UPSC Topper Strategy for Economics Optional by Gaurav Agarwal (Rank-1)

Economics :

So How to Prepare Economics Optional?

Stages of Preparation

There are multiple stages of preparation in a subject like Economics.

– Stage 1: In this stage, we just focus on understanding what we are reading. While reading, we must understand the concept fully. We will forget the thing 2 days after we have read it, don’t worry. We will not even understand half the questions which have been asked in previous years, don’t worry. We don’t even have a clue of how to write answers in the exam, don’t worry. Just ensure you understand what you are reading and finish the syllabus.

– Stage 2: This begins after the syllabus has been finished once. In the second time, we again focus on understanding what we are reading. This time we would find, it takes less time to understand all the stuff and most of it seems familiar once we read. Our retention would increase at this stage. Read, re-read, revise the syllabus 2-3 times, ensure that we can recall without any aid what was said in a given topic / theorem and can reproduce it on paper. At the end of this stage, we would still not be able to even understand half the questions in the paper.

– Stage 3: Many questions in the eco question paper are not direct i.e. they ll not ask write abt XX theorem. These questions are indirect and we won’t even know which theorem / model to apply! The aim of this stage is to identify which model to apply. This can only come if we sit down with previous years’ question papers and think and think and discuss with others on what model to apply for a particular question. by now we have internalised all the stuff, we can not only reproduce the entire model / theorem on paper but also understand when and where to apply them. We will be able to answer most (90-95%) of the questions in previous years’ question papers now.

Method of Studying

– In economics, diagrams are of utmost importance. UPSC economics is completely non mathematical and totally diagramatical. So while reading any model / theorem, we should simultaneously practise its diagram on paper / computer.

– Assumptions are very important while writing answers. We should clearly state all the assumptions in our answers and so we should systematically remember all the assumptions in any theorem / model.

– Stats: In eco 2, stats are very important. If we supplement our answers with stats, nothing like it. Not all stats need to be remembered, only important ones. I am mentioning the important stats to be remembered in the book list section.

Book List / Sources for Syllabus

Paper – I

1. Advanced Micro Economics:

(a) Marshallian and Walrasiam Approaches to Price determination.
(b) Alternative Distribution Theories: Ricardo, Kaldor, Kaleeki
(c) Markets Structure: Monopolistic Competition, Duopoly, Oligopoly.
(d) Modern Welfare Criteria: Pareto Hicks & Scitovsky, Arrow’s Impossibility Theorem, A.K. Sen’s Social Welfare Function.

These topics have to be studied from HL Ahuja “Advanced Microeconomics”. Find the relevant chapters to study from this thick book. In addition, questions are asked on “Rent, quasi rent” and “Product Exhaustion Problem”, so study the relevant chapters also. HL Ahuja is UPSC exam standard book for micro. Sen’s swf and proof of Arrow can be studied from my notes. I took Sen’s swf from one of his book and proof of Arrow from one of Sen’s paper. Proof of Arrow given in HL Ahuja and taught by most coachings is wrong, it is simply a proof of Concordet’s paradox, not Arrow. Just imagine, had the proof of Arrow been so elementary, would he have got the Nobel prize for it?

2. Advanced Macro Economics: Approaches to Employment Income and Interest Rate determination: Classical, Keynes (IS-LM) curve, Neo classical synthesis and New classical, Theories of Interest Rate determination and Interest Rate Structure.

These topics should be first studied from HL Ahuja’s “Macroeconomics” book. This book is below UPSC exam standard, but reading this is essential to understand higher concepts. The UPSC level book is Brian Snowdon and Howard R Vane “Modern Macroeconomics” (given to me by Amit Sahu). Only first 5 chapters need to be studied from this book.

3. Money – Banking and Finance:

(a) Demand for and Supply of Money: Money Multiplier Quantity Theory of Money (Fisher, Pique and Friedman) and Keyne’s Theory on Demand for Money, Goals and Instruments of Monetary Management in Closed and Open Economies. Relation between the Central Bank and the Treasury. Proposal for ceiling on growth rate of money.

This can be studied from HL Ahuja’s Macroeconomics and Snowdon’s Modern Macroeconomics (Ch 2, 3). Also, although UPSC doesn’t mention post keynesian Baumol’s and Inventory theory of money demand in syllabus, it asks questions on these. So read them from HL Ahuja. There are some topics for which material may be scarce, read them from my notes.

(b) Public Finance and its Role in Market Economy: In stabilization of supply, allocation of resources and in distribution and development. Sources of Govt. revenue, forms of Taxes and Subsidies, their incidence and effects. Limits to taxation, loans, crowding-out effects and limits to borrowings. Public Expenditure and its effects.

I studied from Musgrave and Musgrave, selected chapters. People also mention HL Bhatia a lot. I was satisfied with my preparation until I saw the public finance questions this year. I couldn’t even understand the questions. I don’t know where else to study public finance from.

4. International Economics:

(a) Old and New Theories of International Trade

(i) Comparative Advantage
(ii) Terms of Trade and Offer Curve.
(iii) Product Cycle and Strategic Trade Theories.
(iv) Trade as an engine of growth and theories of under development in an open economy.
(b) Forms of Protection: Tariff and quota.

(c) Balance of Payments Adjustments: Alternative Approaches.

(i) Price versus income, income adjustments under fixed exchange rates,
(ii) Theories of Policy Mix
(iii) Exchange rate adjustments under capital mobility
(iv) Floating Rates and their Implicationns for Developing Countries: Currency Boards.
(v) Trade Policy and Developing Countries.
(vi) BOP, adjustments and Policy Coordination in open economy macro-model.
(vii) Speculative attacks
(viii) Trade Blocks and Monetary Unions.
(ix) WTO: TRIMS, TRIPS, Domestic Measures, Different Rounds of WTO talks.

There is only one book on International Economics and it is by Dominick Salvatore. Diagrams are the key in IntEco.

5. Growth and Development:

(a) Theories of growth:

(i) Harrod’s model,
(ii) Lewis model of development with surplus labour
(iii) Balanced and Unbalanced growth,

These topics are covered well in A P Thirwall’s book. Todaro may also be referred for some topics.

(iv) Human Capital and Economic Growth.
(v) Research and Development and Economic Growth

These are dicey topics and cover many models. I studied them from a paper by John Bluedorn “The human capital augmented solow model” and a book “Introduction to Economic Growth” by Charles I. Jones (given to me by Amit Sahu).

(b) Process of Economic Development of Less developed countries: Myrdal and Kuzments on economic development and structural change: Role of Agriculture in Economic Development of less developed countries.

Myrdal and Kuznets can be studied from AP Thirwall. Not all aspects of Myrdal are covered in Thirwall, I had one pdf I found after googling on Myrdal which covered aspects like how less developed economies have backwash effects strong and how developed democracies have stronger spread effects, I don’t seem to have the pdf now.

(c) Economic development and International Trade and Investment, Role of Multinationals.

(d) Planning and Economic Development: changing role of Markets and Planning, Private- Public Partnership

(e) Welfare indicators and measures of growth – Human Development Indices. The basic needs approach.

(f) Development and Environmental Sustainability – Renewable and Non Renewable Resources, Environmental Degradation, Intergenerational equity development.

These are general topics and haven’t found a single source for them so far. Very little preparation.

Paper – II

1. Indian Economy in Pre-Independence Era: Land System and its changes, Commercialization of agriculture, Drain theory, Laissez faire theory and critique. Manufacture and Transport: Jute, Cotton, Railways, Money and Credit.

These I studied mainly from my hitory optional preparation for cse 2012. You can see some in my notes.

2. Indian Economy after Independence:

A The Pre Liberalization Era:

(i) Contribution of Vakil, Gadgil and V.K.R.V. Rao.

Till date I have not found a single decent source to prepare this. I have never been able to prepare this. If someone has a good source, pls let me know, I ll update here.

(ii) Agriculture: Land Reforms and land tenure system, Green Revolution and capital formation in agriculture,
(iii) Industry Trends in composition and growth, Role of public and private sector, Small scale and cottage industries.
(iv) National and Per capita income: patterns, trends, aggregate and Sectoral composition and changes their in.
(v) Broad factors determining National Income and distribution, Measures of poverty, Trends in poverty and inequality.

Uma Kapilla is a very good source for these topics. One should also focus on economic stats. Can also see my notes. Stats on efficacy of land reforms need to be remembered (see my notes), stats on economic growth rate, growth rates of agriculture, industry, manufacturing, capital goods, services, per capita income need to be remembered for 3 periods – 1950s to 1965, 1965 to 1980, 1980 to 1990.

B The Post Liberalization Era:

(i) New Economic Reform and Agriculture: Agriculture and WTO, Food processing, Subsidies, Agricultural prices and public distribution system, Impact of public expenditure on agricultural growth.
(ii) New Economic Policy and Industry: Strategy of industrialization, Privatization, Disinvestments, Role of foreign direct investment and multinationals.
(iii) New Economic Policy and Trade: Intellectual property rights: Implications of TRIPS, TRIMS, GATS and new EXIM policy.
(iv) New Exchange Rate Regime: Partial and full convertibility, Capital account convertibility.
(v) New Economic Policy and Public Finance: Fiscal Responsibility Act, Twelfth Finance Commission and Fiscal Federalism and Fiscal Consolidation.
(vi) New Economic Policy and Monetary system. Role of RBI under the new regime.
(vii) Planning: From central Planning to indicative planning, Relation between planning and markets for growth and decentralized planning: 73rd and 74th Constitutional amendments.
(viii) New Economic Policy and Employment: Employment and poverty, Rural wages, Employment Generation, Poverty alleviation schemes, New Rural, Employment Guarantee Scheme.

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Courtesy: Mr.Gaurav Agrawal