SEE 2081(2025) | Optional I Economics | Question Paper - Solution

Question No. 14: Explain the subsistence theory of wage.
Answer: The subsistence theory of wage, also known as the "Iron Law of Wages," states that wages tend to settle at a level that provides workers with just enough to meet their basic needs, such as food, shelter, and clothing, to survive and reproduce. If wages rise above this level, the population increases, leading to a larger labor supply, which pushes wages back down. If wages fall below this level, workers cannot survive, reducing the labor supply, which pushes wages back up.

Question No. 14: (OR). Write the definition of interest. Describe the elements of gross interest.
Answer: Interest is the payment made by a borrower to a lender for the use of borrowed money, usually expressed as a percentage of the principal amount over a specific period.

Elements of Gross Interest are -
i) Pure Interest: The basic payment for the use of money, excluding additional charges.
ii) Risk Premium: Extra amount paid to cover the risk of the borrower not repaying the loan.
iii) Management Cost: Administrative costs incurred by the lender, such as loan processing.
iv) Reward for Inconvenience: Compensation to the lender for the inconvenience of lending money.
v) Inflation Adjustment: Additional amount to account for inflation, ensuring the lender’s money retains its value.

Question No. 15: Explain the Lewis’ theory of Unlimited Supply of Labor.
Answer: The Lewis’ theory of Unlimited Supply of Labor explains economic development in a dual-sector economy with a traditional sector, like agriculture, and a modern industrial sector. In the-traditional sector, there is an unlimited supply of labor because many workers are underemployed, with low or zero marginal productivity. These workers can be moved to the modern sector without reducing agricultural output. The modern sector offers higher wages, attracting labor, and as labor moves, the economy grows. Wages in the modern sector remain low due to the unlimited labor supply until the surplus labor is absorbed, after which wages rise.

Question No. 15 (OR). Explain any five features of the Nepalese economy.
Answer: The five features of the Nepalese economy are -

i) Agriculture-Based Economy: Agriculture employs about 65% of the population and contributes significantly to GDP, with crops like rice and maize.
ii) Low Industrialization: Nepal has limited large-scale industries, with most being small-scale, like handicrafts, due to a lack of capital.
iii) Dependence on Remittances: Remittances from workers abroad contribute around 25-30% to GDP, supporting the economy.
iv) High Poverty and Inequality: Poverty is widespread, especially in rural areas, with significant income inequality.
v) Dependence on Foreign Aid and Trade: Nepal relies on foreign aid and imports, leading to a trade deficit, as exports are limited.

Question No. 16: What is international trade? Highlight the importance of international trade in the context of Nepal.

Answer: International trade refers to the exchange of goods, services, and capital between countries. It involves exports (selling goods to other countries) and imports (buying goods from other countries).

Importance of International Trade in the Context of Nepal are -
i) Access to Goods and Services: Nepal imports goods like machinery, fuel, and medicines that are not produced domestically, improving the quality of life for its citizens.
ii) Economic Growth: Exporting goods like carpets, pashmina, and tea to countries like India and the USA generates revenue, which helps in economic growth.
ii) Employment Opportunities: International trade creates jobs in export-oriented industries, such as garment manufacturing, reducing unemployment in Nepal.
iv) Foreign Exchange Earnings: Trade helps Nepal earn foreign currency, which is used to pay for imports and repay foreign debts.
v) Technology Transfer: Through trade, Nepal can import advanced technology and machinery, which improves productivity in sectors like agriculture and industry.

Question No. 17: Clarify any five importance of economic planning in Nepal.
Answer: The five importance of economic planning in Nepal are -

i) Reducing Poverty: Economic planning helps allocate resources to poverty reduction programs, such as providing subsidies to farmers and improving education.
ii) Infrastructure Development: Planning ensures investment in infrastructure like roads, electricity, and irrigation, which are crucial for Nepal’s development.
iii) Balanced Regional Development: It helps reduce regional disparities by focusing on underdeveloped areas, such as rural hills and mountains.
iv) Resource Mobilization: Planning ensures efficient use of Nepal’s limited resources, such as land, water, and labor, for maximum benefit.
v) Economic Stability: It helps control inflation, manage public expenditure, and stabilize the economy through proper fiscal and monetary policies.

Question No. 18: Mention any five functions of statistics.
Answer: The five functions of statistics are -

i) Data Collection: Statistics helps in systematically collecting data, such as population or income data, for analysis.
ii) Data Presentation: It organizes data into tables, charts, and graphs to make it easier to understand.
iii) Data Analysis: Statistics analyzes data to find patterns, trends, and relationships, such as calculating the average income of a population.
iv) Decision Making: It provides a basis for informed decision-making, such as using unemployment data to create job programs.
v) Forecasting: Statistics helps predict future trends, such as forecasting economic growth or inflation rates.

Question No. 19: Represent the given data in a pie chart.

Question No. 20: Introduce money and describe its six functions in brief.
Answer: Money is a medium of exchange widely accepted for the payment of goods, services, and debts, simplifying trade by eliminating the inefficiencies of bartering.
The six functions of Money are -
i) Medium of Exchange: Money facilitates trade by being a common medium for buying goods and services.
ii) Unit of Account: Money provides a standard measure to compare the value of goods and services.
iii) Store of Value: Money can be saved for future use, retaining its value over time.
iv) Standard of Deferred Payment: Money is used to settle future debts or payments.
v) Measure of Value: Money measures the value of goods and assets uniformly.
vi) Means of Transferring Value: Money enables easy transfer of value between people or places.

Question No. 21: Classify and describe the public expenditure in the context of Nepal.

Answer: Public expenditure is the money spent by the government to meet the needs of the country and its citizens. In Nepal, it is classified as:

- Development Expenditure: Spending on projects like roads and schools, e.g., hydropower projects.
- Regular Expenditure: Day-to-day expenses like salaries, e.g., paying teachers.
- Capital Expenditure: Spending on long-term assets like bridges, e.g., Kathmandu-Tarai Fast Track.
- Recurrent Expenditure: Regular expenses like subsidies, e.g., fertilizer subsidies.
- Social Welfare Expenditure: Spending on healthcare and education, e.g., free education programs.

In Nepal, public expenditure addresses poverty, improves infrastructure, and promotes growth, but faces challenges like corruption and limited revenue.

Question No. 22: Calculate the Mean and Median from the data given below.

Question No. 22 (OR): Construct Laspeyres' and Paasches' price index for the year 2024 by taking 2022 as the base year.

Answer: The Laspeyres' Price Index for 2024 is approximately 147.74, and the Paasche's Price Index for 2024 is approximately 165.56.