National Income & Gross Domestic Product Archives

21. If the price index increased from 100 in 2021 to 110 in 2022 to 132 in

If the price index increased from 100 in 2021 to 110 in 2022 to 132 in 2023, then the rate of inflation is :

10%

32%

20%

Cannot be determined

This question was previously asked in

UPSC CDS-2 – 2024

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The correct option is C. The question provides price index values for three years and asks for “the rate of inflation”.

The rate of inflation between two periods is calculated as the percentage change in the price index from the earlier period to the later period.
– Inflation rate from 2021 to 2022:
`((Index in 2022 – Index in 2021) / Index in 2021) * 100`
`((110 – 100) / 100) * 100 = (10 / 100) * 100 = 10%`
– Inflation rate from 2022 to 2023:
`((Index in 2023 – Index in 2022) / Index in 2022) * 100`
`((132 – 110) / 110) * 100 = (22 / 110) * 100 = (1/5) * 100 = 20%`
The inflation rates for the two periods are 10% and 20%. The question asks for “the rate of inflation” (singular). In such sequences, it often refers to the rate in the most recent period calculated or the cumulative change. The cumulative percentage increase from 2021 to 2023 is `((132 – 100) / 100) * 100 = 32%`. Both 20% (rate in 2023) and 32% (total change) are among the options (A and B are not possible as singular rates for the whole period). However, the standard interpretation of “the rate of inflation” when a time series is given is often the latest period’s annual rate. Thus, 20% is the most likely intended answer as it represents the inflation rate for the year 2023.

Option A (10%) is the inflation rate for the year 2022. Option C (20%) is the inflation rate for the year 2023. Option B (32%) is the total percentage increase in the price index from 2021 to 2023. Given that both 10% and 20% are valid annual rates within the period, and 20% is the rate for the latest year, it is the most probable answer.

22. Suppose there are only two normal goods in the economy, X and Y. If pr

Suppose there are only two normal goods in the economy, X and Y. If price of good X increases, which would be the correct statement from below ?

Demand for good X decreases and demand for Y is indeterminate.

Demand for good X decreases and demand for Y decreases.

Demand for good X increases and demand for Y is indeterminate.

Demand for good X increases and demand for Y decreases.

This question was previously asked in

UPSC CDS-2 – 2024

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The correct option is A. The question describes a scenario with two normal goods (X and Y) and asks about the effect of an increase in the price of good X.

If the price of good X increases, according to the Law of Demand, the quantity demanded of good X will decrease, assuming all other factors remain constant (ceteris paribus). This is a movement along the demand curve for X.
To determine the effect on the demand for good Y, we need to consider the cross-price elasticity of demand, which depends on whether X and Y are substitutes, complements, or unrelated goods.
– If X and Y are substitutes (e.g., tea and coffee), an increase in the price of X makes Y relatively cheaper or more attractive. This leads to an increase in the demand for Y (a rightward shift of the demand curve for Y).
– If X and Y are complements (e.g., cars and petrol), an increase in the price of X reduces the quantity demanded of X. Since X and Y are consumed together, the reduced consumption of X also leads to a decrease in the demand for Y (a leftward shift of the demand curve for Y).
– If X and Y are unrelated goods, a change in the price of X has no significant impact on the demand for Y.
The information that X and Y are “normal goods” relates to how their demand changes with income, not how their demand changes with respect to the price of *another* good. Therefore, based only on the information that X and Y are normal goods and the price of X increased, we know the demand for X decreases, but the effect on the demand for Y is indeterminate without knowing the relationship between X and Y (substitutes, complements, or unrelated).

Option A correctly states that demand for X decreases and demand for Y is indeterminate. Options B, C, and D make specific claims about the demand for Y (decreases, increases) or demand for X (increases), which are either incorrect or not universally true given only the information provided.

23. Indexation is a method whose use can be associated with which one of t

Indexation is a method whose use can be associated with which one of the following ?

Controlling inflation

Nominal GDP estimation

Measurement of savings rate

Fixing of wage compensation

This question was previously asked in

UPSC CDS-2 – 2019

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Indexation is a technique used to adjust payments or values to offset the effects of inflation. It is commonly applied to wages and salaries (often through Cost of Living Adjustments – COLA), pensions, social security benefits, and bond yields, among others, to maintain their real purchasing power. Thus, it is directly associated with the fixing or adjustment of wage compensation (and other forms of payment).

Indexation links a monetary payment or value to a price index, such as the Consumer Price Index (CPI), so that it rises automatically as the index rises.

While indexation helps individuals cope with inflation by adjusting their income or payments, it is not a tool for controlling inflation (Option A). Nominal GDP estimation (Option B) is based on current prices, not indexation, although indexation is used to convert nominal GDP to real GDP. Measurement of savings rate (Option C) is a calculation based on income and consumption, not directly related to indexation as a method.

24. Which one of the following equals Personal Disposable Income ?

Which one of the following equals Personal Disposable Income ?

Personal Income - Direct taxes paid by households and miscellaneous fees, fines, etc.

Private Income - Saving of Private Corporate Sectors - Corporation Tax

Private Income - Taxes

Total expenditure of Households - Income Tax - Gifts received

This question was previously asked in

UPSC CDS-2 – 2019

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Personal Disposable Income (PDI) is defined as the income available with individuals for consumption or saving. It is calculated by subtracting direct taxes (like income tax, wealth tax) and other compulsory payments (like fees, fines, etc.) paid by households from their Personal Income.

PDI represents the actual spending power of households after meeting their tax obligations to the government.

Personal Income is the total income received by individuals from all sources before paying direct taxes. Private Income includes income accruing to private sector (households and private firms) from all sources. Option B attempts to derive Personal Income from Private Income (Private Income – Savings of Private Corporate Sector – Corporation Tax ≈ Personal Income), but does not define PDI directly. Options C and D are incorrect formulations for PDI.

25. According to the updated World Bank data for 2017, India is the sixth

According to the updated World Bank data for 2017, India is the sixth biggest economy of the world (in terms of GDP). Which one of the following is not ahead of India?

Japan

France

Germany

This question was previously asked in

UPSC CDS-2 – 2018

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According to World Bank data for 2017, India was the sixth largest economy in the world by nominal GDP. The economies ranked ahead of India in 2017 were the United States, China, Japan, Germany, and the United Kingdom. France was ranked seventh, having been overtaken by India in 2017. Therefore, among the given options, France was not ahead of India in terms of GDP in 2017.

– In 2017, India was the world’s sixth largest economy by nominal GDP.
– The countries ahead of India in 2017 included USA, China, Japan, Germany, and UK.
– France was ranked seventh in 2017, behind India.

GDP rankings can fluctuate slightly year-to-year due to economic growth rates, exchange rates, and other factors. The relative positions of economies like France, UK, and India have seen changes over recent years. The question specifically refers to the 2017 data, where India was confirmed to have moved ahead of France.

26. Statement I: There has been a sharp decline in savings rate in Indian

Statement I: There has been a sharp decline in savings rate in Indian economy between 2007-2008 to 2015-2016.
Statement II: There has been a fall in household and public savings.

Both the statements are individually true and Statement II is the correct explanation of Statement I

Both the statements are individually true but Statement II is not the correct explanation of Statement I

Statement I is true but Statement II is false

Statement I is false but Statement II is true

This question was previously asked in

UPSC CDS-2 – 2018

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Both the statements are individually true and Statement II is the correct explanation of Statement I.

– Statement I is true: India’s gross domestic savings rate declined from a peak of 36.8% of GDP in 2007-08 to 31.1% in 2015-16. This represents a significant decline.
– Statement II is true: The decline in the overall savings rate was largely driven by a fall in the savings of the household sector (both financial and physical) and the public sector (government and public enterprises) during this period.

– The household sector is the largest contributor to overall domestic savings in India. Public sector savings turned negative in some parts of this period, further contributing to the overall decline. Private corporate sector savings showed resilience but could not offset the decline in other sectors.
– Statement II correctly identifies the components whose decline led to the overall sharp decline in the savings rate mentioned in Statement I, thus acting as a correct explanation.

27. In India, the base year of the new GDP series has been shifted from 20

In India, the base year of the new GDP series has been shifted from 2004-05 to

2007-08

2008-09

2010-11

2011-12

This question was previously asked in

UPSC CDS-2 – 2017

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The correct answer is 2011-12.

In January 2015, the Ministry of Statistics and Programme Implementation (MOSPI) in India announced a change in the base year for calculating Gross Domestic Product (GDP) estimates from 2004-05 to 2011-12. Along with the base year revision, the methodology for calculating GDP was also revised, bringing it closer to international standards (like the UN System of National Accounts, SNA 2008).

Periodically revising the base year for GDP calculations is necessary to reflect changes in the structure of the economy, prices, and production processes. The new series aimed to capture economic activities more comprehensively, including improvements in data collection methods and incorporation of new data sources like the Ministry of Corporate Affairs database.

28. Which one of the following statements is correct with respect to the c

Which one of the following statements is correct with respect to the composition of national income in India?

The share of manufacturing sector has declined.

The share of services sector has increased sharply.

The share of agriculture has remained static.

The share of services sector has declined.

This question was previously asked in

UPSC CDS-2 – 2016

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The correct statement is B) The share of services sector has increased sharply.

Over the past several decades, the Indian economy has undergone a significant structural transformation. The share of the services sector in the country’s national income (GDP) has risen dramatically and is now the largest contributor, while the share of the agricultural sector has declined substantially. The share of the manufacturing sector has remained relatively stagnant or has seen modest growth, but not a sharp decline.

This trend of services-led growth is somewhat unusual compared to typical development paths where manufacturing plays a larger role in the middle-income phase. While services have grown sharply, creating jobs and income, the lagging growth in manufacturing poses challenges for creating sufficient employment opportunities for a large workforce transitioning out of agriculture.

29. According to the Classical Theory of Employment, deviations from the s

According to the Classical Theory of Employment, deviations from the state of full employment are

purely temporary in nature.

permanent in nature

imaginary situations

normal situations

This question was previously asked in

UPSC CDS-2 – 2016

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According to the Classical Theory of Employment, deviations from the state of full employment are purely temporary in nature.

Classical economics assumes that markets, including the labour market, clear efficiently due to flexible wages and prices. Any unemployment beyond frictional or structural unemployment is considered temporary and is expected to be quickly resolved by the adjustment mechanisms of the market, restoring the economy to full employment.

In the classical model, a decrease in aggregate demand would lead to falling prices and wages, which in turn would stimulate demand (through mechanisms like the Pigou effect or simply making goods cheaper) and restore full employment. Persistent unemployment is explained by factors like minimum wage laws or union power that prevent wages from adjusting downwards, which are considered market imperfections, not inherent flaws in the market mechanism itself.

30. Which one of the following statements is not correct for National Inco

Which one of the following statements is not correct for National Income Accounting for India?

Imports are subtracted in calculating Gross Domestic Product.

Net factor payments earned from abroad are included in Gross Domestic Product.

Purchase and sale of second-hand goods are not included in Gross Domestic Product.

Inventories are included in Gross Domestic Capital Formation.

This question was previously asked in

UPSC CDS-1 – 2024

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Statement B is incorrect. Net factor payments earned from abroad are included when calculating Gross National Product (GNP) or Net National Product (NNP), not Gross Domestic Product (GDP). GDP measures the value of goods and services produced within the geographical boundaries of a country, regardless of who owns the factors of production.

GDP is a measure of production within the domestic territory. GNP is a measure of production by the residents of a country. The difference is Net Factor Income from Abroad (NFIA). NFIA = Factor income earned by residents from abroad – Factor income paid to non-residents in the domestic territory.

A) Imports are subtracted in calculating GDP using the expenditure method (C+I+G+X-M) as they represent spending on goods/services produced elsewhere.
C) Purchase and sale of second-hand goods are not included in GDP as they do not represent current production. Their value was already accounted for in the GDP of the year they were produced.
D) Change in inventories (unsold goods held by firms) is considered as investment (part of Gross Domestic Capital Formation) and is included in GDP calculation as it represents production that occurred within the period.