Ramesh Singh Test: Economics - 1 - UPSC

Incorrect statement is 2 only.
Lionel Robbins called economics a science of scarcity not J.M.Keynes

The phrase invisible hand was introduced by Adam Smith in his book 'The Wealth of Nations'. He assumed that an economy can work well in a free market scenario where everyone will work for his/her own interest.
He explained that an economy will comparatively work and function well if the government will leave people alone to buy and sell freely among themselves. He suggested that if people were allowed to trade freely, self-interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand.
The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically is the invisible hand.

The correct answer is 4. Mixed economy. 

• A mixed economy is a type of economy that combines elements of both market-based systems and government intervention.
• In a mixed economy, there is a blend of free market principles and government regulations and controls.
• This combination allows for both private ownership and control of resources as well as government intervention to correct market failures, provide public goods, and promote social welfare.
• The term "dual economy" is sometimes used to describe the coexistence of both a market sector and a non-market sector within a mixed economy.

Socialism is a system based on public ownership (also known as collective or common ownership) of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs.
In communism, most property and economic resources are owned and controlled by the state /government. Under socialism, all citizens share equally in economic resources (Collective ownership). 

Achieving a classless society is a feature of command economy. 

Introduction:
The economic system that has led to an increase in inequality, class conflicts, and economic depressions is capitalism. Capitalism is an economic system where individuals and businesses operate for profit and private ownership of resources and means of production is emphasized.
Key Points:
Here are the key points explaining how capitalism has contributed to the mentioned issues:
1. Inequality:
- Capitalism promotes the accumulation of wealth in the hands of a few individuals or corporations.
- The pursuit of profit often leads to income and wealth disparities between the rich and the poor.
- The gap between the rich and the poor tends to widen over time, resulting in increased inequality.
2. Class Conflicts:
- Capitalism creates a social divide between the bourgeoisie (owners of capital) and the proletariat (working class).
- The bourgeoisie control the means of production, while the proletariat sells their labor for wages.
- This unequal power dynamic can lead to class conflicts as the interests of the capitalists and workers often diverge.
3. Economic Depressions:
- Capitalist economies are characterized by business cycles, including periods of economic booms and busts.
- The pursuit of profit can lead to overproduction, speculation, and financial crises.
- During economic depressions, businesses may fail, unemployment rises, and overall economic activity declines.
Conclusion:
Capitalism, with its emphasis on profit, private ownership, and market competition, has resulted in increased inequality, class conflicts, and economic depressions. However, it is important to note that the extent and impact of these issues can vary depending on the specific policies and regulations implemented within a capitalist system.

In communism all economic resources are publicly owned and controlled by the government. Individuals hold no personal property or assets. Communism does not encourage entrepreneurship.

In a market system, producers compete with each other by offering wider variety and better quality of goods and services, therefore consumers have more choice, and this may even lead to lower prices. Workers in a free market are compelled by their lack of ownership of the means of production to sell their labor power to capitalists for less than the full value of the goods they produce.

Laissez-faire is an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates as "leave alone" or “hands off” is that the less the government is involved in the economy, the better off business will be—and by extension, society as a whole. Laissez-faire economics are a key part of free market capitalism.

The Bolsheviks believed that Russia was ready for socialism. Their leader, Vladimir Lenin was a revolutionary, who managed to organize a devoted and highly disciplined party. The Bolsheviks in 1919, succeeded in overthrowing the Czar rule and establishing Socialism in Russia. 

Goods and services in a command economy are produced based on what the government thinks is essential for the society and not on the basis of the choice and preference of the consumers.

Inefficiency, lack of innovation and creativity and rigidness are some of the disadvantages of Command economic system. Communist and socialist systems are the types of command economic system. 

In his influential work The General Theory of Employment, Interest, and Money (1936), the liberal British economist John Maynard Keynes introduced an economic theory that argued that government management of the economy could smooth out the highs and lows of the business cycle to produce more or less consistent.

Food security means availability, accessibility and affordability of food to all people at all times.

• Poor households are more vulnerable to food insecurity whenever there is a problem with the production or distribution of food crops.
• Food security depends on the Public Distribution System (PDS) and government vigilance and action at times, when this security is threatened.

GDP at Market cost = Factor cost + indirect taxes – Subsidies.
If the factor cost of product ‘xyz’ is Rs 200 and indirect taxes is Rs 20 and subsidy given by the government to reduce its price is Rs 10, than .The market cost of ‘xyz’ will be 200 + 20 – 10 = 210 Rs. 
So, GDP at market increases if indirect taxes increase. 

Real GDP is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices) and are often referred to as "constant-price," "inflation-corrected" GDP. 

The GDP deflator, also called implicit price deflator, is a measure of inflation. GDP price deflator measures the difference between real GDP and nominal GDP.
The formula to find the GDP deflator = (nominal GDP ÷ real GDP) x 100

Net national product (NNP) at factor cost is considered as the National income of India. 
GNP- depreciation at factor cost is nothing but NNP at factor cost and NNP -indirect taxes + subsidies = NNP at factor cost. Hence, both a) and b) are correct. 

GDP is the total value of all goods and services produced in a country in a given year irrespective of them being sold or not. 
Intermediate goods are not included in the calculation of a country's GDP. The reason for not including them in the GDP is because it will lead to counting the value of the goods twice, and the norm is to count the price of final goods only once.
GDP is a measure of growth and not progress: GDP indicates growth that is quantitative. Qualitative aspects such as development, progress and well being are not taken in to account.

The GDP estimation in India is undertaken by the Central Statistics office or CSO. The Central Statistics Office (CSO) is a governmental agency under the Ministry of Statistics and Programme Implementation.

NDP = GDP – Depreciation 

NDP of an economy has to be always lower than its GDP for the same year, since there is no way to cut the depreciation to zero.

Every asset undergoes depreciation. Government (Ministry of commerce and industry) announces the rates by which assets depreciate. Different rate of depreciation is set by different countries depending on their geography, climate, economic conditions etc. 

Transfer payments such as pensions, scholarships, subsidies etc are excluded from GDP calculations because there is no production of any goods or services in exchange of such payments. Remittances (Money sent home from emigrants working abroad) are also not included in the GDP. This is because, in GDP estimations, only those goods and services produced within a country are included. 

Market cost = factor cost + indirect taxes - subsides. Therefore, 500 + 50 – 15 = 535.