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In the Lewis Dual Sector Model of development, the 'Turning Point' occurs when the surplus labor in the traditional agricultural sector is completely exhausted, forcing the modern industrial sector to raise wages to attract further workers.
- True
- False
Answer: True
Arthur Lewis theorized that developing economies have an unlimited supply of surplus labor in subsistence farming, allowing the industrial sector to keep wages artificially low and reap massive profits for reinvestment. The 'Lewis Turning Point' is the critical milestone where this labor surplus dries up. Beyond this point, wages must rise across the entire economy, marking the transition to a mature, developed economic structure.
A 'Safeguard Duty' is a temporary trade protection measure imposed against a specific country that is found guilty of violating WTO intellectual property rules.
- True
- False
Answer: False
Safeguard duties are not punitive measures against unfair trade practices like dumping or IP theft. Instead, they are emergency 'escape valves' applied on a Most-Favoured-Nation (MFN) basis against *all* importing countries when there is a sudden, massive, and unforeseen surge in imports that threatens to cause serious injury to the domestic industry, allowing them time to adjust.
Under the WTO's Agreement on Subsidies and Countervailing Measures (ASCM), 'Export Subsidies' (subsidies contingent upon export performance) are generally classified as prohibited 'Red Light' subsidies.
- True
- False
Answer: True
The WTO strictly prohibits export subsidies because they are explicitly designed to distort global trade by artificially lowering the price of a country's goods in foreign markets, harming competitors in other nations. If a country is found guilty of providing a prohibited Red Light subsidy, it must withdraw it immediately, or the affected countries can impose retaliatory countervailing duties.
If the tax buoyancy coefficient is exactly equal to 1, it implies that tax revenues are growing at the exact same rate as the nominal Gross Domestic Product (GDP), assuming no discretionary changes in tax rates.
- True
- False
Answer: True
Tax buoyancy measures the automatic responsiveness of the tax system to economic expansion. A buoyancy of 1 means the tax-to-GDP ratio remains perfectly constant over time. A buoyancy greater than 1 indicates a highly progressive and efficient tax system where revenues grow faster than the economy, providing the government with increasing fiscal space without needing to hike tax rates.
Kondratiev Waves (or K-Waves) are hypothesized long-term economic cycles lasting approximately 40 to 60 years, typically driven by major technological innovations like the steam engine, electrification, or the internet.
- True
- False
Answer: True
Named after Russian economist Nikolai Kondratiev, these super-cycles suggest that capitalist economies experience prolonged periods of sectoral expansion followed by equally long periods of stagnation and correction. Each wave is fundamentally anchored to a paradigm-shifting technological revolution that completely restructures global production, infrastructure, and labor markets.
Non-Banking Financial Companies (NBFCs) whose asset size is Rs. 500 crore or more are classified by the RBI as 'Systemically Important' (NBFC-ND-SI) because their distress could potentially trigger a contagion effect across the broader financial system.
- True
- False
Answer: True
Because large NBFCs are deeply interconnected with commercial banks (borrowing heavily from them) and retail investors, the failure of a massive NBFC could collapse the credit market. Consequently, the RBI subjects these Systemically Important NBFCs to much stricter prudential norms, capital adequacy requirements, and liquidity coverage ratios, similar to those applied to commercial banks.
The GDP Deflator is mathematically classified as a Laspeyres index because it uses a fixed basket of goods from the base year to measure price changes in the current year.
- True
- False
Answer: False
The GDP Deflator is actually a Paasche index because it uses the quantities of the *current year* as its weights, reflecting the actual basket of goods and services produced in that specific period. In contrast, the CPI is typically a Laspeyres index, which uses a fixed, historical base-year basket, which can lead to an overestimation of inflation due to the substitution bias.
Under Basel III norms, Tier 2 Capital includes instruments like subordinated debt and hybrid capital, which are considered less secure than Tier 1 capital and primarily serve to absorb losses in the event of a bank's liquidation.
- True
- False
Answer: True
Tier 2 capital is supplementary capital. In the event of a bank failure, Tier 1 capital absorbs losses first to keep the bank running (going-concern). If the bank is inevitably winding down (gone-concern), Tier 2 instruments are then written down or converted to equity to protect depositors and senior creditors from taking total losses.
A Pigouvian subsidy is a government payment designed to encourage the production or consumption of a good that generates positive externalities, such as vaccinations or renewable energy.
- True
- False
Answer: True
Just as a Pigouvian tax corrects the overproduction of harmful goods (negative externalities), a Pigouvian subsidy corrects the underproduction of beneficial goods. Because the free market ignores the broader societal benefits of things like education or solar panels, the subsidy lowers the effective price, aligning private incentives with the socially optimal level of consumption.
Under the Pradhan Mantri Awaas Yojana - Gramin (PMAY-G), the financial assistance provided for constructing a pucca house is uniform across all geographical terrains, offering the exact same amount to beneficiaries in plain areas and difficult hilly regions.
- True
- False
Answer: False
The scheme recognizes the logistical challenges and higher cost of transporting construction materials to remote, difficult terrains. Therefore, the unit assistance is deliberately higher for beneficiaries in hilly states, difficult areas, and IAP districts (e.g., Rs. 1.30 lakh) compared to those in the plains (e.g., Rs. 1.20 lakh) to ensure the subsidy is practically sufficient to build a quality house.
The Doha Development Agenda, launched by the WTO in 2001, successfully concluded in 2015 with a comprehensive treaty that eliminated all agricultural export subsidies globally.
- True
- False
Answer: False
The Doha Round was explicitly designed to prioritize the needs of developing countries, particularly regarding agricultural market access and the reduction of Western farm subsidies. However, it repeatedly stalled due to irreconcilable differences between developed nations (US/EU) and emerging economies (India/China) over the 'Special Safeguard Mechanism' and domestic support limits, effectively leaving the round in an indefinite deadlock.
'Tax Buoyancy' measures the responsiveness of tax revenue growth to changes in GDP, whereas 'Tax Elasticity' measures the responsiveness of tax revenue to discretionary changes in the tax rate or structure.
- True
- False
Answer: True
Tax Buoyancy is a broader macroeconomic metric; if buoyancy is > 1, tax revenues are growing faster than the economy without any explicit policy changes (due to better compliance or progressive brackets). Tax Elasticity isolates the pure impact of a specific policy shift (like cutting the corporate tax rate) on revenue collection, holding GDP constant.
The SARFAESI Act, 2002 empowers banks to enforce security interests and auction collateral to recover bad loans, and this power extends equally to unsecured loans and agricultural land.
- True
- False
Answer: False
The SARFAESI Act strictly applies only to *secured* loans where a tangible asset has been pledged as collateral. It explicitly excludes unsecured loans (like credit card debt or personal loans) and, crucially, agricultural land. This exclusion protects the agrarian sector from predatory corporate lending practices and ensures that farmers' primary means of livelihood cannot be summarily seized by banks.
The Soil Health Card Scheme provides farmers with a customized report detailing the macro and micro-nutrient status of their specific farm holding, along with tailored recommendations on fertilizer dosages to optimize yield and reduce input costs.
- True
- False
Answer: True
Indian agriculture has historically suffered from the imbalanced and excessive use of Urea (Nitrogen), degrading soil health. The Soil Health Card scheme tests soil samples every two years to map nutrient deficiencies (like Zinc, Boron, Potassium) and advises farmers on precise, site-specific nutrient applications, promoting sustainable farming and reducing the massive fertilizer subsidy burden.
The Special Drawing Rights (SDR) basket is reviewed by the IMF every five years to ensure it reflects the relative importance of currencies in the world's trading and financial systems. The Chinese Renminbi (Yuan) was added to this basket in 2016.
- True
- False
Answer: True
The inclusion of the Chinese Yuan in 2016 was a landmark event, marking the first time a new currency was added to the SDR basket since the Euro's creation. It signaled the IMF's recognition of China's growing integration into the global financial system and its efforts to internationalize the Yuan, joining the USD, Euro, Yen, and Pound Sterling.
Zero-Based Budgeting (ZBB) is a process where every ministry must justify its entire budget request from scratch (zero base) every year, rather than simply adjusting the previous year's budget for inflation.
- True
- False
Answer: True
Unlike incremental budgeting, which assumes past expenditures are necessary, ZBB requires a rigorous cost-benefit analysis of all proposed programs, regardless of their historical funding. While theoretically highly efficient for eliminating wasteful, obsolete schemes, it is extremely resource-intensive and time-consuming, which is why it is rarely implemented in its purest form across entire national governments.
The 'Balanced Budget Multiplier' theorem states that if the government simultaneously increases its spending and raises taxes by the exact same amount, the net impact on the national income will be zero.
- True
- False
Answer: False
The Balanced Budget Multiplier is actually equal to 1. This means that if the government raises taxes by $100 and spends exactly $100, the national income will still increase by $100. This happens because the full $100 of government spending enters the economy directly, whereas the $100 tax hike only reduces consumption by a fraction of that amount (since part of the tax would have been saved anyway).
The 'Cobweb Theorem' explains why agricultural markets often experience cyclical fluctuations in prices and quantities, due to the time lag between planting decisions and the actual harvest.
- True
- False
Answer: True
Farmers base their planting decisions on current market prices. If prices are high today, they plant more, leading to a massive oversupply and price crash at harvest time. Seeing low prices, they plant less the next season, causing a shortage and price spike. This delayed supply response creates a continuous, spiraling 'cobweb' pattern of boom and bust in agricultural commodity prices.
India officially signed and ratified the Regional Comprehensive Economic Partnership (RCEP) agreement in 2020 to boost its exports to the ASEAN and East Asian markets.
- True
- False
Answer: False
India participated in the RCEP negotiations for years but ultimately decided to opt-out and did not sign the agreement in 2020. The primary concerns were that a massive reduction in tariffs would lead to a flood of cheap manufactured goods from China and dairy/agricultural products from Australia/New Zealand, which could severely damage domestic Indian industries and farmers.
The National Multidimensional Poverty Index (MPI) published by NITI Aayog uses the 'Alkire-Foster' methodology, which identifies a household as poor only if it is deprived in 100% of the weighted indicators across health, education, and standard of living.
- True
- False
Answer: False
The Alkire-Foster methodology does not require 100% deprivation. Instead, it assigns weights to various indicators and calculates a deprivation score. A household is classified as 'multidimensionally poor' if its weighted deprivation score crosses a specific threshold (usually 33.33%). This allows the index to capture the intensity and breadth of poverty simultaneously.