UGC NET Paper 2 Economics Mock Test - 7 - UGC NET MCQ

ANOVA is a test used to detect differences between continuous variables when there are more than two groups, so it would be ideal to use an ANOVA to compare four groups of students on numerical ability on the basis of a test. As part of performing an ANOVA on this data, we need to calculate an F-ratio.

The F-ratio is defined as the ratio of the between-group variance (MSB) to the within-group variance (MSW).

⇒F =  = 

The calculated F-ratio can be compared to a table of critical F-ratios to determine if there are actually any differences between groups or not.

MSB = Sum of Squares (between)/ degree of freedom(df_between) 

MSB = 625/3 = 208.333

MSW = Sum of Squares (within)/ degree of freedom(dfwithin) 

MSW = 2128/36 = 59.111

F = 208.333/59.111 = 3.52

A “sample” is a miniature representation of and selected from a larger group or aggregate. The sample provides a specimen picture of a larger whole. This larger whole is termed as the “population” or “universe”. In research, this term is used in a broader sense; it is a well-defined group that may consist of individuals, objects, characteristics of human beings, or even the behavior of inanimate objects, such as, the throw of a dice or the tossing of a coin.

Sampling is the selection of representative of a small group (sample) from the population. The method used for drawing a sample is significant
to arrive at dependable results or conclusions. The various sampling methods can be broadly classified into two categories: Probability Sampling and Non-probability Sampling.

Simple or unrestricted random sampling:

• Simple random sampling is a method of selecting a sample from a finite population in such a way that every unit of the population is given an equal chance of being selected.
• In practice, you can draw a simple random sample unit by unit through the following steps:
  1. Define the population
  2. Decide the size of the sample or the number of units to be included in the sample.
  3. Make a list of all the units in the population and number them from 1 to n.
  4. Use either the ‘lottery method’ or ‘random number tables’ to pick the units to be included in the sample.
• For example,
  1. ​​you may use the lottery method to draw a random sample by using a set of ‘n’ tickets, with numbers ‘1 to n’ if there are ‘n’ units in the population.
  2. After shuffling the tickets thoroughly, the sample of required size, say x, is selected by picking the required x number of tickets.
  3. The units which have the serial numbers occurring on these tickets will be considered selected.
  4. The assumption underlying this method is that the tickets are shuffled so that the population can be regarded as arranged randomly. 

Hence, Define the target population, decide sample size, list all the units of the target population, and drawing the sample by randomization is the process of drawing samples in a simple random sampling.

Concept:

Coefficient of variation = 

where σ is the standard deviation and  ̅ x is the arithmetic mean.

Calculation:

Given, the coefficient of variations of two distributions are 55 and 65 and their standard deviations are 22 and 39 respectively. 

∴ The correct answer is option (2).

The correct answer is All of the above.

Key Points

• The quantitative measures are those tools that help a central bank control the liquidity of an economy.
• Bank rate -
  • The rate at which RBI lends money to commercial bank for a very short term.
• CRR -
  • Cash Reserve Ratio is a ratio of Cash that a commercial bank has to keep with the central bank.
• SLR -
  • Statutory Liquidity Ratio is that proportion of Liquid assets which commercial banks keep with the Central bank.
• Open Market Operations -
  • buying and selling of government securities between commercial and central bank.

Additional Information

• Qualitative Tools
  • Margin Requirements/LTV
  • Consumer credit regulation
  • Selective credit control
  • Moral Suasion
• Repo Rate - 
  • Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.  
  • Controls inflation
• Reverse Repo Rate -
  • Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country.
  • Controls money supply.

The Correct answer is Gunnar Myrdal.

Important Points

• The book "The Challenge of World Poverty" was written by economists Gunnar Myrdal and Joan Robinson. Hence option 4 is Correct.
• It was published in 1970 and explores the causes and potential solutions to global poverty. The book discusses economic development, inequality, and the role of international institutions in addressing poverty.
• It offers insights into the challenges faced by developing countries and provides recommendations for policies and strategies to alleviate poverty worldwide.

• This game is a strictly competitive game because the sum of the payoffs for both players is constant for all possible combinations of strategies. In a strictly competitive or zero-sum game, one player's gain is exactly equal to the other player's loss.
• To see this, let's combine the payoff matrices of both players:
  • A's payoff: [ 1, -1; 0, 1]
  • B's payoff: [-1, 1; 0, -1]
  • The combined (sum) matrix: [0, 0; 0, 0]
• As we can see, the sum of payoffs for both players in each cell of the combined matrix is zero, which means that in each strategy combination, one player's loss is the same as the other player's gain. This is the characteristic of a strictly competitive or zero-sum game.

The correct answer is (C), (D), (E) only

Key Points

•  Rational Decision making refers to the process wherein decision makers reasonably go through by the various steps and select the optimum/ best solution to a given problem.
• It entails the capacity to assist the decision-maker by making the relevant information accessible and specific, which is made possible by the choice to make logical decisions.
• Making decisions will help to proceed in an organized manner from problem to solution.
• Utility is the goal of rational decision-making.
• When making a sensible/ rational decision, structured questions are used to encourage in-depth investigation of the  issue that has to be solved.
• The assumptions of rational decision making are:
  • ​An individual has cognitive ability to evaluate each alternative.
  •  Problem is clear and unambiguous 
  • There is no time or cost constraint exist
  • Final choice will maximize pay off

Hence, the correct answer is (C), (D), (E) only.

The correct answer is 2010.

• The Human Development Report (HDR) is an annual report issued by the Human Development Report Office of the United Nations Development Programme (UNDP).
• The first HDR was launched in 1990 by the Pakistani economist Mahbub ul Haq and Indian Nobel laureate Amartya Sen.

• The HDI is a measure for assessing progress in three basic dimensions of human development: a long and healthy life, access to knowledge, and access to a decent standard of living.

The correct answer is Option 1.

Key Points

Polar Code

• The Polar Code came into force on 1 January 2017.
• The International Maritime Organization has adopted a mandatory Polar Code to provide for safe ship operation and environmental protection in the polar regions. Hence, Option 1 is correct.
• If you operate a SOLAS or MARPOL ship in Arctic or Antarctic waters, then your ship will need to comply with all or part of this Code.
• The International Code for Ships Operating in Polar Waters (the Polar Code) is a new code adopted by the IMO.
• The Code acknowledges that polar waters may impose additional demands on ships beyond those normally encountered.
• It provides a mandatory framework for ships operating in polar waters.
• The main requirements are related to safety, protection of the environment, and seafarer competence, and it is implemented through amendments to International Maritime Conventions such as SOLAS, MARPOL, and the STCW.
• IMO's International Code for Ships Operating in Polar Waters (Polar Code) is mandatory under both the International Convention for the Safety of Life at Sea (SOLAS) and the International Convention for the Prevention of Pollution from Ships (MARPOL).
• The Polar Code covers the full range of environmental protection matters relevant to the design, construction, equipment, operation, training, search and rescue, and ships operating in the inaccessible waters around the two poles.
• The Polar Code applies to certain ships that will operate on domestic or international voyages in Arctic or Antarctic waters.

The correct answer is 2 only.

In News

• The article argues that given the right momentum, the ‘Mission Antyodaya’ project bears great promise to eradicate poverty in its multiple dimensions among rural households.
• Rural Development and Panchayati Raj Minister Giriraj Singh inaugurated the Mission Antyodaya Survey (MAS) 2022-23 in New Delhi on 9 February 2023.

Key Points

• The ‘Mission Antyodaya’ project was launched by the Government of India in 2017-18. 
• The Ministry of Panchayati Raj and the Ministry of Rural Development act as the nodal agents to take the mission forward. Hence, statement 1 is not correct.
• The main objective of ‘Mission Antyodaya’ is to ensure optimum use of resources through the convergence of various schemes that address multiple deprivations of poverty, making gram panchayat the hub of a development plan. Hence, statement 2 is correct.
• This planning process is supported by an annual survey that helps to assess the various development gaps at the gram panchayat level, by collecting data regarding the 29 subjects assigned to panchayats by the Eleventh Schedule of the Constitution. 
• Also, data regarding health and nutrition, social security, good governance, water management and so on are also collected. 
• The idea of the Ministry of Panchayati Raj to identify the gaps in basic needs at the local level, and integrating resources of various schemes, self-help groups, voluntary organisations and so on to finance them needs coordination and capacity-building of a high order. 
• If pursued in a genuine manner, this can foster economic development and inter-jurisdictional equity.

The correct answer is all final goods and services.

Key Points

• Gross Domestic Product (GDP)
  • It is the sum of the money of all the final goods and services produced solely within the boundaries of a country, at a specific time.
  • GDP includes the income of foreigners staying in the country.
  • It excludes the income of nationals of the country staying abroad and also excludes the remittances sent from abroad.

Additional Information

• Gross National Product (GNP) 
  • It is the sum of the money of all the final goods and services produced both within and outside of a country by nationals during a specific period of time.
  • GNP includes remittances (money sent from abroad)
  • It excludes income generated locally by non-nationals.
• National Income: It is defined as the total net earnings of a country from the production of goods and services over a period of time (usually one year).
• ​National Income is measured by:
  • Gross National Product (GNP)
  • Gross Domestic Product (GDP)
  • Gross National Income (GNI)
  • Net National Product (NNP)
  • Net Domestic Product (NDP)
  • Net National Income (NNI)
  • Per-Capita Income (PCI)

The correct answer is a, b, and d.

Key Points

• The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963.
• The Central Board of Direct Taxes provides essential inputs for policy and planning of direct taxes in India.
• CBDT is headed by a Chairman and followed by six Members of various departments.
• It is the official FATF of India(Financial action task Force, Money laundering)

Additional Information

• IRS officer Nitin Gupta has been appointed as the new Central Board of Direct Taxes (CBDT) chairman.
• Mr Gupta is an Indian Revenue Service (IRS) officer of the 1986 batch of the Income Tax cadre and is currently serving as the Member (investigation) in CBDT.
• The post of the CBDT chief was being held in an additional capacity by Board member and 1986-batch IRS officer Sangeeta Singh.

The correct answer is option (4) i.e All 1, 2, 3 and 4

• Moral Suasion refers to a request by the RBI to the commercial banks to take certain measures as per the trend of the economy.
• It implies to pressure exerted by the RBI on the Indian banking system without any strict action for compliance with the rules.
• Under moral suasion, central banks can issue directives, guidelines, and suggestions for commercial banks regarding reducing credit supply for speculative purposes.
• It helps in restraining credit during inflationary periods. 
• It includes psychological means and informal means of selective credit control.

The correct answer is Exchange rates  

Key Points

•  Foreign portfolio investment (FPI)
  • Foreign portfolio investment (FPI)  refers to investments made in securities and other financial assets issued in another country.
  • The inflow of foreign capital through FPI can have a stabilizing effect on the exchange rate of the domestic currency 
  • As foreign investors purchase domestic currency assets, they create demand for the that currency, potentially leading to its appreciation against other currencies.

The correct answer is Foreign-currency assets, gold holdings of the RBI and SDRs.

• India's foreign-exchange reserves include Foreign-currency assets (FCA), Gold reserves, Special Drawing Rights (SDRs) and reserve position with the IMF.

Key Points

• Foreign-exchange reserves are those reserves which a country's central bank keeps, generally in the form of US dollars.
• Benefits/ Objectives:

1. It provides financial back up to a nation's currency at times of devaluation.
2. It attracts foreign investment.
3. Helps in meeting the country's foreign obligations and liabilities.
4. The supply of foreign currency by the central bank makes the market steady. 
5. Maintain the country's good image in international forums.

Additional Information

• India has total of US$ 590.185 Billion foreign exchange reserves till January 2021.
• India stands fifth largest country holding foreign exchange reserves.
• China has the highest foreign exchange reserve with US$ 3.1 trillion. 
• Japan is the second largest holder followed by Switzerland.

The correct answer is Fiat Money.

Key Points

• Currency notes and coins are called fiat money. 
• They do not have intrinsic value like that of gold or silver coin. 
• Unlike commodity money, fiat money is not backed by any physical commodity instead it is backed by the order or authority of the government.
• They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction.
• The value of the currency notes and coins is derived from the guarantee provided by the issuing authority of these items. Every currency note bears on its face a promise from the Governor of RBI that if someone produces the note to RBI or any other commercial bank, RBI will be responsible for giving the person purchasing power equal to the value printed on the note.
• Fiat money gives central banks control over the economy because they decided how much currency has to be printed and in case if it prints too much, that can result in hyperinflation.
• Supply and demand relations in the market derives the value of Fiat Money.

The correct answer is Option 2.

In News

•  The Hindu: India may face economic trouble as fertility levels drop.

Key Points

Demographic dividend:

• India’s policymakers have long flaunted the massive economic benefits that the country will reap from its huge youth population. But while the country, with a median age of a little below 30 years, is still relatively young today, it looks all set to age quite rapidly in the coming decades, thanks primarily to a rapid decline in fertility levels. 
• An ageing population, many economists believe, could turn out to mean serious economic trouble unless India manages to grow its economy at a rapid pace in the coming decades.
• Demographic dividend refers to the growth in an economy that is the result of a change in the age structure of a country’s population. The change in age structure is typically brought on by a decline in fertility and mortality rates. Hence, Option 2 is correct.
• The United Nations estimated that India’s elderly population (people over 60 years old) will grow at a rapid 41% between 2021 and 2031. It further noted that the number of elderly people will be larger than the number of children (people who are younger than 15 years old) by 2046.
• To put this in perspective, in 2021 there were 39 elderly persons for every 100 children in India, and 16 elderly persons for every 100 working-age persons. Further, according to the UN, elderly people will constitute about 20% (or one in five members) of India’s population by 2050. And by the end of the century, 36%, or a little more than one-third, of India’s population will be over 60 years old.
• The UN further noted the economic consequences of an ageing population. Going forward, developing countries will see a rapid rise in their old-age dependency ratio (that is, the ratio of the number of elderly people compared to the number of people in the working-age population). 
• This is not surprising because people in India and around the world are living longer and are also reproducing at far lower rates than ever before in history. In fact, according to the fifth round of the National Family Health Survey (NFHS-5) released in 2022, female fertility levels have dropped below the replacement fertility level of 2.1 in all Indian states except only five (Uttar Pradesh, Bihar, Jharkhand, Meghalaya, and Manipur). Further, the fertility level in urban India, which stands at just 1.6, is comparable to the low fertility levels seen currently in the developed world.
• With an ageing population, which will have to be supported in the coming decades by a shrinking workforce, it becomes imperative that India’s economy grows at a strong pace consistently over decades. Otherwise, the demographic dividend that policymakers have dreamt about may not turn into reality. Instead, India may face a demographic disaster as its young population turns older and could run the imminent risk of getting stuck in the middle-income trap.

The correct answer is 2021.In News NITI Aayog released the Report “National Multidimensional Poverty Index: A Progress Review 2023” on 17th July 2023.Key Points

• In 2021, NITI Aayog made history by issuing the first-ever MPI for India, which was based on NFHS 4.
• The objective of this program is to elevate India's standing in internationally recognized indices, highlighting the significance of all-encompassing measures to mitigate poverty.
• As the MPI's nodal body, NITI Aayog has been tasked with creating an indigenous index to track how well Union Territories (UTs) and States are doing in tackling multidimensional poverty.
• An interministerial MPI Coordination Committee (MPICC), comprising Ministries and departments dealing with topics like health, education, nutrition, rural development, drinking water, sanitation, electricity, and urban development, among others, was established by NITI Aayog in order to institutionalize this.
• The three equally weighted components (which are covered by 12 indicators) of India's national MPI are:
  • Standard of Living
  • Education
  • Health
• Some key findings of the National MPI report, 2023 (based on National Family Health Survey-5):
  • India's MPI value and Headcount Ratio decreased significantly between 2015–16 and 2019–21; in the last five years, 13.5 MPI poor people have been lifted out of multidimensional poverty.
  • The proportion of MPI poor people was highest in Bihar and lowest in Kerla.
  • Among the states with the largest numbers of MPI poor people who have been able to escape multidimensional poverty in the last five years, UP ranked first with 3.43 crore, followed by Bihar (2.25 crore) and Madhya Pradesh (1.36 crore). 
  • Along with UP and MP, Bihar, the state with the highest MPI value in NFHS-4 (2015–16), experienced the quickest decrease in MPI value. 

Additional Information

The Index is based on the Alkire-Foster (AF) methodology and has three equally weighted dimensions:

NITI Aayog:

• The Government of India's premier think tank on public policy, NITI Aayog is the nodal agency responsible for promoting cooperative federalism, encouraging economic development, and eschewing bargaining federalism by involving State Governments of India in the formulation of economic policies through a bottom-up methodology. 
• It took over the role of the Planning Commission when it was founded in 2015.
• Chairperson: Narendra Modi, The Prime Minister (ex-officio)
• Vice Chairperson: Suman Bery
• CEO: B. V. R. Subrahmanyam
• HQ: New Delhi, India

The MPI Coordination Committee (MPICC):

• It has been instrumental in developing the national MPI and guaranteeing its technical rigour and robustness. The committee has received support from various entities, including the survey implementers of the NFHS-International Institute for Population Sciences (IIPS) of the Ministry of Health and Family Welfare.
• Experts from the Ministry of Statistics and Program Implementation (MoSPI) as well as technical partners UNDP and OPHI were also present. The multidimensional aspect of the index's indicators and sub-indicators served as inspiration for the MPICC's composition.

• In order to stimulate aggregate demand and restore the economy to full employment, government involvement through fiscal policy is required, according to a Keynesian conclusion regarding how adjustments take place in a recessionary gap.
• A recessionary gap, according to the Keynesian framework, develops when overall demand is insufficient to fully utilize the economy's productive potential, which results in significant unemployment and underutilization of resources.
• According to Keynesian economics, private sector expenditure may not be enough to bring about full employment during a recession. Therefore, the government can intervene to enhance aggregate demand by increasing its own spending, lowering taxes, or taking other actions.
• This increase in demand contributes to a rise in general economic activity, which boosts output, earnings, and employment.

Hence, Government should intervene to increase aggregate spending is a Keynesian conclusion about how a adjustments occur in a recessionary gap.

Key PointsThe number of independent random variables that go into the Chi-Square distribution is known as the degrees of freedom (df).

Important Points

• Chi-Square Test: A statistical method for assessing the discrepancy between observed and expected data is the Chi-Square test.
• This test can also be performed to see if our data's categorical variables are related to it. It is useful to determine whether a discrepancy between two categorical variables is the result of coincidence or an association between them.
• Formula of Chi Square Test:   where O is the observed value and E is the expected value.
• Degree of Freedom: The number of independent random variables that go into the Chi-Square distribution is known as the degrees of freedom (df).
  There isn’t a clear-cut definition of degrees of freedom. But as the name implies, you can think of it as the number of variables that can vary.
• The more variables you add, the more variability you introduce and, thus, the more degrees of freedom you have.
• Degree of Freedom = (R – 1) x (C – 1)
• Hence, from the given question (df) = (5-1) x (5-1) = 16.

Hence, it can be said that the degree of freedom for the Chi-square test in the case of a contingency table of order (5 x 5) is 16.

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

Explanation:

Free trade area: This is the basic level of integration where member countries remove trade barriers such as tariffs and quotas on goods traded between them. However, there are no restrictions on the movement of factors of production (labor and capital).
Customs union: This is a step further than a free trade area. In addition to removing trade barriers, member countries also establish a common external tariff against non-members. This means that all member countries charge the same import duties on goods coming from non-member countries.
Common market: This is a more advanced level of integration where there is free movement of goods, services, labor, and capital between member countries. This means that workers and businesses can move freely between member countries, and there are no restrictions on the flow of capital.
Economic union: This is the most advanced stage of integration where member countries share a common currency and have common economic policies. This means that member countries have a common central bank, and they coordinate their fiscal and monetary policies.
Therefore, the given list is matched correctly.

The correct answer is Laffer Curve.

Key Points

• Laffer Curve
  • The Laffer Curve is a theory that states lower tax rates boost economic growth.
  • It underpins supply-side economics, Reaganomics, and the Tea Party’s economic policies.
  • Economist Arthur Laffer developed it in 1979.
  • The Laffer Curve describes how changes in tax rates affect government revenues in two ways.
  • One is immediate, which Laffer describes as “arithmetic.” Every dollar in tax cuts translates directly to one less dollar in government revenue.
  • The other effect is longer-term, which Laffer describes as the “economic” effect.
  • It works in the opposite direction. Lower tax rates put money into the hands of taxpayers, who then spend it.
  • It creates more business activity to meet consumer demand. For this, companies hire more workers, who then spend their additional income.
  • This boost to economic growth generates a larger tax base. It eventually replaces any revenue lost from the tax cut.

Additional Information

• ​Engel Curves
  • It is the locus of all points representing the quantities demanded of the goods at various levels of income when prices and preferences are held constant.
• The Kuznets curve
  • It is a hypothetical curve that graphs economic inequality against income per capita over the course of economic development (which was presumed to correlate with time).
• 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.

As in the short run, costs in the long run depend on the firm’s level of output, the costs of factors, and the quantities of factors needed for each level of output. The chief difference between long- and short-run costs is there are no fixed factors in the long run. There are thus no fixed costs. All costs are variable, so we do not distinguish between total variable cost and total cost in the long run: total cost is total variable cost.

The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the needs of three parties operating in the Indian Capital Market. These three participants are mentioned below:

Issuers of the Securities: Companies that issue securities are listed on the stock exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy and transparent way.

Protects the Interests of Traders & Investors: It is a fact that the capital markets are functioning just because the traders exist. SEBI is responsible for safeguarding their interests and ensuring that the investors do not become victims of any stock market fraud or manipulation.

Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all the market transactions take place in a secure and smooth manner. It monitors every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc.

• Both Statements are correct: The swap auction was conducted as part of its liquidity management initiative, leading to infusion of dollars and sucking out of the rupee from the financial system. The central bank’s move will reduce the pressure on inflation and strengthen the rupee.
• The major impact will be that liquidity will shrink. The RBI normally brings down liquidity in the system when inflation threatens to rise sharply. With crude oil prices rising sharply in the wake of the Russia-Ukraine war, inflation is set to rise.

When average cost is declining as output increases, marginal cost is less than average cost. When average cost is rising, marginal cost is greater than average cost. When average cost is neither rising nor falling (at a minimum or maximum), marginal cost equals average cost.