UPSC Prelims PYQ › Economy › Basic Concepts & National Income

Basic Concepts & National Income — UPSC Prelims Economy previous year questions — page 2

55 solved previous year questions on Basic Concepts & National Income, papers from 1996 to 2023, drawn from UPSC CSE Prelims, UPPCS, UPSC CDS. Each carries the printed answer key and the explanation from the source compilation.

1. #41Practice set
   Which of the following can be used to measure changes in price in an economy? 1. Real GDP 2. Nominal GDP 3. Consumer Price Index (CPI) 4. GDP Deflator 5. Wholesale Price Index (WPI)Select the correct answer using the code given below
   • A1, 3, 4 and 5 only
   • B1, 2 and 3 only
   • C2, 3, 4 and 5 only
   • D1, 2, 3, 4 and 5
   Answer: (C) 2, 3, 4 and 5 only
   Explanation

   Option c is the correct order to measure price changes in an economy them with changes in actual production, one the following tools

2. #42Practice set
   Consider the following statements: 1. Production done by a foreign entity within a country is included in Gross Domestic Product (GDP) of that country. Practiceboo 2. Gross National Product (GNP) includes private remittances received from Indian nationals working outside India. 3. Net Domestic Product (NDP) is used to compare economies of the world. 4. In case of India, Net National Product (NNP) is more than Gross National Product (GNP).How many statements given above are correct?
   • AOnly one
   • BOnly two
   • COnly three
   • DAll four
   Answer: (B) Only two
   Explanation

   Option b is the correct income accounting, a set of principles and to measure the income and production of a l is correct. Since Gross Domestic Product market value of final goods produced within a a country. It therefore includes all production done national residents or the non-residents in a of whether that production is owned by a or a foreign 2 is correct. Gross National Product is the Product of a country added with its income It includes private remittances by Indian outside India. At the same time, it excludes of foreign nationals working within 3 is incorrect. Net Domestic Product use only. It is not used in comparative to compare the economies of the world. It is because in rate of depreciation set by different the 4 is incorrect. Net National Product is the Product after deducting the loss due to is the wear and tear that happens in the Net National Product will always be less

3. #43Practice set
   With reference to National Income Accounting, consider the following statements: 1. Personal Income is the actual income which can be spent on consumption by individuals and families. 2. National Disposable Income is India's Net National Product at factor cost excluding the current transfers from the world. 3. Transfer payments are not a part of Gross Domestic Product (GDP) of a country.How many statements given above are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (A) Only one
   Explanation

   Option a is the correct 1 is incorrect - Personal Disposable income personal income means the actual income which can on consumption by individuals and families. The the personal income cannot be spent on it is the income that accrues before direct taxes been paid. Therefore, in order to obtain direct taxes are deducted from personal Disposable Income - Direct 2 is incorrect. National Disposable Income Product at Market Other current rest of the idea behind National Disposable Income is that an idea of what is the maximum amount of goods the domestic economy has at its disposal. from the rest of the world include items such aids, 3 is correct. Transfer payments is the payment government in grants, allowances, pensions etc to as pensioners, widows, sick or unemployed people with little or no income. Transfers are not GDP, because they do not represent production. doesn't involve a return

4. #44Practice set
   With reference to Net Domestic Product (NDP), which of the following statements is/are correct? 1. While calculating NDP, the capital consumption allowance is also taken into account. 2. The higher the gap between GDP and NDP, better it is for the economy.Select the correct answer using the code given below
   • A1 only
   • B2 only
   • CDoth 1 and 2
   • DNeither 1 nor 2
   Answer: (A) 1 only
   Explanation

   Option a is the correct of NDP are as l is correct - The net domestic product (NDP) by subtracting the value of depreciation of of the nation such as machinery, housing, and the gross domestic product (GDP). The NDP also account the other factors such as obsolescence destruction of the asset. The depreciation is to as capital consumption 2 is incorrect - If the country is unable the capital stocks that are lost through experiences a fall in the GDP of the country. If the the GDP and NDP is narrower or smaller, then it considered good for an economy. Also, it indicates However, a wider gap between the GDP and an increase in the value of obsolescence. Such along with deterioration of the capital stock economic stagnation. Though GDP is when assessing the economic health of a country, into perspective the pace at which capital assets must be replaced. This is important as failure to would r

5. #45Practice set
   Which of the following statements regarding Gross National Income is correct?
   • AIt includes the income of all of the country's nationals and businesses whether tt flows back to the country or is spent al
   • BWorld classifies countries on the basis vi' income levels using Gross National Income
   • CGNI can never be higher than GDP even if a country receives a larger amount of foreign aid
   • DGNI does not take into account any type of taxes or subsidies
   Answer: (B) World classifies countries on the basis vi' income levels using Gross National Income
   Explanation

   Option b is the correct a is incorrect - GNI is the total income received country from its nationals and businesses regardless they are located in the country or abroad. Product (GNP) includes the income of all of residents and businesses whether it flows back country or is spent b is correct - The World Bank assigns the to four income groupc low, lower middle, uppcr middle, and high-income countries. The. each year on July 1 and are based on GNI in current USD (using the Atlas method of the previous c is incorrect - GNI can be much higher if a country receives a large amount of foreign is the case with East Timor. Conversely, it can be if foreigners control a large proportion of a as is the case with Ireland. For nations, like there is little difference between GDP and GNI, between income received versus payments the rest of the world does not tend to be d is incorrcd- Product taxes tha

6. #46Practice set
   Consider the following statements: 1. For an economy, the Debt sustainability depends on the interest rate-growth differential (IRGD). 2. More positive the IRGD, the easier (and quicker) it is for the Government to ensure debt sustainability.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (A) 1 only
   Explanation

   Option a is the correct l is correct. The ease with which a reduce its debt-to-GDP ratio interest rate-growth differential (IRGD), that is, between the interest rate and the growth rate 2 is incorrect. More negative the IRGD, (and quicker) it is for the Government to ensure

7. #47Practice set
   With reference to the boirrowing powers of Center and state, consider the following statements: 1. States cannot borrow more than of their state GDP under any circumstance. 2. A state cannot borrow within India without the Centre's consent if it has any loan outstanding to the Government of India.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (B) 2 only
   Explanation

   Option b is the correct l is incorrect. Earlier, states were not allowed more than of their GDP. Recently, the raised borrowing limits for states to of gross product (GSDP). The raised limit is subject out of specific reform by the 2 is correct. Under Article 293 (3) of the a state can't raise borrowings within the Centre's consent if it has any loan the Government of India

8. #48Practice set
   In the context of Ricardian Equivalence, what will be the most likely consequence of increased government expenditure through debt financing?
   • AAggregate demand of goods and services remains unchanged
   • BAggregate supply of goods and services will decrease
   • CAggregate demand of goods services will rise sharply
   • DAggregate demand of goods and services will decrease
   Answer: (D) Aggregate demand of goods and services will decrease
   Explanation

   Option d is the correct domestic product (GDP) is the value of the goods produced by the nation's economy less the value goods and services used up in l is correct: GDP does not provide the distribution of income, which bears the welfare of individuals within an economy. GDP is only an 2 is correct: GDP does not factor in the technology that improves the 3 is correct: Another shortcoming of GDP measure of economic well-being is GDP's exclusion activities that create welfare for GDP uses market prices to value goods and excludes the value of almost all activity that takes markets. Child care provided in day-care centers of GDP, whereas child care by parents at home is not. Statement 4 is correct: Externalities refer to the benefits a firm or an individual causes to another for are not paid (or penalized). Externalities do not market in which they can be bought and sold thus not part of GD

9. #49Practice set
   Which among the following options correctly describes the term 'Inflationary Gap'?
   • AThe difference between the current real GDP and the GDP of an economy operating at full employment
   • BAn economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation
   • CMeasure of the changes in prices for all the goods and services produced in an economy
   • DThe overall change in consumer prices over time, based upon a representative basket of goods and services
   Answer: (A) The difference between the current real GDP and the GDP of an economy operating at full employment
   Explanation

   Option a is the correct inflationary gap measures the difference between real GDP and the GDP of an economy full employment. An inflationary gap exists when for goods and services exceeds production due levels of employment, increased trade activities, government expenditure. The real GDP can potential GDP, resulting in an inflationary gap. gap represents the point in the business the economy expands as consumers purchase and services. As demand increases but prices rise to restore market equilibrium

10. #50Practice set
    With reference to the Indian economy, consider the following statements: Assertion: The share of formal jobs has remained greater than informal jobs in India in post-liberalization period. Practice f'oru Reason: The share of the services sector in India's Gross Domestic Product has remained higher than agriculture sector, in the post liberalization period. Which of the following options is correct?
    • ABoth Assertion and Reason are correct and Reason is the correct explanation of the Assertion
    • BBoth Assertion and Reason are correct but Reason is not the correct explanation of the Assertion
    • CAssertion is correct but Reason is incorrect
    • DAssertion is incorrect but Reason is correct
    Answer: (D) Assertion is incorrect but Reason is correct
    Explanation

    Option d is the correct was expected to formalize India's agrarian economy, with labour moving to the organized industrial sector. But we contractualisation of the is incorrect: The quality of employment in declined in the post-liberalisation period. Of around jobs created in India over 22 years the economy, were informal is correct: Agriculture accounted for nearly cent of the total GDP in 1991, and now accounts per cent of the economy. The services sector nearly 54 per cent to domestic GDP and this per cent in 1991

11. #51Practice set
    Which of the following are the advantages of cultivating millets over conventional cereals? 1. They can grow across wide latitudinal range. 2. They requires less water than wheat and rice. 3. They can withstand heat, flood and drought. 4. They are highly resistant to pests and diseases. 5. They are free of gluten.Select the correct answer using the code given below
    • A1, 2 and 3 only
    • B1, 2, 3 and 5 only
    • C2, 3, 4 and 5 only
    • D1, 2, 3, 4 and 5
    Answer: (D) 1, 2, 3, 4 and 5
    Explanation

    Option d is the correct are resilient cereals that can offer a cost-effective alternative and help ensure food security. 75th session in March 2021, the United Nations declared 2023 the International Year of 2023) with the Food and Agriculture Organization United Nations (FAO) as the lead agency. Some of the TURE advantages of millets over conventional cereals like rice are given below: Millets can grow on arid soils, non-irrigated land, in very low rainfall regimes, and over a wide latitudinal range. Hence, option l is correct. Compared to rice and wheat, millets require less water. They also have a low water footprint. Hence, option 2 is correct. In an era of climate change and declining natural resources, the millet crop is an obvious choice for farmers due to its high tolerance for heat (up to 64 degrees Celsius), drought, and flood. Hence, option 3 is correct. They require less inpu

12. #52Full-length test
    Which of the following is an application of Geospatial technology?
    • AHelp in management of logistics by tracking goods and ensuring their safety
    • BUsed for predicting plant yield and their nutritive value c '
    • CIn wildlife conservation projects by helping to prevent and address calamities
    • DAll of the above
    Answer: (D) All of the above
    Explanation

    Option d is the correct a is correct. With the use of Global and remote sensing technologies it had been to manage the logistics as now we can track the real-time basis and ensure their b is correct. Light detection and ranging { are being used to accurately yield and nutritive value. Hand-held devices are developed that can produce imagery to assess real time forage c is correct. Earlier the major issue with projects was locating the particular the help of geospatial technologies, it has easy to trace species populations in certain and addressing calamities

13. #53Full-length test
    Consider the following statements with reference to the Metaverse: 1. It is a mix of virtual reality, augmented reality, and blockchain. 2. It can aid in urban planning and development in developing countries. 3. It is synonymous toHow many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct answer A metaverse is a network of virtual worlds focused I is correct: Metaverse involves and extended reality (XR) in a persistent virtual space. It involves the usage of virtual reality and blockchain. The metaverse spaces for engagement, connection, sharing, In the metaverse, people can play games, collaborate, shop, stroll, watch movies and can do almost anything they could do in the real 2 is correct: The metaverse can al so help development and urban planning. The future design will converge with virtual world shapes, experiences, functions, and aesthetic designing environments become possible. Cities countries could experiment with spaces, including slums, with the help of gamers collaborating in immersive 3 is incorrect: The two terms web 3.0) and metaverse are often confused other and though they are related with each cannot be called exactly a synonym.

14. #54Full-length test
    Which of the following statements is/are correct regarding the distinction between Gross Domestic Product (GDP) and Gross National Product (GNP) of India in a financial year? Forum { } While GDP economic activities happening within the nation, GNP measures economic activities of Indian citizens, irrespective of their location. 2. While the higher GDP necessarily means higher economic growth, higher GNP necessarily means higher economic development. 3. While GNP data is published by Office of Economic Advisor, Ministry of Commerce, the GDP data is released by National Statistical Office, Ministry of Statistics and Program Implementation.Select the correct answer from the code given below
    • A1 only
    • B2 only
    • C1 and 3 only
    • D2 and 3 only
    Answer: (A) 1 only
    Explanation

    Option a is the correct Domestic Product (GDP) and Gross National are two of the most commonly used measures of economy. Both represent the total market all goods and services produced over a certain time, usually a year. However, they are calculated in I is correct: Gross domestic product (GDP) is of the finished domestic goods and services. a nation's borders. On the other hand, gross (GNP) is the value of all finished goods and by a country's citizens, whether or not are produced within the territory of the country. is true that GDP measures economic activities the nation, the GNP measures economic both inside and outside the 2 is incorrect: While it is true that higher higher economic growth of a nation (which of goods and services by a nation.) but higher mllll may mean a country is increasing its international operations, trade, or production. higher GDP nor higher GNP necessarily

15. #55Full-length test
    Edward Law Committee in British India, is associated with which of the following?
    • AReforms in higher education
    • BCooperative Societies
    • CPolice Service
    • DPoona Pact
    Answer: (B) Cooperative Societies
    Explanation

    Option b is the correct a is incorrect: The NEER may be adjusted for the inflation rate of the home to the inflation rate of its trading partners. figure is the real effective exchange rate the relationships in a nominal exchange rate, not determined for each currency separately. individual number, typically an index, expresses how currency's value compares against multiple at b is correct: NEER and REER are using the basket of SDR currencies, the US dollar, euro, Chinese yuan, Japanese British c is incorrect: When the weight of inflation with the Nominal Effective Exchange Rate get the real effective exchange rate (REER) of the d is incorrect: The Nominal Effective (NEER) of the rupee is a weighted average of before the currencies of India's major trading partners

More Economy topics