Daily Static Quiz (Economy) March 11, 2025
Daily Static Quiz
Question 1
Which of the following is NOT one of the thematic areas highlighted in the Blue Economy policy framework prepared by the Ministry of Earth Sciences?
A) Coastal marine spatial planning and tourism
B) Marine fisheries, aquaculture, and fish processing
C) Artificial intelligence and digital transformation
D) Security, strategic dimensions, and international engagement
Question 2
The Phillips Curve demonstrates an inverse relationship between:
A) Inflation and economic growth
B) Unemployment and inflation
C) Interest rates and investment
D) Exchange rates and trade balance
Question 3
Consider the following statements regarding Nobel Prize winners in Economics:
Daron Acemoglu, Simon Johnson, and James Robinson received the Nobel Prize in 2024 for their studies on how institutions affect prosperity.
Amartya Sen was awarded the Nobel Prize for his contributions to welfare economics and social choice theory.
Abhijit Banerjee shared the Nobel Prize with Michael Kremer and Esther Duflo for their experimental approach to alleviating global poverty.
Milton Friedman received the Nobel Prize for his pioneering work in the theory of international trade.
Which of the statements given above are correct?
A) 1, 2 and 3 only
B) 2, 3 and 4 only
C) 1, 2 and 4 only
D) 1, 2, 3 and 4
Question 4
The paradox of thrift, popularized by John Maynard Keynes, suggests that:
A) Increased savings at the individual level always translate to increased economic growth at the national level
B) Individual savings have no impact on aggregate economic activity
C) While saving is beneficial for individuals, if everyone saves more simultaneously, it may lead to decreased economic activity
D) Thrift is an outdated economic concept with no relevance to modern economies
Question 5
In the context of economics, which of the following best describes Pareto efficiency?
A) A situation where resources are evenly distributed among all individuals
B) An economic state where no individual can be made better off without making at least one individual worse off
C) A condition where economic growth benefits all sections of society equally
D) A measure of fairness and equality in resource distribution
Question 6
Engel’s Law, formulated by German economist Ernst Engel, establishes the relationship between:
A) Price and quantity demanded of a good
B) Income of a consumer and the percentage spent on food
C) Supply and demand in perfectly competitive markets
D) Wages and labor productivity
Question 7
According to the Ricardian theory of rent, which of the following statements is correct?
A) Rent arises due to government regulations restricting land use
B) Rent is a differential surplus arising from differences in fertility or situation of different plots of land
C) Rent is determined solely by the demand for agricultural products
D) Rent is always included in the cost of production and hence affects price
Question 8
In economics, allocative efficiency refers to:
A) The maximum output achieved from a given set of inputs
B) Equal distribution of resources among all individuals
C) Production of the mix of goods and services most desired by society
D) Minimizing the cost of production for a given level of output
Question 9
The concept of Marginal Social Cost (MSC) in economics refers to:
A) The additional cost incurred by producers to manufacture one more unit of a good
B) The total cost borne by society as a result of producing an additional unit of a good or service
C) The opportunity cost of choosing one economic activity over another
D) The cost of social welfare programs implemented by the government
Question 10
With reference to Total Factor Productivity (TFP), consider the following statements:
It measures the efficiency with which both capital and labor inputs are used in the production process.
An increase in TFP means output is growing faster than inputs.
TFP growth can be attributed solely to technological advancements.
It is calculated as the ratio of aggregate output to aggregate inputs.
Which of the statements given above are correct?
A) 1, 2 and 3 only
B) 2, 3 and 4 only
C) 1, 2 and 4 only
D) 1, 2, 3 and 4
Answer Key with Explanations
Answer 1: C) Artificial intelligence and digital transformation
The Blue Economy policy framework prepared by the Ministry of Earth Sciences in line with the Government of India’s Vision of New India by 2030 recognizes seven thematic areas: National accounting framework for the blue economy and ocean governance; Coastal marine spatial planning and tourism; Marine fisheries, aquaculture, and fish processing; Manufacturing, emerging industries, trade, technology, services, and skill development; Logistics, infrastructure and shipping, including trans-shipments; Coastal and deep-sea mining and offshore energy; and Security, strategic dimensions, and international engagement. Artificial intelligence and digital transformation specifically is not listed as one of the thematic areas, though technology broadly is mentioned under the manufacturing and emerging industries theme.
Answer 2: B) Unemployment and inflation
The Phillips Curve is an economic theory developed by A.W. Phillips in the 1950s that explains the inverse relationship between an economy’s unemployment rate and inflation rate. According to this theory, when unemployment declines, labor becomes more in demand, forcing firms to compete for workers by raising wages. As wages rise, production costs increase as well, pushing up the cost of goods and services, resulting in inflation. Therefore, a drop in unemployment is generally followed by an increase in inflation, and vice versa. This theory has been used by central banks to establish monetary policy, though its applicability in the modern economy has been debated.
Answer 3: A) 1, 2 and 3 only
The Nobel Prize in Economic Sciences, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, has recognized groundbreaking contributions across various fields of economics. Statement 1 is correct as Daron Acemoglu, Simon Johnson, and James Robinson were awarded the 2024 Nobel Prize for their research on how institutions are formed and affect prosperity15. Their work examines how countries that established inclusive institutions generally achieved greater prosperity, while those with extractive institutions have experienced lower economic growth.
Statement 2 is correct. Amartya Sen received the Nobel Prize in Economics in 1998 for his contributions to welfare economics, including his work on social choice theory, welfare indexes, and analyses of poverty and famine in developing countries2. His work has been particularly influential in understanding economic development and social welfare.
Statement 3 is also correct. Abhijit Banerjee shared the 2019 Nobel Prize in Economics with Michael Kremer and Esther Duflo for their experimental approach to alleviating global poverty4. Their pioneering work introduced randomized controlled trials to economics research, allowing for more precise understanding of which interventions are most effective in reducing poverty.
Statement 4 is incorrect. Milton Friedman was awarded the Nobel Prize in Economics in 1976 for his achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy2—not for work on international trade. The Nobel Prize for contributions to the theory of international trade was awarded to James E. Meade and Bertil Ohlin in 1977.
Answer 4: C) While saving is beneficial for individuals, if everyone saves more simultaneously, it may lead to decreased economic activity
The paradox of thrift is an economic concept popularized by John Maynard Keynes during the Great Depression. It suggests that while saving is generally considered beneficial for individuals, if everyone increases their savings simultaneously (especially during economic downturns), it can lead to a decrease in overall economic activity, ultimately making everyone worse off. This happens because increased savings mean reduced consumption, which lowers aggregate demand, potentially leading to reduced production, layoffs, higher unemployment, and a decrease in income levels across the economy. The concept is a component of business cycle underconsumption hypotheses, which link economic downturns to high savings and low consumption.
Answer 5: B) An economic state where no individual can be made better off without making at least one individual worse off
Pareto efficiency, a concept commonly used in economics, refers to an economic situation in which it is impossible to make one party better off without making another party worse off. A resource allocation is Pareto efficient if no Pareto improvement is possible. Pareto improvement occurs when a change in allocation makes at least one individual better off without making any other individual worse off. It’s important to note that Pareto efficiency does not equate to fairness or equality; it only indicates that resources are allocated in the most efficient way possible given the initial distribution of resources.
Answer 6: B) Income of a consumer and the percentage spent on food
Engel’s Law is an economic theory introduced by Ernst Engel, a German economist and statistician, in 1857. It describes the relationship between household income and expenditures on particular goods or services, specifically stating that as family income increases, the percentage of income spent on food decreases. This implies that the income elasticity of demand for food is positive but less than 1, meaning that food consumption increases with income but at a slower rate than income growth. This economic theory remains relevant in understanding consumption patterns across different income levels.
Answer 7: B) Rent is a differential surplus arising from differences in fertility or situation of different plots of land
The Ricardian theory of rent, developed by British economist David Ricardo, posits that rent arises due to the differences in fertility or situation of different plots of land. It is based on the assumption that land has original and indestructible powers of the soil, and the operation of the law of diminishing marginal returns applies to land cultivation. According to Ricardo, land being a gift of nature has no supply price and no cost of production, so rent is not a part of the cost and does not enter into cost and price. From society’s perspective, the entire return from land is surplus earning, and rent is a differential surplus in the sense that more fertile or super marginal land earns a surplus of revenue over its costs.
Answer 8: C) Production of the mix of goods and services most desired by society
Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. At its most basic level, it means producers supply the quantity of each product that consumers demand. While determining what a society desires can be complex and often discussed across various disciplines including political science, sociology, and philosophy, the economic concept focuses on matching production to consumer preferences. Of all the productively efficient choices possible (those lying on the production possibilities frontier), only one will be the allocatively efficient choice for society as a whole.
Answer 9: B) The total cost borne by society as a result of producing an additional unit of a good or service
Marginal Social Cost (MSC) refers to the total cost that society pays as a result of the production of additional units or utilization of a good or service. It’s important to note that the total costs of producing an additional unit are not only undertaken by the producer but also by society as a whole. MSC includes both the private costs incurred by producers and the external costs (externalities) imposed on third parties or society. This concept is particularly relevant when analyzing market efficiency and the presence of externalities, as the divergence between private and social costs may lead to market failures.
Answer 10: C) 1, 2 and 4 only
Total Factor Productivity (TFP) is a measure of the efficiency with which inputs (typically capital and labor) are used in production (statement 1 is correct). When TFP increases, output grows faster than inputs, indicating improved efficiency in the production process (statement 2 is correct). While technological advancement is a significant contributor to TFP growth, it’s not the only factor; other contributors include improvements in managerial practices, organizational changes, economies of scale, and better resource allocation (statement 3 is incorrect). TFP is calculated as the ratio of aggregate output to aggregate inputs, representing the portion of output not explained by the amount of inputs used in production (statement 4 is correct).