Daily Static Quiz Prelims Practice 2027
The Laffer curve is inverted U-shaped — beyond a revenue-maximising tax rate, higher rates may reduce tax revenue. Option (b) describes the Phillips curve (downward-sloping, short-run trade-off), option (c) describes the Kuznets curve (inverted U), and option (d) describes the Beveridge curve (downward-sloping).
- The Beveridge curve plots the unemployment rate against the job vacancy rate.
- The Kuznets curve suggests that income inequality may first rise and then decline as economic development progresses.
Statement 1 is correct — the Beveridge curve slopes downward, and a shift of the curve signals a change in labour-market matching efficiency. Statement 2 is correct — the Kuznets curve is inverted U-shaped, with inequality rising in early development and declining later.
Option (c) is incorrect — the J-curve shows the reverse: after a currency depreciation, the trade balance first worsens (import bills rise before volumes adjust) and improves later. Options (a), (b) and (d) are all correct — the Phillips curve shows a short-run trade-off between inflation and unemployment; indifference curves slope downward, are convex to the origin, and each point gives the same satisfaction; and the Engel curve slopes upward for normal goods and downward for inferior goods.
- Assertion (A): A Lorenz curve that lies farther from the line of equality indicates greater income inequality.
- Reason (R): The Gini coefficient is derived from the area between the line of equality and the Lorenz curve.
Assertion A is correct — the Lorenz curve plots the cumulative population share against the cumulative income share; under perfect equality it coincides with the 45° line, and the greater the bow, the greater the inequality. Reason R is correct — the Gini coefficient is the area between the line of equality and the Lorenz curve, divided by the total area under the line, ranging from 0 (perfect equality) to 1 (maximum inequality). But R does not explain A: R describes how inequality is summarised as a number, whereas A rests on what the curve itself shows, the gap between actual and equal income shares, so R is related but is not the reason A holds.
- The Rahn curve relates government spending as a share of GDP to economic growth.
- The Great Gatsby curve associates higher income inequality with lower intergenerational income mobility.
- The Kuznets curve plots the tax rate against tax revenue.
Statement 1 is correct — the Rahn curve, a stylised inverted U, suggests that excessive government spending may hinder growth. Statement 2 is correct — the Great Gatsby curve slopes upward, as higher inequality goes with higher intergenerational income elasticity, which means lower mobility. Statement 3 is incorrect — tax rate against tax revenue is the Laffer curve, while the Kuznets curve plots development against inequality; both are inverted U-shaped, which is the trap.
