Wa0002.

PRELIMS
TEST SERIES 2025

(GENERAL STUDIES)
(ECONOMY 1.0)
(QUESTION PAPER)
DO NOT OPEN THIS TEST BOOKLET UNTIL YOU ARE TOLD TO DO SO
T.B.C.: SU-2025-pPLT Test Booklet Series
TEST BOOKLET
GENERAL STUDIES
(ECONOMY 1.0)
A
Time Allowed: 1 Hours Maximum Marks :100
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PRELIMS TEST SERIES - 2025 | ECONOMY – 1.0
1. If a particular good is to be considered as 3. With reference to economy, which of the
capital in nature, which of the following has to following statements are correct?
1. Autonomous consumption is an
be its characteristics?
expenditure which take place when
1. The good has to be a produced durable disposable income levels are at zero.
output of a man-made process. 2. Induced consumption is an expenditure
2. The good must act as an input for further which take place when discretionary
income levels are at zero.
production process to be sold in market.
Which of the statements given above is/are
3. The good has to be fast moving through correct?
supply chain from producers to consumers. (a) 1 only
4. The good while acting as an input should (b) 2 only
(c) Both 1 and 2
not get transformed or consumed.
(d) Neither 1 nor 2
How many of the statements given above are
correct? 4. Consider the following:
(a) Only one 1. Interest rate liberalization
2. Managed floating exchange rate
(b) Only two
3. Export controls
(c) Only three
4. Regulation of international trade
(d) All four 5. Privatization of state enterprises
How many of the above policy measures are
suggested by US economist John Williamson
2. With reference to economy, consider the
under ‘Washington Consensus’?
following: (a) Only two
1. Farmer mortgaging gold for buying inputs (b) Only three
2. Real estate brokerage firm facilitating (c) Only four
homebuyers (d) Al five
3. An NBFC extending credit to individuals

5. Which of the following statements best
4. Government borrowing through bonds describe the concept of ‘Output multiplier’?
5. A pension company managing a pension (a) It is a measure which demonstrates that the
economy will flourish as the government
fund
increases spending.
How many of the above activities constitute (b) It is a measure of the change in national
financial sector in the economy? income resulting from a change in
(a) Only two autonomous spending.
(c) It is a measure of the change in consumer
(b) Only three spending that result from any real Gross
(c) Only four Domestic Product growth.
(d) All five (d) It is a phenomenon of creating money in
the economy in the form of value creation.
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6. If all the people of the economy increase the 9. Consider the following statements:
proportion of income they save, the total value 1. The Giffen good exhibit a negative income
of savings in the economy will not increase and elasticity of demand like the inferior
it will either decline or remain unchanged. The goods.
above statements describe which of the
2. The demand curve for a Veblen good is
following?
upward sloping, contrary to a normal
(a) Giffen paradox
demand curve.
(b) Paradox of thrift
(c) Pareto efficiency 3. The Public good is a good which is both
(d) Goldilocks scenario non-rivalrous as well as non-excludable in
nature.
7. Consider the following pairs: How many of the statements given above is/are
Economic Example incorrect?
activities (a) Only one
1. Primary Mining and Quarrying (b) Only two
sector
(c) All three
2. Tertiary Taxi services
(d) None
sector
3. Quinary Financial planning and
sector consulting professionals 10. With reference to Incremental Capital Output
How many of the above pairs are correctly ratio (ICOR), consider the following
matched? statements:
(a) Only one pair 1. The higher incremental capital output ratio
(b) Only two pairs indicates the greater capital usage
(c) All three pairs productivity and efficiency.
(d) None of the pairs 2. The integration of frontier technologies
into production can increase the country’s
8. "Suppose on Monday morning you have the
ICOR by enhancing productivity across
following options: (1) Work out at the gym, (2)
sectors.
have breakfast with friends and (3) go to the
library. If you decide to go to the library, what 3. The ICOR provides a more focused
is the opportunity cost? analysis of resource utilization than the
(a) Working out at the gym Gross domestic product (GDP).
(b) Having breakfast with friends How many of the statements given above are
(c) Both (a) and (b) correct?
(d) Not clear as enough information is not (a) Only one
given (b) Only two
(c) All three
(d) None
11. Consider the following: 14. With reference to Gross Domestic Product
1. Natural gas rigs operated by Indian (GDP) Deflator, consider the following
residents in international waters statements:
2. Air India’s services between different 1. A rise in the GDP deflator indicates that
countries the overall level of prices has increased,
3. Political frontiers such as territorial waters while a decrease indicates that the overall
4. Canada embassy located in New Delhi. level of prices has decreased.
Which of the above are included in the 2. The GDP price deflator is a more
domestic territory of the country in context of
comprehensive inflation measure than the
Gross Domestic Product?
Consumer Price Index (CPI).
(a) 1 and 2 only
(b) 3 and 4 only
correct?
(c) 2, 3 and 4 only
(a) 1 only
(d) 1,2 and 3 only
(b) 2 only
12. Consider the following statements: Other things (c) Both 1 and 2
remaining unchanged market demand for a (d) Neither 1 nor 2
good might increase if
1. Price of its substitute increases 15. With reference to GDP measurement in India,
2. Price of its complement increases consider the following statements:
3. The good is and inferior good and income 1. The National Statistical office (NSO)
the consumer increases calculates the Gross domestic product by
4. Its price falls both value added method and expenditure
Which of the above statements are correct? method.
(a) 1 and 4 only
2. The income method adds up all incomes
(b) 2, 3 and 4 only
earned by factors of production, including
(c) 1, 3 and 4 only
wages, profits, rents and taxes minus
(d) 1, 2 and 3 only
subsidies.
3. The expenditure method assumes that the
13. It is a market structure where many buyers and
income earned by an individual is either
sellers exist, with homogeneous products. The
spent on consumer goods/services or saved
factors of production like labour, raw materials
and capital under this market have total and invested.
mobility and cost of transporting goods is How many of the statements given above are
either zero or constant for all sellers. correct?
The above excerpt best describes which of the (a) Only one of the given statement is correct
following? (b) Only two of the given statements are
(a) Perfect competition correct
(b) Monopolistic competition (c) All three of the given statements are
(c) Oligopoly correct
(d) Market equilibrium (d) None of the given statement is correct
16. With reference to Indian economy, which one 19. With reference to Indian economy, consider the
of the following statements is not correct? following statements:
(a) The potential GDP is the real GDP that the
1. The GDP calculated based on the income
economy would produce if its resources
were fully employed. approach is known as Gross Domestic
(b) The increase in real GDP implies the Income or GDI.
necessary increase in the production of
2. The government expenditure on
goods and services.
scholarships and pension schemes are
(c) The Gross National Product (GNP)
includes production by nationals abroad excluded under GDP.
but excludes production by foreigners 3. The new GVA methodology shifted the
within the country.
data collection from the factories to firms.
(d) The intermediate goods and services are
excluded in GDP calculation while they How many of the statements given above are
are included in GNP calculation. correct?
(a) Only one
17. Which of the following quantifies the inverse
(b) Only two
relationship between changes in the
unemployment rate and changes in real GDP? (c) All three
(a) Phillips curve (d) None
(b) Beveridge law
(c) Okun’s law
(d) Kuznet’s curve 20. Assertion: The value of Nominal Gross
Domestic Product is much higher than the Real
18. With reference to Net Domestic Product Gross domestic product.
(NDP), consider the following statements:
Reasoning: The nominal gross domestic
1. The Net Domestic Product (NDP) is
arrived by deducting the depreciation from product does not take inflation into account
GDP. while the Real GDP is inflation-adjusted.
2. The value of the Net domestic product Which one of the following is correct in respect
(NDP) of an economy is always higher
of the above statements?
than the value of GDP for the same year.
3. The depreciation rates in India are set by (a) Both assertion and reasoning are true and
Ministry of Commerce and Industry, reasoning is the correct explanation of
Government of India. assertion.
(b) Both assertion and reasoning are true but
incorrect?
(a) Only one reasoning is not the correct explanation of
(b) Only two assertion.
(c) Only three (c) Assertion is true but reasoning is false.
(d) All four
(d) Assertion is false but reasoning is true.
21. With reference to World Poverty Clock which 23. With reference to Mahatma Gandhi National
was recently in news, consider the following Rural Employment Guarantee Act (2005),
statements: consider the following statements:
1. It tracks real-time poverty for almost all 1. It guarantees hundred days of skilled
countries monitoring the progress toward employment to all willing rural citizens, at
ending extreme poverty. the government determined minimum
2. The report stated that the extreme poverty wage.
has significantly declined in India in the 2. It is also aimed at sustainable development
last three years. to address the cause of draught,
deforestation and soil erosion.
3. It is backed by international institutions
3. There are no age restrictions for availing
such as World Bank and United Nations
the benefits under the MGNREGA
Development Programme (UNDP).
scheme.
4. The act prescribes that one-third of the
incorrect?
proposed jobs should be exclusively
(a) Only one of the given statement is correct reserved for the women.
(b) Only two of the given statements are How many of the statements given above are
correct correct?
(c) All three of the given statements are (a) Only one
correct (b) Only two
(d) None of the given statement is correct (c) Only three
(d) All four
22. With reference to Poverty estimation in India,
consider the following statements: 24. Consider the following pairs:
1. The first official rural and urban poverty Inequality
lines at the national level were introduced Indicator Features/Characteristics
by Y. K. Alagh Committee. 1. Gini co- It calculates the extent to
efficient which the distribution of
2. The Lakdawala committee recommended
income among individuals
updating state-specific poverty lines using within a country deviates
Consumer Price Index (CPI). from perfect equality.
3. The Tendulkar Committee computed new 2. Lorenz The greater the distance
poverty lines for rural and urban areas of curve between the Lorenz curve
each state based on the uniform poverty and the line of perfect
equality, the higher the level
line basket.
of income inequality.
How many of the statements given above are 3. Palma It quantifies the
correct? ratio inequality within groups and
(a) Only one between groups.
(b) Only two 4. Theil It represents the ratio of the
index standard deviation of
(c) All three income to the mean income.
(d) None
37. With reference to Jan Shikshan Sansthan (JSS), 39. In India, which one of the following compiles
consider the following statements: information on industrial disputes, closures,
1. Its main aim is to impart vocational skills retrenchments and lay-offs in factories
to the non-literates, neo-literates and employing workers?
school dropouts. (a) Central Statistics Office
2. The scheme also includes an element of (b) Department for Promotion of Industry and
life skills which can help the beneficiary in Internal Trade
day to day life. (c) Labour Bureau
3. It is implemented through a network of (d) National Technical Manpower Information
Non-governmental organizations in the System
country since March 1967.
40. With reference to PM Mudra Yojana, consider
incorrect?
the following statements:
(a) Only one
1. It aims to facilitate self-employment by
(b) Only two provision of collateral free loans.
(c) All three 2. The loans under the scheme are provided
(d) None in four categories.
3. There is no subsidy for the loan given
38. With reference to Periodic Labour Force under the scheme.
Survey (2022-23), consider the following How many of the statements given above are
statements: incorrect?
1. The labour force participation rate (LFPR) (a) Only one
has increased in both rural and urban areas
(b) Only two
in the last five years.
(c) All three
2. The worker population ratio (WPR) has
(d) None
increased for males in the last five years
whereas it has decreased for the females.
41. Consider the following statements with
reference to ‘factors of production’:
correct?
1. Factor income is an income gained in
(a) 1 only
return for services offered by factor of
(b) 2 only
production whereas non-factor includes
(c) Both 1 and 2
donation, charities and taxes.
(d) Neither 1 nor 2
2. Most of the natural resources comes under 43. Which of the following items are not included
the category of capital under factors of in National Income?
production. 1. Windfall gains
3. Income earned by the Physical and Human 2. Work done by housewives
Capital is termed as profit. 3. Rent of the self-occupied property
4. The Capital Expenditure (Capex) of the 4. Goods and services not sold but supplied
central government increased by 63 per free of cost
cent in the first eight months of FY23. 5. Services provided by agents
How many of the statements given above are Select the correct answer using the code given
correct? below:
(a) Only one (a) 1 and 2 only
(b) Only two · (b) 3 and 5 only
(c) Only three (c) 1, 3 and 5 only
(d) All Four (d) 1, 2 and 4 only
42. Consider the following statements, with regards 44. Which of the following indicators were used in
to the demand in the economy: recent estimation of National Income?
1. A demand elasticity, measures how 1. Financial performance of Listed
demand responds to a change in price or Companies in the Private Corporate sector.
income.
2. Advance Estimates of Crop Production.
2. Factors influencing the demand elasticity 3. Index of Industrial Production (IIP)
of goods and services are income level and
4. RBI Foreign Reserves.
available substitutes.
5. Production estimates of Major Livestock
3. Common examples of products with high
Products.
elasticity are utilities, prescription drugs,
6. Production/ Consumption of Cement and
and tobacco products.
Steel.
Select the correct answer using the code given
incorrect?
below:
(a) Only one
(a) 4 and 6 only
(b) Only two
(b) 1, 2 and 4 only
(c) All three
(c) 1, 2, 3, 5 and 6 only
(d) None
(d) 1, 2, 3, 4, 5 and 6
45. Consider the following statement, with 47. Consider the following statements, with
reference to the Economic Growth and reference to Human Development Index (HDI):
development:
1. World Bank published its first Human
1. Economic growth is a wider term than
Development Report in 1990.
economic development.
2. The HDI measures the development using
2. Increase in economic growth necessarily
leads to increase in the number of Gross the three indicators: Health, poverty and
Enrolment Ratio of students in higher standard of living.
education. 3. India was ranked 132 out of 191 countries
3. Economic development is always positive. in the recent Human Development Report
How many of the statements given above are 2021.
incorrect?
(a) Only one
correct?
(b) Only two
(a) Only one
(c) All three
(d) None (b) Only two
(c) All three
46. Consider the following pairs: (d) None
(Reports ) (Published by )
1. Human World Bank
48. Consider the following statement with reference
Development
to ‘Green GDP’:
Report
1. Green GDP is computed by deducting the
2. Global UNESCO
Sustainable net natural capital consumption from GDP.
development 2. System of Environmental and Economic
goals Report Accounts is a precursor to Green GDP.
3. Multidimensional UNDP 3. Gross Ecosystem Product (GEP) is one of
poverty index
the components of Green GDP.
4. World Happiness World Bank
Report
How many of the above pairs are correctly correct?
matched? (a) Only one

(a) Only one (b) Only two ·
(b) Only two (c) All three
(c) Only three
(d) None
(d) All four
49. Consider the following statements: 50. The decrease in dependency ratio of a country
1. The Mercantilism theory states that there may lead to which of the following situation:
is an infinite amount of wealth in the 1. May increase in savings rate
world. 2. May decrease in savings rate
2. As per it, a country achieves wealth by 3. May increase investments.
producing and exporting more goods than 4. May increase consumption
it imports. How many of the options given above are
Which of the statement(s) given above is/are correct?
correct? (a) Only one
(a) 1 only (b) Only two ·
(b) 2 only (c) Only three
(c) Both 1 and 2 (d) All Four
(d) Neither 1 nor 2
******
PRELIMS
TEST SERIES 2025
(GENERAL STUDIES)
(ECONOMY 1.0)
(SOLUTIONS & EXPLANATIONS)

1. Answer: C
Explanation:
• Capital goods are physical assets a company uses to produce goods and services for consumers. These
are of durable character which are used in the production process. Capital goods include fixed assets, such
as buildings, machinery, equipment, vehicles, and tools.
• A particular good will be capital in nature only if it possesses the following characteristics:
o It is a produced durable output of a man-made process. So, statement 1 is correct.
o It again acts as an input for further production process (to be sold in the market). So, statement 2 is
correct.
o While acting as an input, it does not get transformed or consumed. So, statement 4 is correct.
• For a good to be considered as capital good, it is not necessary that it has to be fast moving in nature. So,
statement 3 is not correct.
Subject: Economy || Basic concepts
Question type: Conceptual
Extended Knowledge
• Capital goods are one of the four fundamental factors in the production of commodities. The other three factors of
production are land, labor, and entrepreneurship.
• Except for wear and depreciation, Capital Good provides service without losing their essential functional
characteristic, form, or shape.
• Fast-moving consumer goods are nondurable products that sell quickly at relatively low costs. FMCGs have low
profit margins and high-volume sales. Examples of FMCGs include milk, gum, fruit and vegetables, toilet paper,
soda, beer, and over-the-counter drugs like aspirin.
💡Further reading: Importance of capital goods in an economy
2. Answer: D
Explanation:
• The financial sector is a section of the economy made up of firms and institutions that provide financial
services to commercial and retail customers. It constitutes the activities of commercial banks, NBFCs,
investment companies and funds, insurance companies, real estate firms, consumer finance, mortgage,
capital market, government debt market, foreign exchange market, insurance and pension companies etc.
• Point 1 is correct: Farmer mortgaging gold for buying inputs is included in consumer finance and
mortgage sector.
• Point 2 is correct: The Indian real estate market has numerous brokerage firms that offer world-class
services to homebuyers, tenants, and landlords. The activities of this sector form part of financial sector.
• Point 3 is correct: All the activities of the non-banking financial companies are also included in the
financial sector.
• Point 4 is correct: Government issuing bonds, repurchasing the bonds and other activities of the
government in debt market are included in financial sector.
• Point 5 is correct: The activities of the pension companies are also form part of the financial sector.
Subject: Basic economic concepts
Question type: Analytical
Extended Knowledge
• The domestic economy may be divided into three larger sectors by encompassing nonfinancial
corporations, households and NPISHs in the real sector. Hence, there are three sectors of domestic
economy: General government sector, Real sector and Financial sector.
• The factors which affect the financial sector are increased interest rates, a lack of or excessive
government regulation, and reduced consumer debt.
💡Further reading: General government sector and Real sector
3. Answer: A
Explanation:
• Consumption is the demand for goods and services used by people in an economy for day-to-day
consumption. Itis most importantly determined by the household income. In general, consumption
expenditure increases with an increase in income and decreases with the decrease in household income.
• Statement 1 is correct: Autonomous consumption is defined as expenditures taking place when
disposable income levels are at zero. This consumption is typically used to fund consumer necessities, but
it causes consumers to borrow money or withdraw from savings accounts.
• Statement 2 is not correct: Induced consumption is the amount of consumption varies based on income.
As disposable income rises, so does the rate of induced consumption. This process applies to all normal
goods and services. For induced consumption, disposable income is at zero when induced consumption is
at zero.
Subject: Basic Economic concepts
Question type: Conceptual, Factual
Extended Knowledge
• Autonomous consumption can change in response to life situations such as a move, the loss or gain of a job, or
the changing of recreational habits.
• When a person has disposable income, the amount of his or her induced consumption is likely to grow.
• Induced consumption, like autonomous consumption, can shift with a person’s financial circumstances.
💡Further reading: Marginal propensity to consume
4. Answer: A
Explanation:
• The term ‘Washington Consensus’ was popularized by the US economist John Williamson. It is a set of
policy reforms adopted by International Monetary Fund and World Bank to aid crisis-hit economies.
• Ten principles of Washington Consensus include:
o Low government borrowing
o Redirection of public spending from subsidies toward broad-based provision of key pro-growth
o Tax reform
o Positive Interest rates. So, point 1 is correct.
o Competitive exchange rates.
o Trade liberalization
o Liberalization of inward foreign direct investment;
o Privatization of state enterprises. So, point 5 is correct.
o Deregulation
o Legal security for property rights.
Subject: Economy || Introduction to Economy
Question type: Factual
Relevance: https://indianexpress.com/article/opinion/columns/c-raja-mohan-delhi-washington-consensus-g7-
summit-modi-hiroshima-biden-8613222/lite/
Extended Knowledge
• Washington Consensus refers to a set of broadly free market economic ideas, supported by prominent
economists and international organizations, such as the IMF, the World Bank, the EU and the US.
• Aim: To advocate free trade, floating exchange rates, free markets and macroeconomic stability.
• It minimized the state’s role in the economy and pushed an aggressive free-market agenda of
deregulation, privatization, and trade liberalization
💡Further reading: Sulivian solutions
5. Answer: B
Explanation:
• The output multiplier is a measure of the change in national income resulting from a change in autonomous
spending (initial spending which is not influenced by income changes). It reflects the magnifying effect that an
initial change in spending has on the overall economy through subsequent rounds of spending.
Subject: Economy || Basic concepts
Extended Knowledge
• Keynesian multiplier demonstrates that the economy will flourish as the government increases spending.
According to the theory, the net gain is greater than the dollar amount spent.
• Employment multiplier measures the ratio of the total economy-wide indirect/induced employment of all
industries in the economy to satisfy a one-unit increase in the company’s total employment.
💡Further reading: Money multiplier
6. Answer: B
Explanation:
• Option B is correct: If all the people of the economy increase the proportion of income they save, the
total value of savings in the economy will not increase - it will either decline or remain unchanged. This
result is known as the Paradox of Thrift. This happens as follow: When the savings increase, the
consumption decreases, leading to decrease in the aggregate demand. In such a scenario, there is over
production and less creation of employment which will in turn decrease the income level thereby affecting
the savings.
Subject: Economy || National Income Accounting
Extended Knowledge
• Paradox of Thrift is popularized by the renowned economist John Maynard Keynes. It states that individuals try
to save more during an economic recession, which essentially leads to a fall in aggregate demand and hence in
economic growth. Such a situation is harmful for everybody as investments give lower returns than normal. This
theory was heavily criticized by non-Keynesian economists on the ground that an increase in savings allows
banks to lend more.
• Pareto efficiency is an economic state where resources cannot be reallocated to make one individual better off
without making at least one individual worse off.
• Goldilocks scenario in an economy describes an optimal state of steady growth, characterized by balanced
conditions where the economic expansion is neither too rapid (leading to inflation) nor too slow (causing a
downturn).
💡Further reading: Giffen paradox
7. Answer: B
Explanation:
• An economic activity is carried out in exchange for money to earn a living. There are five different economic
activities which are Primary sector, Secondary sector, tertiary sector, quaternary and quinary sectors.
• Pair 1 is correctly matched: Primary sector includes all the economic activities which are undertaken by
using or exploiting natural resources directly are grouped into the primary sector. It forms the base for all
other products that we subsequently make. It includes agriculture, forestry, animal husbandry, fishing,
poultry farming, mining and quarrying.
• Pair 2 is correctly matched: Tertiary sector covers activities that help in the development of the primary
and secondary sectors. These activities, by themselves, do not produce a good but they support for the
production process. This can include organizations involved in the shipping and transportation industry,
such as railroad or trucking. It could also include the transportation of people, such as taxi services, city
bus systems, and subways.
• Pair 3 is not correctly matched: Financial planning and consulting professionals come under Quaternary
activities. The quaternary activities involve extensive use of intellectual and knowledge-based skills to
provide services. An example is informatics and new technologies, with highly educated and skilled
professionals researching and developing new technologies that can be used in other sectors.
Subject: Economy || Basic Economic concepts
Extended Knowledge
• Secondary sector covers activities in which natural products are changed into other forms or finished items
through ways of manufacturing. It is also called the industrial sector. For example, making clothes from cotton
fibre or making sugar or gur from sugarcane etc.
• Quinary activities includes top executives or officials in such fields as government, science, universities,
nonprofits, health care, culture, and the media. Domestic activities also sometimes mentioned in the quinary
sector.
💡Further reading: Difference between quaternary and tertiary sectors
8. Answer: C
Explanation:
• The Opportunity Cost is the value of the next best alternative that is given up when a decision is made. It
represents what could have been gained if a different choice was pursued. It represents the potential
benefits that an individual, investor, or business misses out on when choosing one alternative over
another.
Subject: Economy || Introduction to Economics
Extended Knowledge
• Opportunity Cost is always positive because it usually involves sacrificing (or giving up) some positive amount
of one commodity in order to get one extra unit of another.
• However, there are certain situations where opportunity cost may be zero: Free Goods, Single Use-Factors and
Heavy Unemployment.
• Opportunity cost is closely linked to the concept of scarcity. Scarcity implies limited resources to fulfill
unlimited wants, leading to choices. Opportunity cost highlights that when resources are allocated to one option,
the benefits of other available options are forfeited.
• If a commodity is provided free to the public by the Government, then the opportunity cost is transferred from
the consumers of the product to the tax-paying public.
💡Further reading: Sunk cost and Sunk cost fallacy
9. Answer: D
Explanation:
• Statement 1 is correct: Giffen Goods is a low income, non-luxury product that defies standard economic
and consumer demand theory. The demand for Giffen goods rises when the price rises and falls when the
price falls. Giffen goods exhibit a negative income elasticity of demand – like inferior goods – but a
positive price elasticity of demand, like certain luxury goods (specifically Veblen goods).
• Statement 2 is correct: Veblen Goods is a good for which demand increases as the price increases. These
are typically high-quality goods that are made well, are exclusive, and are a status symbol. Example
include designer jewelry, yachts, and luxury cars. The demand curve for a Veblen good is upward sloping,
contrary to a normal demand curve, which is downward sloping.
• Statement 3 is correct: A public good can be consumed by many people without restricting its
availability to others. The main criteria that distinguish a public good are that it must be non-rivalrous and
non-excludable. Non-rivalrous means that the goods do not dwindle in supply as more people consume
them. Non-excludability means that the good is available to all citizens.
Subject: Economy || Basic economic concepts
Extended Knowledge
• Giffen good applies to the large proportion of the goods belonging to the household budget (as flour, rice, pulses,
salt, onion, potato, etc. in India)—an increase in their prices produces a large negative income effect completely
overcoming the normal substitution effect with, people buying more of the goods.
• Veblen goods are generally sought after by affluent consumers who place a premium on the utility of the good.
💡Further reading: Public and Private goods
10. Answer: A
Explanation:
• Incremental Capital Output ratio (ICOR) is a measure of the productivity of capital investments in the
economy. It refers to the additional capital required to generate additional output.
• Statement 1 is not correct: A higher ICOR indicates that production is inefficient as it requires more
capital investment to generate the next unit of production. Lower the ICOR, the better it is because a
lower ICOR shows that the capital is being used efficiently.
• Statement 2 is not correct: The integration of frontier technologies such as Artificial intelligence reduces
the country’s ICOR by enhancing efficiency and productivity across sectors. For example, in healthcare,
AI-driven diagnostics reduce reliance on costly equipment, lowering the sector’s ICOR.
• Statement 3 is correct: GDP provides a broad overview of a nation’s economic performance but often
fails to capture the intricacies of resource utilisation and efficiency, whereas the ICOR provides a more
focused analysis.
Subject: Economy || Introduction to Economics
Extended Knowledge
• Benefits of ICOR
o Investment Efficiency: A lower ICOR indicates greater capital usage productivity and efficiency because
less capital is needed to produce the same amount of increased output.
o Resource Allocation: ICOR assists investors and politicians in making knowledgeable choices about
resource allocation. They can determine regions where investment is more efficient by comparing ICORs
across various projects or industries.
o Planning and Development: It helps decision-makers determine the amount of money needed to invest in
order to reach particular growth targets and enables the evaluation of the viability and sustainability of such
programmes.
💡Further reading: Limitations of ICOR
11. Answer: D
Explanation:
• Domestic/ Economic Territory refers to the geographical territory administered by the Government of
India within which the person, goods, and capital can circulate freely. It includes the following:
o Fishing vessels, natural and oil gas rigs operated by residents of country in international waters or engaged in
extraction in areas where the country has exclusive rights of operation. So, point 1 is correct.
o Ships and aircrafts operated by residents of country between two or more countries. So, point 2 is correct.
o Political frontiers of the country including its territorial waters. So, point 3 is correct.
• Foreign embassies located in India are NOT a part of domestic/economic territory. However, Indian
embassies located abroad are a part of domestic/economic territory. So, point 4 is not correct.
Subject: Economy || National income accounting
Relevance: https://indianexpress.com/article/explained/explained-economics/why-the-lewis-model-has-worked-
in-china-not-in-india-9005004/
Extended Knowledge
• Economic territory refers to the geographic boundaries within which economic activities occur. It includes
embassies, consulates, and military establishments of the country situated within its political frontiers. These are
considered part of the economic territory due to their association with the country's economic operations.
• Domestic territory does not completely align with geographical territory. It involves the political frontiers and
assets operated by residents in international waters or foreign territories where the country holds exclusive
operation rights. However, it does not encompass the entirety of geographical territory, considering various
international aspects.
💡Further reading: Methods of GDP calculation
12. Answer: A
Explanation:
• The main influences on buying plans that change demand are: Prices of related goods, Income,
Expectations, Number of buyers, Preferences The Demand increases when.
• The demand for a good increase, if the price of one of its substitutes rises. So, point 1 is correct.
• The demand for a good increase, if the price of one of its complement’s falls. So, point 2 is not correct.
• An inferior good is an economic term that describes a good whose demand drops when people’s incomes
rise. So, point 3 is not correct.
• If the price of a good falls, the quantity demanded of that good increases. So, point 4 is correct.
Subject: Economy || Micro and Macro economics
Question type: Analytical (2021 PYQ)
Extended Knowledge
• Inferior Good refers to an item that becomes less desirable as the incomes of its consumer's increases. inferior
goods are those whose price elasticity is negative. As consumers’ incomes increase, they tend to decrease their
purchases of inferior goods, opting for normal goods or luxury goods instead.
• An object used in combination with another product or service is a complementary good or service. Usually,
when consumed alone, the complementary good has little or no value.
💡Further reading: Determinants of Demand
13. Answer: A
Explanation:
• In a perfect competition market structure, there are a large number of buyers and sellers. All the sellers
of the market are small sellers in competition with each other. There is no one big seller with any
significant influence on the market. The products on the market are homogeneous, i.e. they are completely
identical and there is free entry and exit from the market, i.e. there are no barriers. In the perfectly
competitive market, the costs for transporting goods, services or factors of production from one place to
another is either zero or constant for all sellers. The assumption is that all sellers are equally near or
farther away from the market.
Subject: Economy || Micro economics
Extended Knowledge
• Monopolistic Competition: Monopolistic competition refers to a market with many sellers offering similar but
not identical products. Each seller has some control over the price and can differentiate their product through
branding, marketing, or product features.
• Market equilibrium: It refers to a situation where the quantity of a product or service demanded by buyers is
equal to the quantity supplied by sellers at a particular price. It it is the point where the intentions of buyers and
sellers match, resulting in a balance in the market.
• Law of Variable Proportions: It is defined as Marginal Product of a variable factor input initially rises with its
input level but after reaching a certain level of employment, it starts falling.
💡Further reading: Monopsony and Oligopoly
14. Answer: C
Explanation:
• The GDP deflator (implicit price deflator) is used to determine the levels of prices of the new
domestically produced final goods and services in a country in a year. GDP deflator = (Nominal GDP /
Real GDP) x 100.
• Statement 1 is correct: A rise in the GDP deflator indicates that the overall level of prices has increased,
while a decrease indicates that the overall level of prices has decreased.
• Statement 2 is correct: The GDP deflator covers the whole economy and not based on fixed baskets. The
GDP price deflator is a more comprehensive inflation measure than the Consumer Price Index (CPI),
which measures the price changes in a fixed basket of goods.
Extended Knowledge
• GDP Deflator is used to adjust the nominal Gross Domestic Product (GDP) to reflect changes in the overall price
level, allowing for a more accurate assessment of real economic growth.
• The GDP deflator serves as an indicator of inflation or deflation in the overall economy and provides insights into
the extent to which changes in GDP are due to changes in production or changes in prices.
💡Further reading: Importance of GDP Deflator
15. Answer: C
Explanation:
• Statement 1 is correct: The National Statistical office (NSO) calculates the Gross domestic product by
both value added method and expenditure method. Under value added method, it calculates value addition
done by various economic activities such as agriculture, mining, manufacturing, electricity, hotels etc.
Under expenditure method, it adds up various components of expenditure viz: Private (final) consumption
expenditure, Government (Final) consumption expenditure, Gross fixed capital formation and net of
exports and imports.
• Statement 2 is correct: The income method involves adding up all incomes earned by factors of
production, including wages, profits, rents, and taxes minus subsidies. GDP = Compensation of
Employees+ Gross Profits+ Gross Rental Income+ Taxes on Production and Imports−Subsidies.
• Statement 3 is correct: The Expenditure Method also called ‘Total Outlay Method’. This method
assumes that the income earned by an individual is either spent on consumer goods/services or saved and
invested. Thus, National Income (NI) = Personal Consumption Expenditure (C) + Investments (I) +
Government Expenditure (G) + Exports (X) – Imports (I).
Question type: Factual, Conceptual
Extended Knowledge
• Gross Domestic Product, or GDP, is a measure of the total monetary value of all final goods and services produced
within a country's domestic territory over a specified period of time, typically a financial year. Non-monetary
goods and services, such as volunteer work or unpaid household work are not included under GDP.
💡Further reading: Net domestic product
16. Answer: D
Explanation:
• Option A is correct: The Potential GDP, also known as potential output or full employment GDP, refers
to the level of real GDP an economy can produce when all of its resources are fully utilized, including
labor, capital, and technology, while maintaining stable inflation.
• Option B is correct: The increase in real GDP implies necessary increase in the production of goods and
services.
• Option C is correct: The Gross national product includes the value of goods and services produced by
citizens who are living and working abroad, and excludes the value of goods and services produced within
the country by foreign nationals.
• Option D is not correct: Intermediate goods and services are not included in GDP to avoid double
counting. The intermediate goods and services are also excluded in GNP calculation.
Extended Knowledge
• Gross National Product is a measure of the total monetary value of all final goods and services produced by the
citizens of a country, regardless of where they are located, over a specified period of time, typically a financial
year.
• Potential GDP can change over time and factors such as population growth, changes in labor force participation
rates, technological advancements, and improvements in productivity can influence the economy's potential
output
💡Further reading: Gross National Disposable income
17. Answer: C
Explanation:
• Okun's law was coined by Arthur Okun, a Yale economist who served on President Kennedy's council of
economic advisors. Okun's Law is an empirical relationship that quantifies the inverse relationship
between changes in the unemployment rate and changes in real GDP. It suggests that for every 1%
increase in the unemployment rate above the natural rate, there will be a 2% decrease in real GDP relative
to its potential output.
Subject: Economy || Unemployment
Question type:
Extended Knowledge
• Phillips curve states that inflation and unemployment have a stable and inverse relationship. The theory claims
that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
• Beveridge curve is a graphical representation that shows the relationship between the unemployment rate (on the
horizontal axis) and the job vacancy rate (on the vertical axis) in an economy.
• Kuznets curve is a graphical representation of market forces and income as and when an economy develops.
💡Further reading: https://www.investopedia.com/terms/o/okunslaw.asp
18. Answer: A
Explanation:
• The net domestic product (NDP) equals the gross domestic product (GDP) minus depreciation on a
country's capital goods. Net domestic product accounts for capital that has been consumed over the year in
the form of housing, vehicle, or machinery deterioration.
• Statement 1 is correct: Net Domestic Product (NDP) is arrived at by deducting the depreciation from
GDP. Thus, Net Domestic Product = GDP – Depreciation.
• Statement 2 is not correct: The NDP of an economy has to be always lower than its GDP for the same
year, since there is no way to cut the depreciation to zero.
• Statement 3 is correct: In India the Ministry of Commerce and Industry set depreciation rates, reflecting
the loss in value of assets over time.
Extended Knowledge
• The net domestic product (NDP) is important to understand the historical impact of depreciation on the economy
and analyze sectoral depreciation in industry and trade over time.
• It is also important to evaluate economic achievements in research and development aimed at reducing
depreciation levels.
💡Further reading: https://www.investopedia.com/terms/n/netdomesticproduct.asp
19. Answer: C
Explanation:
• Statement 1 is correct: Income Method involves adding up all incomes earned by factors of production,
including wages, profits, rents, and taxes minus subsidies. GDP calculated based on this approach is
known as GDI or Gross Domestic Income.
• Statement 2 is correct: The government expenditure on scholarships, pension schemes and
unemployment allowances are excluded under GDP as they come under transfer payments.
• Statement 3 is correct: The new GVA methodology shifted data collection from establishments (or
factories) to enterprises (or firms). The establishment approach used in Annual Survey of Industries did
not capture the activities of a unit other than manufacturing. Now in new approach, the activities of a
manufacturing company other than manufacturing are accounted in manufacturing sector. These changes
possibly have increased the coverage of registered sector of manufacturing.
Question type: Factual, Analytical
Extended Knowledge
• Recent Changes for GDP calculation
o Headline growth rate will now be measured as GDP at constant market prices from GDP at factor cost at
constant prices.
o NSO revised the National Accounts statistics in January 2015 and it was decided that sector-wise wise
estimates of Gross Value Added (GVA) will now be given at basic prices instead of factor cost.
o Changed base year from GDP from 2004-05 to 2011-12
• The Enterprise approach is facilitated by MCA 21 with Ministry of Corporate Affairs.
💡Further reading: MCA 21 database
20. Answer: C
Explanation:
• Assertion is true: The Nominal GDP is sum-total of economic output produced in a year valued at
current market price. It is much higher than the real GDP.
• Reasoning is false: The value of nominal GDP is higher than real GDP because it takes current market
prices into consideration. Conversely, real GDP is lower than nominal GDP because it takes market price
of the base year into consideration. When calculating real GDP, a base year is selected to control for
inflation; the real GDP figures capture the quantities of goods produced in different years using the prices
from the same base year.
Extended Knowledge
• Real GDP: It is calculated in a way such that the goods and services are evaluated at some constant set of prices.
As these prices remain fixed, the changes in Real GDP over different years are thus only when the real volume of
production undergoes change.
• Nominal GDP: It is calculated at the current prevailing prices in the market. It includes all of the changes in
market prices that have occurred during the current year due to inflation or deflation.
• Inflation occurs when nominal GDP is higher than real GDP. Deflation happens when real GDP is higher than
nominal GDP.
💡Further reading:
https://www.investopedia.com/terms/r/realgdp.asp#:~:text=A%20positive%20difference%20in%20nominal,is%20higher%2
0than%20nominal%20GDP.
21. Answer: A
Explanation:
• The World Poverty Clock stands as a critical tool for monitoring progress towards the first Sustainable
Development Goal (SDG) – the eradication of extreme poverty.
• Statement 1 is correct: The World Poverty Clock tracks real-time poverty estimates until 2030 for
almost all countries, monitoring progress toward ending extreme poverty. It shows the worldwide number
of people in extreme poverty, sorting them by age, gender, and rural or urban residency.
• Statement 2 is correct: The report states that population in India experiencing extreme poverty declined
to approximately 3.44 crore in 2024 from 4.69 crore in 2022, accounting for 2.4% of the total population.
These statistics corroborate a statement made by the CEO of NITI Aayog, based on the Household
Consumption Expenditure Survey (HCES), 2022-23, asserting that less than 5% of Indians are anticipated
to fall below the poverty line, with extreme destitution nearly eradicated.
• Statement 3 is not correct: The World Poverty clock is backed by the International Fund for Agricultural
Development (IFAD) and Germany's Federal Ministry for Economic Cooperation and Development.
Subject: Economy || Poverty and Inequality
Question type: Factual, Current affairs
Extended Knowledge
• World Poverty Clock findings
o India has successfully decreased the proportion of its population living in ‘severe poverty’ to less than 3%.
o It calculates poverty rates based on income levels, setting the poverty threshold at USD 2.15 per day.
o The USD 2.15-a-day poverty line, mirroring national poverty lines in some of the most impoverished nations,
is commonly referred to as the extreme poverty line.
💡Further reading: Trends of extreme poverty in India in last five years
22. Answer: C
Explanation:
• Statement 1 is correct: In India, the first official rural and urban poverty lines at the national level were
introduced in 1979 by Y. K. Alagh Committee and official poverty counts began for the first time. Later,
in 1993, D. T. Lakdawala Committee extended these poverty lines to states and over time allowing
official poverty counts over time and in the states.
• Statement 2 is correct: The Lakdawala Expert Group (1993) suggested updating the poverty lines by
using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and the Consumer Price
Index of Agricultural Labour (CPI-AL) in rural areas rather than using National Accounts Statistics.
• Statement 3 is correct: Unlike Alagh committee (which relied on separate PLB for rural and urban
areas), Tendulkar Committee computed new poverty lines for rural and urban areas of each state based on
the uniform poverty line basket.
Question type: Factual
Extended Knowledge
• Dandekar and Rath Committee (1971): First scientific assessment of poverty estimation based on NSS Data
(1960-61) + It recommended daily intake of 2,250 calories per person to define the poverty line for both rural and
Urban India.
• Alagh Committee (1979): Poverty line defined as people consuming less than 2100 calories in the urban areas or
less than 2400 calories in the rural areas.
• Lakdawala Committee (1993): Recommended that consumption expenditure be calculated based on calorie
consumption. It suggested for different poverty line for each state, prescribed basket of commodity and measured
poverty in states.
• Saxena Committee (2009): Separated calorific intake apart from nominal income in its economic analysis of
poverty in India. It stated that 50% of Indians lived below the poverty line.
💡Further reading: Differences between Rangarajan and Tendulkar committee
23. Answer: B
Explanation:
• Statement 1 is not correct: Mahatma Gandhi National Rural Employment Guarantee Scheme is a
statutory job guarantee scheme for rural India by Ministry of Rural Development (MoRD). Its aim is to
enhance the livelihood security of people in rural areas by legally guaranteeing 100 days of wage
employment to adult members of any household willing to do unskilled manual labour at statutory
minimum wage.
• Statement 2 is correct: MGNREGA also aims at sustainable development to address the causes of
drought, deforestation, and soil erosion.
• Statement 3 is not correct: For receiving the benefits of the MGNREGA Scheme, the following criteria
are to be met by the applicant: Citizen of India; 18 years of age at the time of application; Rural
Household and Willing to do unskilled work.
• Statement 4 is correct: One-third of the proposed jobs have been reserved for women under the
MGNREGA. The person days share of Scheduled Castes (SC), Scheduled Tribes (ST), women in the
scheme are 23%, 17%, and 53%, respectively.
Question type: Analytical, Factual
Extended Knowledge
• Unemployment Allowance: If work is not assigned within 15 days, the applicant is entitled to receive
an unemployment allowance. This allowance is 1/4 of the minimum wage for the first 30 days and a
half for the following period.
• Social Audit: Section 17 of the MGNREGA has mandated a social audit of all the works executed
under the MGNREGA.
• Employment near residence: The work provided is usually within a 5 km radius of the applicant's
village, with a travel allowance provided for work beyond this radius.
💡Further reading: Permissible works under MGNREGS
24. Answer: B
Explanation:
• Pair 1 is correctly matched: Gini-Coefficient
measures the degree of income equality in a
population. It can vary from 0 (perfect equality)
to 1 (perfect inequality). Gini Coefficient of zero
means that everyone has the same income, while
a Coefficient of 1 represents a single individual
receiving all the income.
• Pair 2 is correctly matched: Lorenz Curve is a
graphical representation of the distribution of
income or wealth within a population. Lorenz
curves graph percentiles of the population against
cumulative income or wealth of people at or
below that percentile. The greater the distance
between the Lorenz curve and the line of perfect
equality, the higher the level of income
inequality.
• Pair 3 is not correctly matched: Palma ratio
compares the income of the top 10% of the
population with the income of the bottom 40%. It
is named after the Chilean economist Gabriel Palma who first proposed the measure
• Pair 4 is not correctly matched: The Theil index is the measure of income inequality that considers both
within-group and between-group inequalities. It breaks down total inequality into two components:
inequality within groups and inequality between groups.
Subject: Economy || Inequality
Extended Knowledge
• Quintile ratio is a measure of inequality that compares the income or wealth of the top 20% of a population
with the income or wealth of the bottom 20%.
• Decomposition analysis involves breaking down overall income inequality into its components, such as
inequality within regions, industries, or demographic groups. This helps identify the sources of inequality.
💡Further reading: Atkinson index, coefficient of variation
25. Answer: D
Explanation:
• The Poverty Reduction and Growth Facility (PRGF) is the International Monetary Fund's concessional facility
for low-income countries. It is intended that PRGF-supported programs will in time be based on country-
owned poverty reduction strategies adopted in a participatory process involving civil society and development
partners, and articulated in a PRSP (Poverty Reduction Strategy Papers).
Extended Knowledge
• In September 1999, the IMF embraced a new anti-poverty focus for its work in low-income countries. As part
of this move, the IMF terminated its Enhanced Structural Adjustment Facility (ESAF) and replaced it with a
new lending facility for low-income countries, the Poverty Reduction and Growth Facility (PRGF).
• It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction
strategies adopted in a participatory process involving civil society and development partners, and articulated in
a PRSP.
• PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5.5-year grace
period on principal payments.
💡Further reading: https://www.imf.org/external/np/exr/ib/2001/043001.htm
26. Answer: B
Explanation:
• Statement 1 is not correct: The Poverty Headcount Ratio is a measure of the proportion of the
population living below the poverty line. It indicates the percentage of people in a given population who
fall below a specified poverty threshold.
• Statement 2 is not correct: Situational poverty is generally caused by a sudden crisis or loss and is often
temporary. Events causing situational poverty include environmental disasters, divorce, or severe health
problems
• Statement 3 is correct: In India, the official poverty definition and numbers are estimated based on the
Consumption Expenditure Survey (CES) conducted by the National Statistical Office (NSO).
Extended Knowledge
• The Poverty Gap Ratio measures the depth of poverty by calculating the average income shortfall of
the poor from the poverty line, expressed as a percentage of the poverty line.
💡Further reading: Incidence of Poverty and Intensity of Poverty
27. Answer: B
Explanation:
• Statement 1 is not correct: The Poverty Headcount Ratio is a measure of the proportion of the
population living below the poverty line. It indicates the percentage of people in a given population who
fall below a specified poverty threshold. There has been a steep decline in Poverty headcount ratio from
29.17% in 2013-14 to 11.28% in 2022-23.
• Statement 2 is correct: As per global multidimensional poverty index (2023), the incidence of poverty in
India declined significantly, from 55.1% in 2005/2006 to 16.4% in 2019/2021.
• Statement 3 is correct: Uttar Pradesh, Bihar, and Madhya Pradesh recorded largest decline in the number
of MPI poor between 2013-14 and 2022-23. Uttar Pradesh registered the largest decline in the number of
poor with 5.94 crore people escaping multidimensional poverty during the last nine years followed by
Bihar at 3.77 crore, Madhya Pradesh at 2.30 crore and Rajasthan at 1.87 crore.

Extended Knowledge
• Incidence of poverty: It is the proportion (%) of the population who are multidimensionally poor (those
who are deprived in at least one third of the weighted indicators). This is also sometimes referred to as
the ‘headcount ratio’ or the ‘poverty rate’.
💡Further reading: Various Trends of Poverty since independence
28. Answer: A
Explanation:
• The Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) was launched with the specific purpose of
ameliorating the hardships faced by the poor and needy due to economic disruptions caused by the
COVID-19 outbreak in the country. In view of COVID crisis, the allocation of free foodgrains, under
PMGKAY was in addition to regular allocation done.
• Statement 1 is not correct: The scheme encompasses the distribution of 5 kg of food grains free for each
month, along with cash transfers to women and elderly individuals.
• Statement 2 is not correct: Families belonging to the Antyodaya Anna Yojana (AAY) and Priority
Households (PHH) categories will be eligible for the scheme. PHH is to be identified by State
Governments/Union Territory Administrations as per criteria evolved by them. AAY families are to be
identified by States/UTs as per the criteria prescribed by the Central Government:
• Statement 3 is correct: Recently, the Cabinet led by Prime Minister has decided that the Central
government will provide free food grains to about 81.35 crore beneficiaries under the Pradhan Mantri
Garib Kalyan Anna Yojana (PMGKAY) for a period of five years with effect from 1st January, 2024.
This is a historic decision that places PMGKAY amongst the World’s biggest social welfare schemes
aimed at ensuring food and nutrition security for 81.35 crore persons, at an estimated cost of Rs. 11.80
lakh crore over a 5-year period.
Extended Knowledge
• The benefits of PMGKAY are accessible to families meeting specific eligibility criteria:
o All the citizens are eligible who belong to Below Poverty Line families.
o Households headed by widows, or terminally ill persons, or disabled persons, or persons aged 60 years
or more with no assured means of subsistence or societal support.
o Widows, or terminally ill persons, or disabled persons, or persons aged 60 years or more or single
women or single men with no family or societal support or assured means of subsistence.
o All primitive tribal households, landless agricultural labourers, marginal farmers, rural
artisans/craftsmen.
💡Further reading: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1990696
29. Answer: B
Explanation:
• Statement 1 is not correct: Dadabhai Naoroji was the first person to make the earliest estimation of
poverty in India in his book “Poverty and Unbritish Rule in India”. The poverty line proposed by him was
based on the cost of a subsistence or minimum basic diet (rice or flour, dal, mutton, vegetables, ghee,
vegetable oil, and salt).
• Statement 2 is correct: In India, poverty lines differ from state to state due to various factors. The cost of
living in different states of India is not the same. Some states have a higher cost of living, and some states
have a lower cost of living. Therefore, the poverty line in each state is different. The official poverty line
is higher in some states than in others because the price levels are higher in those states. For example, the
poverty line in Delhi is higher than in Bihar, as the cost of living in Delhi is higher than in Bihar.
• Statement 3 is correct: At the international level the World Bank has set the international poverty line at
$2.15 per person per day using 2017 prices. The $2.15-a-day poverty line in the 2017 PPP updates the
$1.90-a-day poverty line in the 2011 PPP and is often referred to as the “extreme poverty line”, which
underlies SDG target 1.1 (elimination of extreme poverty).
Subject: Economy || Poverty
Question type: Factual, Analytical
Extended Knowledge
• National Planning Committee’s (1938) poverty line (ranging from ₹15 to ₹20 per capita per month) was also
based on a minimum standard of living perspective in which nutritional requirements were implicit.
• The Bombay Plan (1944) proponents had suggested a poverty line of ₹75 per capita per year
💡Further reading: Poverty lines defined by Alagh committee and Tendulkar committee
30. Answer: A
Explanation:
• The Deen Dayal Antyodaya Yojana – National Livelihoods Mission (NRLM) was launched by the
Ministry of Rural Development (MoRD), Government of India in June 2011 as a restructured version of
Swarna Jayanti Gram Swarozgar Yojna (SGSY).
• Its aim is to reduce poverty by enabling the poor households to access gainful self-employment and
skilled wage employment opportunities, resulting in appreciable improvement in their livelihoods on a
sustainable basis.
• The basic idea behind this program is to organize the poor into Self-help groups and make them capable
of self-employment. NRLM has set out with an agenda to cover 7 Crore rural poor households through
SHGs and federated institutions and support them for livelihoods collectives in a period of 8-10 years. So,
only statement 2 is correct.
Subject: Economy || Poverty
Question type: UPSC PYQ 2012
Extended Knowledge
• Key features of National Rural Livelihood mission
o At least one woman member from each identified rural poor household, is to be brought under the Self Help
Group (SHG) network in a time bound manner.
o NRLM works on both demand and supply sides of financial inclusion. On the demand side, it promotes
financial literacy among the poor and provides catalytic capital to the SHGs and their federations.
o On the supply side, the Mission coordinates with the financial sector and encourages use of ICT based
financial technologies, business correspondents and community facilitators like ‘Bank Mitras’.
o Deendayal Antyodaya Yojana - National Rural Livelihoods Mission (DAY-NRLM) aims to reach-out to 10
crore women from rural poor households by Financial Year 2023-24.
💡Further reading: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2003170
31. Answer: D
Explanation:
• Statement 1 is correct: PM SVANidhi scheme is a Central Sector Scheme i.e. fully funded by Ministry
of Housing and Urban Affairs with the following objectives: To facilitate working capital loan up to
10,000; To incentivize regular repayment; and To reward digital transactions.
• Statement 2 is correct: It is a micro-credit facility that provides street vendors with a collateral-free loan
of Rs 10,000 with low rates of interest (below 12%) for a period of one year, aiding the vendors in getting
back on their feet financially.
• Statement 3 is correct: On timely or early repayment, the vendors will be eligible for the next cycle of
working capital loan with an enhanced limit. No prepayment penalty will be charged from the vendors for
repayment before the scheduled date.
Subject: Economy || Employment
Extended Knowledge
• All vendors who have been vending from or before (March 24, 2020) and with a certificate of vending can avail
the loan.
• On timely/ early repayment of the loan, an interest subsidy @ 7% per annum will be credited to the bank accounts
of beneficiaries through Direct Benefit Transfer on a quarterly basis.
• Implementation agency: Small Industries Development Bank of India (SIDBI).
💡Further reading: https://pmsvanidhi.mohua.gov.in/
32. Answer: C
Explanation:
• Statement 1 is correct: The Supreme Court in Pawan Hans Limite & Ors. Vs Aviation Karmachari
Sanghatana ruled that casual workers are also entitled to social security benefits under the act. All casual
workers are covered under the Employee Provident Fund act from the date of their joining the
establishment.
• Statement 2 is correct: Employees in India are entitled for regular working hours and overtime payment
according to Minimum Wages Rules, Casual workers have all those rights that are enjoyed by regular
workers since the definition of employee includes casual labor as per Supreme Court guidelines.
• Statement 3 is correct: The Government had launched a scheme viz Casual Labourers (Grant of
Temporary Status and Regularization) Scheme of Government of India, 1993. As per the scheme
Temporary status would be conferred on all casual labourers who were in employment and who have
rendered a continuous service of at least one year. Temporary status would entail maternity leave to lady
casual labourers as admissible to regular Group ‘D’ employees will be allowed.
Extended Knowledge
• The Payment of Wages (Amendment) Act, 2017 enables that the Government may specify that employer of any
industrial or other establishment shall pay wages to every employee only by cheque or by crediting the wages in
his bank account.
• Casualization trends: Agriculture and construction sectors have showed consistent rise in casual workers over the
last decade.
💡Further reading: https://pib.gov.in/newsite/PrintRelease.aspx?relid=79432
33. Answer: C
Explanation:
• Employment Elasticity measures the percentage change in employment associated with a one percentage
point change in economic growth. The employment elasticity measures an economy's ability to provide
work opportunities for its population as a percentage of its growth (development) process.
Subject: Economy || Employment
Extended Knowledge
• An employment elasticity of 1 implies that with every 1 percentage point growth in GDP, employment increases
by 1%.
• An employment elasticity of 1 denotes that employment grows at the same rate as economic growth.
• Elasticity of 0 denotes that employment does not grow at all, regardless of economic growth.
• Harmonised Unemployment Rates defines the unemployed as people of working age who are without work, are
available for work, and have taken specific steps to find work.
• Employment intensity refers to the amount of employment generated per unit of economic output. It is often used
to analyze the employment impact of economic activities.
• Labor Force Participation Rate (LFPR) represents the percentage of the working-age population (ages 16 and
older) that is either employed or actively seeking employment.
💡Further reading: https://www.thehindu.com/news/national/iim-study-points-to-structural-problems-in-indian-labour-
market/article67857448.ece
34. Answer: A
Explanation:
• Statement 1 is correct: Disguised unemployment also known as hidden unemployment refers to a
situation where labour that is employed in a job is not actually utilised for the production of goods and
services. In other words, such employment does not contribute to the output of an economy and is thus
akin to a form of unemployment.
• Statement 2 is correct: Voluntary unemployment refers to the situation where an individual is not
working, but is able and willing to work and is actively seeking employment.
• Statement 3 is not correct: Frictional Unemployment occurs when individuals are in the process of
transitioning between jobs or are searching for their first job. It is often temporary and voluntary as people
look for better opportunities.
Question type:
Extended Knowledge
• Open Unemployment is a situation where a large section of the labour force does not get a job that may yield
them regular income
• Structural Unemployment arises when there is a mismatch between the skills possessed by the workforce and the
skills demanded by employers. Changes in technology or industry restructuring can contribute to structural
unemployment
• Technological Unemployment results from advancements in technology that replace human labor.
💡Further reading: Cyclical unemployment and Seasonal unemployment
35. Answer: A
Explanation:
• Statement 1 is not correct: The report titled ‘India Employment Report 2024’ was recently released by
Institute for Human Development (IHD) and International Labour Organisation (ILO), which highlights
that India’s youth continue to grapple with soaring Unemployment rates.
• Statement 2 is not correct: India’s youth account for almost 83% of the unemployed workforce and the
share of youngsters with secondary or higher education in the total unemployed has almost doubled from
35.2% in 2000 to 65.7% in 2022.
• Statement 3 is correct: The Labour Force Participation Rate (LFPR), Worker Population Ratio (WPR)
and the Unemployment Rate (UR) showed a long-term deterioration between 2000 and 2018 but
witnessed an improvement after 2019.
Extended Knowledge
💡Further reading: https://indianexpress.com/article/explained/explained-economics/state-of-employment-in-

india-what-a-new-report-says-about-youths-women-concerns-caution-9237158/
36. Answer: B
Explanation:
• Pair 1 is correctly matched: Code on Wages, 2019 proposes to fix a National Floor Level Minimum
Wage, pegs basic pay at 50 per cent of gross salary and redefine the break-up of wage to increase the
share of the basic pay component to enable higher provision for social security such as Employees’
Provident Fund for establishments, especially in the service sector.
• Statement 3 is incorrect: Luxury goods and consumer discretionary items, like a particular brand of
cereal or candy bars, are typical instances of products with high elasticity. Food items can be readily
swapped out, and budget-friendly alternatives can easily take the place of name brands.
43. Answer: A
Explanation:
• Items not included in National Income:
o Transfer payments (unilateral payments made without expectations of return; like gifts,
unemployment allowance, donations, etc)
o Sale and purchase of old goods and existing services (shares are not included unless they are
through an IPO).
o Work done by housewives.
o Black money (cannot be estimated).
o Windfall gains (lottery income).
• Items included in National Income:
o Estimated rent of the self-occupied property.
o Goods and services not sold but supplied free of cost.
o Rent of the self-occupied property.
o Goods and services sold in the market
o Services provided by the agents
44. Answer: C
Explanations:
The recent sector-wise estimates have been compiled using indicators like:
• Index of Industrial Production (IIP).
• Financial performance of Listed Companies in the Private Corporate sector available for Q1, Q2
and Q3 2022-23.
• Second Advance Estimates of Crop Production for 2022-23.
• Production targets for 2022-23 and production estimates of Major Livestock Products for Summer and
Rainy seasons of 2022-23.
• Fish Production.
• Production/ Consumption of Cement and Steel.
• Net Tonne Kilometres and Passenger Kilometres for Railways.
• Passenger and Cargo traffic handled by Civil Aviation.
• Cargo traffic handled at Major Sea Ports.
• Sales of Commercial Vehicles.
• Bank Deposits & Credits.
• Accounts of Central & State Governments, etc., available for first 9/10 months of the financial year 2022-23.
45. Answer: B
Explanation:
• Statement 1 is incorrect: Economic development is a wider term than economic growth. Economic
development is a wider concept than economic growth. Apart from growth of national income, it includes
changes – social,cultural, political as well as economic which contribute to material progress.
• Statement 2 is incorrect: Increase in economic growth does not necessarily mean to increase in Gross
Enrolment Ratio of higher education. As economic can be sector specific, it doesn’t really impact every
section of the development.
• Statement 3 is correct: Economic development is a positive concept. It cannot be negative. It is defined
as the sustained improvement in the material well being of the society.
46. Answer: A
Explanations:
• Pair 1 is incorrect: Human Development Reports have been published since 1990. It is published by
United Nations Development Programme(UNDP).According to the recent HDR 2021-2022, India’s rank
is 132 in 2022 as against 130 in 2020, in the wake of the COVID-19 pandemic.
• Pair 2 is incorrect: It assess the countries' progress towards achieving SDGs. It is published by a group of
independent experts at the Sustainable Development Solutions Network( SDSN). According to the recent
report, India is on track of achieving SDG 13 on Climate change resilience. However, India continues to
struggle in achieving 11 of the 17 goals.
• Pair 3 is correct: The Global Multidimensional Poverty(MPI) was first launched in 2010 by the OPHI
and the Human Development Report Office of the UNDP. The MPI monitors deprivations in 10 indicators
spanning health, education and standard of living and includes both incidence as well as intensity of
poverty. In the recent Report of 2022, India ranks 66 out of 109 countries.
• Pair 4 is incorrect: World Happiness Report measures how happy the citizens of a country perceive to be.
The World Happiness Report is a publication of the Sustainable Development Solutions Network since
2012. This year’s report marks its 10th anniversary. India moved up three ranks from 139th in the 2021
report to 136th in the 2022 edition.
47. Answer: A
Explanation:
• Statement 1 is incorrect: United Nations Development Programme( UNDP) published its first human
development report in 1990. The first team which developed the HDI was led by Mahbub-Ul-Haq and
Inge Kaul.
• Statement 2 is incorrect: The HDI measures the development by combining three indicators- Health,
Education and Standard of living, converted into a composite Human development Index.
• Statement 3 is correct: India was ranked 132 out of 191 countries in the recent report. Its HDI value of
0.633 places the country in the medium development category.
48. Answer: C
Explanation:
Taking natural capital and environmental quality seriously affects the way that we evaluate measures of national
income and well-being. Economic growth alone does not necessarily represent true economic development and
may even lower human well-being if it is accompanied by growing inequity and environmental degradation.
• Statement 1 and 2 are correct: In 1993 the United Nations published a comprehensive handbook on
environmental accounting, which was revised in 2003 and further systematized in 2012. The 2003 System
of Environmental and Economic Accounts (commonly referred to as SEEA-2003) is a result of these
efforts, which is a guidebook developed by the United Nations to provide standards for incorporating
natural capital and environmental quality into national accounting systems.
• The 1993 handbook focused on monetary valuation of natural resources, allowing the cost of natural
resource depletion and environmental degradation to be subtracted from gross domestic product. In
particular, the handbook advocated compilation of an ‘environmentally adjusted domestic product’—also
known as ‘green GDP’.
• Statement 3 is correct: Gross Ecosystem Product (GEP) is one of the components of Green GDP.
49. Answer: B
Explanation:
• Statement 1 is incorrect: The Mercantilism theory states that there is a finite amount of wealth in the
world and that it is in a nation’s best interest to accumulate this finite wealth. Mercantilist thought is
associated with colonialism.
o Since wealth is power, so by accumulating wealth, a nation can accumulate power.
• Statement 2 is correct: A country achieves wealth by producing and exporting more goods than it
imports.
o These goods must be sold at a profit for wealth to accumulate.
o Profits are large when a country spends a small amount of money on raw materials needed to
create a product and sells the finished product for a high price.
50. Answer: C
Explanation:
Dependency ratio refers to the ratio of persons of ages under 15 years and over 64 years to the person of ages 15-
64 years. Decrease in dependency ratio means working population is increasing.
• Statement 1 and 4 are correct: Whenever in any country, the working population age 15-64 increases and
dependent population decreases, then income increases. Increased income could either be saved or consumed.
o Thus, either savings or consumption increases or simultaneously both could increase.
o This also happens at the family level. If a family adds a working member then family income
increases as a result either savings of the family increases (for example depositing money in bank) or
they will consume more like buying consumer goods (T.V, Mobile etc.) (Statement 2 is incorrect)
• Statement 3 is correct: The increased savings leads to an increase in investments. For example, savings in the
form of fixed deposit will be loaned by bank to industries thus increasing investment.
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PRELIMS

TEST SERIES 2025

3. An NBFC extending credit to individuals

matched? (a) Only one

(SOLUTIONS & EXPLANATIONS)

Subject: Economy || Poverty and Inequality

💡Further reading: Various Trends of Poverty since independence

💡Further reading: https://indianexpress.com/article/explained/explained-economics/state-of-employment-in-

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