All 8 questions from UPSC Civil Services Mains Economics 2021 Paper I (400 marks total). Every stem reproduced in full, with directive-word analysis, marks, word limits, and answer-approach pointers.
8Questions
400Total marks
2021Year
Paper IPaper
Topics covered
Micro and macroeconomic theory (1)Market structures and classical economics (1)Keynesian and classical macroeconomics (1)New classical economics and monetary policy (1)Development economics and international economics (1)Economic growth and development (1)International trade and exchange rates (1)Public economics and social choice theory (1)
A
Q1
50M150wCompulsorycompare and contrastMicro and macroeconomic theory
Answer the following questions in about 150 words each:
(a) Compare and contrast Marshallian and Walrasian approaches of the stability in equilibrium. (10 marks)
(b) Using generalised Lorenz dominance show that lower inequality represents a higher social welfare state. (10 marks)
(c) Examine the relationship between business cycle and changes in autonomous expenditure. (10 marks)
(d) Does government borrowing always crowd out the private investment ? Illustrate. (10 marks)
(e) The slope of the IS schedule will become steeper if the government reduces the rate of proportional tax but will not change at all if the government reduces the level of a lump sum tax. True or false ? Explain. (10 marks)
हिंदी में पढ़ें
निम्नलिखित प्रत्येक प्रश्न का उत्तर लगभग 150 शब्दों में दीजिए :
(a) संतुलन में स्थिरता के मार्शलीयन तथा वालरासीयन दृष्टिकोण की तुलना करें एवं अन्तर प्रदर्शित करें । (10 अंक)
(b) सामान्यीकृत लॉरेंज प्रभुत्व का प्रयोग करते हुए दर्शाइए कि निम्नतर असमानता एक उच्चतर सामाजिक कल्याण की स्थिति को व्यक्त करती है । (10 अंक)
(c) व्यापार चक्र एवं स्वायत्त-व्यय में परिवर्तन के मध्य स्थित सम्बन्ध का परीक्षण कीजिए । (10 अंक)
(d) क्या सरकारी-उधार निजी-निवेश के होने को सदैव रोकता है ? उदाहरण देकर समझाइए । (10 अंक)
(e) यदि सरकार अनुपाती कर की दर को घटा दे तो IS वक्र अधिक खड़ी ढाल वाला हो जायेगा किन्तु यदि एकमुश्त कर का स्तर घटाया जाये तो IS वक्र का ढाल परिवर्तित नहीं होगा । सत्य अथवा असत्य ? समझाइए । (10 अंक)
Answer approach & key points
Framework: IS-LM / General Equilibrium / Welfare Economics. (a) compare: paired headings or table > key differences > significance > conclusion | (b) justify: claim > 3-4 reasons > evidence > conclusion | (c) examine: intro > how/why with reasoning > evidence > conclusion | (d) comment: context > arguments both sides > judgment > close | (e) explain: definition/context > points in order > small example > short close Full marks: Rigorous derivation, correct diagrams, clear distinction of concepts.
Marshallian: quantity adjusts to the excess demand price (partial equilibrium)
Walrasian: price adjusts to excess demand (general equilibrium, tâtonnement)
50MexplainMarket structures and classical economics
(a) Explain the differences between Cournot model of duopoly with similar product and differentiated product. (15 marks)
(b) What type of conjecture is involved in the existence of kinked demand curve ? Do you think that kinked demand curve model is a price determination model in an oligopoly market ? Justify your answer. (5+10 marks)
(c) Examine how profit, wage and rent in Ricardian system move differently with the movements in level of income. (20 marks)
हिंदी में पढ़ें
(a) कुर्नों के सजातीय उत्पाद द्वयाधिकार मॉडल तथा विभेदीकृत-उत्पाद द्वयाधिकार मॉडल की भिन्नताओं की व्याख्या कीजिए । (15 अंक)
(b) व्याकुंचित मांग वक्र में किस प्रकार का अनुमान शामिल है ? आपके अनुसार क्या व्याकुंचित मांग वक्र मॉडल अल्पाधिकार बाजार में एक कीमत-निर्धारण का मॉडल है ? अपने उत्तर को उचित सिद्ध कीजिए । (5+10 अंक)
(c) परीक्षण कीजिए कि रिकार्डों की व्यवस्था में लाभ, मजदूरी एवं लगान, आय के स्तर की गतिशीलता के साथ किस प्रकार भिन्न भिन्न तरह से गतिशील होते हैं । (20 अंक)
Answer approach & key points
Framework: UPSC Economics Paper 1. (a) explain: definition/context > points in order > small example > short close | (b(i)) explain: definition/context > points in order > small example > short close | (b(ii)) justify: claim > 3-4 reasons > evidence > conclusion | (c) examine: intro > how/why with reasoning > evidence > conclusion Full marks: Rigorous derivations, clear diagrams, balanced arguments, specific references
Define Cournot quantity competition assumption
Derive reaction functions for homogeneous case
Explain price differentiation in differentiated case
Compare equilibrium price and output levels
Name the conjecture (asymmetric response)
Rivals match a price cut but do not follow a price rise (asymmetric conjecture)
Kink at the going price: demand elastic above P0, inelastic below
State the model's price rigidity prediction
Explain that P0 is taken as given and the model does not say how it is set
Mention empirical evidence for/against
Conclude with balanced judgment
Define Ricardian distribution theory
Explain profit-wage-rent relationships
Show how each moves with income level
Natural (subsistence) wage, falling profit rate and the stationary state
(a) Show that differences in underlying expectation lead to differences in Keynesian and classical aggregate supply curve. (15 marks)
(b) Apply the theory of liquidity preference to explain why an increase in money supply lowers the interest rate. What does this explanation assume about the price level ? (15 marks)
(c) Explain how the weaknesses of Keynesian speculative demand for money have been identified in Regressive Expectations model. (20 marks)
हिंदी में पढ़ें
(a) दर्शाइए कि निहित प्रत्याशा (अन्डरलाइंग एक्सपेक्टेशन) में भेद, कीन्सियन एवं क्लासिकल समग्र पूर्तिवक्र में भेद उत्पन्न करते हैं । (15 अंक)
(b) तरलता-पसन्दगी सिद्धान्त का प्रयोग करते हुए व्याख्या कीजिए कि मुद्रा-पूर्ति में वृद्धि ब्याज-दर को क्यों कम कर देती है । इस व्याख्या में कीमत-स्तर के प्रति क्या धारणा बनायी गयी है ? (15 अंक)
(c) कीन्स की मुद्रा की अपेक्षी मांग की कमियाँ प्रतिगामी प्रत्याशा मॉडल में किस प्रकार चिह्नित की गई है, व्याख्या कीजिए । (20 अंक)
Answer approach & key points
Framework: Keynesian vs Classical AS; Liquidity Preference; Regressive Expectations. (a) derive: given > assumptions > stepwise derivation > result > check | (b) explain: definition/context > points in order > small example > short close | (c) explain: definition/context > points in order > small example > short close Full marks: All parts: correct model, diagram, derivation, stated assumptions, named economist, policy implication.
Classical: flexible prices, full employment, vertical AS
Keynesian: expected price level and money wage fixed in the short run, so AS slopes upward (flat at low output)
Link expectations (P^e = P versus P^e fixed) to the shape of the curve
Diagram with P on Y-axis, Y on X-axis
Liquidity preference: M^d = L(Y, r), downward sloping in r
Money supply vertical in (r, M) space
M↑ shifts supply right, intersection at lower r
Assumption: price level P is fixed (short run)
Keynesian speculative demand: bonds versus money by comparing r with the normal rate; critical rate r_c
Weakness: all-or-nothing choice, expected gain treated as certain, no diversification
Regressive expectations: r^e = r + θ(r̄ − r); expected capital gain (r − r̄)/r̄
Result: smooth, risk-sensitive money demand (Tobin) instead of a step function
50MderiveNew classical economics and monetary policy
(a) Derive short-run aggregate supply curve following Lucas, when expectations are not realised, assuming that labour market clears. What will be its shape when expectations are fulfilled ? (10+5 marks)
(b) Describe high powered theory of money supply in brief. State the assumptions made in its construction. (8+7 marks)
(c) Do you think that increase in Government spending through borrowing from public accompanied by fall in required reserve ratio generates recession in the economy ? Illustrate your answer:
(i) in a closed economy with fixed exchange rate.
(ii) in an open economy with fixed exchange rate and without any capital mobility. (20 marks)
हिंदी में पढ़ें
(a) श्रम-बाजार को संतुलित मानते हुए, प्रत्याशाएं पूर्ण न होने की दशा में, लुकास का अल्पकाल समग्र-पूर्ति वक्र व्युत्पन्न कीजिए । प्रत्याशाएं पूर्ण होने पर इस वक्र का स्वरूप क्या होगा ? (10+5 अंक)
(b) उच्च-शक्ति मुद्रा-पूर्ति सिद्धांत का संक्षेप में वर्णन कीजिए । इस सिद्धांत के निर्माण में प्रयुक्त मान्यताओं को बताइए । (8+7 अंक)
(c) आपके विचार से क्या सार्वजनिक उधार द्वारा सरकारी व्यय में वृद्धि एवं साथ ही वांछित-आरक्षण-अनुपात कम होने से अर्थव्यवस्था में मंदी की स्थिति उत्पन्न होती है ? निम्न परिस्थितियों में समझाइए :
(i) एक बंद अर्थव्यवस्था में स्थिर विनिमय दर के साथ ।
(ii) एक खुली अर्थव्यवस्था में स्थिर विनिमय दर एवं बिना किसी पूंजी-गतिशीलता के साथ । (20 अंक)
Answer approach & key points
Framework: Lucas Supply Curve / IS-LM-IP Model. (a(i)) derive: given > assumptions > stepwise derivation > result > check | (a(ii)) explain: definition/context > points in order > small example > short close | (b(i)) describe: define > structure or process in order > labelled diagram > significance | (b(ii)) explain: definition/context > points in order > small example > short close | (c) analyse: intro > causes > effects > stakeholders/linkages > way forward Full marks: Rigorous derivations with clear diagrams, precise assumptions, and correct application of IS-LM-IP model to both scenarios.
State Lucas supply function with price expectations
Assume labour market clears (wage/price flexibility)
Show positive slope of SRAS curve
Derive relationship between actual and expected price level
State that curve becomes vertical
Explain output equals natural level (Y=Y*)
Link to long-run neutrality of money
Define high-powered money (monetary base)
Explain money multiplier mechanism
Show formula M = m * H
Describe central bank's role in controlling H
Assume fixed reserve ratio
Assume stable currency-deposit ratio
Assume a stable excess-reserve ratio
Assume central bank controls base
Use IS-LM for the closed economy and IS-LM-BP with a vertical BP for the open economy
Closed: IS right (G up), LM right (lower reserve ratio); output rises, no recession
Open: Y above Y_BP gives BoP deficit, reserve loss lowers H, LM shifts back; Y returns to Y_BP, r higher, no recession
50M150wCompulsoryexplainDevelopment economics and international economics
Answer the following questions in about 150 words each:
(a) Explain Rosenstein-Rodan's view that economic underdevelopment is the outcome of a massive coordination failure. (10 marks)
(b) Explain how gender sensitive human development index can be constructed. (10 marks)
(c) Show that the economic integration is the pre-requisite to establish covered interest rate parity. (10 marks)
(d) Under what condition Real Exchange Rate is synonymous to 'terms of trade' ? Discuss. (10 marks)
(e) Do you agree whether sustainable use of energy ensures economic sustainability ? Explain. (10 marks)
हिंदी में पढ़ें
निम्नलिखित प्रत्येक प्रश्न का उत्तर लगभग 150 शब्दों में दीजिए ।
(a) आर्थिक-अविकास एक विशाल समन्वय की असफलता का परिणाम है । रोजेनस्टीन-रोडां के इस दृष्टिकोण की व्याख्या कीजिए । (10 अंक)
(b) लिंग संवेदनशील मानव विकास सूचकांक किस प्रकार निर्मित किया जा सकता है, व्याख्या कीजिए । (10 अंक)
(c) दर्शाइए कि आच्छादित ब्याज दर समानता स्थापित करने के लिये आर्थिक एकीकरण एक पूर्वापेक्षा है । (10 अंक)
(d) वास्तविक विनिमय दर किस दशा में 'व्यापार की शर्त' की पर्याय होती है ? चर्चा कीजिए । (10 अंक)
(e) क्या आप इस से सहमत हैं कि ऊर्जा का धारणीय उपयोग आर्थिक धारणीयता को सुनिश्चित करता है ? व्याख्या कीजिए । (10 अंक)
Answer approach & key points
Framework: Rosenstein-Rodan Big Push. (a) explain: definition/context > points in order > small example > short close | (b) explain: definition/context > points in order > small example > short close | (c) derive: given > assumptions > stepwise derivation > result > check | (d) discuss: intro > 3-4 dimensions > example > balanced close | (e) comment: context > arguments both sides > judgment > close Full marks: Clear definitions, accurate models, and well-supported arguments.
Define coordination failure in underdeveloped economies
Explain the Big Push theory
Mention interdependence of industries
Discuss the role of simultaneous investment
Define the Human Development Index (HDI)
Explain the components of HDI
Describe how gender sensitivity is incorporated
Contrast with the Gender Inequality Index (GII): health, empowerment, labour-market participation
Define covered interest rate parity (CIP)
Explain the role of economic integration
Mention the role of capital mobility
Covered arbitrage steps and the parity condition F/S = (1 + i_d)/(1 + i_f)
Define Real Exchange Rate (RER)
Define Terms of Trade (ToT)
Condition: home produces only exportables, foreign only importables, no non-tradables (RER = 1/TOT)
(a) Evaluate Kuznets' inverted U shaped curve hypothesis of income distribution. Does it hold good for less developed countries as well ? (15 marks)
(b) Does human capital cause economic growth ? Explain how human capital formation can be enhanced. (15 marks)
(c) Explain how Harrod's warranted rate of growth is similar to Domar's required rate of growth. How has Solow improved upon Harrod-Domar's growth model ? (20 marks)
हिंदी में पढ़ें
(a) कुज़नेट्स की आय वितरण उलटे U आकार वक्र परिकल्पना का मूल्यांकन कीजिए । क्या यह (परिकल्पना) अल्पविकसित देशों के लिये भी सत्य है ? (15 अंक)
(b) क्या मानव-पूँजी आर्थिक वृद्धि का कारण है ? स्पष्ट कीजिए कि मानव-पूँजी-निर्माण को कैसे बढ़ाया जा सकता है । (15 अंक)
(c) स्पष्ट कीजिए कि हैरोड की बांछित वृद्धि दर एवं डोमर की आवश्यक वृद्धि दर समान हैं । सोलो ने हैरोड-डोमर वृद्धि मॉडल को किस प्रकार उन्नत किया है ? (20 अंक)
Answer approach & key points
Framework: Economic Growth and Development. (a) evaluate: criteria > evidence > balanced judgment | (b) explain: definition/context > points in order > small example > short close | (c) explain: definition/context > points in order > small example > short close Full marks: Comprehensive, well-structured, with clear derivations and critical evaluation.
Define the inverted U-shaped curve hypothesis
Explain the mechanism of rising then falling inequality
(a) Discuss the theory of acquired advantage in international trade using suitable examples. (15 marks)
(b) Do you think that movement of the nominal exchange rate of Rupee represents a corresponding movement of Indian goods vis-á-vis foreign goods ? Explain your position. (15 marks)
(c) What are the different categories of trade blocks ? Are trade blocks beneficial to less developed economies ? Justify your answer. (20 marks)
हिंदी में पढ़ें
(a) उपयुक्त उदाहरणों का उपयोग करते हुए अंतर्राष्ट्रीय-व्यापार में अर्जित-लाभ के सिद्धांत की चर्चा कीजिए । (15 अंक)
(b) क्या आप के विचार से रुपये के मौद्रिक-विनिमय दर की गतिशीलता, विदेशी वस्तुओं की तुलना में भारतीय वस्तुओं की गतिशीलता को परिलक्षित करती है ? अपनी स्थिति को स्पष्ट कीजिए । (15 अंक)
(c) व्यापार-खंडों की विभिन्न श्रेणियाँ क्या हैं ? क्या व्यापार-खंड अल्पविकसित अर्थव्यवस्थाओं के हित में हैं ? अपने उत्तर को उचित सिद्ध कीजिए । (20 अंक)
Answer approach & key points
Framework: UPSC Economics Paper 1. (a) discuss: intro > 3-4 dimensions > example > balanced close | (b) explain: definition/context > points in order > small example > short close | (c) justify: claim > 3-4 reasons > evidence > conclusion Full marks: Clear definitions, correct models, specific examples, and a well-justified position.
50MexaminePublic economics and social choice theory
(a) If the government raises taxes on labour income and interest income, explain how potential GDP and economic growth are affected. (15 marks)
(b) Examine the effects of providing public service by a private agency at a lesser price than earlier one on
(i) a closed economy with fixed wages.
(ii) a closed economy with flexible wages. (15 marks)
(c) What is Buchanan's criticism of Arrow's theorem ? Show how A. K. Sen proved Arrow's theorem without the overall consistency of social choice to avoid the criticism of Buchanan. (8+12 marks)
हिंदी में पढ़ें
(a) यदि सरकार श्रम-आय एवं ब्याज-आय पर कर बढ़ा देती है, तो स्पष्ट कीजिए कि संभाव्य-सकल-घरेलू-उत्पाद एवं आर्थिक-वृद्धि किस प्रकार प्रभावित होंगे । (15 अंक)
(b) एक निजी अभिकरण (एजेंसी) के द्वारा पूर्व से कमतर कीमत पर सार्वजनिक-सेवा को उपलब्ध कराने के निम्न पर क्या प्रभाव होंगे, व्याख्या कीजिए ।
(i) एक बंद अर्थव्यवस्था स्थिर मजदूरी के साथ
(ii) एक बंद अर्थव्यवस्था परिवर्तनशील मजदूरी के साथ (15 अंक)
(c) ऐरो के सिद्धांत की बुकानन द्वारा की गई आलोचना क्या है ? दर्शाइए कि अ. के. सेन ने किस प्रकार बुकानन की आलोचना से बचने के लिये, सामाजिक-चयन की समग्र-निश्चिता की सहायता के बिना ही ऐरो के सिद्धांत को सिद्ध किया है । (8+12 अंक)
Answer approach & key points
Framework: Standard Micro/Macro Theory & Welfare Economics. (a) explain: definition/context > points in order > small example > short close | (b) examine: intro > how/why with reasoning > evidence > conclusion | (c) critique: the claim > its strengths > its weaknesses > your judgment Full marks: Rigorous application of models, clear distinction between scenarios, precise theoretical references.
Define potential GDP and economic growth
Analyze labor supply effect (substitution vs income)
Analyze capital accumulation effect (interest tax)
Link to long-run growth model (Solow/Ramsey)
Fixed wages: G falls, AD shifts left, output and employment fall (multiplier)
Flexible wages: wages and prices fall, real balances rise, output returns to the full-employment level
Compare outcomes of both scenarios
State the assumption: the same service is supplied and the saving is not passed on to private demand
State Arrow's Impossibility Theorem
Buchanan: no social organism with preferences; a transitive social ordering is unwarranted; procedures matter
Sen (with Gibbard): weaken transitivity to quasi-transitivity or acyclicity; oligarchy or veto group results
Show the difficulty persists in weaker form: no dictator but concentration of power remains