National Income & Gross Domestic Product Archives

31. Level of per capita GDP depends upon which of the following? 1. Prop

Level of per capita GDP depends upon which of the following?

1. Proportion of population in the working age
2. Work participation rate
3. Per worker productivity

Select the correct answer using the code given below.

3 only

1 and 3 only

1 and 2 only

1, 2 and 3

This question was previously asked in

UPSC CDS-1 – 2024

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D) 1, 2 and 3

– Per capita GDP is calculated as Total GDP divided by the Total Population.
– Total GDP can be expressed as the product of the number of workers and the productivity per worker (GDP / Number of Workers).
– The number of workers is determined by the total population, the proportion of that population that is of working age, and the proportion of the working-age population that is employed or seeking work (work participation rate).
– Mathematically: Per Capita GDP = (GDP / Number of Workers) * (Number of Workers / Working Age Population) * (Working Age Population / Total Population) * (Total Population / Total Population)
– This simplifies to: Per Capita GDP = (Per Worker Productivity) * (Work Participation Rate among working age) * (Proportion of Population in Working Age). (Or variants depending on how WPR is defined, but the dependence is clear).
– Therefore, the level of per capita GDP depends on all three factors:
– Proportion of population in the working age (influences the potential labor force).
– Work participation rate (influences how much of the potential labor force is actually working).
– Per worker productivity (influences how much each worker produces).

– These three factors represent key drivers of economic growth and living standards. An increase in any of these, holding others constant, would generally lead to an increase in per capita GDP.

32. Which of the following statements is/are correct? 1. GDP deflator ca

Which of the following statements is/are correct?

1. GDP deflator captures the average price of an unchanging basket of commodities that constitutes the GDP of the country.
2. GDP deflator can be used to measure the real GDP of the economy but not the inflation rate.

Select the correct answer using the code given below.

1 only

2 only

Both 1 and 2

Neither 1 nor 2

This question was previously asked in

UPSC CDS-1 – 2024

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D) Neither 1 nor 2

– Statement 1 is incorrect. The GDP deflator is a price index that reflects the prices of all domestically produced goods and services in GDP. It does *not* use an unchanging basket of commodities; the basket of goods and services included in the GDP changes year to year based on production patterns. This contrasts with indices like the Consumer Price Index (CPI), which uses a fixed basket.
– Statement 2 is incorrect. The GDP deflator is indeed used to calculate Real GDP from Nominal GDP (Real GDP = Nominal GDP / GDP Deflator * 100). However, it is also commonly used as a measure of the economy’s overall inflation rate. Inflation rate between two periods can be calculated from the percentage change in the GDP deflator.

– The GDP deflator is a Paasche index because it uses the current year’s quantities of goods and services as weights, reflecting changes in the composition of output. The CPI is a Laspeyres index as it uses a base year’s quantities as weights.

33. The situation where the equilibrium level of real GDP falls short of p

The situation where the equilibrium level of real GDP falls short of potential GDP is known as

Recessionary gap

Inflationary gap

Demand-side inflation

Supply-side inflation

This question was previously asked in

UPSC CDS-1 – 2021

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The correct answer is A) Recessionary gap.

A recessionary gap occurs when the equilibrium level of real GDP is below the potential GDP. This indicates that the economy is operating below its full capacity, often leading to unemployment.

Potential GDP represents the maximum sustainable output an economy can produce without triggering inflation. An inflationary gap, conversely, occurs when equilibrium real GDP exceeds potential GDP, leading to upward pressure on prices. Demand-side and Supply-side inflation refer to the causes of inflation, not the gap between actual and potential output.

34. Which of the following statement(s) are true with respect to the conce

Which of the following statement(s) are true with respect to the concept of ‘EFFICIENCY’ as used in mainstream economics ?

1. Efficiency occurs when no possible reorganisation of production can make anyone better off without making someone else worse off
2. An economy is clearly inefficient if it is inside the Production Possibility Frontier (PPF)
3. At a minimum, an efficient economy is on its Production Possibility Frontier (PPF)
4. The terms such as ‘Pareto Efficiency’, ‘Pareto Optimality’ and ‘Allocative Efficiency’ are all essentially one and the same which denote ‘efficiency in resource allocation’

Select the correct answer using the code given below :

1 and 4 only

1 and 3 only

2 and 3 only

1, 2, 3 and 4

This question was previously asked in

UPSC CDS-1 – 2016

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The correct option is D) 1, 2, 3 and 4.

All four statements accurately describe aspects related to the concept of efficiency in mainstream economics. Statement 1 is the definition of Pareto efficiency. Statement 2 describes productive inefficiency in terms of the Production Possibility Frontier (PPF). Statement 3 indicates productive efficiency as a necessary condition for overall efficiency, represented by being on the PPF. Statement 4 groups related terms that all denote efficiency in resource allocation, although the terms might have subtle technical differences in advanced contexts.

Efficiency in economics refers to a state where resources are used in the most effective way possible to produce goods and services and distribute them among individuals. Productive efficiency means producing on the PPF. Allocative efficiency means producing the specific combination of goods and services most desired by society. Pareto efficiency is a state where no reallocation can make someone better off without making someone worse off. While distinct concepts, they are all facets of or criteria for evaluating the efficiency of resource allocation.