Paper : IAS Prelims Previous Year Paper Economics (2008)

Part - 3

61. Under perfect competition supply curve is identified as which one of the following?
a. Rising portion of marginal cost curve
b. Rising portion of average total cost curve
c. Rising portion of average variable cost curve
d. Portion of marginal cost above the average variable cost curve

62. Which one of the following statements is correct? A straight line demand curve (cutting both the axes) is elastic
a. throughout the length of the demand curve.
b. at the mid-point.
c. below the mid-point towards the demand axis.
d. above the mid-point towards the price axis.

63. Consider the following statements:
1. The shape of a unitary elastic demand curve a is rectangular hyperbola.
2. The shape of a perfectly elastic demand curve a is rectangular hyperbola.
3. Perfectly inelastic demand curve is parallel to the price axis.
4. Perfectly elastic demand curve is parallel to the quantity axis. 

Which of the statements given above are correct?
a. 1 and 2
b. 1, 3 and 4
c. 2 and 3
d. 2 and 4

64. Which of the following is not a necessary condition of perfect competition?
a. Large number of firms in the industry producing homogeneous products
b. Free entry and free exit of firms
c. Need for incurring selling costs to attract consumers
d. Absence of artificial restrictions by the government

65. Consider the following statements Short run profit is maximum under perfect competition when
1. Second order condition is satisfied.
2. MC curve cuts MR curve from below.
3. MC curve cuts MR curve from above.

Which of the statements given above is/are correct?
a. 1 and 3
b. 1 and 2
8 of 13
c. 1 only
d. 2 only

66. In the kinked demand curve model, suppose MC curve shifts upward in the discontinuous range of the MR curve. 
Which one of the following is correct? At equilibrium 
a. price rises but quantity remains the same.
b. price and quantity both remain the same.
c. quantity rises but price remains the same.
d. price and quantity both rise.

67. Who developed the Time Preference Theory of Interest?
a. Irving Fisher
b. N. Senior
c. J. R. Hicks
d. J. M. Keynes

68. In the graph given above, what does the point B indicates?
a. Excess supply in the goods market and excess demand in the money market
b. Excess demand in the goods market and excess supply in the money market
c. Excess supply in both goods and money market
d. Excess demand in both goods and money market

69. Which one of the following is the most important determinant of speculative demand for money?
a. Income
b. Interest rate
c. Profits
d. Prices

70. Which one of the following equations was used by Fischer to explain the Quantity Theory of Money? (Symbols have their usual meanings)
a. MVPT
b. MP’=VT
c. MP’PT
d. PVMT

71. If Y is the total money income of the community, M is the supply and P is the price level, then how is Vy (the income velocity of money) defined as?
a. Vy = M/Y
b. Vy = Y/M
c. Vy = Y/(MP)
d. Vy = PY/M

72. When shall an increase in money supply have a small effect on nominal Gross Domestic Product?
a. If the velocity is decreasing
b. If the velocity is unchanged
c. If the velocity is increasing
d. If the Government’s spending is also increasing

73. What is the theory that opening a country to world markets gives an opportunity to utilize unemployed and underemployed resources known as?
a. Ricardian theory
b. Hecksher-Ohlin theory
c. Vent-for-surplus theory
d. Strategic trade theory

74. There are a number of banks in a market. The initial total primary deposit is Rs. 1,000. Every bank is required to maintain a 10% reserve legally. The  transactions are completely made through cheque and no transaction is made in cash. What will be the total credit creation in the market?
a. Rs. 1,000
b. Rs. 5,000
c. Rs. 10,000
d. None of the above

75. Which one of the following is a qualitative credit control method?
a. Open market operations
b. Bank rate
c. Variable cash reserve ratio.
d. Moral suasion 

76. 76. What kind of change is to be made in 
(1) Cash reserve ratio, and (2) Bank rate, to control inflation ?
a. 1 should increase but 2 should decrease
b. 2 should increase but 1 should decrease
c. Both should increase
d. Both should decrease

77. Which one of the following pairs is called an open market operation?
a. Selling and buying of securities or bills by the central bank
b. Selling and buying of foreign exchange
c. Selling and buying of shares by the foreign institutional investors
d. Selling and buying of gold in the open market by commercial banks


78. The money multiplier in an economy increases with which one of the following?
a. Increase in the cash-reserve ratio
b. Increase in the statutory liquidity ratio
c. Increase in the banking habit of the population
d. Increase in the population of the country

79. Match List - I with List-II and select the correct answer using the code given below the lists:
List - I 
(Market Type)
A. Perfect competition
B. Monopoly
C. Monopolistic competition
D. Oligopoly

List - II 
(Implication)
1. Collusion of firms
2. Excess capacity
3. Uniform price
4. Blocked entry

A B C D
a. 2 4 3 1
b. 3 1 2 4
c. 2 1 3 4
d. 3 4 2 1

80. Consider the following statement: 
1. The number of firms is large both under perfect competition and monopolistic completion
2. There is freedom of entry and exit in both perfect competition and monopolistic Competition.
3. In both perfect competition and monopolistic competition, every firm is a price taker and quantity adjuster.

Which of the statements given above are correct?
a. 1, 2 and 3
b. 2 and 3 only
c. 1 and 3 only
d. 1 and 2 only

81. Which one of the following statements is correct?
The Engel Curve for Giffen goods is
a. positively sloped
b. negatively sloped
c. vertical
d. horizontal

82. Which one of the following statements is correct?
In a production process with two factors, land and labour, if the marginal productivity of land is negative, then it is in
a. the stage I for land and stage II for labour.
b. the stage II for land and labour.
c. the stage I for land and stage III for labour.
d. the stage I for labour and stage III for land.

83. Match List - I with List - II and select the correct answer using the code given below the lists:
List - I (Economist)
A. Pareto
B. Hicks-Kaldor
C. Bergson
D. Scitovosky

List II (Concept)
1. Compensation principle
2. Social Welfare Function
3. Social Optimum
4. Double Criterion Compensation

A B C D
a. 3 1 2 4
b. 2 4 3 1
c. 3 4 2 1
d. 2 1 3 4

84. Which of the following statements about Pareto Optimum are correct?
1. It changes with changes in the distribution of income
2. At the Pareto Optimum, MRS in consumption = MRT in production.
3. It is not unique
4. It is obtained under imperfect competition.

Select the correct answer using the code given below:
a. 1 and 2 only
b. 1, 2 and 3
c. 1, 3 and 4
d. 2 and 3 only

85. Money demand (Md) is expressed as Md = f(Y) + ø(i) where f(Y) = transaction  demand related to income, and ø(i) = speculative demand related to rate of interest. In a normal situation, which combination of the following restrictions on the slope of the component functions will hold good? 
a. f '(Y ) > 0,ø '(i) > 0
b. f '(Y ) > 0,ø '(i) < 0
c. f '(Y ) < 0,ø '(i) < 0
d. f '(Y ) < 0,ø '(i) > 0

86. Which one of the following statements is correct? To derive disposable income from National Income, one has to
a. deduct income taxes and add transfer payments.
b. deduct income taxes and deduct transfer payments.
c. add income taxes and add transfer payments.
d. add income taxes and deduct transfer payments.

87. Match List - I with List - II and select the correct answer using the code given below the lists:
List - I (Concept)
A. Liquidity trap
B. Demonstration effect
C. Permanent income hypothesis
D. Wealth effect

List - II (Economist)
1. M, Friedman
2. A.C. Pigou
3. J. Duesenberry
4. J.M. Keynes

A B C D
a. 4 3 1 2
b. 1 2 4 3
c. 4 2 1 3
d. 1 3 4 2

88. Given
% change in nominal GNP = 18
% change in population = 0.5
% change in price level 1.3

What is the approximate percentage change in real per capita GNP?
a. Zero
b. 0.5
c. 1.0
d. 1.3

89. Which one of the following statements is correct?
Value of output and value-added can be distinguished if we know
a. the value of intermediate inputs
b. the value of net indirect taxes
c. the value of imports
d. the value of consumption of fixed capital

90. There are 2 assets A and B in which one can invest his saving of Rs. 1,000/-, Assume that there is no risk and interest rate is 10% Asset A gives a return of Rs. 100/- in perpetuity. Asset B gives Rs. 200/- at the end of year 1 and Rs. 900/- at the end of the year 2. Which one of the following statements is correct?
a. Present value of A and B are the same.
b. Present value of B is higher than that of A.
c. Present value of A is higher than that of B.
d. Information is inadequate to determine the present values of A and B.

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