NTA UGC NET/JRF Exam, June 2020 Economics

Total Questions: 100

51. Given below are two statements:

Statement I: The Rybczynski theorem postulates that at constant commodity prices, an increase in the endowment of one factor will increase by a greater proportion the output of the commodity, intensive in that factor and will reduce the output of the other commodity.

Statement II: The Stolper-Samuelson theorem postulates that an increase in the relative price of a commodity (for example as a result of a tariff) decreases the return or earnings of the factor used intenstively in the production of the commodity.

In light of the above statements, choos the correct answer from the options given below:

Correct Answer: (c) Statement I is correct but Statement II is false
Solution:

The Stopler-Samuelson theorem is a theorem in Heckscher-Ohlin trade theory. It describes the relationship between relative prices of output and relative factor returns-specifically, real wages and real retuns to capital. Statement I is correct but statement II is false.

52. Which one of the following is NOT the objective of IMF?

Correct Answer: (d) To provide loans to the private sector
Solution:

The objectives of the IMF; The International Monetary Fund aims to reducing global poverty, encouraging international trade, and promoting financial stability and economic growth.

The IMF has three main functions; overseeing economic development, lending, and capacity development. To provide loans to the private sector is not the objectives of IMF.

53. The concept of Goods and Services Tax (GST) is originated in:

Correct Answer: (a) Canada
Solution:

The goods are services tax is value added tax introduced in Canada on January 1, 1991, by the government of Prime Minister Brian Mulroney.

54. Given below are two statements.

Statement I : Mrs. Ursula K. Hicks stated that "Private finance, whether of firms or individuals. starts with a given income plan as a framework within which expenditure must be planned; public finance, on the contrary, starts with a given expenditure plan and the authorities adjust their income by means of taxes and resources to match the expenditure. Statement II : Prof. Shiras pointed out that "Public authorities differ from private expenditure in that the former should balance income and should not necessarily seek a profit in the manner that an individual would."
In light of the above statements, choose the correct answer from the options given below:

Correct Answer: (a) Both Statement I and Statement II are true
Solution:

Statement I and II both are correct.
The statement 1ˢᵗ highlights the compulsory character of public finance and the voluntary character of private finance the state is compulsorily required to incur expenditure on maintenance of law and order, expenditure on the defense sector for protection against foreign aggression and invasion, provision of healthcare services, education, water supply, roads and railways, and other infrastructural facilities.

On the other hand, the private sector need not incur any type of expenditure that is of compulsory character.

Statement II: Public expenditure is incurred not with a view to earning, profits as is the case with expenditure incurred by a private economic unit.

The present system of goverance is that of a welfare state and thus the state is the guardinan of the economic and social health of an economy.

The public sector cannot afford to keep an eye on the profits earned from provision of public services. Certain items of public expenditure cannot be related to the cost of providing services like social security, healthcare, and education and the public authorities have to use the revenue generated through tax and nontax receipts, only for the maximization of social welfare.

On the other hand, profit generation is the only motive behind carrying out economic activities in the case of the private sector. The private sector (both firms and individuals) will invest the income only in those avenues which have a high potential for profits.

55. "The best system of taxation from the economic point of view is that which has the best or the least bad economic effects". Who said this?

Correct Answer: (c) Hugh Dalton
Solution:

Hugh Dalton is of the view that "the best system of taxation from the economic point of view is that which has the best or the least bad economic effects."" According to him, the effects of taxation can be analysed in terms of production, distribution, and stabilisation.

56. Inadequacy or absence of KYC (Know Your Customer) standards can subject a bank to serious and counter party risk as follows:

A. Reputation Risk
B. Compliance Risk
C. Legal Risk
D. Bankruptcy Risk
Choose the correct answer from the options given below:

Correct Answer: (b) A, B and C only
Solution:

Inadequacy or absence of KYC standards can subject a bank to serious and counter party risk as follow are:-

A. Reputation Risk.
B. Compliance Risk.
C. Legal Risk.

57. What is the maximum penalty to be imposed under the Negotiable Instruments Act for bouncing of a cheque?

Correct Answer: (c) 2 years
Solution:

The punishment for cheque bounce is imprisonment for a term not more than two years or a fine that can extend to twice the amount of the cheque or both. A civil suit can also be instituted against the drawer to pay the cheque amount.

58. Given below are two statements, one is labelled as

Assertion (A): The main cause of commercial bank failure is because of providing inappropriate loans to bank insiders
Reason (R): Bank employees are provided loans at lower interest rates

Correct Answer: (b) Both A and R are correct but R is NOT the correct explanation of A
Solution:

The practice of providing cheaper loans to bank insiders is known as insider lending. Insider lending. Insider lending occurs when a bank offers loans to one or more of its own officers or directors. This practice is one of the major causes of commercial bank failtures.

59. Seigniorage in banking means:

A. The economic cost of providing a currency within a given economy
B. The difference between the face value of money and the cost of providing it
C. The cost involved in running ATMs
D. The costs of making debit/credit cards in an economy
Choose the correct answer from the options given below:

Correct Answer: (d) A and B only
Solution:

Seigniorage is the difference between the face value of a currency and the cost to produce it. Central banks and governments earn profit through seigniorage and typically reinvest such profits to earn interest.

Monetary seigniorage can be used as a monetary policy tool. The economic cost of providing a currency within a given economy.

60. Markowitz theory of portfolio management considers which of the following assumptions?

A. Investors are pessimistic about start-up but optimistic about an established business
B. Investors have free access to fair and correct information on return and risk
C. Investors have a tendency to lean towards cryptocurrencies
D. Investors are rational and maximize their utility with a given level of income and money Choose the correct answer from the options given below:

Correct Answer: (b) B and C only
Solution:

Markowitz created a formula that allows an investor to mathematically trade off risk tolerance and reward expectations, resulting in the ideal portfolio. MPT works under the assumption that investors are risk averse, preferring a portfolio with less risk for a given level of return.

Investors have free access to fair and correct information on return and risk. Investors are rational and maximize their utility with a given level of income and money.