan Robinson geometrically proved that Harrod neutral technical progress is exatly equivalent to labour augmenting technical progress. If technical progress is Harrod Neutral and is proceeding at a constant rate u then the aggregate production function can be written as
Y = f(K, A(t)L) with (dA(t) / dt) / A = U

Option (a) is correct here, 
According to the concept of Health and Morbidity, "Death" happens when an Individual’s stock of health < is below the critical minimum level. Viewed from this angle, death might be considered the final result of a person's health declining to a critical minimum, over which the body's systems are unable to support life. According to this theory, people continually interact with their surroundings to maintain a specific level of well-being, which is conceptualized as a dynamic equilibrium. When this balance is upset, whether by illness, trauma, or other causes, illness or morbidity results. A person may experience irreversible harm or the inability to perform vital body functions if their health status drops below a certain point, which could ultimately result in death.

• Developmental Expenditure: Includes capital investments like infrastructure (III).
• Non-plan Expenditure: Encompasses transfer payments (II) like subsidies and pensions.
• Revenue Expenditure: Covers operational costs, notably salaries (I).
• Non-developmental Expenditure: Includes defense and war finances (IV).

Option (B) is correct.

Key Concept: Money Definitions

The Reserve Bank of India (RBI) defines money supply in terms of different categories, such as M1, M2, M3, and M4 , based on liquidity. These definitions are used by policymakers to assess monetary conditions and formulate policies.

Definitions of Money Supply:

M1 (Narrow Money):

• Includes:
  • Currency in circulation (coins and paper money).
  • Demand deposits with banks (e.g., savings and current accounts).
  • Other deposits with the RBI.
• M1 is highly liquid and frequently used for transactions.

M2:

• Includes M1 plus:
  • Post office savings deposits.
• M2 is broader than M1 but less commonly used by policymakers.

M3 (Broad Money):

• Includes M1 plus:
  • Time deposits with banks (e.g., fixed deposits).
• M3 is widely used by policymakers because it reflects the overall liquidity in the economy and is a key indicator of economic activity.

M4:

• Includes M3 plus:
  • Total post office deposits (both time and demand deposits).
• M4 is the broadest measure of money supply but is less frequently used due to its inclusion of less liquid components.

M5:

• This is not a standard definition of money supply in India.

Relevance to Policymakers:

• M1 and M2 represent narrow money and are primarily used to assess transactional liquidity in the economy.
• M3 is the most widely used measure by policymakers because it provides a comprehensive view of money supply and credit creation in the economy.
• M4 is less relevant for policy formulation because it includes less liquid components like post office deposits.

Thus, the combination of M1 and M3 is frequently used by policymakers, as it captures both narrow money (transactions) and broad money (overall liquidity).

The correct option is: B: M1 and M3​

Correct Answer: A: Fixed exchange rates, independent monetary policy, and free capital mobility
The Impossible Trinity (Trilemma) in international economics states that a country cannot simultaneously achieve all three of the following policy goals:

• Fixed Exchange Rate – Maintaining a stable currency value against another currency.
• Independent Monetary Policy – Controlling interest rates and money supply to influence inflation and growth.
• Free Capital Mobility – Allowing unrestricted movement of funds across borders.

A country can only choose two of these three at any given time. For example:

• A fixed exchange rate and free capital mobility mean the country must give up independent monetary policy.
• A floating exchange rate and independent monetary policy require free capital flows.

Options B, C, and D do not represent the Impossible Trinity concept.

Analysis of Assertion (A):
Assertion (A): The incidence of taxation will depend on the nature of the tax.

• This statement is correct. The incidence of taxation refers to who ultimately bears the burden of a tax. The distribution of the tax burden depends on:
  • The type of tax (direct or indirect),
  • The elasticity of demand and supply,
  • The structure of the market.
• For example:
  • In the case of a direct tax (e.g., income tax), the burden falls directly on the taxpayer.
  • In the case of an indirect tax (e.g., sales tax), the burden may shift between producers and consumers depending on market conditions such as price elasticity.

Thus, the assertion is correct .

Analysis of Reason (R):
Reason (R): An indirect tax burden falls on the consumer.

• This statement is incorrect because it is overly simplistic and absolute. While it is true that consumers often bear some portion of the burden of an indirect tax, this is not always the case. The actual distribution of the tax burden depends on:
  • Elasticity of demand : If demand is inelastic, consumers bear most of the burden. If demand is elastic, producers bear more of the burden.
  • Elasticity of supply : If supply is inelastic, producers bear more of the burden. If supply is elastic, consumers bear more of the burden.
• Therefore, the reason is not universally true and fails to account for the complexity of tax incidence.

Relationship Between Assertion and Reason:

• The assertion is correct because it highlights that the incidence of taxation depends on the nature of the tax and other market conditions.
• The reason, however, is incorrect because it assumes that the burden of an indirect tax always falls entirely on consumers, which is not true.

The correct option is A: The assertion is correct but the reason is incorrect.

Integrating Factor (IF):

Multiply through by IF:

The left side simplifies to 
Integrate both sides:

Solve for y:

Apply the initial condition y(0) = 1:

Thus, the solution simplifies to y = e^−t.
Evaluate y(1):
y(1) = e⁻¹ ≈ 0.3679.
Answer: B​(0.368)

• Economic rent is the amount that firms are willing to pay for input less the minimum amount necessary to obtain it.
• In a competitive market, both in the short and the long run, economic rent is often positive even though profit is zero.

• National Rural Employment Guarantee Act (NREGA) - 2005: This Act was enacted in 2005 and later renamed as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). It aims to provide at least 100 days of wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.
• Pradhan Mantri Jan Dhan Yojana (PMJDY) - 2014: Launched in August 2014, PMJDY aims to increase financial inclusion by ensuring access to financial services, such as banking, savings & deposit accounts, remittance, credit, insurance, and pension.
• Make in India - 2014: Initiated in September 2014, this program aims to encourage companies to manufacture their products in India and incentivize dedicated investments into manufacturing.
• Goods and Services Tax (GST) - 2017: Implemented on July 1, 2017, GST is a comprehensive indirect tax on the manufacture, sale, and consumption of goods and services across India, replacing multiple cascading taxes levied by the central and state governments.