Question 1

With reference to the Indian economy, consider the following statements: 1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee. 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness. 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER. Which of the above statements are correct?

Accepted Answer

An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of the rupee because NEER measures the value of a country's currency against a basket of other currencies. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and Real Effective Exchange Rate (REER) as REER adjusts NEER for relative price levels, affecting trade competitiveness.

Question 2

Despite being a high saving economy, capital formation may not result in significant increase in output due to

Accepted Answer

In the Indian economy, despite having a high rate of saving, the process of capital formation may not lead to a significant rise in output due to factors like weak administrative systems, illiteracy, and high population density. The correct option in this scenario is high capital-output ratio (d). The Capital Output Ratio (ICOR) is a metric that indicates the percentage increase in capital formation needed to achieve a specific percentage increase in GDP.

Question 3

The current Price Index (base 1960) is nearly 330. This means that the price of:

Accepted Answer

In the context of the Indian economy, the current Price Index (with a base year of 1960) stands at around 330. This signifies that the weighted mean of the prices of certain items has increased by approximately 3.3 times since 1960.

Question 4

The supply-side economics lays greater emphasis on the point of view of:

Accepted Answer

Supply-side economics is a theory in economics that suggests that the most effective way to stimulate economic growth is by reducing obstacles for individuals to create goods and services and invest in capital. It focuses on the perspective of the producer, emphasizing the importance of promoting increased production and investment in order to drive economic expansion.

Question 5

Consider the following statements: Other things remaining unchanged, market demand for a good might increase if 1. price of its substitute increases 2. price of its complement increases 3. the good is an inferior good and income of the consumers increases 4. its price falls. Which of the above statements are correct?

Accepted Answer

When the price of a substitute for a good increases, consumers tend to shift towards the cheaper good, leading to an increase in the demand for the original good. Similarly, when the price of a good falls, it becomes relatively cheaper compared to substitutes, leading to an increase in demand. Therefore, statements 1 and 4 are correct in explaining the factors that can influence the market demand for a good.

Basic Economic Concepts — UPSC Previous Year Questions

Year-wise Distribution

Sample Questions

Basic Economic Concepts — UPSC Previous Year Questions

Year-wise Distribution

Sample Questions