CUET 2026 Economics May 21 Shift 1 Question Paper- Download Answer Key and Solution PDF

Concept:
Chronological ordering questions track your historical understanding of policy implementations and global treaties. Placing these major milestones sequentially requires mapping out their exact historical launch timelines.



Step 1: Identify the precise enforcement year for each economic milestone.

Enforcement of GATT (4): Signed by 23 nations post-WWII, it came into official global effect on January 1, 1948.
Launch of NEP in India (2): Introduced under Prime Minister P.V. Narasimha Rao to resolve a severe balance of payments crisis in July 1991.
Establishment of the WTO (3): Created via the historic Marrakesh Agreement, officially replacing GATT on January 1, 1995.
Implementation of GST in India (1): Rolled out nationally as a comprehensive, unified indirect tax regime on July 1, 2017.



Step 2: Assemble the ascending chronological sequence.
Arranging the years sequentially from the earliest to the most recent: 1948 (\(4\)) \(\rightarrow\) 1991 (\(2\)) \(\rightarrow\) 1995 (\(3\)) \(\rightarrow\) 2017 (\(1\)). This maps precisely to the pattern: \[ 4 \rightarrow 2 \rightarrow 3 \rightarrow 1 \] Quick Tip: Remember that India's domestic LPG market opening in 1991 (NEP) directly prepared the country to become a founding member of the global WTO structure when it officially launched in 1995.

Concept:
National Income aggregates are derived by systematically converting terms across three core levels:

Domestic to National: Adjusted using Net Factor Income from Abroad (\( National = Domestic + NFIA \)).
Market Price to Factor Cost: Adjusted using Net Indirect Taxes (\( Factor Cost = Market Price - NIT \)).
Gross to Net: Adjusted using Depreciation (\( Net = Gross - Depreciation \)).




Step 1: Convert the geographic boundary from Domestic to National.
Starting with our base variable \( GDP_{mp} \), we shift from a domestic production territory to a national concept by adding Net Factor Income from Abroad (NFIA): \[ GNP_{mp} = GDP_{mp} + NFIA \]


Step 2: Convert the valuation base from Market Prices to Factor Cost.
Market prices include indirect product taxes and exclude government production subsidies. To evaluate the output at true factor cost, we subtract Net Indirect Taxes (NIT = Indirect Taxes - Subsidies): \[ GNP_{fc} = GNP_{mp} - NIT \]


Step 3: Combine both transformation operations.
Merging the two individual adjustment steps yields the complete composite equation: \[ GNP_{fc} = GDP_{mp} + NFIA - NIT \] Quick Tip: Keep your directional signs straight: Add foreign factor flows (\( + NFIA \)) to go from domestic to national, and Subtract product taxes (\( - NIT \)) to drop market prices down to factory cost.

Concept:
The Reserve Bank of India calculates four alternative measures of money supply (\( M_1, M_2, M_3, \) and \( M_4 \)) that reflect varying degrees of liquidity. The aggregate \( M_1 \) represents "Narrow Money" and measures the most highly liquid assets directly available for public transaction use.



Step 1: Break down the core components of the \( M_1 \) equation.
The narrow money supply aggregate is mathematically defined as: \[ M_1 = C + DD + OD \]
Where each component represents:

C (Currency held by the public): All paper notes and metallic coins circulating outside the banking system.
DD (Demand Deposits): Funds held in current and savings accounts with commercial banks that can be withdrawn on demand via checks or digital transfers.
OD ('Other' Deposits): Specific deposits held with the RBI by foreign central banks, quasi-government bodies, and international financial institutions.



Step 2: Contrast with less liquid components.
Time deposits (fixed deposits) and post office savings involve lock-in windows and cannot be used directly for regular marketplace transactions. This places them in broader definitions like \( M_2, M_3, \) or \( M_4 \). Quick Tip: \( M_1 \) is the most highly liquid measure of money supply, while \( M_4 \) is the least liquid. In terms of overall usage volume across the economy, \( M_3 \) is the aggregate most commonly referred to as "Broad Money."

Concept:
The investment multiplier (\( K \)) measures the total change in aggregate income that results from an initial injection of autonomous investment. It shares an inverse mathematical relationship with the leakage rate of savings inside the circular flow model: \[ K = \frac{1}{MPS} = \frac{1}{1 - MPC} \]



Step 1: Identify the given saving propensity parameter.
The problem provides our core leakage variable: \[ MPS = 0.2 \]


Step 2: Calculate the multiplier using the direct reciprocal relationship.
Substitute the value of MPS into our multiplier equation: \[ K = \frac{1}{MPS} = \frac{1}{0.2} \]
Multiply both the numerator and the denominator by 10 to clear the decimal fraction: \[ K = \frac{10}{2} = 5 \]
This indicates that an initial investment injection of
(100 crore will expand total national output and income by
)500 crore. Quick Tip: The multiplier value has a direct relationship with the Marginal Propensity to Consume (MPC) and an inverse relationship with the Marginal Propensity to Save (MPS). A lower savings rate leaves more income circulating as consumer demand, generating a larger multiplier effect.

Concept:
Under perfect competition, a firm is a price taker and maximizes profit where: \[ P = MC \]
provided the marginal cost curve is rising.

In the short run, the firm continues production only if price is sufficient to cover the Average Variable Cost (AVC). Therefore, the short-run supply curve is closely related to the rising part of the Marginal Cost (MC) curve above the shutdown point.



Step 1: Understand the profit-maximization condition.


A perfectly competitive firm chooses output where: \[ P = SMC \]
where \(P\) is market price and \(SMC\) is Short-run Marginal Cost.

However, only the upward-sloping part of the SMC curve is considered because the marginal cost curve must be rising at equilibrium for profit maximization.



Step 2: Apply the short-run shutdown condition.


In the short run, fixed costs are unavoidable.
Therefore, the firm will continue production only if: \[ P \ge AVC \]

If: \[ P < \min(AVC) \]
the firm shuts down because it cannot even recover its variable costs.

Thus, the minimum point of the AVC curve is called the shutdown point.



Step 3: Identify the short-run supply curve.


Since the firm supplies output according to: \[ P = SMC \]
and production occurs only when: \[ P \ge \min(AVC) \]
the firm's short-run supply curve is:
The rising portion of the SMC curve above the minimum AVC point
Hence, the correct answer is: \[ \boxed{(A)} \] Quick Tip: The portion of the MC curve above the minimum AVC point represents the short-run supply curve of a perfectly competitive firm.

Concept:
The relationship between marginal and average cost values follows basic mathematical averaging rules:

When marginal cost is less than average cost (\( SMC < AVC \)), the average value must fall.
When marginal cost exceeds average cost (\( SMC > AVC \)), the average value must rise.
Consequently, when average cost is neither falling nor rising (at its flat minimum point), the marginal value must equal the average value (\( SMC = AVC \)).




Step 1: Trace the early phases of the cost curve curves.
During early stages of production, increasing returns to variable inputs cause the marginal cost of additional units to drop quickly, dragging the average variable cost down behind it. In this phase, the SMC curve sits fully below the AVC curve.


Step 2: Locate the exact intersection point under diminishing returns.
Eventually, diminishing marginal returns set in, causing the SMC curve to turn upward and rise rapidly. As it climbs, it passes through the absolute lowest (minimum) point of the U-shaped AVC curve. Past this intersection point, each additional unit costs more than the current average, pulling the AVC curve upward. Quick Tip: The marginal cost curve always passes through the lowest points of both the Average Variable Cost (AVC) and the total Average Cost (AC) curves.

Concept:
According to Keynesian theory, the speculative demand for money depends inversely on the rate of interest.

When interest rates are high, people prefer to invest in bonds and securities.
When interest rates become extremely low, people expect them to rise in the future, which may reduce bond prices and create capital losses. Therefore, individuals prefer to hold cash instead of purchasing bonds.



Step 1: Understand the behavior of interest rates in a liquidity trap.


A liquidity trap occurs when the rate of interest falls to a very low level.

At this stage: \[ Interest Rate \downarrow \]
and people believe that interest rates cannot fall further.

Because bond prices and interest rates move inversely, people expect bond prices to fall in the future. Hence, they avoid investing in bonds and prefer to hold liquid cash balances.



Step 2: Analyze the speculative demand for money.


In a liquidity trap, the speculative demand for money becomes highly elastic or infinitely elastic.

This means that any additional money supplied by the central bank is simply hoarded by the public rather than being invested or spent.
 

Thus: Additional Money Supply → Cash Hoarding

Concept:
The introduction of High Yielding Variety HYV seed packages required strict agricultural preconditions—including reliable, controlled irrigation networks and heavy chemical fertilizer inputs—to successfully increase crop yields.



Step 1: Identify regional infrastructure advantages during Phase 1.
When the program launched in the mid-1960s, the union government chose to concentrate its limited supplies of HYV wheat seeds and financial subsidies in regions that already had reliable, well-developed irrigation canals and groundwater pumping infrastructure.


Step 2: Map the specific target states.
This requirement led to the program being concentrated in Punjab, Haryana, and western Uttar Pradesh. These regions experienced a dramatic surge in agricultural output (the wheat revolution), while rain-dependent or less developed agricultural areas across eastern and southern India saw little initial impact until subsequent expansion phases in the late 1970s. Quick Tip: The Green Revolution was split into two separate phases: Phase 1 (mid-60s to mid-70s) was highly concentrated in affluent wheat-growing northern states, while Phase 2 (mid-70s to mid-80s) expanded to a broader range of states and crop varieties like rice.

Concept:
The GDP Deflator is a comprehensive price index used to track changes in the general price level of all domestically produced goods and services in an economy. It is calculated by finding the ratio between current-price output (Nominal GDP) and constant-price output (Real GDP): \[ GDP Deflator = \frac{Nominal GDP}{Real GDP} \times 100 \]



Step 1: Extract the given output and price metrics.
From the problem statement, we isolate our core values:

Nominal GDP = 600 billion

Real GDP = 500 billion

Concept:
During British rule in India, different land revenue systems were introduced to collect taxes from agriculture. These systems greatly affected the condition of farmers and agricultural productivity.

The major land revenue systems were:

Zamindari System
Ryotwari System
Mahalwari System


Among these, the Zamindari System became a major cause of agricultural stagnation in Eastern India.



Step 1: Understand the Zamindari System.


The Zamindari System, also known as the Permanent Settlement, was introduced by Lord Cornwallis in 1793 mainly in Bengal, Bihar, and parts of Eastern India.

Under this system:

Zamindars were recognized as landowners.
Farmers worked as tenants under the zamindars.
Zamindars collected revenue from cultivators and paid a fixed amount to the British government.




Step 2: Analyze the reason for agricultural stagnation.


The zamindars were mainly interested in collecting maximum rent from farmers rather than improving agriculture.

As a result:

Farmers faced exploitation and high rents.
Little investment was made in irrigation or technology.
Agricultural productivity remained very low.
Peasants lived in poor economic conditions.


Therefore, the agrarian economy remained stagnant during British rule.



Step 3: Evaluate the options.



[(A)] Correct — The Zamindari System was mainly responsible for agrarian stagnation in Eastern India.

[(B)] Incorrect — Mahalwari System was introduced mainly in North-Western India.

[(C)] Incorrect — Ryotwari System operated mainly in Madras and Bombay Presidencies.

[(D)] Incorrect — Cooperative farming was not a British colonial land tenure system.


Hence, the correct answer is: \[ \boxed{(A)} \] Quick Tip: Remember the regional distribution of land revenue systems: Zamindari \(\rightarrow\) Bengal and Eastern India Ryotwari \(\rightarrow\) Madras and Bombay Mahalwari \(\rightarrow\) North-Western Provinces