CAT 2025 Slot 1 Question Paper

The passage below is accompanied by four questions. Based on the passage, choose the best answer for each question

Studies showing that income inequality plays a positive role in economic growth are largely based on three arguments. The first argument focuses on investment indivisibilities wherein large sunk costs are required when implementing new fundamental innovations. Without stock markets and financial institutions to mobilize large sums of money, a high concentration of wealth is needed for individuals to undertake new industrial activities accompanied by high sunk costs . . . [One study] shows the relation between economic growth and income inequality for 45 countries during 1966-1995. [It was found] that the increase in income inequality has a significant positive relationship with economic growth in the short and medium term. Using system GMM, [another study estimated] the relation between income inequality and economic growth for 106 countries during 1965- 2005 period. The results show that income inequality has a positive impact on economic growth in the short run, but the two are negatively correlated in the long run. The second argument is related to moral hazard and incentives . . . Because economic performance is determined by the unobservable level of effort that agents make, paying compensations without taking into account the economic performance achieved by individual agents will fail to elicit optimum effort from the agents. Thus, certain income inequalities contribute to growth by enhancing worker motivation . . . and by giving motivation to innovators and entrepreneurs . . . Finally, [another study] point[s] out that the concentration of wealth or stock ownership in
relation to corporate governance contributes to growth. If stock ownership is distributed and owned by a large number of shareholders, it is not easy to make quick decisions due to the conflicting interests among shareholders, and this may also cause a free-rider problem in terms of monitoring and supervising managers and workers. . . .

Various studies have examined the relationships between income inequality and economic growth, and most of these assert that a negative correlation exists between the two. . . . Analyzing 159 countries for 1980-2012, they conclude that there exists a negative relation between income inequality and economic growth; when the income share of the richest 20% of population increases by 1%, the GDP
decreases by 0.08%, whereas when the income share of the poorest 20% of population increases by 1%, the GDP increases by 0.38%. Some studies find that inequality has a negative impact on growth due to poor human capital accumulation and low fertility rates . . . while [others] point out that inequality creates political instability, resulting in lower investment. . . . [Some economists] argue that widening income inequality has a negative impact on economic growth because it negatively affects social consensus or social capital formation. One important research topic is the correlation between democratization and income redistribution. [Some scholars] explain that social pressure for income redistribution rises as income inequality increases in a democratic society. In other words, when
democratization extends suffrage to a wider class of people, the increased political power of low- and middle-income voters results in broader support for income redistribution and social welfare expansion. However . . . if the rich have more political influence than the poor, the democratic system actually worsens income inequality rather than improving it.

For the following questions answer them individually

A round table has seven chairs around it. The chairs are numbered 1 through 7 in a clockwise direction. Four friends, Aslam, Bashir, Chhavi, and Davies, sit on four of the chairs. In the starting position, Aslam and Chhavi are sitting next to each other, while for Bashir as well as Davies, there are empty chairs on either side of the chairs that are sitting on.

The friends take turns moving either clockwise or counterclockwise from their chair. The friend who has to move in a turn occupies the first empty chair in whichever direction (s)he chooses to move. Aslam moves first (Turn 1), followed by Bashir, Chhavi, and Davies (Turns 2, 3, and 4, respectively). Then Aslam moves again followed by Bashir, and Chhavi (Turns 5, 6, and 7, respectively).

The following information is known

At InnovateX, six employees, Asha, Bunty, Chintu, Dolly, Eklavya, and Falguni, were split into two groups of three each: Elite led by Manager Kuku, and Novi
1. The four friends occupy adjacent chairs only at the end of Turn 2 and Turn 6.
2. Davies occupies Chair 2 after Turn 1 and Chair 4 after Turn 5, and Chhavi occupies Chair 7 after Turn 2.
ce led by Manager Lalu.

At the end of each quarter, Kuku and Lalu handed out ratings to all members in their respective groups. In each group, each employee received a distinct integer rating from 1 to 3.

The score for an employee at the end of a quarter is defined as their cumulative rating from the beginning of the year. At the end of each quarter the employee in Novice with the highest score was promoted to Elite, and the employee in Elite with the minimum score was demoted to Novice. If there was a tie in scores, the employee with a higher rating in the latest quarter was ranked higher.

1. Asha, Bunty, and Chintu were in Elite at the beginning of Quarter 1. All of them were in Novice at the beginning of Quarter 4.
2. Dolly and Falguni were the only employees who got the same rating across all the quarters.
3. The following is known about ratings given by Lalu:
• Bunty received a rating of 1 in Quarter 2.
• Asha and Dolly received ratings of 1 and 2, respectively, in Quarter 3.