Economics

Primary deposits = cash actually deposited by the public in banks – true.
When a bank lends, the loan amount is credited to the borrower's account (or comes back as a deposit in the system); these loan-created deposits are secondary (derivative) deposits – true.
So both statements are correct.

NNP at MP = NNP at FC + Net Indirect Taxes (indirect taxes − subsidies).
So NNP at MP − NNP at FC = NIT.
Common mistake: NFIA separates national from domestic, and depreciation separates gross from net – not MP from FC.

Real (physical) flow = flow of goods and services and of factor services.
Money flow = factor payments (rent, wages, interest, profit) and consumption expenditure.
Only figure (b) has both arrows as real items: firms supply goods and services to households, households supply factor services to firms.
The others mix a money flow (factor payments or consumption expenditure) with a real flow.

Bank rate: rate on long-term loans/rediscounting given by the central bank to commercial banks, without any securities being repurchased.
Repo rate is for short-term borrowing against government securities; reverse repo is the rate the RBI pays banks for parking funds with it.

Borrowing from abroad (including from the World Bank) creates a foreign liability, so it is a capital account item – true.
Autonomous transactions are made for their own sake (profit, welfare) and do not depend on whether the BoP is in surplus or deficit – true.
Both statements are correct.

As the bankers' bank, the central bank supervises and regulates commercial and cooperative banks; penalising banks for violating norms is part of this supervisory role.
The central bank does not deal with the public directly, so (b) is wrong.

\( k = \dfrac{1}{MPS} \Rightarrow 4 = \dfrac{1}{MPS} \Rightarrow MPS = 0.25 \)
Saving function: \( S = -\bar{C} + MPS\cdot Y = -60 + 0.25Y \).
Common mistake: using MPC (0·75) as the slope of the saving function.

MPC = 0·9 (coefficient of Y).
\( k = \dfrac{1}{1-MPC} = \dfrac{1}{1-0.9} = \dfrac{1}{0.1} = 10 \)

Below break-even income, consumption exceeds income (there is dissaving), so C/Y > 1 – A is true.
APC = C/Y – R is true (it is just the definition).
But the definition alone does not explain why C > Y below break-even (that is due to autonomous consumption/dissaving), so R is not the correct explanation.

Let exports = X, so imports = 5X.
BoT deficit = Imports − Exports: 5X − X = 50,000
4X = 50,000 ⇒ X = ₹ 12,500 crore (imports = ₹ 62,500 crore).

Gifts and remittances are unilateral transfers – a current account item.
Sending them abroad causes an outflow of foreign exchange, so it is a debit entry.

Any change in income is either consumed or saved: ΔY = ΔC + ΔS.
Dividing by ΔY: \( \dfrac{\Delta C}{\Delta Y} + \dfrac{\Delta S}{\Delta Y} = 1 \), i.e. MPC + MPS = 1.

Voluntary unemployment = a person is able but unwilling to work at the prevailing wage.
Involuntary unemployment = willing and able at the prevailing wage but no job is available.
Voluntary unemployment can exist even at full employment.

Value addition: the amount by which a firm raises the value of its output over what it bought from other firms (intermediate consumption). Formula: Value Added = Value of Output − Value of Intermediate Consumption. It avoids double counting and is the firm's contribution to GDP.
Value of output: the total money value of all goods and services produced by a firm in a period. Formula: Value of Output = Quantity produced × Price per unit (or Sales + Change in stock).
So value of output includes the value of intermediate goods, value added does not.

Value of output = Sales + Change in stock. Opening stock exceeds closing stock by 3, so change in stock = −3.
Value of output = 10 − 3 = ₹ 7 crore.
Intermediate consumption = non-factor inputs + imported raw materials = 2 + 50 = ₹ 52 crore.
Value added = 7 − 52 = ₹ (−) 45 crore.
Common mistake: deducting purchase of factor inputs (₹ 5 crore). Factor inputs are not intermediate goods – payments to factors come out of value added, so item (i) is ignored.

Yes, I agree.
When the exchange rate rises (e.g. ₹ per $ goes up), the rupee depreciates, so Indian goods become cheaper for foreign buyers.
Indian exports become more competitive and foreign demand for them rises.
More exports bring in more foreign currency, so supply of foreign exchange rises (also, foreign tourism and investment in India become cheaper).
A fall in the exchange rate has the opposite effect. Hence the supply curve of foreign exchange slopes upward.

Planned S < planned I means AD > AS: households and firms together want to buy more than producers plan to produce.
To meet the extra demand, firms sell from their stocks, so inventories fall below the desired level (unplanned decrease in inventory).
To rebuild inventories, producers plan to raise output, so they hire more factors – employment and income rise.
As income rises, saving also rises; the process continues until planned saving equals planned investment (AD = AS) and equilibrium is restored.

Likely cause: inflationary pressure (excess demand) in the economy; the RBI wants to cool demand.
Consequences:
1. A higher policy rate raises the cost of funds for commercial banks, so they raise their lending rates.
2. Loans become costlier, so households and firms borrow less for consumption and investment.
3. Lower spending reduces aggregate demand.
4. With lower AD, the general price level rises more slowly or falls – inflation is controlled.
(140 basis points = 1·40 percentage points.)

As banker to the government, the central bank:
1. Keeps the bank accounts of the Central and State governments and receives deposits/makes payments on their behalf.
2. Gives loans/advances to the government when it needs funds (e.g. ways and means advances).
3. Buys and sells government securities in the open market on behalf of the government and manages public debt.
4. Acts as financial adviser and agent to the government (e.g. on foreign exchange and monetary matters).

Reserve ratio (RR) = minimum part of deposits that banks must keep as reserves as directed by the central bank. Credit (money) multiplier = 1/RR, so credit creation varies inversely with RR.
Example: initial deposit = ₹ 1,000.
\[\begin{array}{|c|c|c|c|}\hline \text{Case} & \text{RR} & \text{Multiplier } 1/RR & \text{Total deposits created}\\\hline \text{I} & 0.2 & 5 & 1{,}000\times 5 = 5{,}000\\ \text{II} & 0.5 & 2 & 1{,}000\times 2 = 2{,}000\\\hline\end{array}\]
When RR rises from 20% to 50%, banks must keep more money idle and can lend less in each round, so total credit created falls from ₹ 5,000 to ₹ 2,000.

(i) Revenue receipts: Corporation tax (21 p), GST and other taxes (19 p), Income tax (16 p), Excise duties (8 p), Customs (4 p), Non-tax revenue (9 p) – total 77 paise.
Reason: they neither create a liability nor reduce any asset of the government.
Capital receipts: Borrowings and other liabilities (20 p), Recovery of loans (3 p) – total 23 paise.
Reason: borrowings create a liability; recovery of loans reduces an asset (loans given earlier).
(ii) Revenue deficit = estimated revenue expenditure − estimated revenue receipts in a fiscal year; it shows the government dissaving on current account.
Fiscal deficit = total estimated expenditure − total estimated receipts excluding borrowings; it shows the total borrowing requirement of the government.
FD includes capital expenditure and NDCR; RD covers only revenue items.

(i) Fiscal deficit = Revenue deficit + Capital expenditure − Non-debt creating capital receipts
(since FD = RE + CE − RR − NDCR = RD + CE − NDCR)
FD = 40 + 220 − 190 = ₹ 70 crore.
Primary deficit = FD − Interest payments = 70 − 20 = ₹ 50 crore.
Tax revenue (₹ 125 crore) is not needed – it is already reflected in the revenue deficit.
(ii) An economy faces fluctuations in income, output, employment and prices (business cycles), which depend on the level of aggregate demand (spending by households and firms).
The government uses the budget to correct them: during inflation (excess demand) it raises taxes and/or cuts expenditure to reduce AD; during deflation/recession (deficient demand) it lowers taxes and/or raises expenditure to increase AD.
Thus the budget helps keep prices stable and the economy near full employment.

Under colonial rule farmers were pushed to grow cash crops (indigo, cotton, jute) for British industry instead of food crops; food output fell and famines became frequent, especially in 1875–1900 – Statement 1 is true.
India also exported food grains even when its own people faced shortages – Statement 2 is true.

The government (through FCI) procures wheat and rice at MSP and stores them as buffer stock for the PDS and emergencies – true.
MSP is announced before sowing and the government stands ready to buy at that price, so farmers are protected if market prices crash – true.

(a) True – producing at home what was imported saved foreign exchange.
(b) True – licences were used to promote industry in backward regions (as per the 1956 policy).
(d) True – SSIs are labour-intensive.
(c) Incorrect – India chose a mixed economy, combining features of socialism (public sector, planning) and capitalism; it did not copy the Soviet (Russian) model.

Mini-hydel plants use the energy of perennial mountain streams to run small turbines; the power is used locally (no long transmission lines/losses) and no big dams are needed, so the land-use pattern does not change. All three points are correct.

The GLF (launched 1958) aimed at industrialising China on a massive scale; people were even encouraged to set up industries (backyard furnaces) in their homes.
Economic reforms/privatisation came only from 1978.

India is a member of BRICS (Brazil, Russia, India, China, South Africa), G20 and SAARC. The European Union is a grouping of European countries only.

Skill India trains people in vocational skills; it raises human capital, makes better use of inputs and boosts GDP growth.
It aims to remove the inadequate spread of vocational education, not to increase it.

The Great Proletarian Cultural Revolution (1966–76) sent students and professionals to the countryside to work and learn.
GLF was 1958 (industrialisation); communes were collective farming; the Open Door policy relates to the reforms after 1978.

In India and Pakistan the share and growth of the service sector have risen sharply, making it the main driver of growth – true.
China's life expectancy (about 76–77 years) is higher than that of India and Pakistan – true.

Regular salaried employees are engaged by an employer on a permanent basis and paid wages/salary regularly.
Casual workers are hired temporarily and do not get regular wages or social security.

Jobless growth = GDP rises but employment does not rise in proportion. It happens when output growth comes from better (labour-saving) technology rather than from employing more workers.

Crop diversification = shifting from a single crop (monoculture) to a variety of crops. Diversification of activities/employment means shifting to non-farm work such as animal husbandry, fisheries, etc.

India's First Five Year Plan covered 1951–56 – true.
India (1951), Pakistan (1956, First Five Year Plan / Medium Term Plan) and China (1953) all relied on planning – true.

The picture shows deforestation: large-scale felling of trees, often for timber, farming or development projects.
Why it is a serious challenge:
1. Loss of biodiversity and destruction of natural habitats of plants and animals.
2. Soil erosion and land degradation, since roots no longer hold the soil.
3. Disturbance of the water cycle – less rainfall, floods and droughts.
4. Fewer trees absorb less CO₂, adding to global warming and climate change.
Remedy: afforestation, sustainable forest management, using wood substitutes.

Positive role: rapid expansion of banks (commercial banks, RRBs, cooperatives, NABARD) after nationalisation supplied institutional credit; it reduced dependence on moneylenders and raised farm and non-farm output, income and employment; it helped the Green Revolution and food security.
Problems (critical part):
1. The volume of rural credit is still too small compared with demand; institutional sources have not covered the whole country.
2. Small and marginal farmers get too little attention; large farmers take most loans.
3. Large overdues/defaults on agricultural loans weaken the banks.
So rural banking has helped, but needs reform to reach the poorest.

Type: expenditure on migration.
Explanation: people move from low-income to high-income areas in search of better jobs and higher earnings. The cost of moving (transport, higher living cost in the city) is an investment because it lets a person's skills earn more.
Qualified people such as doctors and engineers migrate to use their skills better, so migration raises their productivity and earnings – it is one of the sources of human capital formation.

1. Agricultural growth and food supply depended on good harvests rather than on an institutional process of technical change; so farm output was volatile – good in some years, poor in others.
2. Over-dependence on foreign remittances and foreign aid instead of building its own productive base; these flows are uncertain.
3. Growing difficulty in repaying foreign loans, leading to a debt burden.
4. Political instability and a weak, less diversified industrial and export base also slowed growth.
As growth slowed, poverty began to rise again in the 1990s.

False.
In recent years India has seen informalisation of the workforce: the share of workers in the formal sector has fallen and more people work in the informal sector without job security or social security benefits.
Main reason: job opportunities in the formal sector (both public and private) have not grown – public sector recruitment has slowed and private firms prefer contract/casual labour.
So progress towards formalisation has not been satisfactory.

1. Skill development: training programmes give the self-employed the skills and know-how to improve their work or start new ventures, raising productivity and income.
2. Financial and technical support by the government: easy, cheap credit, subsidies and technical guidance help them meet capital needs, adopt better methods and expand their units.
(Other valid measures: marketing support, infrastructure in rural areas, promotion of small-scale and cottage industries.)

(a) NITI Aayog (2015) replaced the Planning Commission. The Prime Minister is its ex-officio Chairman.
(b) 1. Promotes a cashless society: all transactions go through banks and leave a record, so the use of unaccounted (black) money and counterfeit notes falls.
2. Convenience: users can pay utility bills automatically and transfer funds anytime, anywhere, saving time and cost.
(Other advantages: wider financial inclusion, lower transaction costs, faster transfers.)