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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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