Nature of Indian Economy

31. Economic growth in country X will necessarily have to occur if

Economic growth in country X will necessarily have to occur if

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there is technical progress in the world economy
there is population growth in X
there is capital formation in X
the volume of trade grows in the world economy
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UPSC IAS – 2013
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Economic growth in country X will necessarily have to occur if there is capital formation in X.
Capital formation (investment in physical capital like machinery, infrastructure, and human capital like education, skills) increases the productive capacity of an economy. An increase in the stock of capital, combined with labour, directly leads to an increase in the potential output of goods and services, which is the basis of economic growth. While other factors like technology and labor are also crucial, sustained economic growth fundamentally requires investment in increasing the factors of production or improving their productivity.
Technical progress in the world economy and growth in world trade provide opportunities but do not guarantee growth in a specific country X without internal conditions being met (like capital to adopt technology or participate in trade). Population growth increases the labour supply but doesn’t necessarily translate into growth without sufficient capital and technology to employ the additional population productively; it can even lead to a decrease in per capita income if growth in output doesn’t keep pace.

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32. Disguised unemployment generally means

Disguised unemployment generally means

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large number of people remain unemployed
alternative employment is not available
marginal productivity of labour is zero
productivity of workers is low
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UPSC IAS – 2013
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The correct answer is C) marginal productivity of labour is zero.
Disguised unemployment occurs when people appear to be employed, but their contribution to total output is negligible or zero. This means that even if these individuals are removed from the workforce, the overall production level does not decrease. Their marginal productivity of labour (the additional output produced by employing one more unit of labour) is effectively zero or very close to it. This type of unemployment is common in agriculture in developing countries, where multiple family members might work on a small plot of land even though fewer could achieve the same output.
Option A describes general unemployment. Option B explains a possible cause or consequence of disguised unemployment but not its definition. Option D describes low average productivity, which can be a result of disguised unemployment but is not the defining characteristic itself.

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33. What were the main reforms undertaken under the New Economic Policy of

What were the main reforms undertaken under the New Economic Policy of the early 1990s ?

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  • 1. Trade liberalization
  • 2. Public Sector Disinvestment
  • 3. Poverty Alleviation
  • 4. Rapid industrialization

Select the answer using the code given below :

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1 only
3 and 4
1 and 2
2 and 4
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UPSC CAPF – 2024
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The New Economic Policy (NEP) of the early 1990s, initiated in 1991, is characterized by liberalization, privatization, and globalization (LPG reforms). Statement 1, Trade liberalization, involved reducing restrictions on imports and exports, which is a core part of liberalization and globalization. Statement 2, Public Sector Disinvestment, involved selling off government stakes in Public Sector Undertakings (PSUs), which is a key aspect of privatization. Statements 1 and 2 were central to the structural reforms under the NEP. Statement 3, Poverty Alleviation, was a major goal of economic development and the government ran programs for it, but it was not a specific structural reform measure *of* the NEP itself, although it was hoped that growth spurred by NEP would help alleviate poverty. Statement 4, Rapid industrialization, was a desired outcome of the reforms aimed at improving efficiency and competitiveness, rather than being a specific reform step itself like dismantling licenses or opening up trade. Therefore, the main reforms were Trade liberalization and Public Sector Disinvestment.
The 1991 NEP marked a fundamental shift from a mixed economy with significant state control towards a more market-oriented system, dismantling the ‘License Raj’ and integrating India with the global economy.
Key aspects of the NEP included industrial deregulation, financial sector reforms, tax reforms, and policies promoting foreign investment. The reforms were a response to a severe economic crisis, including a balance of payments crisis and high fiscal deficits.

34. Consider the following statements regarding Public Goods and Externali

Consider the following statements regarding Public Goods and Externalities :

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  • 1. Non-rivalry and non-excludability are two characteristics of Public Goods
  • 2. Market can provide the optimal amount of a good in the presence of externalities

Which of the statements given above is/are correct ?

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
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UPSC CAPF – 2024
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Statement 1 is correct. Public goods are defined by two main characteristics: non-rivalry (consumption by one person does not reduce availability for others) and non-excludability (it is difficult or impossible to prevent individuals who have not paid from consuming the good). Examples include national defense or street lighting. Statement 2 is incorrect. Markets typically fail to provide the optimal amount of a good when externalities are present. Negative externalities (like pollution) lead the market to produce too much of a good from a societal perspective, while positive externalities (like vaccination) lead the market to produce too little. The market price does not reflect the full social costs or benefits in the presence of externalities, leading to inefficiency.
Public goods and externalities are classic examples of market failures, where the unfettered market mechanism does not lead to a socially optimal outcome.
Government intervention, such as direct provision (for public goods) or Pigouvian taxes/subsidies, regulations, or tradable permits (for externalities), is often required to address these market failures and move towards a more efficient allocation of resources.

35. Which of the following are High Frequency Indicators of the Indian eco

Which of the following are High Frequency Indicators of the Indian economy ?

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  1. Power Consumption
  2. IIP General Index
  3. 10-year G-sec yield

Select the correct answer using the code below.

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1 only
1 and 2 only
2 and 3 only
1, 2 and 3
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High-Frequency Indicators (HFIs) are economic data points that are released frequently (daily, weekly, monthly) and provide timely insights into the current state and trajectory of the economy.
1. Power Consumption: Measured daily/weekly/monthly, it is a good proxy for economic activity, especially industrial and commercial.
2. IIP (Index of Industrial Production) General Index: Released monthly, it provides a timely snapshot of the performance of the industrial sector, contributing significantly to overall economic assessment between quarterly GDP releases.
3. 10-year G-sec yield: A financial market indicator that reflects borrowing costs and market sentiment, updated constantly in real-time or daily.
All three indicators are monitored frequently by policymakers and analysts to gauge economic momentum and make quick assessments, fitting the definition of High-Frequency Indicators.
– High-Frequency Indicators provide timely data on economic activity.
– They are typically released more often than quarterly or annual data (daily, weekly, monthly).
– Power consumption, IIP, and G-sec yields are examples of such indicators in India.
Other examples of HFIs include GST collections (monthly), Purchasing Managers’ Indices (PMI – monthly), railway freight traffic (monthly), port traffic (monthly), vehicle registrations (monthly), bank credit growth (fortnightly/monthly), etc. These indicators are crucial for tracking cyclical changes and assessing the impact of recent events or policies on the economy in near real-time.

36. The ‘Stand-Up India Scheme’ is related to which one of the following i

The ‘Stand-Up India Scheme’ is related to which one of the following issues?

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Social security during old age
Providing technical knowhow to young, educated or skilled workers from rural areas
Promoting entrepreneurship amongst women, SC and ST communities
Insurance cover to people in the age group of 18-50 years
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The ‘Stand-Up India Scheme’ was launched by the Government of India on April 5, 2016. Its objective is to promote entrepreneurship among women, Scheduled Castes (SC), and Scheduled Tribes (ST) communities by facilitating bank loans for setting up a greenfield enterprise (first-time venture) in manufacturing, services, or the trading sector.
The scheme facilitates loans between ₹10 lakh and ₹1 Crore. Each bank branch is mandated to facilitate at least one SC or ST borrower and at least one woman borrower to set up a greenfield enterprise.
Other schemes address the issues mentioned in the other options. For example, schemes like the National Social Assistance Programme (NSAP) relate to social security, and the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) provides insurance cover.

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37. On the basis of employment conditions, the economy is divided into

On the basis of employment conditions, the economy is divided into

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organized and unorganized sectors
private and public sectors
seasonal and disguised sectors
primary, secondary and tertiary sectors
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UPSC CAPF – 2021
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The correct answer is (A) organized and unorganized sectors.
On the basis of employment conditions, the economy is traditionally divided into the organized (or formal) sector and the unorganized (or informal) sector. This classification is based on factors such as regularity of employment, hours of work, wages, provision of social security benefits (like provident fund, gratuity, pension), and compliance with government rules and regulations.
Other classifications of the economy include:
– Private and public sectors: Based on ownership of assets and delivery of services.
– Seasonal and disguised sectors: These are not standard sector classifications but relate to types of employment/unemployment. Seasonal unemployment occurs in certain seasons (e.g., agriculture), and disguised unemployment refers to a situation where more people are employed than necessary.
– Primary, secondary, and tertiary sectors: Based on the nature of economic activity (extracting raw materials, manufacturing, services).

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38. Which one among the following statements is not correct?

Which one among the following statements is not correct?

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When the economy grows slowly than its potential, the unemployment rate rises.
Structural employment occurs when jobs are eliminated by changes in demand for particular goods or due to automation.
Recession in the economy leads to cyclical unemployment.
At full employment, the measured unemployment rate is negative.
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UPSC CAPF – 2021
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The statement that at full employment, the measured unemployment rate is negative is not correct.
– A) When the economy grows slowly than its potential, the unemployment rate rises. This is correct. Slower growth than potential implies that resources (including labor) are not being fully utilized, leading to an increase in cyclical unemployment and thus the overall unemployment rate.
– B) Structural employment occurs when jobs are eliminated by changes in demand for particular goods or due to automation. This is correct. Structural unemployment arises from a mismatch between the skills of workers and the requirements of available jobs, often caused by technological changes or shifts in the structure of the economy.
– C) Recession in the economy leads to cyclical unemployment. This is correct. Recessions are downturns in the business cycle, during which demand for goods and services falls, leading firms to reduce production and lay off workers, causing cyclical unemployment.
– D) At full employment, the measured unemployment rate is negative. This is incorrect. Full employment does not mean zero unemployment. It refers to a situation where there is no cyclical unemployment. The unemployment rate at full employment is equal to the natural rate of unemployment, which includes frictional and structural unemployment. The natural rate of unemployment is always positive. The measured unemployment rate cannot be negative; the lowest possible rate is zero.
The natural rate of unemployment (NRU) is the rate of unemployment arising from frictional and structural causes. It is considered the unemployment rate when the economy is operating at its potential output level. Policies aimed at reducing unemployment below the NRU can lead to inflation.

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39. Kumar used to eat 30 samosas in a month when the price of each samosa

Kumar used to eat 30 samosas in a month when the price of each samosa was ₹12. When the price of samosa increased to ₹15 per piece, he eats only 20 samosas a month. What is the price elasticity of demand for samosa by Kumar ?

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1.33
1.00
0.75
0.08
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UPSC CAPF – 2020
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Price Elasticity of Demand (Ed) is calculated as the absolute value of the ratio of the percentage change in quantity demanded to the percentage change in price.
Initial Price (P1) = ₹12, Initial Quantity (Q1) = 30 samosas
New Price (P2) = ₹15, New Quantity (Q2) = 20 samosas
Change in Quantity (ΔQ) = Q2 – Q1 = 20 – 30 = -10
Change in Price (ΔP) = P2 – P1 = 15 – 12 = 3
Percentage change in quantity demanded = (ΔQ / Q1) * 100 = (-10 / 30) * 100 = -33.33%
Percentage change in price = (ΔP / P1) * 100 = (3 / 12) * 100 = 25%
Price Elasticity of Demand (Ed) = |(Percentage change in quantity demanded) / (Percentage change in price)| = |-33.33% / 25%| = |-1.333…| = 1.33
The price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. A value greater than 1 indicates elastic demand.
The calculation uses the initial price and quantity as the base for percentage changes. The result of 1.33 suggests that the demand for samosas is elastic for Kumar, meaning a 1% increase in price leads to a more than 1% decrease in quantity demanded.

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40. Who coined the concept of “Paradox of Thrift”?

Who coined the concept of “Paradox of Thrift”?

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Adam Smith
Alfred Marshall
John Maynard Keynes
Paul A. Samuelson
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The correct answer is C) John Maynard Keynes.
The concept of the “Paradox of Thrift” is a central idea in Keynesian economics.

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* John Maynard Keynes introduced and popularized this concept in his work, particularly “The General Theory of Employment, Interest and Money” (1936).
* The Paradox of Thrift suggests that if, during a recession, individuals and households collectively decide to save more money, it can lead to a decrease in aggregate demand, a reduction in economic growth, and paradoxically, a potential decrease in overall saving for the economy as a whole, because incomes fall. While individual saving is prudent, mass saving can be detrimental to the macroeconomy during a downturn.
* Adam Smith is known as the father of classical economics and focused on concepts like the invisible hand, free markets, and division of labour.
* Alfred Marshall was a leading figure in neoclassical economics, contributing significantly to microeconomic theory like supply and demand, marginal utility, etc.
* Paul A. Samuelson was a prominent 20th-century economist who helped synthesize classical, neoclassical, and Keynesian economics. While he discussed the Paradox of Thrift, the concept is primarily attributed to Keynes.

The Paradox of Thrift highlights the difference between microeconomic behaviour (individual saving) and macroeconomic outcomes (aggregate demand and national income). It is used to argue for government intervention, such as fiscal stimulus, during economic downturns to counteract the fall in private spending and investment caused by increased saving.

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