mains questions

Up pcs and uppsc( mains exam) general study –economics questions

question : Describe the basic functions of money.

Ans-There are four basic functions of money. First, money is a medium of exchange. Buyers use a medium of exchange to compensate sellers in exchange for goods and services. Second, money is a unit of account. A unit of account is simplifies the exchange of goods and services between buyers and sellers by ensuring that they work in the same pricing units. The third function of money is as a store of value. A store of value allows the exchange of current consumption for future consumption. The fourth function of money is as a means to liquidity. Liquidity describes the ease with which an item can be traded for something that you want, or into the common currency within an economy.

question: Describe the basic types of money.

Ans-There are two basic types of money. Commodity money is anything that can fulfill the four functions of money; it often bears an intrinsic value, like metals and jewels. Fiat money is money that lacks intrinsic value, but usually carries government backing.

question : Could milk be used as a form of money? Why or why not?

Ans-Milk would be a very poor form of money because it does not fulfill the four functions of money. It is not a common medium of exchange or unity of account. It does not store value well because it sours. Also, it is not liquid since it is difficult to exchange for goods and services desired.

question: Could diamonds be used as a form of money? Why or why not?

Ans-Diamonds would be a decent form of currency. They fulfill some of the four functions of money. They have a set value and can be used as a medium of exchange and a store of value. They do not work well as a unit of account though since their size and quality vary. They are also only slightly liquid because they are not easy to exchange for desired goods and services.

question : What element is most important to the successful implementation Of fiat money?

Ans-The most important element to the successful implementation of fiat money is a regulation board, like the government, which oversees the production and distribution of the currency. Without a regulation board, fiat money has no value.

question: How is the Phillips curve best used?

Ans-The Phillips curve is useful not as a means of picking an unemployment and inflation rate pair, but rather as a means of understanding how unemployment and inflation might move given historical data.

question: What relationship does the Phillips curve describe?

Ans The Phillips curve describes the relationship between inflation and unemployment.

question : Explain the chain of events that underlies the relationship between inflation and unemployment described by the Phillips curve.

Ansb As more people work, the national output increases, causing wages to increase, causing consumers to have more money to spend more, resulting in consumers demanding more on goods and services, finally causing the prices of goods and services to increase, that is, inflation.

question: What is the equation for the Phillips curve?

Ans The equation for the Phillips curve is (inflation) = (expected inflation) - B * (cyclical unemployment rate) + (error).

question : Define stagflation and explain its implications.

Ans-Stagflation is the situation in which both inflation and unemployment increase. It is a phenomenon that raises questions about the general applicability of the Phillips curve.

question: List 3 costs of unemployment.

The costs of unemployment include a reduction in the standard of living, emotional stress, and a loss of output for society.

question : Please explain what is meant by Okun's law.

Ans Okun's law describes the relationship between real GDP and unemployment. The equation for Okun's law is:

(the percentage change in real GDP) = 3% - 2 * (change in the unemployment rate). 

This equation basically says that real GDP grows at about 3% per year when unemployment is normal. For every point above normal that unemployment moves, GDP falls by 2%. Similarly, for every point below normal that unemployment moves, GDP rises by 2%.

question :

Using Okun's law, determine the percent change in real GDP if the unemployment rate goes from 8% to 4%.

The equation for Okun's law is (the percentage change in real GDP) = 3% - 2 * (change in the unemployment rate). Using the information given in the problem, we get 3% - 2 * (-4) = 11%.

question : List the 3 major types of unemployment and the 4 major reasons for unemployment.

Ans-The 3 major types of unemployment are frictional, structural, and cyclical. The 4 major reasons for unemployment are minimum wage laws, labor unions, efficiency wages, and job search.

question : Find the unemployment rate given that a survey by the BLS reveals 30 people employed 10 people unemployed, and 40 people out of the labor force.

Ans-The labor force is the sum of the employed plus the unemployed or 30 + 10 = 40 people. The unemployment rate is the ratio of the unemployed to the total labor force or (10 / 40) = 25%.