UPSC Static Quiz – Economy : 27 March 2025

Solution: b)

• Economic efficiency is when goods and services are distributed according to consumer preferences and needs of corporations. It is when the maximum number of goods and services are produced with a given amount of inputs.

Solution: b)

Statement 1 is incorrect.

• In a capitalist society the goods produced are distributed among people not on the basis of what people need but on the basis of Purchasing Power—the ability to buy goods and services.
• In a socialist society the government decides what goods are to be produced in accordance with the needs of society. It is assumed that the government knows what is good for the people of the country and so the desires of individual consumers are not given much importance. The government decides how goods are to be produced and how they should be distributed.

In principle, distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase.

Solution: b)

Statement 2 is incorrect.

• If a nation has the same stock of land, labour and capital, and yet it achieves high rates of GDP growth consistently. If inputs are same, how does output increase over time?
• Either the individual productivities of factors would have increased, or the total combined productivity of the economy has increased.
• This can happen either by better technology, better infrastructure etc that improve the total factor productivity of the economy. Suppose, now a factory requires 10 hours to produce a good. With better techniques of production, the same can be achieved in 2 hours.
• Technology growth and efficiency are regarded as two of the biggest sub-sections of Total Factor Productivity.

Solution: a)

Statement 1 is incorrect.

• Planning, in the real sense of the term, began with the Second Five Year Plan. The Second Plan, a landmark contribution to development planning in general, laid down the basic ideas regarding goals of Indian planning; this plan was based on the ideas of Mahalanobis. In that sense, he can be regarded as the architect of Indian planning.
• Industrial Policy Resolution 1956 (IPR 1956): In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist

pattern of society.

• In the first seven plans, trade was characterised by what is commonly called an inward-looking trade strategy. Technically, this strategy is called import substitution. This policy aimed at replacing or substituting imports with domestic production.

Solution: d)

• Stabilisation measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control.
• On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy.