Ramesh Singh Test: Introduction to Economics- 2 - UPSC MCQ

1. John Maynard Keynes is acknowledged as the father of microeconomics.
This statement is incorrect. John Maynard Keynes is acknowledged as the father of macroeconomics, not microeconomics. His seminal work, "The General Theory of Employment, Interest, and Money," published in 1936, laid the foundations for macroeconomic theory.

2. Macroeconomics studies overall economic trends with a top-down approach.
This statement is correct. Macroeconomics indeed looks at the broader economic picture, analyzing overall economic trends such as inflation, unemployment, and GDP growth from a top-down perspective.

3. Microeconomics includes different schools of thought like New Keynesian or New Classical.
This statement is incorrect. Microeconomics primarily focuses on individual economic agents and market mechanisms. The mentioned schools of thought, New Keynesian and New Classical, are associated with macroeconomics, not microeconomics.

Therefore, the correct answer is Option D.

- Statement 1 is correct: The primary sector indeed involves activities that exploit natural resources such as mining, agriculture, and oil exploration. This sector directly uses natural resources and forms the basis of an agrarian economy if it significantly contributes to the national income.
- Statement 2 is incorrect: The secondary sector is not the service sector. The secondary sector, also known as the industrial sector, involves processing raw materials from the primary sector, including manufacturing. The service sector is referred to as the tertiary sector, which encompasses activities like banking, healthcare, and education.
- Statement 3 is incorrect: The quaternary sector is not involved in high-level decision-making. Instead, it is known as the 'knowledge' sector, involving activities related to education, research, and development. The quinary sector is where high-level decision-making occurs, involving top-level decision-makers in government and private corporations.
Therefore, the correct answer is Option A: 1 Only.

Statement-I correctly mentions W.W. Rostow's theory of economic growth stages, which outlines a progression through agriculture, industry, and services. However, Statement-II oversimplifies India's economic development. While India has seen significant growth in its service sector, it hasn't strictly followed the traditional progression outlined by Rostow. India, along with other countries like Indonesia and the Philippines, has shown deviations from the standard model by transitioning directly from an agrarian economy to a service-based economy, skipping a more substantial industrial phase. Therefore, while both statements are factually correct, Statement-II does not provide an accurate explanation for Statement-I.

Capitalism is an economic system that emphasizes competition between businesses and minimal government intervention in business operations to foster free competition. This system allows for individuals and businesses to operate with limited interference and encourages innovation and efficiency in the market. Adam Smith's ideas on self-interest, division of labor, market forces, and competition align closely with the principles of capitalism, which has been a dominant economic system in many countries worldwide.

- Statement 1: Correct. Adam Smith's idea of self-interest posits that when individuals and businesses act in their own self-interest, it can lead to positive outcomes for society as a whole, akin to a hidden force often referred to as the "invisible hand."

- Statement 2: Incorrect. In a free market economy, the government typically minimizes its role in regulating business activities, allowing market forces of supply and demand to drive the economy and ensuring free competition without significant government intervention.

- Statement 3: Correct. The Great Depression of 1929 revealed significant flaws in the existing economic system, leading to the development of Keynesian economics by John Maynard Keynes. This approach advocated for increased government intervention and borrowing ideas from other economic systems to stabilize and improve the economy.

Thus, the correct answer is Option B: 1 and 3 Only.

Statement-I correctly describes how market economies function, where prices are determined by the forces of supply and demand. Statement-II accurately portrays non-market economies like socialism and communism, where the government plays a central role in controlling the production and distribution of goods and services. In this context, Statement-II complements Statement-I by contrasting the government intervention seen in non-market economies with the free market dynamics of a market economy. Thus, both statements are correct, with Statement-II explaining the contrasting nature of a non-market economy in relation to a market economy.

The Beijing Consensus is an economic model that stands out for its focus on constant experimentation, gradual reforms promoting peaceful distributive growth, and the inclusion of selective foreign ideas. This model emerged as an alternative approach to the Washington Consensus, capturing attention for its unique strategies in economic development.

1. Statement 1: This statement is correct. The text mentions that India has become more of a giver than a receiver of external grants, aligning with its increased participation in international economic diplomacy and commitment to developmental and humanitarian assistance.

2. Statement 2: This statement is incorrect. Net National Product (NNP) is derived by subtracting depreciation from Gross National Product (GNP), not from GDP. The correct formula for NNP is NNP = GNP - Depreciation.

3. Statement 3: This statement is correct. The Central Statistics Office (CSO) indeed revised the base year for calculating national accounts from 2004-05 to 2011-12 in January 2015 following the recommendation of the National Statistical Commission (NSC).

Given the above analysis, the correct answer is Option C.

1. GNP Calculation: GDP - Depreciation
This is incorrect. The correct formula for GNP is GDP + Income from Abroad. Depreciation is not used in calculating GNP.

2. NNP Calculation: GDP + Income from Abroad - Depreciation
This is incorrect. NNP is calculated by taking GNP and subtracting depreciation, and GNP itself is GDP + Income from Abroad.

3. GVA Calculation: GDP at basic prices + Product taxes - Production subsidies
This is correct.  GVA at basic prices will include production taxes and exclude production subsidies.

4. Market Cost Calculation: Factor cost + Indirect taxes
This is correct. Market cost is calculated by adding indirect taxes to the factor cost.

Thus, pairs 2 and 4 are correctly matched. Hence, the answer is Option B: Only two pairs.

Statement-I correctly highlights how India has been more of a giver than a receiver of external grants in recent times, aligning with its international economic diplomacy efforts. This is supported by the fact that India has been contributing more to other nations, indicating a shift in its role in the global economy.

However, Statement-II is incorrect. The statement about India's GNP consistently being lower than GDP due to the negative balance in Income from Abroad is inaccurate. The relationship between GNP and GDP is not solely based on the balance of Income from Abroad. GNP subtracts the Income from Abroad component from GDP to account for income earned by residents from investments outside the country and income earned by foreigners within the country. The difference between GDP and GNP lies in how they account for income from abroad, but it doesn't necessarily mean that GNP is consistently lower than GDP due to a negative balance in Income from Abroad.