In the context of Indian economy, consider the following statements: 1) The growth rate of GDP has steadily increased in the last five years. 2) The growth rate in per capita income has steadily increased in the last five years. Which of the statements given above is/are correct?

The correct answer is D, neither statement is correct. Statement 1 fails because GDP growth did not rise steadily over the period the question refers to (roughly 2005-06 to 2009-10). Growth was high at about 9.5 to 9.6 percent in the first two years, eased to about 9.3 percent, fell sharply to about 6.7 percent in 2008-09 with the global financial crisis, and then recovered to about 8.6 percent in 2009-10. Exact figures shift with base-year revisions, but the dip in 2008-09 is a consistent feature of the series.

Statement 2 fails for the same reason. Per capita income growth is roughly GDP growth minus population growth of about 1.5 to 1.7 percent a year, so it fluctuated along with GDP and also dipped in 2008-09.

The core concept is the business cycle and the difference between a high average growth rate and a steady upward path. This links to GS-3 on growth volatility, external shocks and the transmission of the 2008 crisis, and fiscal stimulus as a response.

Trap: Candidates remember that India grew fast in the mid-2000s and assume the growth path was a smooth rise each year. Statement 2 is also tempting because it sounds like a restatement of statement 1.