UPHESC Assistant Professor Economics 2025 PYQs

Concept: The LM curve is the locus of combinations of income (Y) and interest rate (r) at which the money market is in equilibrium (L = M).

1. Higher Y raises transactions demand for money; with fixed M, r must rise to cut speculative demand.
2. So LM slopes upward in the Y–r plane.
3. The IS curve is also a Y–r relation, but for goods-market equilibrium.

Short trick: IS and LM both plot Y against r: IS = goods market, LM = money market.

Concept: A. W. Phillips (1958), using UK data 1861–1957, found an inverse relation between the unemployment rate and the rate of change of money (nominal) wages.

1. Low unemployment → money wages rise fast; high unemployment → slow wage growth.
2. Samuelson and Solow later restated it as unemployment vs. inflation rate.
3. It is about money wages, not real wages, and about the rate of change, not the wage level.

Short trick: Original Phillips = U vs %Δmoney wage; modified = U vs inflation.

Concept: A monopolist faces a downward-sloping market demand curve, so it can fix either the price or the quantity, but not both.

1. If it fixes the price, buyers decide how much to purchase (quantity read off the demand curve).
2. If it fixes the output, the demand curve decides the price it can charge.
3. It cannot set both independently because it cannot control consumers' demand.

Short trick: Monopolist is a price-maker but still bound by demand: price OR output, never both.

Concept: Keynes explained the trade cycle mainly by fluctuations in the rate of investment, caused by changes in the marginal efficiency of capital (MEC).

1. Optimism raises MEC → investment rises → income rises by the multiplier (boom).
2. Collapse of MEC → investment falls → income and employment fall (depression).
3. Warranted rate of growth belongs to Harrod; autonomous investment is the Hicks/Samuelson multiplier–accelerator emphasis.

Short trick: Keynes cycle = MEC → rate of investment → multiplier.

Concept: Ragnar Nurkse (Problems of Capital Formation in Underdeveloped Countries, 1953) called disguised unemployment a 'concealed saving potential'.

1. Surplus farm workers have zero marginal product; withdrawing them leaves farm output unchanged.
2. They can be employed on capital projects (roads, irrigation) while the food they ate is still produced – the 'virtual saving' finances capital formation.
3. Fei–Ranis developed Lewis's labour-surplus model; Higgins wrote on technological dualism.

Short trick: Nurkse: surplus labour = hidden saving → capital formation.

Concept: The Multidimensional Poverty Index (UNDP–OPHI, 2010) has three equally weighted dimensions: health, education and standard of living.

1. Health: nutrition, child mortality.
2. Education: years of schooling, school attendance.
3. Standard of living: cooking fuel, sanitation, drinking water, electricity, housing, assets (India's NITI Aayog MPI adds maternal health and bank account).

Short trick: MPI = HDI's three dimensions measured as deprivations: Health, Education, Living standard.

Concept: Structural unemployment results from a mismatch between workers' skills and the jobs available, caused by changes in technology and the structure of the economy.

1. New technology/automation makes some skills obsolete (often called technological unemployment, a form of structural).
2. Seasonal – due to seasons (agriculture); cyclical – due to recession/deficient demand.
3. Disguised – more workers than needed, MP = 0.

Short trick: Technology changes the structure of jobs → structural unemployment.

Concept: In The Theory of Economic Development (1911), Schumpeter makes innovation by the entrepreneur the prime mover of development.

1. Innovation = new product, new method, new market, new source of supply, new organisation of industry.
2. Bank credit finances the innovator; imitators follow, creating cycles ('creative destruction').
3. Balanced growth is Nurkse/Rosenstein-Rodan; capital formation is emphasised by Nurkse, Harrod-Domar.

Short trick: Schumpeter = Entrepreneur + Innovation + Credit + Creative destruction.

Concept: Ragnar Nurkse: 'A country is poor because it is poor' – the vicious circle of poverty.

1. Supply side: low income → low saving → low investment → low productivity → low income.
2. Demand side: low income → small market → low inducement to invest → low productivity → low income.
3. Myrdal is linked with 'circular and cumulative causation' (backwash effects) – a related but different idea.

Short trick: Nurkse: 'Poor because poor'; Myrdal: cumulative causation.

Concept: For Keynes, unemployment is due to deficient effective demand; the cure is to raise aggregate demand, chiefly through increased government (public) spending.

1. In depression, monetary policy is weak (liquidity trap, pessimistic MEC), so lowering interest rates may not raise investment.
2. Public works / deficit-financed government expenditure raises income by the multiplier.
3. (A) and (D) would deepen unemployment.

Short trick: Keynes: 'Spend your way out of depression' – raise G (public works).

Concept: Phases of a business cycle: expansion → peak (boom) → contraction (recession) → trough (depression) → recovery.

1. Trough = lowest point of economic activity, highest unemployment.
2. Peak/boom = highest point; expansion = upward movement between trough and peak.

Short trick: Peak = top, Trough = bottom.

Concept: Sen (1976, 'Poverty: An Ordinal Approach to Measurement') proposed the Sen index: P = H[I + (1 − I)G_p].

1. H = head-count ratio, I = income-gap ratio, G_p = Gini coefficient among the poor.
2. It combines incidence, depth and inequality among the poor.
3. Poverty gap and squared poverty gap indices are the Foster–Greer–Thorbecke (FGT) family (α = 1, 2).

Short trick: Sen index = H + I + Gini of the poor; FGT = poverty gap family.

Concept: Solow's growth accounting (1957) showed that most of the growth of output per worker in developed countries (about 7/8 in the US, 1909–49) came from technical progress, not capital accumulation.

1. Capital alone faces diminishing returns, so it cannot sustain long-run per-capita growth (Solow model).
2. Sustained growth in advanced nations is driven by technology, innovation and R&D (also endogenous growth theory).
3. Green revolution and population control are concerns of developing countries.

Short trick: Solow residual: in rich countries growth = mainly technology.

Concept: Joan Robinson (The Accumulation of Capital, 1956) coined the term 'Golden Age' for steady growth with full employment, where the actual rate of capital accumulation equals the natural rate of growth of the labour force plus technical progress.

1. In a golden age, output, capital and labour (in efficiency units) all grow at the same rate, with constant profit and wage shares.
2. She called it a 'mythical state of affairs' – unlikely in reality; she also described 'limping', 'leaden', 'platinum' ages.
3. Kaldor's model is about distribution and the technical progress function; Domar about the warranted capacity growth.

Short trick: 'Golden Age' (and leaden/platinum ages) → Joan Robinson.

Concept: The Robin Hood effect describes redistribution of income from the rich to the poor (like the legendary outlaw who 'robbed the rich to give to the poor').

1. Progressive taxation plus welfare transfers reduce inequality – a Robin Hood effect.
2. The opposite (transfers from poor to rich) is called the reverse Robin Hood or Matthew effect.
3. A proportionate tax leaves relative income shares unchanged, so it is not redistributive.

Short trick: Robin Hood = take from rich, give to poor = redistribution.

Concept: Nurkse/Rosenstein-Rodan's balanced growth theory sees the small size of the market (low real income → low demand) as the basic obstacle to investment.

1. Following Allyn Young/Adam Smith: inducement to invest is limited by the extent of the market.
2. Remedy: simultaneous investment in many complementary industries, so that each creates demand for the others (Say's law at the level of the group).
3. Low saving is the supply-side vicious circle; balanced growth attacks the demand-side constraint.

Short trick: Balanced growth = 'big push' on many industries to widen the market.

Concept: Economic growth = sustained increase in real output, measured by the growth rate of real GDP (or per-capita real GDP).

1. CPI and WPI measure the price level/inflation.
2. MPC is a behavioural parameter of the consumption function.

Short trick: Growth → GDP; Inflation → CPI/WPI.

Concept: Harrod-Domar assumes a constant average (= marginal) propensity to save s = S/Y and a constant capital–output ratio v.

1. Warranted growth rate G_w = s/v (Domar: σs).
2. Kaldor and Joan Robinson make saving depend on income distribution (s_π > s_w), so the overall saving ratio is variable.
3. Leontief is the input–output model.

Short trick: Harrod-Domar: fixed s and fixed v → G = s/v.

Concept: Commercial banks deal directly with the public – accepting deposits and giving loans.

1. The central bank is the 'banker's bank' and 'government's banker'; it does not deal with the general public.
2. Hence only the commercial bank is the bank for the public.

Short trick: Public → commercial bank; banks & government → central bank.

Concept: Repo rate: the rate at which RBI lends short-term (overnight/term) funds to commercial banks against government securities.

1. Reverse repo: rate at which RBI absorbs (borrows) funds from banks (now SDF is the floor).
2. Bank rate: rate for rediscounting bills / long-term lending without collateral; now aligned with MSF rate.
3. Repo rate is the key policy rate set by the MPC.

Short trick: RBI lends → Repo; RBI borrows → Reverse repo.