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Question 1 of 10
1. Question
2 points
The consequences of the Great Depression (1929) for India included
Mass production of defence goods in India
Collapse of prices of many food grains
India became a net importer of precious metals like gold.
Select the correct answer using the codes below.
Correct
First World War (FWW) led to mass production in the US and lowered goods prices. With rising wages in US, consumption rocketed as people could afford more goods. Demand for consumer goods was fuelled by a boom in housing construction and real estate business.
This created the base for prosperity in the US leading to greater investments and incomes.US started exporting capital to the World and became the largest overseas lender.
But since 1929 the world along with US economy slumped into a deep recession.
Incorrect
First World War (FWW) led to mass production in the US and lowered goods prices. With rising wages in US, consumption rocketed as people could afford more goods. Demand for consumer goods was fuelled by a boom in housing construction and real estate business.
This created the base for prosperity in the US leading to greater investments and incomes.US started exporting capital to the World and became the largest overseas lender.
But since 1929 the world along with US economy slumped into a deep recession.
Question 2 of 10
2. Question
2 points
In post-independent India, the Mahalanobis model of economic growth adopted laid stress on
Correct
At the time of formulation of the 2 nd five year plan, Mahalanobis showed that to achieve a rapid long- term rate of growth it would be essential to devote a major part of the investment outlay to building of basic heavy industries. The pillars of Nehru – Mahalanobis strategy were – (a) high savings rate, (b) heavy industry bias, (c) protectionist policies and public sector, (d) import substitution, and (e) socialistic pattern of society.
However, in critique of the Mahalanobis heavy industry development strategy, Professors Vakil and Brahmanand of Bombay University put forward a wage-goods (consumer goods) model of development and suggested a development strategy which accorded a top priority to agriculture and other wage-goods industries in sharp contrast to the Mahalanobis heavy industry biased strategy of development.
Incorrect
At the time of formulation of the 2 nd five year plan, Mahalanobis showed that to achieve a rapid long- term rate of growth it would be essential to devote a major part of the investment outlay to building of basic heavy industries. The pillars of Nehru – Mahalanobis strategy were – (a) high savings rate, (b) heavy industry bias, (c) protectionist policies and public sector, (d) import substitution, and (e) socialistic pattern of society.
However, in critique of the Mahalanobis heavy industry development strategy, Professors Vakil and Brahmanand of Bombay University put forward a wage-goods (consumer goods) model of development and suggested a development strategy which accorded a top priority to agriculture and other wage-goods industries in sharp contrast to the Mahalanobis heavy industry biased strategy of development.
Question 3 of 10
3. Question
2 points
Which of these sectors was chosen as the ‘prime moving force’ (PMF) of the Indian economy post- independence in the initial days of planning and development?
Correct
Industry, infrastructure, science and technology and higher education, to name a few, received greater emphasis in the early years after independence. This is because all these areas of development required heavy capital investment as they had been severely avoided by the colonial rulers for over 150 years or so.
Increasing the growth of the economy and that too with a faster pace was the urgent need of the economy. Looking at the pros and cons of the available options, India decided the industrial sector to be the ‘prime moving force’ (PMF) of the economy—the logical choice for a faster growth (a fully established idea at that time, all over the world).
Incorrect
Industry, infrastructure, science and technology and higher education, to name a few, received greater emphasis in the early years after independence. This is because all these areas of development required heavy capital investment as they had been severely avoided by the colonial rulers for over 150 years or so.
Increasing the growth of the economy and that too with a faster pace was the urgent need of the economy. Looking at the pros and cons of the available options, India decided the industrial sector to be the ‘prime moving force’ (PMF) of the economy—the logical choice for a faster growth (a fully established idea at that time, all over the world).
Question 4 of 10
4. Question
2 points
The New Economic Policy (NEP) 1991 was an outcome of
Correct
A BoP crisis is a situation when the foreign exchange that a nation has is not enough to finance the external account deficit. Foreign exchange reserves in the late 1980s declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. Therefore, a BoP crisis was looming to avert which India resorted to the help of WB and IMF. So, (d) is correct.
Hyperinflation is a situation of exceedingly high inflation (likes of 300-5000%). India was not suffering with hyperinflation; however, inflation was high. Asian financial crisis happened in 1997 from which India was largely insulated. Other objectives of the policy were to tackle high inflation, mismanagement of the economy, revive growth prospects etc. However, the most appropriate reason is to avert a BoP crisis.
The NEP aimed towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. It can broadly be classified into two groups: the stabilization measures and the structural reform measures. Stabilization measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy.
Incorrect
A BoP crisis is a situation when the foreign exchange that a nation has is not enough to finance the external account deficit. Foreign exchange reserves in the late 1980s declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. Therefore, a BoP crisis was looming to avert which India resorted to the help of WB and IMF. So, (d) is correct.
Hyperinflation is a situation of exceedingly high inflation (likes of 300-5000%). India was not suffering with hyperinflation; however, inflation was high. Asian financial crisis happened in 1997 from which India was largely insulated. Other objectives of the policy were to tackle high inflation, mismanagement of the economy, revive growth prospects etc. However, the most appropriate reason is to avert a BoP crisis.
The NEP aimed towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. It can broadly be classified into two groups: the stabilization measures and the structural reform measures. Stabilization measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy.
Question 5 of 10
5. Question
2 points
Consider the following statements.
Assertion (A): Before 1991, majority of female workers, in India, were from rural areas, but post-1991 their majority is found in urban areas.
Reason (R): Industrial and services sector have grown faster than agriculture after 1991 post the introduction of New Economic Policy.
In the context of the above, which of these is correct?
Correct
Of the total 402 million workers, 275 million are males and 127 million females. This would mean that 51.7 percent of the total males and 25.6 percent of the total females are workers. Majority of female workers (87.3 percent) are from rural areas. This is also twice that of male workers, which may be due to their being employed predominantly in activities like cultivation and agricultural labour. The trend has not changed much even after 1991.
So, A is wrong. In the urban areas, majority of female workers are engaged in Households industry and other work.
Interestingly, among marginal workers females outnumber the males. In three of the four categories, viz. cultivators, agricultural labourers and household industries, female marginal workers outnumber male workers.
Incorrect
Of the total 402 million workers, 275 million are males and 127 million females. This would mean that 51.7 percent of the total males and 25.6 percent of the total females are workers. Majority of female workers (87.3 percent) are from rural areas. This is also twice that of male workers, which may be due to their being employed predominantly in activities like cultivation and agricultural labour. The trend has not changed much even after 1991.
So, A is wrong. In the urban areas, majority of female workers are engaged in Households industry and other work.
Interestingly, among marginal workers females outnumber the males. In three of the four categories, viz. cultivators, agricultural labourers and household industries, female marginal workers outnumber male workers.
Question 6 of 10
6. Question
2 points
Which of these were significant elements of the New Industrial Policy, 1991?
De-reservation and de-licensing of certain industries
Revival of the MRTP Limit (Monopolistic and Restrictive Trade Practices)
Promotion to Foreign Investment
Commitment to a Foreign Exchange Management Act allowing improved current account convertibility
Select the correct answer using the codes below.
Correct
Statement 1: This policy abolished the Industrial licensing for all industries except for a short list of 18 industries. This list of 18 industries was further pruned in 1999 whereby the number reduced to six industries viz. drugs and pharmaceuticals, hazardous chemicals, explosives such as gun powder and detonating fuses, tobacco products, alcoholic drinks, and electronic, aerospace and defence equipment.
Statement 2: The limit was abolished and companies were allowed to expand freely with only certain limitations.
Statement 3: This was the first Industrial policy in which foreign companies were allowed to have majority stake in India. In 47 high priority industries, up to 51% FDI was allowed. For export trading houses, FDI up to 74% was allowed. Today, there are numerous sectors in the economy where government allows 100% FDI.
Statement 4: Restrictions on exchange of currency for the purposes of current account (such as trade or remittances) were revoked.
Incorrect
Statement 1: This policy abolished the Industrial licensing for all industries except for a short list of 18 industries. This list of 18 industries was further pruned in 1999 whereby the number reduced to six industries viz. drugs and pharmaceuticals, hazardous chemicals, explosives such as gun powder and detonating fuses, tobacco products, alcoholic drinks, and electronic, aerospace and defence equipment.
Statement 2: The limit was abolished and companies were allowed to expand freely with only certain limitations.
Statement 3: This was the first Industrial policy in which foreign companies were allowed to have majority stake in India. In 47 high priority industries, up to 51% FDI was allowed. For export trading houses, FDI up to 74% was allowed. Today, there are numerous sectors in the economy where government allows 100% FDI.
Statement 4: Restrictions on exchange of currency for the purposes of current account (such as trade or remittances) were revoked.
Question 7 of 10
7. Question
2 points
Agriculture was chosen as the Prime Moving force of the economy since 2002 on the advice of the Planning Commission. As a major policy shift, it was aimed at solving which of the following issues affecting the Indian Economy?
Boosting aggregate demand in the economy
Ending the production monopoly of the PSUs in the agricultural sector
Increasing rural employment
Select the correct answer using the codes below.
Correct
. Statement 1: Agriculture is a key feed to other industries, for e.g. food processing sector. An increase in agricultural growth directly translates to a growth in other sectors of the economy.
Statement 2: The movement was intended not to cut down competition in any particular sector of the economy rather to facilitate growth in all the sectors.
Statement 3: Investment in agriculture also involves creation of capital goods such as warehousing, irrigation infrastructure which both directly and indirectly generates employment.
The other major challenges to be solved were:
Food Security, which in a sense means ensuring adequate infrastructure in rural areas in agriculture. It is because food security is not just about productivity; it is also about accessibility of food.
Market Failure: It also had to solve the case of India being a market failure. It means that goods and services are available in the economy, but there is little demand.
This is because majority of population lives on agriculture which does not provide them with good purchasing power. With this policy shift their incomes were supposed to be improved and market demand be boosted. This would also involve generating more rural employment.
Incorrect
. Statement 1: Agriculture is a key feed to other industries, for e.g. food processing sector. An increase in agricultural growth directly translates to a growth in other sectors of the economy.
Statement 2: The movement was intended not to cut down competition in any particular sector of the economy rather to facilitate growth in all the sectors.
Statement 3: Investment in agriculture also involves creation of capital goods such as warehousing, irrigation infrastructure which both directly and indirectly generates employment.
The other major challenges to be solved were:
Food Security, which in a sense means ensuring adequate infrastructure in rural areas in agriculture. It is because food security is not just about productivity; it is also about accessibility of food.
Market Failure: It also had to solve the case of India being a market failure. It means that goods and services are available in the economy, but there is little demand.
This is because majority of population lives on agriculture which does not provide them with good purchasing power. With this policy shift their incomes were supposed to be improved and market demand be boosted. This would also involve generating more rural employment.
Question 8 of 10
8. Question
2 points
Which of the following has been peculiar or noteworthy to the Indian economic growth story?
Services sector has always grown at a slower rate than any other sector of the economy.
Agriculture sector has always employed the largest number of workers in the economy.
Services sector contributes more to the GDP than agriculture and manufacturing even though India is not an industrially developed country.
Select the correct answer using the codes below.
Correct
As a country develops, it undergoes ‘structural change’. Usually, with development, the share of agriculture declines, and the share of industry become dominant. At higher levels of development, the service sector contributes more to the GDP than the other two sectors. In the case of India, the structural change is ‘peculiar’ with regard to its sectoral composition especially services sector.
Services sector has grown much faster compared to other sectors of the economy post-liberalization. Traditionally services sector growth is propelled by the manufacturing sector but in India services has overtaken manufacturing, in terms of GDP, even though manufacturing has not been fully developed. Hence, the service sector contributes more to the GDP (over 60%) than agriculture (14%) and manufacturing even though India is not a developed country
Incorrect
As a country develops, it undergoes ‘structural change’. Usually, with development, the share of agriculture declines, and the share of industry become dominant. At higher levels of development, the service sector contributes more to the GDP than the other two sectors. In the case of India, the structural change is ‘peculiar’ with regard to its sectoral composition especially services sector.
Services sector has grown much faster compared to other sectors of the economy post-liberalization. Traditionally services sector growth is propelled by the manufacturing sector but in India services has overtaken manufacturing, in terms of GDP, even though manufacturing has not been fully developed. Hence, the service sector contributes more to the GDP (over 60%) than agriculture (14%) and manufacturing even though India is not a developed country
Question 9 of 10
9. Question
2 points
What are ‘Wage Goods’?
Correct
Wage goods, in contrast to capital goods, are consumed by the workers of the country. In the initial phase of Indian economic development, it was alleged that wage goods were given a lesser priority as compared to the capital goods that require a specialized workforce and heavy investment to pick up.
This industrialization-led strategy of development neglected the constraint of wage goods availability on two things: Employment generation as demand for workers and thus wage goods increases post-economic growth, and its potential influence on inflation that is caused by the shortage of wage goods as a nation’s GDP starts growing. However, with the renewed focus on catching up with National GDP, wage goods are no longer neglected.
Incorrect
Wage goods, in contrast to capital goods, are consumed by the workers of the country. In the initial phase of Indian economic development, it was alleged that wage goods were given a lesser priority as compared to the capital goods that require a specialized workforce and heavy investment to pick up.
This industrialization-led strategy of development neglected the constraint of wage goods availability on two things: Employment generation as demand for workers and thus wage goods increases post-economic growth, and its potential influence on inflation that is caused by the shortage of wage goods as a nation’s GDP starts growing. However, with the renewed focus on catching up with National GDP, wage goods are no longer neglected.
Question 10 of 10
10. Question
2 points
Characteristics that are central to capitalism include
A Market determined price system
Competitive markets
Ownership of factors of production by the State
Select the correct answer using the codes below.
Correct
Statement 1 and 2: Private property, capital accumulation, wage labour, voluntary exchange, a price system and competitive markets are some of the major features of capitalism. In a capitalist market economy,
decision-making and investment are determined by every owner of wealth, property or production ability in financial and capital markets, whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
Statement 3: This is a feature of either communism or extreme socialism. Capitalism is an economic system based upon private ownership of the means of production and their operation for profit. Different forms of capitalism feature varying degrees of free markets, public ownership, obstacles to free competition and state-sanctioned social policies. The degree of competition in markets, the role of intervention and regulation and the scope of state ownership vary across different models of capitalism
Incorrect
Statement 1 and 2: Private property, capital accumulation, wage labour, voluntary exchange, a price system and competitive markets are some of the major features of capitalism. In a capitalist market economy,
decision-making and investment are determined by every owner of wealth, property or production ability in financial and capital markets, whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
Statement 3: This is a feature of either communism or extreme socialism. Capitalism is an economic system based upon private ownership of the means of production and their operation for profit. Different forms of capitalism feature varying degrees of free markets, public ownership, obstacles to free competition and state-sanctioned social policies. The degree of competition in markets, the role of intervention and regulation and the scope of state ownership vary across different models of capitalism
