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UGC NET JUNE 2025 ECONOMICS COMPLETE SOLUTION
- SOURAV DAS
- Jul 16
- 8 min read
Question 1: Match List-I with List-II
Step-by-step Matching:
A. Playing each strategy with probability → IV. Mixed StrategyIn game theory, a mixed strategy involves choosing each pure strategy with a certain probability.
B. Maximum payoff given the strategy of the other → III. Best Response FunctionThe best response is the strategy that gives a player the maximum payoff, given the strategy of the opponent.
C. Long-run behavior → I. Nash EquilibriumIn repeated games or evolutionary contexts, Nash equilibrium represents the stable long-run outcome where no player has an incentive to deviate unilaterally.
D. Period of punishment is infinite → II. Grim Trigger StrategyThe grim trigger strategy is a strategy in repeated games where a player cooperates until the opponent defects, after which the player punishes forever (infinite period).
Correct Matching:
A → IV
B → III
C → I
D → II
So the correct option is:
Option 4: A-IV, B-III, C-I, D-II
Question 2:
The null hypothesis that all slope coefficients are simultaneously equal to zero is tested in logit model by:
Options:
F-test
t-test
Chi-square test
Likelihood ratio statistics
Explanation:
In the logit model (logistic regression), we're dealing with a non-linear maximum likelihood estimation problem. The appropriate way to test the joint hypothesis that all slope coefficients are zero (i.e., no explanatory power) is by comparing:
The log-likelihood of the restricted model (only intercept)
With the log-likelihood of the full model (intercept + all explanatory variables)
This is done using the Likelihood Ratio (LR) Test, which follows a Chi-square distribution under the null hypothesis.
Correct Answer:
4. Likelihood ratio statistics
Question 3:
Which of the following is not true?
The effect of any tax can be decomposed into an income effect and substitution effect.
There is a substitution effect associated with a lump-sum tax, but no income effect.
The greater the substitution effect, the greater is the deadweight loss.
There is also a deadweight loss associated with the reduction in prices received by producers as a result of imposition of tax.
Explanation:
Let’s evaluate each option:
Option 1: TRUEMost taxes (except lump-sum taxes) cause both income and substitution effects. So the general statement is valid.
Option 2: NOT TRUE (FALSE)A lump-sum tax does not create a substitution effect, because it is non-distortionary; it reduces income but doesn’t alter relative prices. It only causes an income effect.
Option 3: TRUEA higher substitution effect causes consumers or producers to change behavior more strongly in response to tax, thus increasing deadweight loss.
Option 4: TRUEWhen producers receive lower prices (due to tax), they reduce output, leading to deadweight loss. This is accurate.
Correct Answer:
2. There is a substitution effect associated with a lump-sum tax, but no income effect.
This is not true, so it's the correct answer to this question.
Question 4 :
Which of the following are correct about the Foreign Trade Policy (FTP) 2023 of India?
Statements:
A. FTP 2023 promotes cross-border trade in digital economy.
B. FTP 2023 emphasized on creation of E-commerce export hubs (ECEH).
C. It prohibits export and import of arms and related material from/to Iraq.
D. It prohibits import of charcoal from Somalia.
E. It emphasizes strengthening trade with DPRK in combat aircraft, missiles and arms related materials.
Evaluation:
Statement A: TRUEFTP 2023 is aimed at promoting digital economy and cross-border trade through technology and e-commerce platforms.
Statement B: TRUEFTP 2023 does emphasize the creation of E-commerce Export Hubs (ECEHs) for boosting small and medium enterprise exports.
Statement C: TRUEIndia prohibits import/export of arms and related materials to and from countries like Iraq due to security and diplomatic considerations.
Statement D: TRUEThe FTP 2023 continues existing bans such as the import of charcoal from Somalia, which is aligned with UN sanctions.
Statement E: FALSEIndia does not promote trade in arms and missiles with North Korea (DPRK). In fact, India abides by UN sanctions and has restrictions on such trade.
Correct Statements: A, B, C, D
Correct Answer: Option 4
A, B, C & D Only
Question 5:
Which of the following is true in case of a good, i.e., “Crowded City Side Walk”?
Options:
It is non-excludable and non-rivalry in nature.
It is excludable but non-rivalry in nature.
It is non-excludable but rivalry in nature.
It is excludable and rivalry in nature.
Concepts:
Non-excludable: You cannot prevent people from using it.
Rivalrous: One person’s use reduces availability for others.
A city sidewalk is:
Non-excludable (people can freely enter and use it).
BUT when crowded, it becomes rivalrous, because one person’s presence reduces the space and comfort for others.
Correct Classification:
Non-excludable but Rivalry in nature.
This is typical of a “common good” or “congestible public good”.
Correct Answer:
Option 3: It is non-excludable but rivalry in nature.
Question 6:
Which of the following are not true pertaining to Wagner’s Law of increasing state activities?
Given Statements:
A. Wagner’s Law is classified as positive theory of public expenditure.
B. Public sector in industrializing nations grows as a proportion of total economic activity with the increase in per capita income and output.
C. Proportionate increase in public sector is not constant but increasing with the increase in total economic activity.
D. The law accounts for the effect of war on public expenditure.
E. Public expenditure tends to grow in a stepwise manner.
Understanding Wagner’s Law:
It is a positive theory that explains the growth of government expenditure with economic growth.
It suggests that as per capita income rises, the public sector expands proportionally more.
It does not account for temporary shocks like wars (that’s part of Peacock-Wiseman hypothesis).
The stepwise growth pattern is also explained by Peacock-Wiseman, not Wagner.
Analysis of Statements:
A – TRUE → It is a positive theory, not normative.
B – TRUE → Describes exactly what Wagner’s Law states.
C – TRUE → Public sector grows more than proportionally.
D – FALSE → War is not part of Wagner’s Law; it’s under Peacock-Wiseman Hypothesis.
E – FALSE → Stepwise growth is also a feature of Peacock-Wiseman, not Wagner.
Incorrect Statements (Not True):
D & E
Correct Answer: Option 4
D & E Only
Question 7:
Match List-I (Concepts) with List-II (Given by):
Correct Matching with Explanations:
A. Paradox of Thrift → III. J.M. KeynesMore saving during a recession can reduce demand and income, harming the economy—Keynesian idea.
B. Water-Diamond Paradox → IV. Adam SmithClassic paradox: Why essentials (water) are cheap and non-essentials (diamonds) expensive.
C. Wage Employment Paradox → II. A.C. PigouLowering wages might not always increase employment due to demand-side issues—linked to Pigou.
D. Macroeconomic Paradox → I. K. BouldingBroad concept involving contradictions in macroeconomic behavior, explored by Boulding.
Correct Pairing:
A → III
B → IV
C → II
D → I
✅ Correct Answer: Option 4
A-III, B-IV, C-II, D-I
Question 8:
Which of the following are true pertaining to the problems of asymmetric information?
A. Sellers can deal with the problem of asymmetric information by sending buyers signals about the quality of product.B. If a seller of a product has better information about its quality than buyer, then bad products tend to drive good products out of the market.C. According to the efficiency wage theory, a wage lower than the competitive wage increases worker productivity by discouraging workers from shirking on the job.D. Adverse selection arises because of asymmetric information in insurance market.E. Owners can avoid principal agent problem by designing contracts that give their agents incentive to perform better.
Choose the correct answer from the options given below:
A, B Only
A, B & C Only
B, C & D Only
A, B, D & E Only
Answer: Option 4 — A, B, D & E Only
Explanation:
Let us analyze each statement one by one.
Statement A:
True – This refers to signaling. In markets with asymmetric information, sellers often signal product quality to buyers through warranties, certifications, advertisements, or branding. These help reduce buyer uncertainty.
Statement B:
True – This is a classic example of adverse selection, explained by George Akerlof in his famous paper "The Market for Lemons." When buyers cannot differentiate between good and bad products, they only pay an average price. High-quality sellers leave the market, and only low-quality (bad) goods remain.
Statement C:
False – Efficiency wage theory suggests that employers pay above the market-clearing wage, not below it, to boost productivity. The idea is that better-paid workers are more motivated and less likely to shirk, as they would not want to lose a high-paying job.
Statement D:
True – Adverse selection also applies to the insurance market. Individuals who know they are high-risk are more likely to purchase insurance. The insurer, lacking full information about the individual’s true risk level, may end up covering disproportionately risky clients.
Statement E:
True – This relates to the principal-agent problem, which is another type of asymmetric information issue. Owners (principals) can offer contracts with performance-based incentives to align the agent's interests with their own, reducing the risk of moral hazard or poor performance.
Conclusion:
The correct statements are A, B, D, and E.Hence, the correct answer is: Option 4.
Question 9:
Arrange the following countries based on the Market Capitalization to Nominal GDP Ratio at the end of December 2024 in ascending order (as per the Economic Survey 2024–25):
A. U.K.
B. India
C. China
D. Brazil
E. Japan
Choose the correct answer from the options given below:
B, A, C, E, D
C, D, B, A, E
D, C, A, B, E
A, B, D, C, E
Answer: Option 3 — D, C, A, B, E
Explanation:
Market Capitalization to Nominal GDP Ratio (also known as the Buffett Indicator) reflects the size of a country's stock market relative to its economy. A higher ratio suggests a more overvalued or developed capital market.
As per the Economic Survey 2024–25, approximate insights (based on actual data trends and estimations) are:
1. Brazil (D) –
Very low market capitalization relative to GDP. Brazil’s equity market is relatively underdeveloped compared to its GDP.Lowest ratio among the group.
2. China (C) –
Despite having the second-largest GDP globally, China's market is still heavily regulated and dominated by state-owned firms. Hence, the market cap to GDP ratio is relatively low.
3. U.K. (A) –
The UK has a significant financial sector, but its market cap to GDP ratio is moderate compared to others.
4. India (B) –
India’s stock markets have seen a sharp rise in valuations and retail participation post-2020, pushing the ratio higher than many economies, even surpassing its GDP size.
5. Japan (E) –
Japan’s stock market is large and deep. In late 2023 and early 2024, the Nikkei index hit 30-year highs, pushing the market cap to GDP ratio very high.
Final Order (Ascending):
D (Brazil) < C (China) < A (UK) < B (India) < E (Japan)
Correct Answer: Option 3
Question 10 :
In which of the following year, the mandate/preamble of RBI (Reserve Bank of India) has been amended?
Options:
2019
2024
2016
2007
Correct Answer: Option 3 – 2016
Explanation:
The preamble of the Reserve Bank of India (RBI) was amended in 2016 through the Finance Act, 2016. This amendment was significant because it officially added inflation targeting to the objectives of the RBI.
Before 2016, the RBI’s objectives included:
Regulating the issue of banknotes,
Keeping reserves with a view to securing monetary stability in India, and
Operating the currency and credit system of the country to its advantage.
After the amendment in 2016, the RBI’s monetary policy objective was clearly defined as:
“to maintain price stability while keeping in mind the objective of growth.”
This was part of the shift to a Flexible Inflation Targeting (FIT) framework, which also led to the formation of the Monetary Policy Committee (MPC).
Therefore, the correct answer is:
2016 (Option 3).
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