A2 Economics 9708 Oct/Nov 2025 (P33) Paper 3 (MCQs) Variant 3

Added: 2026-05-30

[00:00:02]Okay, so we are starting with May-June 2025 paper three variant three is a paper of 1 hour 15 minutes, we are already done with variant one and variant two, so we are doing variant three, please focus question number one question number one says why would an economy wish to achieve economic efficiency?

[00:00:21]Now economic efficiency basically means that it is an achievement of two types of efficiency that is productive and allocative. When these two efficiencies are achieved together, then we say that economic efficiency has been achieved.

[00:00:38]Productive efficiency means you have minimized your costs. You have made the best use of resources and allocative means that you have operated whatever you have from the point of view of the society.

[00:00:47]That is marginal cost is equal to average revenue which is also called marginal cost pricing. So the option is to achieve an equal distribution of income.

[00:00:57]Now see, this concept is linked with the concept of equity. Correct? This concept is linked with the concept of equity and equality. Ok? So this is a different thing.

[00:01:07]Ok? This is a different thing. To achieve full employment. Look, an economy can also exist at full employment. An economy can be at full employment.

[00:01:18]An economy can be at full employment and still waste resources. Look, you may not be using the resources efficiently, still this can also happen, to ensure resources are not wasted, C is the right answer, do not waste resources, to ensure international competitiveness, this has nothing to do with economic efficiency, so the answer to one is C, basically the best choice answer is C, question number two, a firm has set a low price in the short run to act as a barrier to entry for new firms entering the market, so this is a pure case of limit pricing. This is an example of V pricing strategy. This is limit pricing. The purpose of limit pricing is to keep your price such that competition does not enter the market.

[00:02:04]Stop firms entering. This is normally the price at which the new firm or potential entrant is incurring a loss. Like for example, like for example, this is an average cost and this is an average cost. Ok? So for example, this average cost is of a monopoly which is already present in the market.

[00:02:21]And this long run average cost is of a potential entrant who is thinking of entering the market. Now I have to keep a price at which it will incur loss.

[00:02:31]So this is the best price.

[00:02:33]Keep a price where I make a profit and he makes a loss. You see, it has disadvantages.

[00:02:38]Even its cost is not being covered and is much above my cost, hence I am making profit.

[00:02:41]This means the concept of limit pricing is that you keep your price such that you do not allow any competition to enter the market.

[00:02:48]Is it clear? Option B refers to predatory hunting. Predatory pricing means competition is here. Predatory preying means there is competition in the market. Now you will reduce your price so that the competition runs away from the market. This means you will act as a predator. What will you basically do? You will drive out existing firms.

[00:03:08]You will drive existing firms out of the market.

[00:03:11]Or I use the word existing rivals. You will drive existing rivals out of the market and reduce your prices so much that they will not be able to compete with you. The basic meaning of price discrimination is charging different prices to different consumers.

[00:03:28]Charging different prices to different consumers for the same product. Reese Indz Not Associated To Cost. Price leadership is basically a collective oligopoly model where the firms operate. This is an informal.

[00:03:42]This is an informal. That is college.

[00:03:46]Informal division basically means that there will be one dominant firm in the oligopoly. There will be a dominant firm in the oligopoly which will set the price.

[00:03:57]Sets the price and others follow. So, has anything like this been said in the question?

[00:04:03]Ok?

[00:04:04]Then the answer to two will be A. Question number three. A dentist is found to have charged patients for treatment they did not need.

[00:04:13]Consumers have no idea what it means if a dentist performed a treatment you didn't need and charged you for it. Ok?

[00:04:24]What is likely to be the cause of this market failure? This is a pure cause of asymmetric ination where the sailor knows more than the bear. Where the Sailor Knows More Than the Bear. Where the Sailor Knows More Than the Bear. Ok? Minimum price is a different thing which seems to be above the equilibrium.

[00:04:47]Non-accessibility is the feature of a public good. Productive inefficiency has nothing to do with this. Where you are not minimizing your costs. So the answer for three will be B.

[00:04:59]Question number four. The diagram shows the average total cost of a firm. At what level of output does the marginal cost exceed the average total cost? He is asking what is the point where MC is more than average total cost. So first of all you understand this thing.

[00:05:12]The MC passes through the minimum The MC passes through the minimum of average total cost. This is a very simple case that you should know. Basically, if this is my marginal cost, this is the average cost.

[00:05:32]This means that MC passes through the minimum of average cost.

[00:05:34]This is the minimum of the average cost.

[00:05:38]This means when will MC be greater than ATC? Next to the minimum point. For example, if this is the minimum point of ATC then it will be here. Look, at this quantity MC is more than ATC. So if I create MC here in this graph, for example.

[00:05:52]Look, this is the MC. This is the minimum of ATC. But I don't want these points. He told me MC Greater>ATC then this will be the answer. Because there will be a point beyond the minimum point where MC will exceed ATC. Ok? Question number four will be D. Question number five.

[00:06:13]The diagram shows the effect of a demand curve shift from D1 to D2 for a profit- maximizing firm. This means MCC = MR What Has Happened to the Firm's Total Revenue and the debit Welfare Loss.

[00:06:25]Well now I have to look at revenue and welfare losses. Let us do it first and then look at the options. So the original demand curve is D1, right? So mark D1 first.

[00:06:32]This is D1 and this is MR1. Ok? Mark this first.

[00:06:37]Ok? This is my MC coming out of the middle. So this will be the point MC = MR. Ok? Now quantity is derived from this MC = MR. Here it is.

[00:06:44]So this is my original price. Ok? This is the original price. G is my original price. That's right.

[00:06:50]G is my original price.

[00:06:55]Well now I have to see it from G. This is my original price.

[00:07:01]Ok? Now I want to see the original total revenue.

[00:07:04]How do I see the original total revenue? G * Q So when I multiply G by Q then this entire area will be my revenue. Ok? That is OG LQ right? OGLQ Okay and what would be de bud loss? What does debit loss mean? That basically the welfare loss if this were a public sector monopoly or a public sector firm would operate here. Now look, both of them are coming here on demand. Like this point n, this point n, this point n is coming MC equal to a. If it had social welfare as its objective, it would have operated here.

[00:07:38]This is the allocative efficient point. Ok?

[00:07:43]This means that because I am operating here and not operating here.

[00:07:47]So look at this triangle that is being formed, this triangle that is being formed, this triangle is welfare loss. This is the original welfare loss that is LMN right?

[00:07:57]L MN ok? Now let's see the new A price.

[00:08:03]What will be the new price now? My new demand curve is D2, right? So just take the price up. Now this is my new price.

[00:08:11]This is my new price.

[00:08:15]This is my new price. The point of MC = MR is still the same. Because you see, here is the MR2 and here is the D2. You will understand the point.

[00:08:21]I'm not going back and highlighting.

[00:08:22]You will be more confused. So how will you generate new revenue? New revenue would be new revenue would be H * Q so now this entire big area is getting this revenue. Ok? So O H KQ okay?

[00:08:39]What will be the OHK and my new dead build loss? That's the same thing. I am operating here. I could operate here. Now this whole triangle will be my welfare loss, this one.

[00:08:51]Ok? Extra area is coming. Look, the extra area of ​​KL NN is coming.

[00:08:54]Because now this triangle is my welfare loss.

[00:08:56]That is K, MN. Ok? Not highlighting.

[00:08:59]K MN. So what is Change in TR?

[00:09:06]Change in TR and clearly TR is increasing. TR has been changed. Earlier my TR was this. Now this is my TR. So this is extra area.

[00:09:17]So this is the extra area of ​​TR which is GHKL and what is the extra welfare loss?

[00:09:24]Debit losses are also increasing. It is clearly visible.

[00:09:26]Day weight loss is also increasing. It is clearly visible. I have already told you about the extra area. Earlier it was like this, now it is like this. This means KLN KLN is the extra day weight loss. That is the increase in dead loss. The MCQs are easy, they have just made them a little complicated. Now I know that the total revenue is increasing. So there is no decree.

[00:09:48]Remove both options. Now on whom is the increase happening? Increase to OHKQ. So OHKQ right? Now either the answer will be this or this.

[00:09:57]Well, my dead bed loss is also increasing. Correct. Dead bed loss is also increasing. So increase increase means that if this option is also cut then D will be the answer.

[00:10:10]Increase by KLN here it is. Look at Increases by KLn okay? So the answer for five will be D. Again it is the same thing.

[00:10:18]These people had bought the MCQs in a haphazard manner. This is easy if you look at it. Ok?

[00:10:23]Question number six.

[00:10:25]A firm sells 10,000 units per month at the price of $10. Now Price is Always Equals to AR. We already know this. Ok? Because what is the formula of AR? TR over quantity. Total Revenue Divided by Quantity. Total revenue is P times Q divided by Q. So if you cut out Q and Q, it means AR is equal to price. So this is basically AR. $10 is my AR. The firm's total fixed cost is $40,000 per month. And the firm makes only normal profits. The firms are just making normal profits. So normal profit means that average revenue is equal to average total cost. So from here I know that if my average revenue is $10. So my average total cost will also be $10 because in normal profit both of these are equal. Asking what is the average variable cost for this output? So brother is asking us about average variable cost.

[00:11:11]Correct? Now what do I have to do to find out the average variable cost? I need to find out the total cost first.

[00:11:18]So what should I do? Average Total Cost Equated to Total Cost Divided by Quantity. Now the average total cost I know is $10. The quantity given by it is 10,000.

[00:11:29]So you will know what the total cost will be?

[00:11:32]$1 million is coming. Multiply $10,000 by $10.

[00:11:34]This is my total cost of $1 lakh. The fixed cost is given to me by this.

[00:11:39]So total cost is equal to total fixed cost plus total variable cost.

[00:11:43]So the total cost is $1 lakh. Correct? The total fixed cost is $40,000. Correct? It's $40,000. And I do n't know the variable costs. So my variable cost came to $60,000.

[00:11:57]Ok? What should I do now? I will calculate the average variable cost. And in the question average variable cost is asked so average variable cost is total variable cost divided by quantity total variable cost is $0000 divided by 10 quantity so answer will be B $6 is correct so C is the correct answer so answer for six will be B C ok again easy MCQ it was not complicated well these fools you should just know the basics question number seven the diagram shows the long run total cost curve of a firm at v output is the long run average total cost at its minimum. That's the same thing. I have already told you how to find the minimum average total cost by looking at this graph, for example, if I want to see the minimum average total cost in this graph.

[00:12:44]We did this in the topical section of Theory of Supply and we also saw this in the correct Irly question.

[00:12:48]I am not repeating it completely.

[00:12:50]All I have to do is create a line from the origin.

[00:12:52]From Origin I have to pull Rage. The ray which will be tangent to this total cos line, the ray which will be tangent to this total cost line, at that point my average total cost will be at minimum. So you draw a line. This point of tangency was found.

[00:13:07]This is the average total cost minimum at the point of tangency.

[00:13:10]So y answer will be its c.

[00:13:14]Ok? It is very simple. These are repeated a lot. The answer to se is c.

[00:13:20]We do not make variable cost here, the reason behind this is because it is said long run, so in long run the average total cost and the total cost in long run is equal to the variable cost because there is no fixed cost in long run, so here my total cost is the variable cost because it is said long run. Did you understand? The answer for intake will be C.

[00:13:41]Question number 8: Assuming there are no externalities where would a nationalized firm?

[00:13:48]Nationalized firm means public sector, basically the government sets output to maximize social welfare, now it is the same thing, these people will be at the allocative efficient point and where else will they be, you can find two options here, either you find the point where MC and AR are equal or you find the point where MSB and MSC are equal, end where average revenue equals average cost, this is normal profit, okay, where average revenue equals marginal cost, this is the right answer, this is allocative efficiency. Where marginal revenue equals marginal cost, this is profit maximization where marginal revenue is zero. This is revenue maximization.

[00:14:28]Ok? So the answer to ate would be BB.

[00:14:31]Question number nine. There has been an increase in labor productivity. So labor productivity means output per worker. Labor productivity means output per worker. Which combination of effects is most likely? Now see, when the labour productivity of a worker increases, then the demand for the worker will also increase. So if the demand for labour increases then there will be outward shift. It will shift to the right.

[00:14:52]Ok? Shift of the Supply of Labor.

[00:14:54]No shift will come on supply of labour.

[00:14:56]Because the supply of labor has nothing to do with the increase in labor productivity.

[00:15:03]Nun. Ok? And the wage rate should increase.

[00:15:06]Because if the demand for labor is increasing then there will be a shortage of workers in the market and the wage wood will increase. Basic increase increase increase then D will be the answer. Ok?

[00:15:19]Question No. 10: What method of government intervention may correct market failure caused by the underconsumption of a precious good? So married good are being under consumed.

[00:15:26]Things like education and health care are being under- consumed. So what government intervention will solve this issue? Minimum price will only make the issue worse.

[00:15:33]Minimum price is generally applicable for demerit goods.

[00:15:36]If you impose minimum price on merit goods, consumption will further decrease. The edge truth of privatization is no link.

[00:15:42]We do not know what will be the outcome of privatization. There should also be no indirect taxation as this will increase the price of merit goods and reduce consumption.

[00:15:50]So D is the right answer. If you give subsidy to the producer, the cost will fall.

[00:15:54]Supply will increase. This will lead to lower prices and increase the consumption. So the answer for 10 will be D.

[00:16:01]Question No. 11 Some governments introduce rent controls, maximum price on houses rented from private landlords. Okay, they impose rent controls to improve living standards for individuals with low incomes. That is the purpose. There should be no further exploitation. Rent should be reduced. The purpose of maximum price is to reduce the price.

[00:16:20]What might be the effects of rent controls in the long run?

[00:16:26]What would be the effect of these rent controls in the long run? Look, one thing is clear, if we have made a basic graph of maximum price, I am making it above here, then this is below the equilibrium. Ok?

[00:16:36]Now let me tell you what is the biggest issue of maximum price? The biggest issue with maximum prices is that they create shortages.

[00:16:43]Because when you drop the price, it leads to shortage. Look, it is clearly visible. So there are many consumers who will lose out. Because when the price is low, when the price is low, the producers are very discouraged but the consumers are encouraged. So this causes shortage. The long run supply of rental houses will contract exactly like this because when rents are obviously low there will be many people who will not rent out their homes.

[00:17:07]I said the same thing, see the quantity supply will be less. The number of unoccupied privately rented houses will increase. No brother, on the contrary there is a shortage.

[00:17:14]Here, there is a shortage here. There will be many consumers who will not get it. For one thing, the question does not arise.

[00:17:20]He is saying that there will be surplus. There will be some surplus.

[00:17:21]The price of owner-occupied houses will increase. Look, there is no link to the prices here. What does that have to do with house prices? There will be no effect on the supply of rental houses. No brother Wrong, we just saw that the supply will be less.

[00:17:36]Lower Income Will Degrade Supply. Because obviously you will get rent. You will not give your house on rent. So lower income distorts supply.

[00:17:49]So 11 will be A. Question No. 12 To reduce the damage done by cigarette smoking the government of a country increases the indirect tax on cigarettes. Absolutely the right policy. Raise taxes so cigarettes become more expensive. And makes it illegal to smoke in public. This is also absolutely right so that people realize that they are doing something wrong.

[00:18:06]Which combination of circumstances is most likely to result in government failure? So what is the scenario where this policy will fail in its attempt to reduce the damage done by cigarette smoking? Now when will this policy fail? When demand is highly inelastic.

[00:18:19]See Price Elasticity of Demand Should Be Lesser Than One. When the demand is highly inelastic, then even if you increase the price of cigarettes, the quantity will not fall significantly. Ok? So will the answer be C or D? and government spending on law enforcement. That's the same thing. If you do not spend this much on law enforcement then the policy will fail.

[00:18:38]So, then the answer will be D. Correct? Firstly, you are not spending money on law enforcement. Not enforcing their policy.

[00:18:46]The second is inelastic demand.

[00:18:47]So there will not be much benefit from increasing the price.

[00:18:49]So the answer to 12 is Lee. So this is this will lead to government failure. Question No. 13 Which stage of the business trade is most likely to be characterized by increasing negative output gap? It was not asked where the highest output negative output gap would occur? He said what is increasing output? Now look if we make a graph, this is real GDP, this is time.

[00:19:17]This is the actual output.

[00:19:24]This is the potential output. Ok?

[00:19:31]Now we know that when it is more than the actual potential, like this point is positive, it is basically a positive output gap and this one is a negative output gap.

[00:19:49]Is this clear, is this an issue?

[00:19:52]Now the question here is that there is an increasing negative output gap. Now look, increasing negative output gap means what is the point where the negative output gap is increasing? Which is the area where the negative output gap is increasing? So now look, boom is written. There is no question of boom. At the time of boom. Like this is boom. Let me select a different color for this.

[00:20:13]Like this is na boom.

[00:20:18]This will be a positive output gap.

[00:20:22]Ok? Negative output gap increases during recession. Absolutely. Because look, during recession your real GDP is falling. So the negative output gap is increasing.

[00:20:33]Ok? Look, the output gap is increasing.

[00:20:36]In an increasing recovery, the negative output gap is decreasing. Recovery means look, you are going up. Now the output gap is decreasing here. Correct? Meaning basically the negative output gap starts shrinking.

[00:20:53]And this is basically a slump. The negative output gap is highest during slum periods.

[00:21:00]Correct?

[00:21:07]According to me, one should say Highest Negative Output Gap or Biggest Negative Output Gap.

[00:21:09]Biggest negative output gap. Let's say it is written highest. What you are saying is right. The question is saying Increasing Question is not asking for the biggest gap. The question is asking about the increasing gap.

[00:21:24]You need to read the question very carefully in order to answer correctly. Ok? 13 Answers Will Be.

[00:21:34]Question No. 14 Some monetary policy is ineffective. The supply of money is assumed to be controlled by the central bank. The demand for money is liquidity preference.

[00:21:43]Demand for money. Exactly Liquidity Preference LP. There has been an increase in the real income in the economy. When this real income increases, it means that people are earning more money and hence will spend more. You need money in hand to spend. This means liquidity preference will increase. If money demand increases then money demand will shift to the right. Money demand will shift to the right. Money supply has nothing to do with real income. The money supply is purely controlled by the central bank. The change will happen like this. Correct? Well then this is saying which position on the diagram makes expansionary monetary policy ineffective. Now look, something else has been asked in the question. The above has nothing to do with it.

[00:22:16]Which position on the diagram makes expansionary monetary policy ineffective? When does expansionary monetary policy become effective? See, expansionary monetary policy involves increasing the money supply.

[00:22:24]When will it become infective? When interest rate does not change.

[00:22:30]When interest rate does not change. Basically, the biggest failure of expansionary monetary policy is the liquidity trap.

[00:22:39]This is the segment where money demand becomes horizontal. This is the point where you increase the money supply and the interest rate remains the same.

[00:22:48]Because the people expect that interest rates will not fall any further.

[00:22:53]People expect that interest rates will not fall any further. Now if I increase the money supply from here, the interest rate will fall. From here I will increase the money supply, interest rates will fall. But from here when I increase the money supply, for example, if I increase the money supply here, see the interest is the same.

[00:23:06]This means that monetary policy is failing here.

[00:23:09]Because from here when you increased the money supply, a liquidity trap came.

[00:23:12]Now that policy will not work because now the interest rate is not changing, so the purpose of monetary policy is lost, brother. So the answer for 14 will be A.

[00:23:22]Question No. 15 Which policy is most likely to lead to a reduction in the natural rate of unemployment? Now look, the natural rate of unemployment is basically 2 to 3% unemployment at full employment. Full employment means 96 to 97% employment. So 2 to 3% unemployment always exists which is natural dead which includes structural.

[00:23:47]Now not all unemployment comes under structural. Geographical immobility, occupational immobility, technological unemployment. Then friction also comes into play here. Now all are available in frictional also. Ventural unemployment, seasonal unemployment. Ok? So all this comes into it. Ok?

[00:24:04]An increase in the government expenditure on goods and services. Now see, if it is said reduction in natural rate of unemployment then it means that it is the work of supply side policy.

[00:24:11]Now here I will do it a little by increasing the aggregate demand. By increasing aggregate demand, cyclical unemployment decreases.

[00:24:17]Natural rate has nothing to do with it.

[00:24:18]Supply side policy will reduce the natural rate. An increase in the government expenditure on goods and services. That's the same thing.

[00:24:24]Look, Ji is part of Eddie. Now if you increase your heart rate, your heel will increase. When AD increases, sickle unemployment will decrease due to increase in AD.

[00:24:31]Which one will it be? Strict unemployment will decrease. Nothing to do with structural or frictional. An increase in the government expenditure on training schemes to address skill shortages B is the right answer because it will increase occupational mobility.

[00:24:44]Increasing occupational mobility means that structural unemployment is decreasing.

[00:24:49]Decreasing structural unemployment means the natural rate is decreasing. An increase in the period when the unemployed are eligible for welfare benefits. In this you are reducing the incentive to work of people.

[00:24:58]If you reduce people's incentives to work, it will increase unemployment. This is increasing your frictional unemployment.

[00:25:06]Why are you giving so many unnecessary benefits? An increase in the minimum wage. Now do n't look at minimum wages, the incentive to work increases instantly.

[00:25:12]Some children also give this answer here, which is also correct, that the instant to work increases. Yes, frictional end employment is decreasing here. People will find work now. They will be motivated to work now. But the point here is that minimum wage also increases the cost of business.

[00:25:26]And they might lay off workers.

[00:25:28]So there is a mixed impact. Mixed impact occurs. This can either increase or decrease unemployment. Correct? It can increase or decrease as well. So the better answer is B. 15 is B. Yes, if there was no other option here then I would have selected D. But we have a better option, so why should we select D?

[00:25:45]Ok? He has said it most likely. So B is the most definite answer. Ok?

[00:25:49]Question No. 16 On a diagram showing a production possibility curve, what definitely represents the long run economic growth?

[00:25:58]How is long-run economic growth reflected through PPC? Rightward shift of the PPC. Rightward shift of the PPC.

[00:26:04]Basically, if you remember, we did this many times in 20 markets.

[00:26:08]Like this is good Y.

[00:26:12]This is good X. This is the origin. Now it is like a PPC.

[00:26:17]Ok?

[00:26:18]Now if I am coming from E to E1 then this is actual growth. Ok? What is this? This is actual growth. But if this PPC is completely shifting rightward then this is potential growth. Correct? A change in the slope of the curve. This has to do with mobility. A movement from a point below the curve to a point on the curve. This is actual growth. Potential growth is mentioned in the question. Long run economic growth means potential.

[00:26:50]Ok?

[00:26:55]This is actual growth. A movement from one point to another point on a given curve is an opportunity cost and an outward shift of the curve. D is the right answer. Ok?

[00:27:03]Rightward shift. This happens due to increase in quantity and quality of resources. Generally BPC Right Pay Shift. So the answer for 16 will be D.

[00:27:12]Question No. 17 The diagram shows equilibrium in the money market. Money market is the market where money demand and money supply are seen. At point x, currently I am at point x.

[00:27:23]Ok? So let me do it like this.

[00:27:25]Right? If there is an increase in the level of income in the economy which point shows the new equilibrium in the short term. Short term. I told you the same thing. Look, when people's income increases, they spend more. When people spend more, the demand for money increases. So money demand will shift to the right. The money supplier has nothing to do with it. It is in the hands of the Central Bank. It is in the hands of their policies. Like minimum reserve ratio, open market operations etc. If money demand has to shift to the right, then money supply has to be kept in its place. This will be unchanged. Ok? This is unchanged. If the money demand shifts to the right, I will come here. If it is on LP3 then it seems to be an answer.

[00:28:02]Ok? A Answer Over.

[00:28:08]Question No. 18 Which combination of policies is most likely to reduce cyclical unemployment? The only way to reduce cyclical unemployment is to increase the AD because cyclical unemployment occurs due to reduction in AD.

[00:28:18]Because of dissension. But might increase frictional unemployment.

[00:28:22]Friction. Good. Now he is asking which policy will reduce cyclical unemployment but increase frictional unemployment.

[00:28:27]Now what is coming under frictional unemployment? Frictional unemployment includes venturi etc. Ok? Seasonality also comes into play to some extent.

[00:28:36]Well now this is going to be a look. Look directly, if AD is increasing then direct tax must be decreasing. It's a simple matter. There is no question of increase. Direct tax must be decreasing. For example, if income tax and corporation tax are decreasing then AD will be increasing. With the increase in AD, coin unemployment will end. But when you reduce direct tax, it increases. Now you are increasing unemployment benefits here so that people 's incentive to work is decreasing. Correct? Well, why am I crossing this? Okay, sorry, I have to cross it.

[00:29:08]Correct? Then its answer will be B.

[00:29:11]When you increase the unemployment benefit, now see, the cycle has reduced due to this. Correct? It is very easy, the cycle has reduced.

[00:29:20]When you increase unemployment benefits, the incentive to work will decrease.

[00:29:26]This will increase rural unemployment. Now, ventory unemployment is the same thing, it is a part of frictional, so frictional will also increase.

[00:29:33]B will be the answer. Question No. 19 What would cause the short run Phillips curve to shift to the right? So the short run Phillips curve is shifting to the right. Now when does the short run Phillips curve generally shift?

[00:29:45]When the short trend aggregate supply changes. Meaning, there is a shift due to change in cost.

[00:29:50]Look, in short and Phillips curve, there is no short trend and no movement in Phillips curve due to eddy. Correct? Movement is caused by eddies and shift is caused by short run aggregate supply.

[00:30:01]Ok?

[00:30:05]Now what are the options here? The unemployment rate is above the natural rate. The question of above the natural rate does not arise.

[00:30:11]Correct? Above the unemployment rate is above the natural rate decreasing the inflationary pressure. See, when the unemployment rate is above the natural rate, then your SRPC gets shifted leftward.

[00:30:26]Correct? This shifts your SRPC leftward. There is a shift to the left. It does n't happen on the right. and decreasing inflationary pressure. He is absolutely right. These inflationary expectations. He is saying absolutely right.

[00:30:38]The unemployment rate is above the natural rate of unemployment increasing the inflationary pressure. There will be no increasing. There will be decreasing. When unemployment rates are higher than the natural rate, inflation expectations are lower.

[00:30:48]But the same thing will happen left shift.

[00:30:52]Now the answer is C or D. The unemployment rate is below the natural rate.

[00:30:56]Ok? Decreasing the inflationary pressure.

[00:30:59]No more decreasing the inflationary expectations. No, because inflation expectations will increase here.

[00:31:08]So its answer will be D. The unemployment rate is below the natural rate increasing the inflationary expectations. Look, let me give you the logic behind this also. A let se for example look at this let me say this is my inflation percentage.

[00:31:25]Ok? This is my unemployment percentage.

[00:31:28]This is the origin. This is your short turn Phillips curve. Correct? SRPC. Now every short end of the Phillips curve has the expectation of no inflation. For example, inflation is expected here.

[00:31:42]Expected inflation from the LETS is here.

[00:31:44]0% from Lets Now there is a reason why I am saying 0%.

[00:31:46]For example, I say this is my natural rate. This is me at a completely natural rate. Here it is. This is my long run Phillips curve. Ok?

[00:31:55]So this this na this this is Nayru. Nayru means non- Nayru. Now please revise the entire Phillips book, friend.

[00:32:05]I am telling you as much as I can, Non- Accelerating Inflation Rate of Unemployment is such a thing that it is basically a natural rate of unemployment. This 2 to 3% is the natural rate of unemployment. The natural rate of unemployment is the level of unemployment that is allowed to remain above the natural rate.

[00:32:29]Reduce it through supply side policies. If you want to do it then there is no use in increasing the AD. Here, if you increase the aggregate demand, like if you use expansionary fiscal and monetary policy and increase the AD.

[00:32:38]Like for example, I am currently here.

[00:32:40]I am currently at point A. I raised the heel. Meaning at point A I increased the AD. Now I will increase the AD.

[00:32:49]Production will increase, demand for labor will increase.

[00:32:51]Unemployment will reduce. So I told you that movement occurs due to change in the heel.

[00:32:55]So you see if the AD increases. Well, with the increase in AD, inflation will also occur. If the price level increases here, unemployment will also decrease. The price level will also increase. So you see I came here. I have come here to point B. Now at point B, note one thing that my inflation has become 5% and unemployment has become 1%.

[00:33:14]This means I have fallen behind the natural rate.

[00:33:16]I am below natural rate.

[00:33:19]When the unemployment rate is below the natural rate. What was the option? Just read it back.

[00:33:25]When the unemployment rate is below the natural rate. This will increase inflationary expectations and the short and Phillips curve will shift to the right.

[00:33:35]I am showing you all this by doing it. It will definitely happen. Now I have come to B. When I am on B, when I am on B, the workers are on money illusion. Now B means money illusion. Right now people are under the illusion that the wages have increased. But which veg has increased? Money Wedge. I have got a job. Life is set. Nominal wages have increased, right? That's the issue.

[00:33:57]People are still not aware that inflation has arrived. After some time people will realise that the price has increased.

[00:34:02]After some time people will realise that this is 5% inflation, brother. Our real wages have reduced. Our inflation adjusted status has fallen. As soon as people realise this, they will go to the employer.

[00:34:14]They will say, Sir, please increase our wages.

[00:34:17]As soon as they talk about increasing wages. They will negotiate a higher wage.

[00:34:25]As soon as we talk about increasing wages, the cost of business will increase. The business will put you out of work.

[00:34:29]Short and aggregate supply decreased. Short end aggregate supply decreases, meaning short end Phillips will shift to the right. The worker was fired from his job. The worker was laid off. The worker was laid off. Lay off. This means that now my short run aggregate supply will return to the original point. But now inflation will remain in its place. Yes. Inflation will not decrease.

[00:34:47]Once inflation increases, it increases.

[00:34:50]Now my short run Philipscar became that PC one.

[00:34:52]But now the expected inflation has spoiled the game a bit. Nayru's concept was non-accelerating inflation rate of unemployment. Do n't touch this unemployment. If you tease it, inflation will come and unemployment will also not decrease. Look, I have come back from my trip but inflation has now reached 5%. Now people's expectations from me have adjusted.

[00:35:16]First look at people's expectations, when I was at point A, people were expecting 0% inflation. But now when I reached point C, when I reached point B and from B when I reached C, then people are no longer expecting 0% inflation.

[00:35:27]Now how much inflation will people expect? Will expect 5%.

[00:35:31]People will now expect inflation to be 5%. Then you will raise your heels again. The same scenario will happen again and expectations will increase. So wherever the unemployment rate is below.

[00:35:44]Whenever the unemployment rate is below the natural rate, the short run Phillips curve will shift to the right and the inflation expectation will increase. So this statement is absolutely correct. Correct?

[00:35:57]This statement is absolutely correct. And this statement is also absolutely correct. Simply, the short turn Phillips curve will shift to the left.

[00:36:05]Ok? If this question is repeated tomorrow and the left question comes then this will be the answer. Correct? There is a shift on the right here. Correct?

[00:36:13]Because when the unemployment rate is above the natural rate then the short run Phillips curve will shift to the left and the inflation expectations will decrease and if the unemployment rate is below the natural rate then the short run Phillips curve will shift to the right increasing the inflation expectations so the answer to 19 will be D Question number 20 Which microeconomic policy is most likely to be used as a long run means of reducing inflationary pressure is called long run policy C. Exchange rate is not a long run policy. Physical policy is not a long run policy. Supply side is a long run policy. Correct. Exchange rate policy is not even a microeconomic policy. It happens with monetary as well.

[00:36:53]C of 20 will be supply side policy. Question number 21. The table identifies the pairs of possible government Aims. The achievement of M One needs to be consistent with the achievement of M Two.

[00:37:04]Which row shows the combination where both aims are likely to be achieved. Ok? Higher foreign exchange rate will lead to lower rate of unemployment. No, when the exchange rate increases, it means the currency is appreciating.

[00:37:21]Export prices are increasing. Import prices are falling. This causes a major health problem in your country, brother. So when AD falls, unemployment will not lower. Will be higher. Lower rate of inflation will lead to a current account surplus. Yes.

[00:37:34]When things become cheap in your country, then obviously your exports will not increase. Might increase and imports will also reduce. So B is correct.

[00:37:43]Current account surplus means that inflows are greater than outflows. Exports are high. Imports are low. More even distribution of income will lead to higher rate of savings. No, look at even distribution of income, even distribution of income means the income of the poor is increasing. The poor are getting money. When the poor get money, the MPC of the poor gets higher, brother. The MPC of the poor is very high. They spend all the extra money they get.

[00:38:05]So saving hour and this higher rate is a bit.

[00:38:07]Lower rates of saving over poor spend a lot of money.

[00:38:10]Correct?

[00:38:13]Rapid economic growth will lead to sustainable economic development not necessary at all. So the answer for 21 will be B.

[00:38:22]Question No. 22 The central bank of an economy decreases the money supply in an attempt to reduce inflation. Obviously, if you reduce the money supply, the interest rate will increase.

[00:38:31]Ok? Under these circumstances, this policy is most likely to be effective. It is a simple matter, look, the question of exchange rate does not arise. It should be floating because obviously if you are reducing the money supply and increasing the interest rate then obviously the capital inflows will increase, sorry hot money flows will increase and the value of your currency will increase. We have learned that increase in interest rate leads to increase in exchange rate.

[00:38:52]So it is necessary for the currency to increase. The responsiveness of aggregate demand to interest rate changes should be high. Because my aim is that if the interest rate increases then AD should decrease. So it will happen only if there is high responsibility. So the answer 22 is correct. It is very difficult to implement monetary policy in a fixed exchange rate system, brother. When you change the interest rate, the exchange rate will change. Then the exchange rate will have to be manipulated. And the right column is very obvious. The responsiveness of the AD should be high.

[00:39:18]Otherwise the policy will not work. I just have to change the AD. The answer for 22 is D.

[00:39:24]Question No. 23 A government reduces both the income tax paid by all earners and the amount of means-tested benefits to those receiving low or no incomes. Now see, if you are reducing income tax then aggregate demand will increase. Obviously, as disposable income increases, consumption will increase, AD will increase. Means tested benefit you are reducing.

[00:39:45]Reduction in means tested benefit means, for example, you have reduced unemployment benefit. Correct?

[00:39:51]Reducing unemployment benefits means you have increased the incentive to work.

[00:39:56]You have increased the incentive to work. What is the most likely What is the most likely to be its objective? Why would these people have done this? A More Equitable Income Distribution No More. You have reduced income tax for everyone. You have reduced the income tax for everyone, brother.

[00:40:14]You have reduced the burden from Rich Pay, brother. Well, this question does not arise at all. Income tax is a tax of progressive nature, brother. You also reduced unemployment benefits.

[00:40:22]You even ruined the poor man's life.

[00:40:25]Ok? You even ruined the poor man's life.

[00:40:27]So the question of equitable does not arise here. A reduction in the rate of inflation is not at all. You are increasing your height.

[00:40:32]This will increase the price level. This will lead to demand inflation.

[00:40:39]No reduction in the trade deficit at all. If AD is increasing then people's income is also increasing. Disposable income is also increasing. Due to this, people will increase import expenditure. So this also cannot happen.

[00:40:45]An increase in the rate of economic growth can happen because if AD increases then growth is bound to happen. Real GDP will definitely increase. This is obvious.

[00:40:55]Answer to 23 will be D. Question No. 24 What is not likely a feature of customs union? Now look, this is the same old thing.

[00:41:04]Wait a minute.

[00:41:17]See what is a free trade area?

[00:41:20]Free trade area means that a trade block is formed between four firms.

[00:41:25]For example, there are no trade barriers between these four countries.

[00:41:29]If you trade with any foreign country, you have to set the tariff as per your wish. There is no need for a common external tariff.

[00:41:35]Customs Union is also similar to Free Trade Area. The only difference is that there is a common external tariff in the customs union. If there is a free trade area between A, B, C, D, then the Customs Union says that if you are trading with country G, then everyone has to charge the same tariff. There will be no different tariffs. So there is no common external tariff in the customs union. There is no common external tariff in a free trade area. A monetary union has everything that a free trade area and a customs union have. Just one more special thing in monetary union is that monetary policy, exchange rate policy and currency are all the same and in full economic union the physical policy is also the same. It is so extreme. Ok? So now if we look at the options, I have copied it here.

[00:42:14]Now if we look at the options of 24, it is saying not. What is something that does not happen in a customs union? Common external territory exists with non-member nations.

[00:42:25]Elimination of terrors between member nations. It's a free trade area, right? Elimination of quotas between member nations. A common currency among member nations does not happen. This happens in monetary union and also in full economic union.

[00:42:36]This touch on full economic union does not come in our syllabus. There is a monetary union. Ok? 24 has D.

[00:42:42]Like the European Union is a monetary union. 24 is a D.

[00:42:47]25 A central bank officially lowers the price of its currency relative to an agreed rate in terms of other currencies.

[00:42:55]This is how it has defined devaluation. It has deliberately devalued the currency.

[00:43:00]What type of central bank policy is this?

[00:43:02]Devaluation. The words depreciation and erratication are used in floating.

[00:43:06]This happens automatically and is a deliberate action.

[00:43:12]Ok? Intentionally teaching currency, friend.

[00:43:14]In the question it has been said that the lower devaluation is C of 25. Question number 26: I had copied the above question below. Ok? Which combination of events would cause the biggest increase in the real GDP per capita per head. Now what is the formula of real GDP per capita? First look at the GDP per capita formula. Real simply means that it is inflation adjusted. The effect of inflation has been removed. The formula is GDP per capita or per head.

[00:43:44]GDP divided by population.

[00:43:48]Now if GDP per capita is to be increased then it means GDP should increase. The numerator should increase so that the overall answer increases and the denominator should decrease so that the overall answer increases. Because as the numerator increases and the denominator decreases, the overall answer increases. So GDP should increase, population should decrease. And since real GDP has to be increased, real GDP will increase only when inflation decreases.

[00:44:06]Because if the price level decreases then the real purchasing power will increase. So if this also falls then this will rise. If this falls and this also falls then the answer will be A.

[00:44:17]Due to its reduction, real GDP will increase.

[00:44:22]Ok?

[00:44:24]Meaning, basically, real GDP increases due to decrease in price level.

[00:44:35]Ok? This is for question number 26.

[00:44:41]Question No. 27 If a low income country receives aid from a high income country then this is butteral ad. One country is advertising another country. This is Butterl Ad.

[00:44:53]Ok? What is multilateral aid? When a third party, for example, World Bank, is giving an ad to someone, then it is a multilateral ad. When will this aid give maximum benefit in the long term to a low income country? So the first thing is that it should be a grant because the grant does not have to be reaped.

[00:45:11]If there is a no reap loan then it will have to be reaped.

[00:45:14]So this is not a long term benefit.

[00:45:16]The purpose of this ad should be machinery.

[00:45:19]Absolutely Purchase of Agricultural Machinery. This will give benefits in the long term. Food subsidies are a short run solution.

[00:45:24]You have filled the stomachs of the people. Then it will be empty again.

[00:45:27]It is better to do some work if you have machinery etc. A will be the answer. Ok?

[00:45:35]Question No. 28 V variable V variable is included in the calculation of both the HDI and the Multidimensional Poverty Index Okay so I already have this copied Sara, look at this HDI is real GNP per head In education, schooling years and life expectancy What all comes under health in MPI Nutrition and child mortality What all comes under education Years of schooling and school attendance and living standard?

[00:46:08]Cooking fuel, sanitation, water, electricity, flooring housing and assets. These assets are written. Ok?

[00:46:14]This is assets. So what is common in them?

[00:46:18]What is common?

[00:46:28]Years of schooling is common. Look at this. This years of schooling is common.

[00:46:34]Only years of schooling are common, nothing else is common between these two. This is what is asked in the question, both in the HD and in the MP3, so this is not it. This is not there either. This is not there either. This is common. D is the answer. Correct.

[00:46:48]28 will be D.

[00:46:50]Question No. 29 Which diagram is not an example of the Kozinets curve? There are basically two types of Kozinets curves. There is an environmental cosinet curve and there is an inktity curve. So Gini coefficient and income per capita yes, HDI and income per capita no will be the answer.

[00:47:09]Inequality and Income per Capita Yes Inequality and Development. If yes then B will be the answer.

[00:47:17]Correct?

[00:47:20]One is the Gini coefficient on income per capita, which is income equity. This is simple and there is also an environmental coefficient curve in which economic degradation comes on the y axis and GDP comes on the x axis but that is not given in the options here, there is no HDI, there is no relation between HDI, the answer to 29 will be B only, question number 30 the table shows the value of the Gini coefficient for an economy from 2018 to 2020 now see the Gini coefficient is decreasing now Gini coefficient is a measure of inequality GC zero means perfect equality GC one means perfect inequality.

[00:47:58]Ok? Now we know that higher the GC, higher the inequality, the closer it is to one. Now look here it is decreasing, so decreasing GC means I am getting closer to zero.

[00:48:06]So this means inequality is decreasing.

[00:48:08]Inequality is decreasing. What is most likely to explain the change in the value of the Gini coefficient? Now inequality is decreasing.

[00:48:14]Ok? Now indirect tax is not of regressive nature. Indirect tax is regressive in nature. The rich man is also giving the same amount. The poor are also giving the same amount. The poor bear more burden. Now you are increasing it. This will only increase the interest, brother. So this cannot happen. An increase in long-term unemployment.

[00:48:28]This will also increase the Gini coefficient.

[00:48:32]People just don't have money. Inktivity will increase. Meaning, increasing GC means that the equity is increasing. An increase in the national minimum wage will reduce the Gini coefficient. Inkity will be less. Because obviously the money is coming to the poor. C will be the answer. An increase in the population. No gender age of population is true. I have no idea about this thing right now. So much no gender edge true. Ok? So let me find out the threshold of PO 30. This is paper three variant three, right? Well, if you look at its threshold, it has a threshold. November 25 Paper Three is on variant three 23. So look, there's a perfect threshold. There is no such high in it. Take it.

[00:49:11]You should keep in mind that A happens at 2425.

[00:49:15]19 is Pay B. It is 17 p.m.

[00:49:24]16 is paid.

[00:49:28]14 is on E. And below 14 is a you. It was an average difficulty paper, it was not that difficult.