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 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:

Effective allocation of resources in financial markets leads to economic efficiency and higher productivity. Investors should focus on optimal allocation for long-term growth.

Answer 1

The Correct Option is A

Step 1: Clarifying the Allocative Function
The allocative function of financial markets is responsible for channeling limited financial resources to the most economically productive ventures.Step 2: Analyzing the Claims
- The claim posits that effective allocation directs resources to highly productive firms, which is accurate.
- The rationale explains that the allocative function guides capital towards superior investment opportunities, thus constituting a valid justification.
Given that the rationale provides accurate support for the claim, option (A) is validated. Conclusion: Option (mathbf{(A)}) is the correct selection because the explanation effectively substantiates the assertion.