SST Set - 1 (Q.1 to 18)
Q.1 : What is Economic Theory? What are the functions of an economic theory?
Ans : As we know during the peak of the Mango season price of mangoes tends to reduce and towards the end of the season price tends to increase. What explains this increase and decrease in price? The theory on the basis of which this question can be systematically answered is called economic theory.
Economic Theory is an important component of the subject matter of economics. It studies the present and expected behaviour of economic variables like supply, demand, income, consumption and investment. It establishes the cause and effect relationship between economic variables.
For example, it establishes that increase in income is the cause of increase in consumption or that there is a positive relationship between income and consumption. Likewise, it establishes that increases in price of commodity (Px) causes decrease in its quantity demanded (Dx).
Thus, there is negative relationship, between Px, and Dx. popularly known as ‘law of demand’.
Functions of an Economic Theory
Important function of economic theory are as under :
(i) Simplification : By establishing cause and effect relationship between different economic variables, economic theory simplifies the understanding of economic events
(ii) Prediction : Economic theory underscores the logical relationship between different economic variables that help us to predict the course of economic events.
(iii) Policy Formulation : Establishing logical relationships between economic variables, economic theory facilitates the formulation of plans and policies for the growth and development of the country.
The Figure show that OQ of the commodity is demanded when income is OY. Quantity decreases to OQ1 when income increases to OY1. This establishes negative relationship between income and demand.
Q.2. What do you understand by Opportunity Costs?
Ans : Modern economists give importance to the concept of opportunity cost. Opportunity cost of a factor refers to its value in its next best alternative.
According to this concept, in an economy, supply of economic resources is limited relative to their demand. As such, when resources are used for producing a given commodity then some amount of other commodities, in whose production these resources could have been helpful, has to be sacrificed. Supposing a farmer can grow both wheat and gram on a farm. If on a farm measuring one-hectare he grows only wheat, he foregoes the production of gram. If the market value of gram, that he foregoes is Rs. 1,000, then the opportunity cost of growing wheat will be Rs. 1000. Thus, the value of gram which the farmer has to forego in order to produce wheat is called the opportunity cost of wheat. In this way, the opportunity cost of using a resource in a particular use is the loss of output in its alternative use. Let us take another illustration. Suppose a person working as a domestic help for Rs. 1000/- per month is to be appointed as a peon in your school. Other things being equal, the person is to be offered higher than Rs. 1000/- for the job of a peon. But at the same time he is to sacrifice his old job of Rs. 1000/- per month. This sacrifice of Rs. 1000/- is his opportunity cost of working as peon in the school. Thus, ‘opportunity cost is the opportunity lost’ or opportunity foregone in terms of the next best alternative use of a factor.
Q.3. What are the main differences between the demand for factors and goods?
Ans : (i) Derived Demand : Factors of production are not used for their own sake. These are used to produce goods and services satisfying consumers’ demands. Thus demand for factors is a derived demand. The derived demand is the demand for product or factors of production which is derived from the demand of some other product in the production of which it is used. For example demand for bricks, cement, mason and labour fro the construction of a house is a derived demand. While demand for a house is a direct demand. Demand for goods like, shirt, food, radio, etc. is a direct demand. On the contrary, demand for factors like, capital, land, etc. is made mostly for the goods which are to be produced by them. The demand for factors of production is, therefore, a derived demand, that is, derived from the demand for finished goods and services which these factors help to produce. A producer, while making demand for a factor, takes into consideration its marginal productivity. Thus, demand for a factor depends upon its marginal productivity while demand for a good depends upon its marginal utility.
(ii) Joint Demand : Demand for factors is a joint demand. More than one factor is needed jointly to produce a commodity. One factor alone cannot produce anything. The shirt you are putting on is the outcome of the efforts of labour, land, capital and entrepreneur jointly.
Q.4. What is the behaviour of Aggregate Demand ?
Ans : Aggregate demand depends upon the level of income. Greater the level of income, greater the purchasing power and therefore, greater the demand. So that, as income increases, aggregate demand tends to rise. But two things need to be noted here :
(i) There is always some minimum level of demand even when income is zero. Because, for survival, we must eat something, and so demand something, even when we have to borrow from others or draw on our past saving.
(ii) As income rises demand also rises, but after a particular level of income is reached people start saving a part of their income. So that expenditure tends to lag behind the rising income. Or, the rate at which income increases exceeds the rate at which expenditure increases.
It refers to the expenditure that increases the stock of capital goods like machines, factories, houses etc.
- Keynes, " Investment thus defined includes expediture on capital equipment."
- Peterson, "Investment expenditure includes expenditure for producer's durable equipment, new construction and the change in inventores."
In a capitalistic economy, private entrepreneurs make investment for the sake of profit. It will, therefore, be worthwhile to invest if interest paid on the capital invested is less than the expected return of profit on it. Inducement to invest thus depends on the rate of interest and expected rate of profit. In the words of Dillard, "The inducement to invest is determined in Keynes' analysis by the businessmen's estimation of the profitability of ivestment in relation to the rate of interest to be paid for investment. The expected profitability of new investment is called the marginal efficienty of investment. "An entrepreneur will take up an investment project upto that extent where the rate of interest paid on it is equal to the expected rate of profit.
Here it is essential to draw a distinction between (i) induced investment and (ii) autonomous investment. The concept of investment explained above refers to induced investment. It is determined by the inducement to invest, which in turn depends upon expected profitability. Level of income determines the level of demand and the level of demand determines. expected profitability. Hence, induced investment ultimately depends upon the level of income. Autonomous investment, also called independent investment, on the other hand is the one which is independent of the level of income. Obviously it is not determined by consideration of profitability.
Behaviour of Aggregate Supply
Flow of goods and srevices in an economy can be increased;
(i) By way of additional utilisation of the existing resources, or
(ii) By way of technological improvement.
Keynesian theory of income and employment is a short period analysis. He assumes technology to remain constant during the short period. Accordingly output can be increased only by increasing the utilisation of existing resources mainly labour. So long as labour is not fully utilised, one can think of one to one relationship between employment and output : output increases at the same rate as employment. So that aggregate supply increases proportionate to the increase in employment.
Q.5. Define Qualitative Instruments or Selective Credit Control.
Ans : Quantitative instruments of monetary policy aim at controlling the flow of credit across all business activites in the economy. Qualitative instruments, on the other hand, aim at controlling the flow of credit for certain specific or selective activities in the system.
(i) Change in the Margin Requirements os Loans : The margin requirements of loan refers to the difference between the current value of the security offered for loans and the value of loans granted. Suppose, a person mortgages an article worth 100 rupees with the bank and the bank gives him loan of 80 rupees. The margin requirement in this case would be 20%. In case the flow of credit is to be restricted for certain specific business activities in the economy, the margin requirement of loans is raised for those very activites. The margin-requirement is lowered in case the expansion of credit is desired.
(ii) Rationing of Credit : Rationing of credit refers to fixation of credit quotas for different business activites. Rationing of credit is introuced when the flow of credit is to be checked particularly for speculative activities in the economy. The central bank fixes credit quota for different business activities. The commercial bank cannot exceed the quota limits while granting loans.
(iii) Driect Action : The central bank may initiate direct action against the member banks in case these do not comply with its directives of monetary discipline. The possible action includes even the disaffiliation of the member bank from the central bank.
(iv) Moral Pressure : Sometimes the central bank makes the member banks agree through moral pressure to follow its directive with a view to controlling the flow of credit. The central bank has its control over all the commercial banks. Therefore, these banks generally adhere to the advice of the Central Bank for expanding or contracting the flow of credit.
Q.6. Why is the capital output ratio generally high in Public Sector than in the private sector in India?
Ans : Low productivity, inefficiency, corruption, red tapism, political interferences, lack of initiative on the part of management etc. are among the various reasons accounting for this miserable performance of public enterprises. And these enterprises in general have a high capital output ratio.
Capital output ratio shows the relationship between the stock of capital employed and the annual flow of goods from these enterprises. Since most of these industrial units are such that they require massive amounts of investment in machinery and equipment and the gestation period between investment and output is long, the capital output ratio is bound to be higher. No one can contest this aspect of public enterprises.
The private enterprises being interested in quick gains just do not enter into many fields where public enterprises operated. Thus the private sector may have a lower capital output ratio.
But the high capital output ratio in public sector enterprises is also accounted for by the fact that because of faulty planning and delayed execution of these objects, the capital costs have increased.
The low productivity and inefficiency of these enterprises, the lack of coordination between various activities, the bureaucratic attitude of the management t etc. all combine to generate a smaller flow of output. This naturally raises the capital output ratio.
The private enterprises being run efficiently by professional managers maximise their output per unit of capital cost and hence reduce capital output ratio (or maximise output capital ratio).
Thus all is not fine with the public sector; it is inefficient and has become a drain on nation's resources. Hence some reforms are called for to set this sector right.
Q.7. What were the objectives of the Tenth Five Year Plan ?
Ans : Traditionally, the level of per capita income has been regarded as a summary indicator of the economic well being of the country and growth targets have therefore focused on growth in per capita income or per capita GDP. In the past, the growth rates of GDP have been such as to double the per capita income over 20 years or so. Recognising the importance of making a quantum jump compared with the past performance, the Prime Minister has directed the Planning Commission to examine the feasibility of doubling the per capita income in the next ten years. With population expected to grow at about 1.6 per cent per annum, this target requires the rate of growth of GDP to be around 8.7 per cent over the Tenth and Eleventh Plans.
This approach paper proposes that the Tenth Plan should aim at an indicative target of 8 per cent GDP growth for 2002-07. This is lower than the growth rate of 8.7 per cent needed to double the per capita income over the next ten years, but it can be viewed as an intermediate target for the first half of the period. It is certainly an ambitious target, especially in review of the fact that GDP growth has decelerated to around 6 per cent at present.
Even if the deceleration is viewed as a short term phenomena of the economy over the past several years suggests that the demonstrated growth potential over several years is only about 6.5 per cent. The proposed 8 per cent growth target therefore involves an increase of at least 1.5 percentage term performance, which is very substantial.
Economic growth cannot be the only objective for national planning and indeed over the years, development objectives are being defined not just in terms of increases in GDP or per capita income but more broader in terms of enhancement of human well being. This includes not only an adequate level of consumption of food but also access to basic social services especially education, health, availability of drinking water and basic sanitation. It all includes the expansion of economic and social opportunities for all individuals and groups and greater participation in decision making. The Tenth Plan must set suitable targets in these areas to ensure significant progress towards improvement in the quality of life of all people.
To reflect the importance of these dimensions in development planning, the Tenth Plan must establish specific and monitorable targets for a few key indicators of human development. It is proposed that in addition to the 8 per cent growth target, the following targets should also be considered as being central to the attainment of the objectives of the Plan.
Q.8. What are the main sources of the Indian Constitution?
Ans. Following are the sources of the Constitution of India:
The debates of the Constituent Assembly are a good source of the Indian Constitution. We can understand the wishes and aspiration of our constitution-makers by reading these debates. The past enactments like the Government of India Acts of 1919, 1935 and 1947 are very important sources of our Constitution. Many provision in our Constitution have been borrowed from the Government of India Act 1919 and a large part of our Constitution is based upon the Government of India Act 1935. It is thus some times stated that both in language and substance, the new Constitution is a carbon copy of the Act of 1935. The commentaries which have been written on the Indian Constitution by the Indian writers like M/s V.N. Shukla, D.D. Basu, M.V. Pylee and by foreign writers such as Gledhill W. U. Douglas and Alexandrowic are a very good source of India Constitution. The Parliament of India has also passed several Acts to clarify certain constitutional matters like delimitation of areas, boundaries of States, decision on the numerical strength of the Lok Sabha, etc. These Acts form a part of the Constitution. The decisions of the Supreme Court and the High Courts are also an important source of the Constitution. These decisions interpret the Constitution and throw a lot of light on its provisions. The judicial decisions thus help in understanding the Constitution. The decision of the foreign courts like the Supreme court of U.S.A. and Privy Council of U.K. also serve as good sources for understanding our Constitution. Although the Constitution of India is written, certain conventions and usages have been developed in our country. In reality, the parliamentary type of government in our country is based on the conventions and usages prevalent in U.K.
Q.9. What are the Powers, Privileges and Immunities of State legislatures and their Members?
Ans. Article 194 of the Constitution has laid down:
(i) There shall be freedom of speech in the Legislature of every State.
(ii) No member of the Legislature of a State shall be liable to any proceedings in any court in respect of anything said or any vote given by him in the Legislature or any committee thereof, and no person shall be so liable, in respect of the publication by or under the authority of a House of such a legislature of any report, paper, votes or proceedings.
(iii) In other respects the powers, privileges and immunities of a House of the Legislature of a State, and of the members and the Committees of a House of Such Legislature, shall be such as may from time to time be defined by the Legislature by law, and until so defined, shall be those of the House and its members and committees immediately before the coming into force of section 26 of the Constitution (forty-Fourth) Amendment Act of 1978.
Q.10. Which was the highest court of appeal for Indian litigants prior to 1950 i.e., before the advent of the Supreme Court of India?
Ans. The Privy Council, London.
Q.11. (a) Who is the first Chief Justice of India?
(b) Which Chief Justice of India acted as President of India in 1969? How long?
Ans. (a) Harilal J. Kania (1950-51)
(b) The late Justice Mohammad Hidayatullah acted as the Head of the State for five weeks in July-August 1969.
Q.12. How did the Zonal councils are formed? What are its functions?
Ans : Zonal councils were set up under the State Reorganisation Act, 1956, to ensure greater cooperation amongst states in the field of planning and other matters of national importance.
(i) The Northern Zone consists of Punjab, Rajasthan, Jammu & Kashmir, Himachal Pradesh and the National Capital Territory of Delhi.
(ii) The Central Zone consists of Uttar Pradesh and Madhya Pradesh.
(iii) The Eastern Zone consists of Bihar, West Bengal, Orissa, Assam, Nagaland, Meghalaya, Manipur, Tripura, Mizoram and Arunachal Pradesh.
(iv) The Western Zone consists of Maharashtra, Goa and Gujarat.
(v) The Southern Zone consists of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala.
Each Zonal Council consists of:
(a) a Union Minister nominated by the President;
(b) the Chief Minister of each state in the zone;
(c) two ministers from each state in the zone, nominated by the governors of the respective states; and
(d) one member from each Union territories included in the zone, nominated by the President.
Q13. 'The Presidential System of Government is full of demerits.' Discuss.
Ans : A political system on merits alone is not enough to determine its suitability for a country's present needs and requirements. Unless all the social, economic, political and cultural factors are brought within the compass of constitutional change, a mere shift from one system to another is not going to suffice. Moreover, it is not guaranteed that under presidential system, the ministers shall be appointed only on merits because the ideological considerations are bound to influence the decisions. There may be susceptibility to sycophancy. The majority of voters in India are illiterate and will not be able to know the capacity of the Presidential candidate. They will be exploited by dishonest politicians.
Presidential form will further dilute federalism and will entail greater centralisation of power. Extreme centralisation of power leads to a lack of accountability and gives rise to arrogance which, in turn, breeds irresponsibility. Power is not shared and its excesses are not subject to checks and balances. Central authoritarianism can lead to fragmentation. Pakistan is the glaring example before us. Bangladesh and Sri Lanka too came close to disintegration during such regimes. We have the examples of Idi Amin, President of Uganda: Zia-ul-Haq, President of Pakistan: Ferdinand Marcos, President of the Philippines: who did not admit office on the basis of election results. All of them were removed from the scene either by death or by a coup. Marcos amassed wealth, Nixon was embroiled in Watergate scandal, John F. Kennedy's decision to invade Cuba drew flank. During the period of Lyndon Johnson another invasion was attempted on Vietnam, and this had happened by bypassing Parliament. On the other hand, it is in our parliamentary system that Indira Gandhi was ousted from power in 1977 and voted back in 1980.
History is replete with instances which in almost all countries (barring the US and France) saw the presidential systems degenerate into dictatorship, while the Third World has had to face the worst forms of tyranny in the ame of Presidential system.
This is, however, not the whole story so far as India and its politicians are concerned. The real concern on the politicians and parties who oppose the presidential system is that it will spell the doom on their bargaining power in grabbing the loaves and fishes of political power. Yes it will do so, and that is a very good reason to change the existing dispensation. By eliminating the need for majority support in Parliament, the Presidential system will put an end to the prevailing cattle-fair politics and thus ensure governmental stability.
Q.14. What are the procedure for the amendments of the constitution of Jammu and Kashmir ?
Ans : The State of Jammu & Kashmir has its own Constitution (made by separate Constituent Assembly and promulgated in 1957).
Q.15. What is the significance of the preamble.
Ans : (i) The preamble declares the authority of the people of India, which is also the source of our Constitution;
(ii) It states the objects—justice, liberty, equality and fraternity— which the constitution seeks to establish and promote;
(iii) It aids the legal interpretation of the Constitution where the language may be ambiguous;
(iv) It describes the type of government assured to the people by the Constitution—Sovereign, Secular, Democratic Republic; and
(v) It states the date of adoption and enactment of the Preamble.
Q16. What is the need for Subordinate Legislation?
Ans : In the context of the concept of the modern Welfare State, there is hardly any walk of a citizen’s life which is not regulated by the state in one way or the other. Consequently, the legislation that has to be passed by the Legislature is so vast and varied that is impossible for any body of legislators to deliberate upon, discuss and approve every little detail of legislation which may be necessary for proper administration. Apart from the pressure on the parliamentary time, the technicality of the subject-matter, the need to meet unforeseen contingencies, the requirement of flexibility, etc. make an delegated legislation a necessity. The Legislature can only lay down the broad policy and principles of a legislation, leaving the details to be worked out by the executive in the form of rules, regulations, leaving the details to be worked out by the executive in the form of rules, regulations, bye-laws, etc.
Q.17. What is the importance of an independent judiciary in a democracy? How has the independence of the Supreme Court Judges been ensured by the constitution?
Ans : The separation of powers is essential in a democracy. A strong, independent and well-organised judiciary is charged with the duty of preventing arbitrary use of governmental authority and safeguarding the rights and liberties of citizens in a democracy.
(i) According to Article 125, the salaries of the Judges are fixed and cannot be varied to their disadvantage during their term (except during a Financial Emergency). These salaries are, furthermore, charged on the Consolidated Fund of India and hence not votable.
(ii) Security of service is assured to the judges; though the appointing authority is the President, the process of removing the judges from office is difficult, and they can be removed only on grounds of proved misbehaviour and incapacity.
(iii) The conduct of a judge of the Supreme Court is not to be discussed in Parliament, except upon a motion for an address to the President for the removal of the judge.
(iv) The jurisdiction of the Court cannot be curtailed by Parliament.
(v) After retirement, a judge of the Supreme Court shall not plead or act in any court or before any authority within the territory of India.
(vi) The Court has the right to punish any person for its contempt.
(vii) The Court is free to recruit its staff and determine their service conditions without any interference from any other authority.
Q.18. How is the position of Legislative Council of a State inferior to the Legislative Assmbly? What is the utility of the second Chamber in a State?
Ans : It has been clear that the position of Legislative Council is inferior to that of the Legislative Assembly so much so that it may well be considered as a surplusage.