Daily Static Quiz (Economy) December 12, 2025

Daily Static Quiz (Economy) December 12, 2025

Question 1

The Tendulkar Committee’s methodology for poverty estimation represented a significant departure from earlier approaches. Which of the following accurately reflects the committee’s key innovation in poverty measurement?

A) Adoption of a pure calorie-based poverty line for uniform national application
B) Incorporation of private household expenditure on health and education alongside nutritional requirements
C) Implementation of region-specific poverty lines with differential weighting for urban and rural areas
D) Exclusive focus on income levels rather than consumption expenditure patterns

Question 2

Consider the following statements regarding the Eighth Five Year Plan (1992-97):

1. The plan prioritized economic liberalization to address fiscal imbalances and foreign debt

2. One of its explicit objectives was to achieve 8% annual GDP growth

3. The plan emphasized decentralization through Panchayati Rajs and Nagar Palikas

4. It marked India’s formal transition from a centrally planned to an indicative planning framework

Which of the above statements are correct?

A) 1, 2, and 3 only
B) 2 and 4 only
C) 1, 3, and 4 only
D) All of the above

Question 3

The Atkinson Index differs from the Gini Coefficient primarily in its ability to:

A) Provide a single numerical measure ranging from 0 to 1 without any qualifications
B) Apply a sensitivity parameter (ε) to weight inequalities at different points of the income distribution
C) Measure absolute poverty rather than relative inequality
D) Capture both income and wealth inequality simultaneously in a unified framework

Question 4

Which statement best explains the relationship between the Lorenz Curve and income inequality?

A) The Lorenz Curve demonstrates that a perfectly equal society produces a curved line below the diagonal, while unequal societies produce straight lines
B) When the Lorenz Curve coincides with the line of equality, it indicates the existence of the maximum possible Gini Coefficient
C) The greater the distance between the Lorenz Curve and the line of perfect equality, the greater the income inequality within a population
D) The Lorenz Curve cannot be used to measure inequality if the income distribution is skewed toward higher earners

Question 5

Purchasing Power Parity (PPP) exchange rates differ from market exchange rates because PPP:

A) Is calculated solely on the basis of inflation rates between two countries
B) Accounts for differences in price levels and purchasing power, not merely financial market valuations
C) Eliminates the need for international trade by creating perfectly equal prices
D) Applies only to traded goods and excludes services entirely from its calculation

Question 6

According to the World Inequality Report 2026, which of the following statements accurately reflects global wealth distribution patterns?

A) The global top 10% now controls approximately three-quarters of all personal wealth, while the bottom 50% holds less than 5%
B) The bottom half of the global population owns 50% of total wealth, representing significant progress since 2005
C) Wealth concentration has decreased uniformly across all world regions over the past three decades
D) The middle 40% of the global population controls more total wealth than the top 10%

Question 7

Total Fertility Rate (TFR) is measured by:

A) Adding up all age-specific fertility rates across five-year age groups, multiplying by 5, and dividing by 1,000
B) Dividing the total number of births by the total population to determine average births per woman
C) Calculating the ratio of women of childbearing age to the total population
D) Measuring only births occurring during the current calendar year divided by the number of women aged 15-49

Question 8

Structural unemployment in an economy typically manifests through:

A) Temporary joblessness that occurs naturally as workers transition between positions
B) Job losses exclusively during economic recessions and recoveries
C) Mismatches between workers’ skills and available job requirements, necessitating retraining or education
D) Voluntary unemployment where workers choose not to accept available employment opportunities

Question 9

The concept of ‘Effective Capital Expenditure’ introduced in recent Union Budgets includes which of the following?

A) Only direct capital expenditure on central government projects
B) Capital expenditure combined with grants-in-aid for creation of capital assets by states and agencies
C) Revenue expenditure classified under productive sectors
D) The sum of total budget allocations for infrastructure without distinguishing capital from revenue components

Question 10

Based on recent Economic Survey data, the Gini Coefficient for India’s rural sector demonstrated which trend?

A) A steady increase from 0.363 to 0.396, indicating growing inequality
B) A decline from 0.283 to 0.266, suggesting reduction in inequality
C) No significant change, remaining constant at 0.350 across the measurement period
D) An irregular pattern with alternating increases and decreases, indicating economic volatility

ANSWERS AND EXPLANATIONS

Question 1: Answer – B

Explanation:

The Tendulkar Committee (2009) marked a paradigm shift in poverty measurement in India. Instead of relying solely on calorie-based approaches from previous methodologies, the committee recommended shifting to a consumption expenditure-based poverty line that incorporated private household expenditures on health and education alongside basic nutritional requirements. This broader approach provided a more comprehensive understanding of poverty by recognizing that access to healthcare and education are fundamental to measuring actual deprivation.

The committee computed poverty lines for 2004-05 at Rs. 446.68 per capita per month in rural areas and Rs. 578.80 in urban areas, using a uniform poverty line basket across states. This methodology was further refined with a new price adjustment procedure, making the Tendulkar approach more nuanced and reflective of actual living standards than previous calorie-focused measures.

Why other options are incorrect:

• Option A is false because the committee explicitly moved away from a calorie-based approach

• Option C is partially true but not the primary innovation; the committee used uniform baskets though with state-wise poverty line variations

• Option D contradicts the actual methodology, which maintained a consumption expenditure focus

Question 2: Answer – C

Explanation:

The Eighth Five Year Plan (1992-97) was a transformative period in India’s economic history, occurring immediately after the 1991 economic reforms. The plan had multiple significant characteristics:

Statement 1 – CORRECT: Economic liberalization was indeed a primary objective to address the fiscal imbalances and foreign debt that had accumulated by the late 1980s. India formally joined the WTO on January 1, 1995, during this plan period, marking the implementation of this liberalization policy.

Statement 2 – INCORRECT: While the plan had growth objectives, the 8% GDP growth target was established in later Five Year Plans (specifically the Eleventh Five Year Plan onwards), not the Eighth Plan.

Statement 3 – CORRECT: The plan explicitly emphasized decentralization and people’s participation through Panchayati Rajs and Nagar Palikas, reflecting India’s democratic federal structure.

Statement 4 – CORRECT: The Eighth Plan represented a deliberate shift from the centrally planned economy model (where targets were mandatory) to an indicative planning framework (where projections and targets served as guidelines). This transition enabled market mechanisms to operate alongside planning.

Question 3: Answer – B

Explanation:

The Atkinson Index, developed by British economist Anthony Barnes Atkinson, represents a family of inequality measures that incorporates a crucial element absent in the Gini Coefficient: a sensitivity parameter (ε) that varies the weight given to different parts of the income distribution.

The importance of this parameter lies in its flexibility:

• When ε is close to 0, the index is less sensitive to inequalities at the lower end of the distribution

• As ε increases (typically values of 0.5, 1, 1.5, or 2), the index becomes increasingly sensitive to inequalities among the poorest segments

• This allows researchers to express their social judgments about which inequalities matter most

This feature addresses Atkinson’s philosophical concern that inequality measures must incorporate normative judgments about social welfare. An Atkinson index value of 0.20 means that society could achieve the same level of social welfare with only 80% of current income if it were perfectly distributed.

By contrast, the Gini Coefficient applies a uniform weighting across all parts of the income distribution without this flexibility.

Question 4: Answer – C

Explanation:

The Lorenz Curve is a fundamental graphical tool for understanding income inequality within a population. It plots the cumulative percentage of income (on the Y-axis) against the cumulative percentage of population, ranked by increasing income (on the X-axis).

Key understanding of the relationship:

In a perfectly equal society, each segment of the population would receive an equivalent share of total income. This would result in the Lorenz Curve coinciding with the line of perfect equality (a 45-degree diagonal line), where 20% of the population receives 20% of income, 50% receives 50%, and so forth.

However, in reality, income is distributed unequally. The actual Lorenz Curve curves below the line of perfect equality. The greater the distance between the Lorenz Curve and the diagonal line, the greater the inequality within the population. The area between these two lines forms the basis for calculating the Gini Coefficient, which measures the ratio of inequality to perfect equality.

This visualization makes the Lorenz Curve invaluable for policy makers and economists analyzing wealth distribution patterns.

Question 5: Answer – B

Explanation:

Purchasing Power Parity (PPP) is fundamentally different from market exchange rates because it addresses the core economic principle that the same bundle of goods and services should have equivalent value across different countries when adjusted for price differences.

Understanding PPP:

PPP exchange rates answer this question: What exchange rate would equalize the purchasing power of different currencies? For example, if a computer costs $500 in the USA and ₹2,000,000 in India, the PPP exchange rate would suggest that ₹4,000 equals $1, since that rate would make the computer equivalent in purchasing power terms.

Why PPP differs from market exchange rates:

• Market exchange rates are determined by international financial markets and reflect speculative flows, interest rate differentials, and relative currency demand

• PPP rates focus on real purchasing power, accounting for tariffs, transaction costs, and non-traded goods

• The market exchange rate of ₹85 per dollar might differ significantly from the PPP rate because India’s goods prices are generally lower than the US

PPP’s importance for international comparisons:

This distinction is critical when comparing living standards, poverty levels, and per capita income across countries. The Tendulkar Committee itself used PPP terms when estimating poverty lines, recognizing that nominal currency conversions don’t reflect true purchasing power.

Question 6: Answer – A

Explanation:

According to the World Inequality Report 2026, global wealth concentration has reached historic extremes:

Wealth distribution patterns:

• The top 10% of the global population owns approximately 75% (three-quarters) of all personal wealth

• The bottom 50% owns less than 5% of total wealth, with many facing negative wealth due to debt exceeding assets

• The wealthiest 0.001% (fewer than 60,000 multimillionaires) now command wealth three times greater than half the world’s population combined

Income inequality similarly severe:

• The top 10% capture 52% of global income (pre-tax)

• The middle 40% earn 38% of income

• The bottom 50% receive only 8-10% of total income

Regional disparities:

Wealth concentration varies dramatically by region:

• North America and Oceania: 338% of global average wealth (most unequal)

• Europe and East Asia: Above global average

• Sub-Saharan Africa, South Asia, and Latin America: Significantly below global average

This data reflects a fundamental trend since the 1990s: billionaire wealth has grown at approximately 8% annually—nearly double the growth rate of the global bottom 50%.

Question 7: Answer – A

Explanation:

The Total Fertility Rate (TFR) is precisely calculated through a standardized demographic methodology:

TFR Calculation Formula:

TFR = (Sum of Age-Specific Fertility Rates × 5) / 1,000

Understanding the components:

1. Age-Specific Fertility Rates (ASFR): These measure the number of live births per 1,000 women in each five-year age group (typically 15-19, 20-24, … 45-49)

2. Multiply by 5: This accounts for the five-year width of each age group in the calculation

3. Divide by 1,000: This converts the rate to a per-woman basis, representing the average number of children per woman

Interpretation and importance:

• A TFR of 2.1 is considered the replacement level fertility rate in developed countries (the level at which a population exactly replaces itself without migration)

• Reduction of TFR to 2.1 by 2027 is a specific target in India’s demographic planning

• TFR accounts for current age-specific fertility patterns and assumes a woman experiences these rates throughout her reproductive years (15-49)

Why other options are incorrect:

• Option B uses incorrect denominators and doesn’t account for age-specific variations

• Option C measures composition, not fertility

• Option D ignores age-specific patterns and only captures current-year data

Question 8: Answer – C

Explanation:

Structural unemployment represents a fundamental mismatch between labor supply and labor demand that persists beyond temporary economic cycles.

Key characteristics of structural unemployment:

Root causes:

• Technological change rendering certain skill sets obsolete

• Economic restructuring (e.g., decline of manufacturing in some regions)

• Geographic mismatches between job locations and worker residence

• Educational inadequacy for available positions

• Industry shifts that eliminate entire categories of employment

Persistence and severity:
Unlike frictional unemployment (temporary gaps between jobs) or cyclical unemployment (recession-related), structural unemployment persists even during economic expansion because workers lack required skills. A coal miner cannot immediately become a software engineer; retraining is necessary.

Policy implications:
India faces significant structural unemployment, particularly in:

• Rural areas transitioning from agriculture

• Regions affected by industrial decline

• Youth lacking market-relevant skill training

• Sectors experiencing technological displacement

This contrasts sharply with:

• Frictional unemployment (Option A): temporary and normal

• Cyclical unemployment (Option B): tied to economic cycles

• Voluntary unemployment (Option D): workers choosing not to work

Question 9: Answer – B

Explanation:

The concept of ‘Effective Capital Expenditure’ was introduced to capture the true extent of public investment by the central government beyond traditional budget classifications.

Understanding the distinction:

Traditional Capital Expenditure (CapEx):
Only includes direct expenditure by the central government on creating capital assets (roads, bridges, buildings, machinery, etc.)

Effective Capital Expenditure:
Expands this definition to include:

• Direct capital expenditure by the central government

• Grants-in-aid to states and other agencies specifically for creation of capital assets

Why this matters:

In government budgeting, grants-in-aid to states are technically classified as revenue expenditure (revenue transfers), not capital expenditure. However, when these grants fund the construction of schools, hospitals, bridges, dams, or other capital assets, they contribute equally to nation’s productive capacity and long-term growth.

Budget 2023-24 figures:

• Effective Capital Expenditure was budgeted at Rs. 13.7 lakh crore, representing 4.5% of GDP

• This contrasts with and exceeds the traditional CapEx figure alone

Policy significance:
This concept ensures that true public investment—which is critical for infrastructure-led growth and development—is accurately measured and tracked for policy evaluation purposes.

Question 10: Answer – B

Explanation:

According to the Economic Survey 2023-24, India’s income inequality, as measured by the Gini Coefficient, demonstrated a significant declining trend, indicating improvement in income distribution:

Rural sector improvement:

• Gini Coefficient declined from 0.283 to 0.266

• This reduction of 0.017 points represents meaningful progress in rural income equality

• The improvement reflects better income distribution among rural populations

Urban sector improvement:

• Gini Coefficient declined from 0.363 to 0.314

• A larger absolute decline (0.049 points) indicating faster urban inequality reduction

• Urban areas remain more unequal than rural areas (0.314 vs 0.266)

Broader context:

This trend aligns with India’s performance improvements noted by multiple sources:

• Recent data (2022-23) suggests India’s Gini Coefficient improved to 0.255, making it the fourth-most equal country globally

• Only Slovenia, Slovakia, and Belarus score better

• This contrasts favorably with nations like China (0.357), USA (0.418), and Russia

Policy implications:

The decline indicates that:

• Government welfare schemes and redistributive policies are having measurable effects

• Income distribution became more equitable during the measurement period

• However, structural inequalities remain, particularly in urban areas

Daily Static Quiz