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ECONOMICSSTRATEGY
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ECONOMICS

(EconomicandSocialDevelopmentSustainable,Development,Poverty,Inclusion,Demographics,SocialSector
Initiatives,etc.)

Books/SourcestoRefer>

1.Weightagegivensince2011
2.HowtoPrepare
3.BasicEconomicandIndianEconomy

3.1IntroductiontoEconomics
3.2GrowthandDevelopment
3.3InflationandBusinessCycle
3.4MoneyandBankingSystems
3.5Fiscalpolicy

3.5.1Budget
3.5.2Taxation
3.5.3Planning

3.6Market
3.7PublicSectorUnits(PSUs)
3.8ExternalSector/ForeignTrade

3.8.1BalanceofPayment(BoP)
3.8.2CapitalandCurrentAccountConvertibility
3.8.3CurrentAccountDeficit(CAD)
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3.8.4CurrencyExchangerate
3.8.4Rupeeappreciation,depreciation
3.8.4ForexReserves

3.9InternationalEconomicOrganisations

3.9.1WorldBank(WB),InternationalMonetaryFund(IMF)
3.9.2WorldTradeOrganisation(WTO)

4.EconomicSurvey
5.SocialDevelopment,PovertyandInclusion
6.Demographics
7.SocialSectorinitiatives

8.PreviousYearQuestionsandSolutions

Economymaybedauntingtosome,butthequestionsarebasedonyourconceptualunderstandingof
macroeconomics.Nomatterhowmanytimesyoureadandmugupthedata,youareboundtofalterintheexam.
ConceptualclarityiswhatmattersthemostinEconomics.

WeightagegiventoEconomics(since2011)

Onanaveragearound1415%weightageisgiventoEconomics.

IfyourbasicfundasofEconomicsissound,thenyouwillevenbeabletogetallanswersrightinPrelims.Soour
sincereadvicetoyouistoinvestmoretimeinunderstandingtheconceptsandanalyzinghowoneconceptislinked
toanother.

ForExample:

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Iftheinterestrateisdecreasedinaneconomy,itwill(2014)(a)decreasetheconsumptionexpenditurein
theeconomy

(b)increasethetaxcollectionoftheGovernment

(c)increasetheinvestmentexpenditureintheeconomy

(d)increasethetotalsavingsintheeconomy

Solution(c)

Underwhichofthefollowingcircumstancesmaycapitalgainsarise?(2012)

1.Whenthereisanincreaseinthesalesofaproduct2.Whenthereisa.naturalincreaseinthevalueofthe
propertyowned

3.Whenyoupurchaseapaintingandthereisagrowthinitsvalueduetoincreaseinitspopularity

Selectthecorrectanswerusingthecodesgivenbelow:

(a)1only

(b)2and3only

(c)2only

(d)1,2and3

Solution(b)

HowtoStudyEconomics?

SomeofthemhavemisconceptionsthatEconomicsisonlyaboutmoney.Noitsaboutchoices.Choicesor
decisionsmadebasedontheresourceavailable(time,capability,money,interestetc.)

DecisionsmadeinmidstofalternativesattheNationallevelisknownasMacroeconomics(Governmentmakinga
decisiontoblend10%Ethanolinpetrol)andifthesamechoices/decisionsaremadeattheindividuallevel,itis
knownasMicroeconomics.

Economicshassomuchofrelevancetoourdaytodaylives.Beitthechoicethatyoumaketotakeupthisexamor
evenchooseorwebsiteIASbabaforyourpreparation.Itsallaboutmakingchoicessuitingtoyourneedsand
availableresources.

ThismakesreadingEconomicsenjoyableandmeaningful!!

Onceyougetholdofthissubject,itwilltakeverylesstimetoreviseandalsomoreaccuracycanbeachievedinthe
exam.

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BasicEconomicandIndianEconomy:

1.IntroductiontoEconomics:

Focus:

Understandingthebasicconceptsof:

MacroEconomicsPoverty,Growth,Employmentetc
Microeconomicsdecisions/choicesmadeatacompany,householdoranindividuallevel

DifferencebetweenGrowthandDevelopmentindicatorsusedtomeasure.
Example:TomeasureGrowthGDPisusedandforDevelopmentHDI(HumanDevelopmentIndex)

NationalIncomeAccountingGrossNationalProduct(GNP),GrossDomesticProduct(GDP),Gross
NationalIncome(GNI),Factorcost,MarketPrice,Purchasingpowerparity(PPP),PerCapitaIncome(PCI)
ageneralunderstandingonhowtheyarecalculatedandwhatallfactorsgointotheircalculation
Example:GDPiscalculatedusingeitherofthefollowing3methodsproductionmethod,expenditure
method,incomemethod.

Primary,Secondary,TertiarySectorswhatconstituteseachsector?Whataretheircontributionstothe
GDP
Example:Primarysectorcoversagricultureandalliedactivities,mining.Itcontributes13.7%toIndiasGDP

Capitalist,State,MixedEconomicSystemwhichtypeofEconomicsystemIndiahasadoptedandwhy?

Note:Dontjustreaddefinitions,analyze!Forexample:WhendoweuseGDPformeasurementofGrowthandnot
GNP?WhichmethodisfollowedinIndiaandwhy?

Whenwesaywhyaparticularmethodwasadopteditmeansthat,onehastounderstandbothpositivesand
negativesofthemethod.

Example:2013PreviousYearQuestion

Thenationalincomeofacountryforagivenperiodisequaltothe:(a)totalvalueofgoodsandservices
producedbythenationals(b)sumoftotalconsumptionandinvestmentexpenditure(c)sumofpersonalincomeof
allindividuals

(d)moneyvalueoffinalgoodsandservicesproduced

Solution(a)

2011PreviousYearQuestion

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Aclosedeconomyisaneconomyinwhich(a.)themoneysupplyisfullycontrolled

(b.)deficitfinancingtakesplace

(c.)onlyexportstakeplace

(d.)neitherexportsnorimportstakeplace

Solution(d)

2.Growth&Development

Focus:

PovertyconceptslikeBelowPovertyline(BPL),PovertyGap,PovertyestimatesbyNationalSampleSurvey
Organisation(NSSO),whichInstitutioninIndiadecidesonPovertylinePlanningCommission
DifferentCommitteessetuptomeasurepoverty,methodologyusedAlagcommittee,Lakadwala,Suresh
TendulkarCommittee,NCSaxenaCommittee,RangarajanCommitteeAgeneralunderstandingofhow
eachcommitteedifferedintheirmeasurement.
Example:RangarajanCommitteewassetupbyPlanningCommissionin2012Methodologyusedis
MonthlyExpenditureoffamilyoffive.Accordingtotheestimatespovertyperdayperpersoninurbanarea
is47Rsandinruralareaitis32Rs

InequalityhowisitmeasuredGinicoefficient,LorenzCurveconceptslikerelativeinequality,absolute
inequality.
Issueswithemployment,differenttypesofunemploymentlikedisguisedunemployment,underemployment
etcGlobalizationanditsimpactonlabour.
DemographicDividend,SkillDevelopment
DevelopmentIndicatorsfromInternationalorganisationslikeHDI,MPI(MultiplePovertyIndex),Millennium
DevelopmentGoalsetc.

Note:MakeanoteoftheGovernmentSchemes,Committeesrelatedtogrowth,development,eradicationof
Poverty,Employment,Labourissuesetc.likeMGNREGA,NationalRuralLivelihoodMission,BharatNirmanetc.

InitiativeslikeMakeinIndia,InnovationCouncil,SkillDevelopmentInitiativeScheme(SDIS)

Example:2013PreviousYearQuestion

Disguisedunemploymentgenerallymeans(2013)(a)largenumberofpeopleremainunemployed

(b)alternativeemploymentisnotavailable

(c)marginalproductivityoflabouriszero

(d)productivityofworkersislow

Solution(c)

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EconomicgrowthincountryXwillnecessarilyhavetooccurif(2013)(a)thereistechnicalprogressinthe
worldeconomy

(b)thereispopulationgrowthinX

(c)thereiscapitalformationinX

(d)thevolumeoftradegrowsintheworldeconomy

Solution(c)

3.InflationandBusinessCycle

Focus:

Inflation,Depression,Recessionandrelatedtermsandconceptslikedeflation,disinflation,reflation,
stagflation,Philipscurve
TypesofInflationbasedontherateofgrowthofthepricescreeping,trotting,galloping,hyperinflation
TypesofInflationbasedonthecausesDemandpull,Costpush,Structural,Speculation.
ImpactofInflationonIndianEconomy,differentstakeholdersintheeconomy.Isaminimuminflation
necessary?Ifsowhy?

InflationmeasurementslikeCPI,WPI,GDPdeflator

Compositionorwhatconstitutestheseindicators
Theirmeritsanddemerits
Whichmeasurementisbetterindicatorofinflationandwhy?Whichindexisusedtomeasureinflation
inIndiacurrently?

Baseyearfromwhichitscalculated.

WhatisthisBaseyear?
WhydoesGovernmentchangetheBaseYear?
Whatimpactithasontheeconomicgrowthorinflation?
Example:InWPItherearetotally676items,outofthat20%weightageisgiventoFood,14%to
PowerandFuel,66%toManufacturedgoods.ItdoesnotincludeServices.BaseyearforWPIis2010
11.ItispublishedbyMinistryofCommerceandIndustry

RoleofGovernmentandRBIincontrollinginflation

Example:2013PrelimsQuestion

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Considerthefollowingstatements:(2013)1.Inflationbenefitsthedebtors.
2.Inflationbenefitsthebondholders.Whichofthestatementsgivenaboveis/arecorrect?
(a)1only
(b)2only
(c)Both1and2
(d)Neither1nor2Solution(a)

Ariseingenerallevelofpricesmaybecausedby:(2013)1.anincreaseinthemoneysupply
2.adecreaseintheaggregatelevelofoutput
3.anincreaseintheeffectivedemandSelectthecorrectanswerusingthecodesgivenbelow.
(a)1only
(b)1and2only
(c)2and3only
(d)1,2and3Solution(d)

2011PrelimsQuestion

Arapidincreaseintherateofinflationissometimesattributedtothebaseeffect.Whatisbase
effect?(a.)Itistheimpactofdrasticdeficiencyinsupplyduetofailureofcrops
(b.)Itistheimpactofthesurgeindemandduetorapideconomicgrowth
(c.)Itistheimpactofthepricelevelsofpreviousyearonthecalculationofinflationrate
(d.)Noneofthestatements(a),(b)and(c)givenaboveiscorrectinthiscontextSolution(c)

4.MoneyandBankingSystems

Focus:

RoleandfunctionsofRBI

MonetaryPolicy/measurestakenbyRBIlikeBankrate,reporate,reversereporate,StatutoryLiquidity
Ratio(SLR),CashreserveRatio(CRR),LiquidityAdjustmentFacility(LAF),MarginalStandingFacility(MSF)

Whyarethesemeasurestaken?
WhatimpactithasontheSupplyofmoney,InflationandtheEconomy?

DifferenttypesofBanksandtheirfunctioningCommercialBanks,RRBs,Developmentbanks,
NABARD,CooperativeBanks,DevelopmentBanks,MerchantBanks,NonBankingFinancialCompanys
(NBFCs),RegionalRuralBanks(RRBs)etc.

FunctionsoftheseBanks,towhomdotheylend?
HowaretheseBanksregulated?Conceptslikeprioritysectorlending
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Example:NBFCsareregulatedbyRBI,unlikethenormalbanks,NBFCcannotacceptdemand
deposits(DD)NBFCsdonotformpartofthepaymentandsettlementsystemandcannotissue
chequesdrawnonitself.

BankingreformslikeBankNationalisation(1969,1980)BaselNormsetc.

Whywere/arethesereformsneeded?
Whatwas/isthePurposeofthesereforms

UnderstandKeyTermsFinancialInclusion,FiscalConsolidation,NarrowBanking,NonPerformingAssets,
ShadowBanks,WeakBank,CoreBanking,BankRun,PrioritySectorlending,CapitaltoRiskWeighted
Assets(CRAR)etc.,andotherrelatedconceptsrelatedtoBankingwhatstepshavebeentakenbythe
GovernmentandRBIinthisregard.

StepstakenbygovernmentwithregardtoFinancialInclusion.

Example:IntroductionofBusinessCorrespondentmodelinruralareasorWomanonlybanks,Jan
DanYojana,Microfinance,MudraBanketc

RecentCommitteessetupwithregardtoBankingReformsanditsimportantrecommendations

FewExamplesfromPreviousYearsPrelimsQuestionsPaper

Iftheinterestrateisdecreasedinaneconomy,itwill(2014)A.decreasetheconsumptionexpenditure
intheeconomy
B.increasethetaxcollectionoftheGovernment
C.increasetheinvestmentexpenditureintheeconomy
D.increasethetotalsavingsintheeconomySolution(c)

TheReserveBankofIndiaregulatesthecommercialbanksinmattersof(2013)1.liquidityofassets
2.branchexpansion
3.mergerofbanks
4.windingupofbanksSelectthecorrectanswerusingthecodesgivenbelow.
(a)1and4only
(b)2,3and4only
(c)1,2and3only
(d)1,2,3and4Solution(d)

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Whatis/arethefacility/facilitiesthebeneficiariescangetfromtheservicesofBusinessCorrespondent
(BankSaathi)inbranchlessareas?(2014)1.Itenablesthebeneficiariestodrawtheirsubsidiesandsocial
securitybenefitsintheirvillages.
2.Itenablesthebeneficiariesintheruralareastomakedepositsandwithdrawals.Selectthecorrectanswer
usingthecodegivenbelow.A.1only
B.2only
C.Both1and2
D.Neither1nor2

Solution(c)

ContinuetoRead>

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