Static Quiz 09 July 2022 (Indian Economy)

Solution: b) Justification: Option A: Liberalism is a political philosophy or worldview founded on ideas such as freedom of
speech, freedom of the press, freedom of religion, free markets, civil rights, democratic societies, secular
governments, gender equality, and international cooperation.
Option B: This involves free market economies where each individual tries to maximize his or her own interest.
Option C: This is usually understood to be against the system of capitalism
Option D: This is essentially Marxism as applied by Lenin. It stands for the achievement of a dictatorship of the
proletariat (workforce), as a political prelude to the establishment of socialism (a system that is more or less opposite of capitalism).

Solution: b) Justification: The question essentially refers to a mixed economy where both state and the market undertake
economic activities.

Statement 1: In this case, the act of the state sub-letting an activity under its economic domain shows a state-
market mix approach.

Statement 2 and 3: if all factors of production are owned and used by the state, it is a socialist or communist
economy.

Solution: c)Justification: Fiscal decentralization (FD) means devolution of power and responsibilities of national (central),
government towards sub-national (local), governments.

Fiscal decentralization can take many forms including a) self-financing or cost recovery through user charges, b) co-
financing or co-production arrangements through which the users participate in providing services and

infrastructure through monetary or labor contributions; c) expansion of local revenues through property or sales
taxes, or indirect charges. It also includes d) intergovernmental transfers that shift general revenues from taxes
collected by the central government to local governments for general or specific uses, and e) authorization of
municipal borrowing and the mobilization of either national or local government resources through loan guarantees. This is captured in the idea that spending and tax decisions must reflect local preferences as far as possible. That is, the share of own revenues (compared to devolved sources) in total revenues at lower levels of government should also reflect local preferences.

Solution: d) Justification: Optimal allocation happens when goods and services are distributed according to consumer
preferences and needs of corporations.

Statement 1: It is possible that by employing all resources, we may reach a stage of disguised unemployment, for
e.g. as common in rural areas.

Statement 2: This is a distribution based on equity and welfare concerns, which may not be efficient from an
economic point of view.

Solution: c) Justification: Communism is an economic system where the collective owns the factors of production. The four
factors of production are labor, entrepreneurship, capital goods, and natural resources.
The following form major features of the communist economies:

 Abolition of property in land and application of all rents of land to public purposes.
 A heavy progressive or graduated income tax.
 Abolition of all right of inheritance.