Question

Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from the options given below:
Assertion (A): When the allocative function is performed well, scarce resources are allocated to those firms which have the highest productivity for the economy.
Reason (R): Allocative function allocates or directs funds into their most productive investment opportunity.

• A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are true, but Reason (R) is \textbf{not} the correct explanation of Assertion (A).
• C. Assertion (A) is true, but Reason (R) is false.
• D. Assertion (A) is false, but Reason (R) is true.

Hint:

Allocative function = Right funds to the right hands — it's how finance boosts productivity in the economy.

Answer 1

The Correct Option is A

The allocative function of financial markets ensures that funds flow into businesses or areas where they will be used most efficiently. When this function is working effectively, it helps the economy by investing in the most productive ventures, which increases overall output. Hence, both statements are true and the Reason correctly explains the Assertion.
Final Answer: (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).