S-2-.3
Entrance Examination, June 2010 MA (Economics)
Time: 2 Hours
Maximum Marks: 100 HALL TICKET NUMBER


INSTRUCTIONS
1.
Read these instructions carefully before answering.

2.
Enter your Hall Ticket Number on this page and also on the OMR answer sheet.

3.
Answers are to be marked on the OMR answer sheet following the instnictions provided there upon.

4.
Handover both the question paper booklet and the OMR answer sheet at .the end ofthe examination.

5.
Use ofnon-programmable calculators is allowed.

6.
The Question Paper has two parts -PART-A and PART-B. There are 100 questions inthis paper: 25 questions in PART-A and 75 questions in PART-B. Marks obtained inPART-A will determine the merit rank in case ofa tie inthe total number ofmarks obtained.

7.
Each correct answer carries one mark.

8.
There is negative marking. Each wrong answer carries -0.33 marks.

9.
This question paper contains 20 pages excluding the cover page.



Department of Economies
MA Economics Entrance Exam 2010 (Booklet
Please answer all questions from Parts A and B in the stipulated time of 2 hours.
Max Marks: 100 (Each correct answer: 1 mark, Wrong Answer: .-0.33 mark)
Part A (Answer all 25 Questions)
./LA
1. SUDDose the Qovernment wants to increase aQQfeQate demand without increasinQ
interest rates. You would recommend
A. reducing transfer payments and increasing the money supply.
B. increasing government spending and reducing the money supply.
C. increasing taxes and the money supply.
D. increasing government spending and the money supply.
2. Macroeconomic policy Trilemma refers to:
A. Incompatibility among the three policies ofan independent monetary policy, free capital mobility and a floating exchange rate system.
B. Incompatibility among the policies ofindependent monetary policy, independent fiscal policy and the fixed exchange rate system.
C. Incompatibility among the three policies of stabilization, structural adjustment and independent fiscal policy.
D. None ofthe above.
3. Walras' law states the following-
A. markets clear in a total ofn markets, market n will also automatically
B. There are economic profits in a state of general equilibrium ofthe economy.
C. Other things being equal, an increase in the price of a commodity will reduce the quantity demanded of it.
D. An individual's utility is determined by consumption and leisure.
4. Suppose a monopolist faces two market demand functionsD 80-5 QI and D 170 -20 and has a marginal cost ofRs 10. If the monopolist is able to discriminate the demanders in the two markets, what are the prices that he would charge?
A. PI P2=40
B. PI 45, P2 90
C. PI 10, P2 40
D. PI P2=45

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5. According to Keynesian macreconomics, employment is determined via:
A Labour market
B. Financial market
C. Product market
D. Money market
6. In 1967, Milton Friedman stated that there is no trade-off between inflation and unemployment in the long run. Which ofthe following refutes that position?
A. The long-run Phillips Curve is vertical.
B. Unemployment returns to its natural level.
C. All changes in inflation are correctly anticipated.
D. The long-run Phillips Curve is steeper than originally imagined, but it is not vertical.
7. Public goods have the following characteristics:
A. Non-exclusivity and non-perishability
B. Non-exhaustiveness and non-rivalness
C. Non-rivalness and non-exclusivity
D. Non-exclusivity and non-exhaustiveness
8. Which statement below reflects the essence ofArrow's impossibility theorem?
A. Itis impossible to achieve pareto efficiency in the economy.
B. It is impossible to maximize technical efficiency in the economy.
C. No collective decision-making rule can guarantee results that are not unfair or paradoxical. .
D. It is impossible to do any collective action.
9. Rational Expectations means:
A. Economic Agents' expectations ofthe future are always right.
B. Economic Agents' expectations ofthe future are always reasonable.
C. Economic Agents' expectations ofthe future are never systematically wrong.
D. Economic Agents' expectations ofthe future are consistent with the past experience.
10. The effect that holds that nominal interest rates should move to the natural rate of interest plus the expected rate of inflation is called the:
A. Adaptive Effect
B. Keynes Effect
C. Pigou Effect
D. Fisher Effect
..


11. In the liquidity trap case where the LM schedule is nearly horizontal,
A. both monetary and fiscal policy are highly effective.
B. monetary and fiscal policy are ineffective.
C. monetary policy is ineffective and fiscal policy is effective.
D. fiscal policy is ineffective and monetary policy is effective.
12. Given the function Y 25 0.65 which is true?
A. Variables X and Yare positively related and correlation coefficient is 0.65
B. Variables X and Y are positively related and correlation coefficient is equal to 1
C. Variables X and Y are inversely related and correlation coefficient is 25
n "t1.....-:.....1-1....,..v ....._...J "7 ....._-__.....:....:............1.... 1......"",...t ..... _Ai .....__.....l,..+;,...".ft hO·t"UTQQ'I" f':..."rJ

LI. V .I.. allU aJ.:I pU.3111 VIl;IIJ .l lau.....u aJ.IU .IVJ..l1....-lULIVJ.l "tV'-'.L.L.lv.l,;J.,U. "-.,..I u...u.u.
0.65
13. Poverty gap
A. Is the proportion ofpeople below poverty line
B. Is the gap between total number ofpeople and the number ofpoor.
C. Is the income inequality among people in a country.
D. Is the mean distance separating the population from the poverty line expressed as a percentage ofthe poverty line (non-poor have zero distance)
14. Labour Theory ofValue states that
A. Value ofa commodity is produced only by current workers.
B. Value ofa commodity is the sum ofthe value of all inputs (past labour) as well as the current value added by workers.
C. Value of a commodity is equal to the sum of wages and salaries ofworkers.
D. Value ofacommodityisequaltothe sum ofthemarginalproducts ofdifferentfactors ofproduction
...
"
15. A firm is employing 100 units oflabor and 50 units ofcapital to produce 200 widgets. Labor costs Rs.l 0 per unit and capital Rs.5 per unit. For the quantities of inputs employed, MP 2 and MP 5. In this situation, the firm
A. is producing the maximum output possible given the prices and relative productivities of the inputs.
B. could lower its production costs by using more labor and less capitaL
C. could increase its output at no extra cost by using more capital and less labor.
D. should use more ofboth inputs in equal proportions.

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16. The Nobel Prize Winner for the work on 'Governing the Commons' is:
A. George Akerlof
B. Garrett Hardin
C. Gunnar Myrdal
D. Elinor Ostrom
17. The kinked demand curve faced by an oligopolist is based on the assumption that
A. rivals will follow a price increase but not a price cut.
B. rivals will follow a price decrease but not a price increase.
C. rivals will follow both a price decrease and a price increase.
D. rivais wiil ignore both a price incrt:ase and a price decrease.
18. A typical Coumot solution is defined as
A. one" in which the solution is identical to the purely competitive market.
B. one in which the solution is identical to the monopoly solution.
C. one in which the output is above the monopoly and below the purely competitive result.
D. none ofthe above.
19. The Keynesian aggregate demand curve slopes downward because for any given money supply, an increase in the price level real money holdings which the interest rate and income.
A. increases; lowers; increases
B. reduces; raises; reduces
C. reduces; lowers; increases
D. increases; raises; reduces
20. Suppose a competitive firm produces 100 units of a:price ofRs.l 0 a unit. The firm is employing labor and capital such that the marginal physical product of labor and capital is 20 and 5 and the prices paid to labor and capital are Rs.60 and Rs.40 respectively. How would you characterize the firm?
A. The firm is in long-run equilibrium.
B. The firm is earning excess profits.
C. The firm should expand production.
D. The firm should contract production.

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21. IfD a(XY)ll2, money income is 656 per week, Px calculate the demand function forY
A. 328/Py B.168/Py
C. 3l6/Py
D. 350/Py
22. In the stackelberg leader -follower model the equilibrium is defmed at the
A. theintersection ofthetworeactionfunctions ofthetwoagents
B. The tangency ofthe iso-profit curve ofleader and reaction function ofthe follower
C. Thetangency ofiso-profitcurve offollowerandreactionfunction oftheleader
D. Thetangency oftheisoprofitcurves ofleaderandfollower
23. Ifthe total revenue from sales ofX is given by the equation R 100Q -2Q2. what is the point elasticity ofdemand when MR=20.
Al
B. 1.5
C.2
D.2.5
24. Recent global recession is supposed to have been caused by:
A Increased indebtedness in American households
B. Indiscriminate lending in the American Financial Sector
C. Stock market crash in the Wall street
D. aandb
25. In the Keynesian model with a fixed money wage but a flexible price level, an increase in taxes will lower
A output and the price level, but leave the interest rate unchanged.
B. output, the price level and the interest rate.
C. output and the interest rate, but leave the price level unchanged.
D. output and the price level, but increase the interest rate.



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Part Answer All 75 Questions
26. Suppose a vaccine for the common cold is discovered. Although the government begins producing the vaccine in as large a volume as possible, there is not enough vaccine available to meet demand. Consequently, the government must also set up an allocation scheme to control the vaccine's distribution. Which ofthe following is true about the price ofthe vaccine?
A. It is above equilibrium.
B. It is below equilibrium.
C. It is at equilibrium.
D. Nothing can be determined from the information given.
27. Inflation is bad for
A. Bank Employees
B. Government Employees
C. Borrowers
D. Lenders
28. The main causes for the rising Indian inequality after economic reforms are:
A. Rising rural-urban gap
B. Rising intra-urban inequality
C. Rising inter-state inequality
D. All of the above
29. Indian growth 2002 onwards until the global economic crisis can be termed as:
A. Consumption-led
B. Investment-led
C. Government Spending-led
D. Net-Export led
30. India's average annual economic growth.between 2004 and 2009 is:
A. More than until 2007-08 and less than after that.
B. More than 10% until 2007-08 and less than after that.
C. Less than until 2007-08 and less than after that.
D.None of the above.



31. The following is true ofthe Classical School in Macroeconomics:
A. Investment is a function ofinterest rates while savings are a function ofincome.
B. Demand creates its own Supply.
C. Increase in money supply causes an increase in prices but leaves the output unaffected.
D. Employment is determined in the capital market.
32. Ifa monopolist had no costs, the best possible price would be where demand is
A. infinitely elastic.
B. relatively (but not perfectly) elastic.
C. unit elastic.
D. relatively (but not completely) inelastic.
33. The imposition by government ofa minimum wage (above the existing wage level)
will

A. reduce employment in a competitive labor market.
R reduce, raise, or leave unchanged employment in a monopsonistic labor market.

C. result in and

D. reduce employment in any labor market.

34. "I would rather spend all my time in the country or all in the town, rather than divide
myself between the two". Does the above remark represent convex preference ordering?

A. Yes
RNo

C. Need more information

D. Maybe true

35. In a linear programming problem, which is not true?

A. It has linear objective function
R Both negative and nonnegative restrictions are put on choice variables

C. Optimal solution values in the primal and dual problems may nor may not be similar
D. Objective function values in the primal and dual solutions are similar
36. Which one ofthe following statements is false?
A. The null set is a subset ofall sets
R If S is a set, then S union S is equal to S.

C. IfM is a set with four elements, then M intersection M is equal to M
D. IfV is an empty set, then V has one zero element, i.e., V
1


37. In comparing an excise subsidy and a cash grant ofthe same amount, the recipient will
A. always prefer the excise subsidy
B. always will prefer a cash subsidy
C. be indifferent to both
D. sometime prefer excise subsidy and some time cash grant.
38. The cause for the increased agrarian distress since I 990s in India is:
A. Increased dependence offarmers on moneylenders
B. Decreased public investment in agriculture as a proportion of GDP
C. Decreased yields since 1990s.
D. Each of the above
39. Conditions for successful price discrimination are
A. firms must have some degree ofmarket power
B. the firms must be able to separate customers into two or more groups
C. the firms must be able to prevent arbitrage
D. all the above
40. Ifthe foreign exchange rate between the Japanese yen and the US dollar went from 100 yen=1 to 200 yen I
A. More Japanese electronics goods would be sold in the US market.
B. More US super computers would be sold in Japan.
C. Trade would not be affected.
D. Fewer Japanese electronics goods would be sold in the US market.
41. Stabilisation loans to countries are given by:
A.IMF
B. World Bank C.OPEC
D. UNCTAD
42. The condition when the individual demand function can be aggregated to generate the aggregate demand function
A. substitution effect 0
B. total effect is zero
C. Income effect 0
D. always can aggregate the individual demand function

43. Hecksher-Ohlin theorem states that a Capital rich country
A. Exports Capital intensive goods
B. imports capital intensive goods
C. exports labour intensive goods
D. imports labour intensive goods
44. The following are known as Bretton Woods institutions
A. IMF&IBRD
B. IMF& GATT C.IMF&WTO
D. None ofthe above
45. According to Laffer Curve hypothesis, revenues ofthe state will eventually increase if
A. Tax base is increased
B. Tax rates are lowered
C. Tax incidence is increased
D. Tax impact is reduced
46. Net National Income at factor price is:
A. Gross national income at market prices -depreciation -direct taxes
B. Gross national income at factor prices -depreciation -indirect taxes
C. Gross national income at market prices -depreciation -indirect taxes
D. Gross national income at factor prices -depreciation -direct taxes
47. Ifa consumer's marginal rate of substitution equals 2 eggs for 1sandwich,
A. the consumer's indifferenye c:urve must be positively sloped.
B. the consumer's indifference curve1nusl: be convex with respect to the origin ofthe graph.
C. theratio oftheconsumer'smarginalutility of1eggtothat of1sandwichmustequal Y2.
D. ali ofthe above are true.
48. Dumping in international trade refers to
A. Dumping commodities ihto market by illegal import
B. Dumping commodities into foreign markets at lesser price than world prices
C. Dumping commodities into foreign markets at prices less than average cost plus transport costs
D. Dumping commodities threatening environmental safety

49. The annual rate of interest on a 3-month Rs. 10,000 bond that sells for Rs. 9,600 is:
A. 12% B.1O%
C. 14% D.16%
50. According to Lewis model ofdevelopment with unlimited supply of labour surplus. expansion ofthe modern sector is determined by:
A. Availability ofmarket surplus from agriculture
B. Availability of surplus labour Roth ofthe ahove
D. None ofthe above
51. According to Adam Smith, growth ofnational income of an economy is limited by
A. Size ofthe exports
B. Size ofthe capital resources
C. Size ofthe market
D. Size ofthe manufacturing sector
52. What is the basic difference between a set and a matrix?
A. The number ofelements is fixed in a set and unlimited in a matrix
B. The position ofelements is not important in a set but important in a matrix
C. A set can have subsets but a matrix can not be divided into sub matrices
D. None ofthe above
53. In the IS-LM model, the implicit assumption made about aggregate supply was that the
A. aggregate supply schedule was vertical because prices were flexible.
B. aggregate supply schedule was horizontal because prices were fixed.
C. aggregate supply schedule was upward sloping to the right because wages and prices
were fixed.
·D. supply of output was fixed.

54. In the Keynesian model with a fixed price level and a fixed money wage, an increase in the money supply will cause
A. output to fall and interest rates to fall.
B. output to remain unchanged.
C. output to rise and the price level to fall.
D. output to rise and interest rates to fall.
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55. Ifinterest rates, prices, and output are all rising, then according to the Keynesian model, these changes must be caused by
A an increase in aggregate supply.
B. a shift to the right ofthe LM curve.
C. a shift to the right ofthe LM curve.
D. a shift up in the IS curve.
56. Population rate is not a constraint to growth
A As long as rate oftechnological growth and rate of capital formation exceeds rate of population
B. As long as rate ofexploitation ofnon-e.,chaustible exceeds population rate
C. As long as. agricultural output growth exceeds population rate
D. As long as national income growth exceeds population rate.
57. Human Development indicates:
A A country's level ofpoverty
B. A process of enlargement ofpeople's choices
C. A country's level ofhappiness
D. A country's level ofwealth
58. According to Engel's law, as family income rises
A Households face diminishing returns to labour
B. Households spend more money on luxury goods
C. Spending on food declines as proportion oftotal consumption
D. Industry" becomes more capital intensive
59. Given a utility function U X1X2"own price elasticity is
toll •.
AO
B.l

C.


D.



60. What does not fall under instruments of fiscal policy:
A.Interestrates
B. Tax rates
C. Government expenditures
D. Subsidies




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61. Paul Krugman won the Nobel Prize in Economics mainly because of his:
A. Contributions to Geographical Economics and International Trade.
B. Contributions to the theory ofEconomic Growth.
C. Forecast of the Global Economic Crisis
D. His criticisms of the economic policies of George Bush Jr.
62. The Paradox of thrift states:
A. Increased spending in the short-run leads to an eventual fall in savings
B. Increased savings in the short-run leads to an eventual fall in savings
C. Increased investment in the short-run leads to an eventual fall in savings
D. None ofthe above
63. and are price and quantity in year 1 and pOz and qOb are price and quantity in year 0 (Base Year), which ofthe following is true?
A. Laspeyer's Index Number L plz qOb L POz q
B. Laspeyer's Index Number L pI, L po" qOb
C. Paasche's Index Number L pi, qlb L qOb
D. Paasche's Index Number L pi, q L pi, qOb
64. An example of Central Bank Sterilisation is:
A. Central Bank sells government bonds domestically when it buys foreign exchange to prevent appreciation ofdomestic currency.
B. Central Bank buys bonds when it buys foreign exchange to prevent appreciation of domestic currency.
C. Central Bank prints money in order to prevent contraction of money supply and appreciation of currency.
D. None of the above.
65. The probability.of obtaining three "Heads" on tossing a fair coin three times is:
A. 1/3
B. 1/6
C. 1/8
D. 1/9
66. British colonial economy prospered due to:
A. Extraction of Tributes from colonies
B. A new international division of labour
C. Industrial Revolution
D. All ofthe above
..


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67. The three givens in neoclassical economic theory are:
A. Technology, preferences and endowments
B. Markets, technology and innovation
c.
Markets, preferences and profits

D.
Preferences, technology and innovation.


68. The expansion path identifies
A. the least costly combination ofinputs required to produce various levels ofoutput.
B. the firm's demand curves for the inputs.
C. the various combinations of inputs that can be used to produce a given level ofoutput.
D. the least-cost combination ofoutputs.
69. The supply curve for a monopolist
A. is equal to the marginal cost curve above the average variable cost curve.
B. is equal to the marginal cost curve above the average cost curve.
c.
cannot be uniquely determined.

D.
is equal to the average variable cost curve above the marginal cost curve.


70. The Coase Theorem states that:
A. Government action is always needed to solve the problem ofexternalities.
B. Government action will not always be needed since markets will emerge to solve the problem ofexternalities
C. Iftransaction costs are not prohibitive, private bargaining works to solve the problem of externalities.
D. bandc
71. The IS curve shifts when all ofthe following variables change except
... ..
A. tax rates.
B. interest rates
C. government spending.
D. the marginal propensity to consume.
72. Within the IS-LM curve model, an increase in government spending financed by printing money will always
A. have no impact on income.
B. lower income and raise the interest rate.
C. lower the interest rate and increase income.
D. increase income.



73. An increase in the money stock has no effect on equilibrium income whenever the
A. IS curve is horizontal.
B. IS curve is vertical
C. LM curve is vertical.
D. LM curve is horizontal.
74. According to Classical Theory oftrade, trade occurs between two countries due to
A. differences in labour productivity
B. differences in transport costs
C. differences in quality of products
D. none ofthe above
75. In spending all his or her income, the consumer chooses the market basket that maximizes his or her utility. Which ofthe following statements will be correct?
1.
The marginal utility is the same for each commodity.

2.
The marginal utility per dollar spent is the same for each codunodity.

3.
The marginal utility ofeach commodity is proportional to its price.


A. 1 only.
B. 2 only.
C. 1 and 2 only.
D. 2 and 3 only.
76. Recent inflation in India is said to be primarily due to:
A. Excessive growth ofmoney supply due to heavy accumulation offoreign exchange with RBI
B. Supply constraints in primary articles
C. Dollar appreciation exports
D. Sub-prime crisis in US
77. Factor price equalization theorem was associated with the name of
A. David
B. J.S. Mill
C. Paul Samuelson
D. Adam Smith
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78. Ifa profit-maximizing firm's marginal product oflabor equals 1 ton ofoutput, while the marginal product ofcapital equals 7 tons ofoutput and the use of capital is priced at Rs.14 per unit, then
A. the price oflabor must be Rs.2.
B. the price oflabor must be Rs.7.
C. the price oflabor must be Rs.14 as well.
D. none ofthe above is true.
79. Where there is perfect equality in an economy, the Gini Coefficient is equal to:
AO
B.1
C.0.5
Infinity
80. India uses the following measure for inflation:
A CPI-AL
B. CPI-IW
C. WPI
D. GDP deflator
81. The phenomenon ofthe backward-bending market supply curve for labor
A reflects the policy oflabor unions.
B. results from workers' preference for leisure over work.
C. results from the effect ofthe decrease in the cost ofleisure as wage rates rise.
D. indicates an increasing desire for leisure as wage income rises.
...
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82. The marginal rate oftechnical substitution is
A the rate at which a producer is able to exchange, without affecting the quantity of output produced, a little bit ofone input for a little bit of another input.
B. the rate at which a producer is able to exchange, without affecting the total cost of inputs, a little bit ofone input for a little bit of another input.
C. the rate at which a producer is able to exchange, without affecting the total inputs used, a little bit ofone output for a little bit ofanother output.
D. a measure ofthe ease or difficulty with which a producer can substitute one technique ofproduction for another.
.,.



83. How many subsets can be formed from the set N
A. 6 subsets
B. 64 subsets
C. 18144 subsets
D. 35 subsets
84. For a profit maximizing firm, the greatest difference between the total revenue and total cost indicates the
A. equality between AR and TC
B. MR=MC and the highest level ofprofit
C. equality between total profit and total revenue
D. MR=MC and the highest average cost
85. Which, ofthe following demand functions, has unitary elasticity everywhere?
A. Linear
B. Quadratic
C. Rectangular hyperbola
D. Polynomial
86. Which ofthe following variable will come under Stock variable?
A. Gross domestic product
B. Money supply C.Exports D.Imports
87.IfGNPdeflatorisraisedby40%thenwhich
ofthefollowing statementiscorrect?

A.
Nominal GNP increase by 40% ....

B.
Real GNP will increase by 40%

C.
Both nominal and real GNP will increase by 40%

D.
Nominal GNP increase by 40% and real GNP decrease by 40%


88. In the case ofGiffen good
A. demand increases as price increases
B. demand falls as price raises
C. demand increases as price falls
D. none ofthe above


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89. Keynes psychological law ofconsumption states that as income increases consumption also increases
A. in the same proportion
B. less than proportionately
C. more than proportionately
D. none ofthe above
90. The ratio ofthe change in equilibrium output to the change in autonomous spending:
A. Marginal propensity to consume
B. marginal propensity to save
C. Average propensity to consume
D. Multiplier
91. When ex-ante saving is greater than ex-ante investment
A. output should increase
B. output should decrease
C. output should not change
D. any ofthe above happens
92. stagflation is a period of
A. High inflation
B.low inflation

C. low inflation and High unemploym ent
D. High inflation and high unemployment
.... .. 93. Transfer payments are
A. payments made to a factor ofproduction
B. payments transferred from one sector to another
C. payments made for no return service
D. payments made by government ofone country to another
94. All entries in the balance ofpayments statement should collectively sum to
A. GDP ofthe country
B. official reserve account
C. errors and omission
D. zero
..
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Code

95. The investment income from abroad appears ofBOP statement.
A. current account
B. capital account
C. official reserve account
D. unilateral transfer account
96. In the Keynesian model with a variable money wage and variable price level, an increase in the money supply would lead to a rise in all ofthe following except
A. price level.
B. output.
C. real wage.
D. level ofemployment.
97. Which ofthe following is a correct representation ofthe budget constraint in a world with only food and shelter, where M income, Pr= price offood, Ps shelter price, S the quantity ofshelter, and F the quantity offood.
A. M PreS) Ps
B. F MIPs
C. S MIPs -Ps IPr(F)
D. None ofthe above is correct.
98. The higher the interest sensitivity ofinvestment, the
A. less effective is monetary policy and the more effective is fiscal policy.
B. more effective are both monetary and fiscal policies.
C. less effective are both monetary and fiscal policies.
D. less effective is fiscal policy and the more effective is monetary policy

99. Assume the marginal propensity to consume is .8. To offset a fall in inc6ine'of
1,000, the government should

A. increase taxes by Rs.200.
B. raise taxes by Rs.250.
C. increase government spending and taxes by Rs. 1,000.
D. cut taxes by Rs.200.
100. A simultaneous reduction in both taxes and the money stock Will always
A. increase interest rates.
B. lower income and raise the interest rate.
C. lower income and raise the interest rate.
D. raise income and raise the interest rate.