Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R). Assertion (A) : Investment in human capital yields returns in the future. Reason (R) : Education and health make people more productive. Select the correct answer from the code given below :
- (a)Both (A) and (R) are true, but (R) is not the correct explanation of (A)
- (b)(A) is true, but (R) is false
- (c)(A) is false, but (R) is true
- (d)Both (A) and (R) are true and (R) is the correct explanation of (A)
Correct — D, Both (A) and (R) are true and (R) is the correct explanation of (A). The Assertion is true: in economics, spending on education, training, health care, migration for work and job-market information is classified as investment in human capital rather than as consumption, precisely because the outlay is made today while the return — higher earnings for the individual and higher output for the economy — accrues over the whole of the person's working life. The Reason is also true: education raises a worker's knowledge, skill and ability to absorb new technology, and good health raises stamina and cuts days lost to illness, so both make a worker produce more per hour. Crucially, the Reason is not just a second true sentence sitting beside the first — it names the exact mechanism by which the first works. Investment in people pays off later BECAUSE it makes them more productive, and that extra productivity is what the future return consists of. Since (R) supplies the causal channel for (A), the key marks (d).
- (a)Both (A) and (R) are true, but (R) is not the correct explanation of (A) — It gets the truth of both statements right but severs the link between them. There is no other route by which investment in human capital delivers a future return — the return simply is the higher productivity, and hence higher earnings and output, that education and health generate. This is the option a candidate marks when he treats (R) as an unrelated fact rather than reading it as the reason for (A).
- (b)(A) is true, but (R) is false — (R) is not false. That education and health raise labour productivity is the founding proposition of human capital theory and is backed by a large body of returns-to-schooling evidence; it is also the reasoning NCERT uses when it explains why an educated, healthy workforce lifts national income.
- (c)(A) is false, but (R) is true — (A) is not false. If investment in human capital yielded no future return, there would be no case for treating education and health spending as investment at all, and no basis for the human capital literature. Both the individual return (higher lifetime earnings) and the social return (a more skilled, healthier population) are well documented.
Human capital is the stock of knowledge, skill, competence and health embodied in a population, which determines how much that population can produce. Human capital formation is the process of adding to that stock — chiefly through education and health care, and also through on-the-job training, migration in search of better work, and information about the labour market. The idea, developed by Theodore W. Schultz and Gary S. Becker, is that money spent on people should be analysed the way money spent on machines is: as an investment carrying a measurable rate of return, not as consumption that vanishes once made.
Assertion–Reason items are decided in two steps, and this one is easy at step one because both statements are plainly true. All the work is at step two: does (R) state WHY (A) is true, or is it merely another true sentence? Apply the 'because' test — read the two as one sentence. 'Investment in human capital yields returns in the future BECAUSE education and health make people more productive.' That reads as a complete and correct causal claim, so (R) is the explanation and the answer is the 'correct explanation' option. Note also that the option order in these codes is not fixed: UPPSC put the 'both true and (R) explains (A)' choice at (a) in 2019 and at (d) here, so the letter must never be memorised.
- Human capital is the stock of skill, knowledge and health embodied in people; human capital formation is the process of building it through education, health care, on-the-job training, migration and information
- Spending on education and health is treated as investment rather than consumption because the cost falls now while the return accrues across the person's working life
- The two sources of human capital formation that standard economics texts emphasise most are education and health, and both operate by raising labour productivity
- Theodore W. Schultz and Gary S. Becker developed human capital theory, arguing that outlays on people carry a rate of return comparable to outlays on physical capital
- The returns are both private — higher individual earnings — and social, since a better educated and healthier population raises output and generates wider benefits than the individual captures
- Human capital treats education and health as means to greater production; human development treats them as ends in themselves, which is the broader idea behind the Human Development Index
- Spending today on education, health care and training
- A worker with more knowledge and skill, and fewer days lost to illness
- Higher productivity — more output per worker per hour
- Higher earnings for the individual and higher national output — the future return
Answer (d): productivity is the link in the middle. Because (R) names that link, it is the correct explanation of (A) rather than a separate true fact.
- Marking the 'not the correct explanation' option merely because both statements happen to be true — always run the 'because' test before choosing between the two 'both true' options
- Memorising the letter instead of the wording of an Assertion–Reason code; UPPSC shuffles the four codes between papers, and this very option sat at (a) in the 2019 paper and at (d) here
- Treating human capital and human development as the same thing — the first is a means to higher output, the second treats well-being as the goal
UPPSC likes the Assertion–Reason wrapper for this topic, putting a textbook proposition against the mechanism behind it. UPSC instead tests the definition itself — which processes do and do not count as human capital formation, and which indicators make up the HDI.
Consider the following statements: Human capital formation as a concept is better explained in terms of a process which enables 1. Individuals of a country to accumulate more capital. 2. Increasing the knowledge, skill levels and capacities of the people of the country. 3. Accumulation of tangible wealth. 4. Accumulation of intangible wealth. Which of the statements given above is/are correct?
- (a) 1 and 2
- (b) 2 only
- (c) 2 and 4
- (d) 1, 3 and 4
Answer(c) 2 and 4
The same concept, tested by definition rather than by cause. UPSC asks what human capital formation actually consists of, and the accepted answer — raising knowledge and skill (2) and accumulating intangible wealth (4), not piling up tangible assets — is exactly the proposition the Assertion here rests on. Read together, that question tells you what human capital IS and this one tells you WHY investing in it pays.
Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R). Assertion (A) : There is a positive relation between Human Development Index (HDI) and Sustainable Development Goals (SDG) ranking of Indian State. Reason (R) : The underlying dimensions of SDG targets are closely related to education and health aspects. Select the correct answer from the codes given below :
- (a) Both (A) and (R) are true and (R) is the correct explanation of (A)
- (b) Both (A) and (R) are true but (R) is not the correct explanation of (A)
- (c) (A) is true, but (R) is false
- (d) (A) is false, but (R) is true
Answer(a) Both (A) and (R) are true and (R) is the correct explanation of (A)
Same exam, same Assertion–Reason wrapper, and the same underlying mechanism: there the Reason is that the dimensions of the SDG targets are closely tied to education and health, and it too was held to be the correct explanation of its Assertion. Note the option order, though — the 'both true and (R) explains (A)' choice was (a) in 2019 and is (d) in 2025, which is why the wording and not the letter must be read.
- practice — not a real PYQ
Which one of the following is NOT regarded as a source of human capital formation?
- (a)Expenditure on education
- (b)Expenditure on health
- (c)Purchase of machinery by a firm
- (d)On-the-job training of workers
Answer(c) Purchase of machinery by a firm — that is physical capital formation. Education, health and on-the-job training all add to the skill and health embodied in people, which is human capital.
- practice — not a real PYQ
Expenditure on education is treated in economics as investment rather than consumption mainly because it:
- (a)is incurred by the government
- (b)yields a stream of returns over the person's working life
- (c)is exempt from taxation
- (d)is recorded in the capital account of the balance of payments
Answer(b) yields a stream of returns over the person's working life — the cost falls today while the higher productivity and earnings it creates accrue for years afterwards.