Economics

Statement 1: consumption rises when income rises, but only by a fraction of the rise in income (MPC < 1), so it does not rise proportionately. False.
Statement 2: MPC + MPS = 1. They are equal only in the special case MPC = MPS = 0.5, not always. False.
Hence option (D).

National = Domestic + NFIA, so \(GNP_{MP} = GDP_{MP} + NFIA\). Correct.
Check the others: \(GDP_{MP} = NNP_{FC}\) + Depreciation + NIT − NFIA (A is incomplete); \(NDP_{FC} = NNP_{FC} − NFIA\) (B wrong); \(NNP_{FC} = NDP_{MP} + NFIA − NIT\) (D wrong — depreciation is not added).

Full employment is the situation where all those who want to work at the prevailing wage are employed. Because every willing and able person finds work (R), there is nobody who is unemployed against his will — i.e. involuntary unemployment is absent (A). R directly explains A.

FII investment is portfolio investment, a capital account item (it changes assets/liabilities).
Net selling by FIIs means foreign investors are withdrawing money from India — an outflow of foreign exchange.
Outflows are recorded on the debit side. So: debit side, capital account.

Money supply is a stock concept, measured at a point of time — (i) correct.
It counts money held by the public, so money held by the government (and banks) is excluded — (ii) correct.
M1 = currency held by the public + net demand deposits of banks; it is not the currency lying with the Central Bank — (iii) is the incorrect feature.

Consumption function: \(C = \bar{c} + bY\).
\(\bar{c}\) = autonomous consumption (independent of income); bY = induced consumption (depends on income).
Investment is not a part of consumption, so options with investment are wrong.

(i) Reserves in round I = 20% of 5000 = 1000.
(ii) Loans in round II = 80% of 4000 = 3200.
Money multiplier = 1/RR = 1/0.2 = 5.
(iii) Total deposits = 5 × initial deposit 5000 = 25,000.
(iv) Total loans = total deposits − total reserves = 25,000 − 5,000 = 20,000.
(Note: in the paper, options A and D were printed identically.)

BOP surplus/deficit is judged only by autonomous (above-the-line) transactions.
If autonomous receipts exceed autonomous payments → BOP surplus; the reverse → BOP deficit, which must be met by accommodating transactions.

MPC (b) = 0.75.
\(K = \dfrac{1}{1-MPC} = \dfrac{1}{1-0.75} = \dfrac{1}{0.25} = 4\).
The values 100 and 400 are not needed for K.

Balance of trade = merchandise exports − merchandise imports.
500 = 1200 − Imports ⇒ Imports = ₹700 crore.
Transfer payments are part of the current account, not the balance of trade, so they are ignored (common trap).

Expenditure method: \(GDP_{MP}\) = HFCE + GFCE + GDFCF + change in inventory + net exports.
= 470 + 320 + 200 + (−40) + (50 − 60) = ₹940 crore.
\(NDP_{MP} = GDP_{MP}\) − consumption of fixed capital = 940 − 35 = ₹905 crore.
\(NDP_{FC} = NDP_{MP}\) − net indirect taxes = 905 − 50 = ₹855 crore.
NFIA (20) is NOT used because we want a domestic aggregate — a common mistake.

(i) Externalities are the good or bad effects that the activity of one person/firm has on others, for which no payment is received (positive) or no compensation is paid (negative). They are not counted in GDP.
Example: a newly built public park raises the well-being of nearby residents who pay nothing for it (positive externality); smoke from a factory harms people's health without any compensation (negative externality).
(ii) Operating surplus is the factor income earned as rent, royalty, interest and profit taken together, i.e. income from property and entrepreneurship.

Fixed exchange rate system: the exchange rate is fixed (pegged) by the government/monetary authority. It keeps the value of the domestic currency stable against foreign currencies; the central bank buys/sells foreign exchange to hold the rate.
Flexible (floating) exchange rate system: the exchange rate is determined freely by the market forces of demand for and supply of foreign exchange, with no official intervention. It keeps fluctuating as demand and supply change.

C = APC × Y, S = Y − C.
Y = 100: C = 1 × 100 = 100, S = 0.
Y = 200: C = 0.85 × 200 = 170, S = 30.
Y = 300: C = 0.8 × 300 = 240, S = 60.
MPS = ΔS/ΔY: (0 − (−30))/100 = 0.3; (30 − 0)/100 = 0.3; (60 − 30)/100 = 0.3.
\[\begin{array}{|c|c|c|c|}\hline Y & S & APC & MPS\\\hline 0 & -30 & - & -\\ 100 & 0 & 1 & 0.3\\ 200 & 30 & 0.85 & 0.3\\ 300 & 60 & 0.8 & 0.3\\\hline\end{array}\]
MPC = 1 − MPS = 0.7. At Y = 0, C = Y − S = 0 − (−30) = 30 (autonomous consumption).
Consumption function: \(C = 30 + 0.7Y\). Check at Y = 200: C = 30 + 140 = 170 ✓.

If ex-ante AD > ex-ante AS, households and firms together plan to buy more than producers planned to produce (excess demand).
Firms meet the extra demand from their stocks, so inventories fall unexpectedly below the desired level.
To restore desired inventories, producers expand production, hiring more factors.
As a result, output, employment and income rise.
This process continues until planned AD again equals planned AS (equilibrium).

(a) The Central Bank (RBI in India) alone has the right to issue currency notes. This ensures uniformity of currency, public confidence in it, and gives the Central Bank control over the money supply and credit in the economy.
(b) Deferred payments are payments to be made in the future, e.g. repayment of loans, interest, credit purchases. Money, having a fairly stable and generally accepted value, allows such future obligations to be stated and settled easily. Thus it facilitates borrowing and lending and serves as the standard of deferred payments.

(a) The likely issue is inflation in the economy caused by excess demand. By not cutting the rate and withdrawing the easy-money stance, RBI keeps borrowing costly so that demand, and hence prices, are kept in check.
(b) A cut in the repo rate makes borrowing from RBI cheaper for commercial banks → banks lower their lending rates → the public borrows more → more credit is created → money supply in the economy increases (and aggregate demand rises).

Test: a capital receipt either creates a liability or reduces an asset of the government; a revenue receipt does neither.
(i) Interest on loans given: neither creates a liability nor reduces assets → revenue receipt (non-tax).
(ii) Disinvestment: selling a government company reduces government assets → capital receipt.
(iii) Aid/grant from a foreign government: not to be repaid (no liability) and no asset is reduced → revenue receipt.

(i)(I) Transport: ₹3.32 lakh crore in 2021-22, ₹3.90 lakh crore in 2022-23 (RE) and ₹5.17 lakh crore in 2023-24 (BE) — a continuous and sharp rise (about 56% over two years); it is the largest item, showing priority to infrastructure.
(II) Rural development: ₹2.29 lakh crore (2021-22) rose to ₹2.43 lakh crore (2022-23 RE) but dipped slightly to ₹2.38 lakh crore in 2023-24 (BE) — broadly stable with a small fall in the last year.
(ii) Fiscal deficit = total expenditure − total receipts excluding borrowings; it shows the total borrowing need of the government.
Revenue deficit = revenue expenditure − revenue receipts; it shows the shortfall in the government's current (revenue) account.

(a) Two sectors: households and firms. Households own land, labour, capital and entrepreneurship and supply them to firms. Firms use them to produce goods and services and pay rent, wages, interest and profit to households (factor payments). Households spend this income on the goods and services produced by firms (consumption expenditure). So the income generated by production flows back to firms as expenditure, completing a circular flow; the flow never breaks as long as all income is spent.
(b) Yes. Nominal GDP is valued at current-year prices, real GDP at base-year prices.
Example: Year 1 (base): price ₹10, output 100 units → nominal GDP = real GDP = ₹1,000.
Year 2: price ₹15, output still 100 units → nominal GDP = ₹1,500, real GDP = 10 × 100 = ₹1,000.
Nominal GDP rose 50% though output did not change at all; real GDP correctly shows zero growth. Since real GDP removes price changes, it measures changes in physical output, hence growth, better.

Under the licence system, firms had to obtain permits to set up, expand or change products. Energy and money went into lobbying for licences rather than into better technology, quality and efficiency. That is exactly why they failed to become competitive (A). So R explains A.

In the 1970s Pakistan nationalised capital goods industries. Later, in the late 1970s and 1980s, it moved towards denationalisation and encouraged the private sector.

The British did build railways, ports, roads, post and telegraph. But the purpose was to move raw materials to ports, sell British goods across India, move troops and keep administrative control — not the welfare of Indians. Both statements are true.

Agricultural marketing covers activities after harvest: assembling, storage, processing, grading, packaging, transportation and distribution. 'Production' is not a marketing activity, so option (B) is the incorrect combination.

The WTO aims at a rule-based trade regime so that no country can unilaterally block trade. The purpose of such free and fair trade is to enlarge world production and trade and use world resources optimally, with care for the environment. The reason gives the objective behind the rule-based regime, so R explains A.

After the 1978 reforms China used markets (SEZs, dual pricing, FDI) to create extra opportunities — A is true.
Public investment in health, education and other social infrastructure (done mainly before reforms) improved its HDI — R is true.
But R is about state-built social infrastructure, not about the market mechanism, so it does not explain A.

Regulated markets aim at orderly, transparent marketing, fair prices and protection of farmers from middlemen — (i) and (iii) are objectives.
Discouraging better infrastructure (ii) or better quality/quantity of produce (iv) are the opposite of its aims, so they are the incorrect ones.

India: New Economic Policy, 1991. Pakistan: economic reforms began in 1988. (China's reforms began in 1978 — do not confuse.)

Statement 1 is the NSSO definition of unemployment — true.
In a populous country with limited jobs, many family members work on the same small farm though fewer are needed; their marginal productivity is zero — disguised unemployment is common in India. True.

Brazil, Australia and Argentina are G20 members (along with India, China, USA, etc.). Bangladesh is not a G20 member.

Yes. Overall, agriculture employed about 70-75% of the workforce throughout, but the changes were regionally uneven:
• In parts of the Madras Presidency, Bombay and Bengal, the share of workforce in agriculture declined, with a matching rise in manufacturing and services.
• In regions such as Orissa, Rajasthan and Punjab, the share of workforce in agriculture actually increased.
Since the shift happened in opposite directions in different regions, the movement was lopsided.

IPR 1956 controlled the private sector through industrial licensing:
• Regional equality: licences were given more easily for units set up in economically backward areas, to spread industry and reduce regional disparities.
• Judicious use of resources: even existing units needed a licence to expand output or diversify, so that scarce resources went into goods needed by the economy and not into unnecessary production.
• It also kept private industry in line with the plan priorities and the dominant role given to the public sector.

(i) In-service training of teachers is on-the-job training, a source of human capital formation.
(ii) Such training updates skills and lets employees adapt to new technology and methods. Their productivity and efficiency rise, so they contribute more output. Better-trained teachers also improve the quality of education of students, multiplying human capital. Higher productivity leads to higher growth and economic development of India.

(a) China adopted the one-child norm to control rapid population growth. Effects:
• The growth rate of population fell sharply.
• The sex ratio (females per 1000 males) declined.
• Over time the proportion of elderly people rose relative to young people (ageing population), which may cause a shortage of young workers later.
(b) SEZs offered special incentives to foreign investors, attracting very large FDI. The inflow of foreign capital and technology raised China's productive capacity and exports, contributing to its rapid economic growth.

(i) True. Jan-Dhan Yojana opened bank accounts for the unbanked, bringing poor and rural households into the formal banking system. It encourages the saving habit, mobilises small savings into banks and helps channel these funds efficiently (including direct benefit transfers).
(ii) True. Worker-population ratio = (number of workers / total population) × 100. It shows what proportion of the population is actively contributing to the production of goods and services. A higher ratio means more people are employed; a lower ratio indicates poorer employment conditions.

(i) Women's education is needed because:
• It promotes gender equality and social progress.
• Educated women can join the workforce, earn income and add to economic growth, and take informed decisions about their lives.
• It lowers fertility rates and improves health care and nutrition of women and children.
Thus investment in women's education lifts whole families and supports sustainable development.
(ii) Examples of diversification activities: animal husbandry (dairy, poultry), fisheries; also horticulture, food processing, handicrafts (any two).

(a) Problems in the initial years: yields from organic farming are lower than from chemical farming; lack of adequate infrastructure and marketing facilities for organic produce (any two).
(b) • Using information and software tools, the government can identify and predict areas of food insecurity and vulnerability and act in time.
• IT spreads information on new technologies, their use, market prices, weather and soil conditions for different crops, helping farmers raise production.
• It thus supports higher and more stable food production and better distribution, i.e. food security and sustainable development.

(i) The statement is rejected. Liberalisation of 1991 removed, not increased, controls on industry:
• Industrial licensing was abolished for almost all industries except a few (alcohol, cigarettes, hazardous chemicals, etc.).
• Many goods reserved for small-scale industries were de-reserved.
• Prices in most industries were left to the market.
This was done because heavy regulation had caused slow industrial growth before the reforms.
(ii) The Green Revolution raised food output but did not change the occupational structure much. About 65% of the people still depended on agriculture because the industrial and service sectors did not grow fast enough to absorb workers moving out of agriculture. So the share of agriculture in GDP fell but its share in employment stayed high.

(i) Arguments in favour of continuing subsidies:
• Most farmers are small and marginal and cannot afford costly inputs (fertilisers, power, seeds) without subsidies.
• Removing subsidies would widen the income gap between rich and poor farmers.
Arguments against:
• Subsidies have largely benefited the fertiliser industry and better-off farmers in advanced regions rather than the needy.
• They are a huge burden on government finances; the money could be used for irrigation, research, etc.
Since there are strong points on both sides, the issue is two-sided.
(ii) Growth means a rise in the country's capacity to produce goods and services (GDP); equity means reducing inequality of income and wealth. Growth alone may leave the poor behind; 'growth with equity' ensures that the benefits of development reach all sections fairly, reducing poverty and inequality. Hence planners treated both as equally important.

(a) Water pollution and air pollution (½ + ½).
(b) Functions (any two):
• Investigates, collects and disseminates information on water, air and land pollution.
• Lays down standards for sewage/trade effluents and emissions.
• Gives technical help to governments to prevent and control pollution; organises awareness programmes.
(c) Strategies (any two):
• Wind power: in areas of high wind speed, windmills generate electricity without harming the environment.
• Solar power: photovoltaic cells convert sunlight into electricity; very useful in remote areas and pollution-free.
(Others: CNG in urban transport, biogas in rural areas, mini-hydel plants, traditional knowledge, bio-composting, bio-pest control.)