Economics: CUET Mock Test - 6 - CUET MCQ

The correct answer is B and C are correct.

Important Points

• National Income of any country means the complete value of the goods and services produced by any country during its financial year.
• It is thus the consequence of all economic activities that are running in any country during the period of one year.
• In short one can say that the national income of any country is the total amount of income that is accrued by it through various economic activities in one year.
• It is also helpful in determining the progress of the country.
• It includes wages, interest, rent, profit, received by factors of production like labour, capital, land and entrepreneurship of a nation.
• Some of the items that are included in the National Income are:​​​
  • Imputed rent of owner-occupied houses is included in the calculation of national income.
  • Imputed value of goods and services produced for self-consumption are included.
  • Imputed values of the self occupied houses are included in the National Income.
  • Direct taxes such as income tax paid by the employees from their salaries are included.
• ​Some of the items that are included in the National Income are:
  • ​Sale and purchase of second-hand goods are excluded.
  • Incomes from illegal activities are not included.
  • Expenditure on purchase of old share is excluded.
  • Government expenditure on all transfer payment is excluded.

  • Capital gains and losses are not included in National Income.

Therefore, we can say that statements B and C are correct regarding National Income estimates.

The correct answer is A ‐ II, B ‐ I, C ‐ IV, D ‐ III

Key Points

The correct match is given below:

Important Points Menu cost:

• When a company alters the prices it offers to its customers, it incurs menu costs.
• The traditional illustration is a restaurant that must physically print new menus if the prices of its meals change.
• The major lesson to be learned from menu costs is that some costs are fixed.
• Menu costs usually are the result of inflation. For Example: if the cost of food, rent, or wages goes up, a restaurant will have to raise its prices to pay for the extra cost and to make the same profit

Quantitative Easing:

• Quantitative easing is a method of monetary policy employed by central banks.
• A central bank will buy securities in an effort to lower interest rates, boost the money supply, and encourage more lending to individuals and businesses.
• During a financial crisis, the objective is to boost economic activity and maintain credit availability.

Pump-Pricing:

• Pump pricing is a fiscal policy measure used by the government.
• Pump pricing is the process of boosting an economy through public expenditure, interest rate and tax cuts, usually during a recession.

Phillips Curve:

• The Phillips curve suggests there is a trade-off between inflation and unemployment, at least in the short term.
• If there is inflation in an economy, the central bank may increase interest rates.
• Lower aggregate demand will result from lower investment and consumer expenditure as a result of higher interest rates.
• This fall in aggregate demand will lead to lower inflation.

The correct answer is Human capital.

Important Points

• Education investment is recognized as one of the main sources of human capital along with other sources like health, migration, on-job training, and information.
• Human capital refers to the capabilities, experience, and skill sets that employees bring to a business organization.
• Investment in education is considered one of the main sources of human capital.

Key Points

• Sources of human capital formation:
  • Expenditure of Education.
  • Expenditure on health.
  • On-the-job training.
  • Expenditure on migration.
  • Expenditure on the information.

The correct answer is International Monetary Fund.

Key Points

• The International Monetary Fund(IMF) helps its member countries in the time of Balance of Payment(BoP) Crisis.
• BoP crisis, also known as the currency crisis, occurs when a nation is unable to pay for essential imports or service its external debt repayments.
• Balance of Payment records all the transactions with other countries both of Government or Private Sector.
• Balance of Payments mainly composed of two accounts the current account and capital account.

Additional Information

About International Monetary Fund

• IMF is an international economic organisation founded in 1945 and headquartered in the USA.
• IMF principal function is to advice member countries to maintain strict financial discipline to avoid economic crisis.
• IMF helps member countries in the time of currency crisis and other difficult situations with its measures like Special Drawing Rights, Extended Fund Facility, and Reserve Tranche.
• IMF has 190 member countries and its Managing Director is Kristalina Georgieva.

NABARD

Key Points

• NABARD (National Bank for Agriculture and Rural Development):
  • Established on 12 July 1982 by an act of the Indian Parliament, NABARD is the apex institution in the country responsible for the overall regulation and licensing of regional rural banks and cooperative banks in India.
  • It plays a crucial role in the development of the agriculture and rural sector by providing and regulating credit and other facilities to promote these sectors.
  • Its main focus is to uplift rural India by increasing the credit flow for elevation of agriculture & rural non-farm sector and also works towards policy planning and operations in the field of credit for agriculture and other economic activities in rural areas in India.

Additional Information

• RRBs (Regional Rural Banks):
  • RRBs were established in 1975 under the provisions of the Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors.
  • These banks are created to serve the rural areas with basic banking and financial services. However, they are not responsible for coordinating the activities of all institutions involved in the rural financing system, but they do play a significant role in rural banking.
• RBI (Reserve Bank of India):
  • As the central bank of India, RBI regulates the monetary and financial system of the country. It was established on April 1, 1935, according to the provisions of the Reserve Bank of India Act, 1934.
  • Its primary role is to oversee the nation's currency and money supply and to manage the main payment systems. While it has vast powers in terms of regulation of the financial system, the specific task of coordinating the activities of all institutions involved in the rural financing system is more directly managed by NABARD.
• SBI (State Bank of India):
  • As a multinational public sector bank and financial services statutory body, SBI is a major banking organization in India. It was established in 1806 as the Bank of Calcutta, making it the oldest commercial bank in the Indian subcontinent.
  • While SBI plays a significant role in banking and finance in both urban and rural areas of India, it does not have the mandate to coordinate the activities of all institutions involved in the rural financing system, which is a role specifically designated to NABARD.

Key Points

• Income Method (A) matches with Aggregate of factor incomes (IV).
  • The income method calculates GDP by adding up all incomes earned by households and businesses, including wages, profits, and taxes minus subsidies. This method focuses on the income received by factors of production in an economy.
• Expenditure Method (B) matches with Aggregate of final expenditures (III).
  • This method calculates GDP by adding up total consumption, investment, government spending, and net exports. It represents the total amount spent on the nation's final goods and services.
• Real GDP (C) matches with Calculated at constant prices (II).
  • Real GDP is adjusted for changes in the price level, providing a more accurate figure of economic growth by using constant prices. This removes the effect of inflation and allows comparison between different years.
• Nominal GDP (D) matches with Calculated at current prices (I).
  • Nominal GDP is calculated using current market prices, without adjusting for inflation. This means it can be influenced by changes in price level and does not solely reflect changes in the quantity of goods and services produced.

Therefore the correct pairing is:
A - IV: Income Method - Aggregate of factor incomes
B - III: Expenditure Method - Aggregate of final expenditures
C - II: Real GDP - Calculated at constant prices
D - I: Nominal GDP - Calculated at current prices

Modernisation is the adoption of new technology.

Key Points

• Modernisation:
  • Refers to the process of adopting new technologies and innovations, leading to improved tools, machinery, and systems that enhance productivity and efficiency in various sectors.
  • It signifies a transformation from traditional or old methods to contemporary practices, especially in the context of industrial, social, and economic changes.
  • Modernisation encompasses a broad range of activities including upgrading infrastructure, implementing advanced technological systems, and adopting new ways of thinking and governance.

Additional Information

• Liberalisation:
  • Refers to the relaxation of government restrictions, usually in areas like trade and investment.
  • Not directly related to the adoption of new technology but can create an environment that fosters technological growth and modernisation.
• Globalisation:
  • Describes the process of interaction and integration among people, companies, and governments worldwide.
  • While it facilitates the spread of technology and ideas, it is more about the global flow of goods, services, and culture than the adoption of technology within a specific society.
• Green Revolution:
  • Refers specifically to the increase in agricultural production resulting from the introduction of high-yield variety seeds and the use of chemical fertilizers and pesticides.
  • It is a specific instance of modernisation in the agricultural sector but does not encompass the broader concept of adopting new technology across various sectors.

Human capital formation is the process of improving the knowledge, skills, competencies, and attributes of people in a country, thereby enhancing their productivity and ability to contribute to the economy.

Key Points

• Human capital formation:
  • Investments in education enhance an individual's skills and knowledge base, making them more productive and innovative.
  • Health investments ensure a healthier workforce, reducing absenteeism and increasing the efficiency of workers.
  • Migration can lead to human capital formation as it often involves the movement of skilled individuals who seek better opportunities, thereby transferring knowledge and skills.
  • Investing in information encompasses training and the development of digital skills, enabling individuals to participate more fully in a modern, digital economy.

Additional Information

• Physical capital formation:
  • Refers to the increase in physical assets such as machinery, buildings, and infrastructure. While important for economic growth, it does not directly pertain to the development of the workforce's skills or health.
• Economic growth:
  • While human capital formation contributes to economic growth, economic growth itself is a broader concept that includes increases in the production of goods and services in an economy. It is an outcome rather than a source of investment.
• Productivity:
  • Productivity improvements can result from human capital formation, but productivity as a concept is the efficiency of production processes and not a source of investment.

The equilibrium output is the level at which aggregate demand equals aggregate supply in the economy, indicating a balanced market.

Aggregate demand is influenced by consumption, investment, and government spending, as these represent the total demand for goods and services.

At equilibrium output, aggregate demand equals aggregate supply, meaning there is no excess demand or supply in the economy.

An increase in government spending boosts aggregate demand, shifting the aggregate demand curve to the right.

Equilibrium output helps identify the output level where resources are fully employed, providing insight into the economy's performance.

Aggregate demand represents the total demand for goods and services at different price levels, driven by consumer, business, and government spending.

When aggregate demand exceeds potential output, it leads to inflation as businesses raise prices to meet the excess demand.

Falling aggregate demand leads to lower production levels, causing businesses to reduce their workforce, leading to higher unemployment.

Policymakers can use monetary policy, such as adjusting interest rates, to influence aggregate demand in the economy.

Managing aggregate demand is crucial to ensure stable economic growth, preventing inflation when demand is too high and recession when demand is too low.

(A) is correct because scarcity leads to the allocation of limited resources.
(B) is incorrect, as in a market economy, resources are allocated by the market, not the government.
(C) is correct because individuals make choices regarding production and consumption.
(D) is incorrect because scarcity leads to opportunity cost.

(A) is correct as allocation of resources is a central issue in all economies.
(B) is incorrect since a centrally planned economy relies on government decisions, not the market.
(C) is correct, as price signals and competition guide resource allocation in a market economy.
(D) is incorrect because governments do play a role in a market economy, especially in regulation.

(A) is incorrect as positive economics deals with "what is," not "what ought to be."
(B) is correct because normative economics evaluates the desirability of economic outcomes.
(C) is correct as positive economics analyzes mechanisms without judgment.
(D) is incorrect, as normative economics involves value judgments.

(A) is correct as microeconomics studies individual units like consumers and producers.
(B) is correct as macroeconomics focuses on aggregates like national income and unemployment.
(C) is incorrect, as macroeconomics deals with national income, not microeconomics.
(D) is incorrect as macroeconomics is concerned with overall economy, not individual markets.

The year 1921 is taken as the demographic divide for the reason that before this year, the population was not stable, sometimes it increased and at other times it decreased.
The growth rate of population was generally low before 1921. But after this year, there has been considerable and continuous increase in the population.
Between 1901 and 1911, the total increase in population was 5.9% and between 1911 and 1921, there was a decrease of 0.39%. In the decade of 1921-1931, the increase was 11.1%, from 1931 to 1941, it was 14.00% and during 1941-1951, it was 13.5%. It is going increasingly since then. Hence the year 1921 is rightly called the demographic divide.

Under British rule, the three main land tenure systems in India were:

• Zamindari System: Landlords (zamindars) collected revenue from tenants for the British.
• Mahalwari System: Revenue was collected from village communities or estates (mahals).
• Ryotwari System: Individual farmers (ryots) paid revenue directly to the British.

Railways assisted British industries to widen the market for their finished products. 

Post and telegraphs were developed to enhance the efficiency and effectiveness of the British administration.

A systematic and modern population census, in its present form was conducted non synchronously between 1865 and 1872 in different parts of the country. This effort culminating in 1872 has been popularly labeled as the first population census of India However, the first synchronous census in India was held in 1881.

The Suez Canal, opened in November 1869, significantly reduced transportation costs between Britain and India by connecting the Mediterranean Sea to the Red Sea, shortening trade routes.

The history of Indian Railways dates back to over 160 years ago. On 16th April 1853, the first passenger train ran between Bori Bunder (Bombay) and Thane, a distance of 34 km.

The National Income Committee, chaired by Prof. P.C. Mahalanobis with Prof. D.R. Gadgil and Dr. V.K.R.V. Rao, was formed in 1949 to estimate national income scientifically. In its 1951 report, Dr. Rao estimated per capita output at 0.005, reflecting India’s low economic productivity post-independence.

b) Nineteenth century

The iron and steel industries began to significantly develop in the nineteenth century, particularly during the Industrial Revolution. Key advancements, such as the Bessemer process (introduced in the 1850s), enabled large-scale steel production, transforming industries like construction, transportation, and manufacturing. While iron smelting existed earlier, the modern iron and steel industries, as we understand them, took shape in the 1800s.