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Bharat Ratna Dr. B.R. Ambedkar University, Delhi
School of Liberal Studies
Entrance Test 2014-15
MA Economics
Maximum Marks: 75 Time: 2 hours 30 min
Answer all sections and all questions (internal choice only in Section C).
Answer Section A on the separate OMR sheet. Section A is a qualifying section and should be
attempted first. The OMR sheet will be collected back after one hour.
Answer all questions from Section B and C on the booklet itself.
Use only the designated space on the last page for all rough work.
Please enter your particulars (name and roll number) below before answering the paper.
Name (as in application form)
Entrance Test Roll Number
___________________________________________________________________________
To be filled in by Examiners Only
A B C Total
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Section A
Multiple Choice Questions (30) (1 mark each)
Answer on the OMR answer sheet.
1) The Indifference curve between two goods can be a straight line when
a) one good is always more preferred than the other
b) both goods are inferior
c) the consumer is a monopsonist
d) one good is always substituted by a fixed amount of the other good
2) In the IS-LM Model, commodity prices are determined by which of the following:
a) The position of the LM Curve
b) The intersection of the IS and LM curves
c) The shape of the LM curve
d) None of the above
3) Coefficient of variation is a measure of
a) dispersion
b) central tendency
c) correlation
d) none of the above
4) Among the following countries, which ranks highest according to the Human Development Index, 2012?
a) South Africa
b) India
c) Ghana
d) Philippines
5) An unbiased coin is tossed three times. The probability of getting 2 Heads and 1 Tail in that order is
a) 1/3
b) 1/2
c) 3/8
d) 1/8
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6) An increase in the Statutory Liquidity Ratio
a) increases the money supply in the economy
b) reduces the credit supply in the economy
c) does not affect the credit supply in the economy
d) none of the above
7) A parallel outward shift of the budget line happens if
a) price of one commodity decreases
b) there is a positive monotonic transformation of the utility function
c) all prices and income increases proportionately
d) income increases without any change in prices
8) The „International Division of labour‟ in the 19th century refers to
a) the multi-lateral agreement on cross-border movement of workers
b) breakdown of international coalition between regional labour movements
c) specialization in Manufactured exports by Northern countries
d) specialization in Agricultural exports by Socialist countries
9) Consider a market with demand curve Q = 32-P. The market is a monopoly, and firm‟s marginal cost
curve is MC = Q + 5. The profit maximizing price and quantity would be:
a) 23 and 9 respectively
b) 27 and 5 respectively
c) cannot be determined from the given information
d) none of the above
10) The concept of price elasticity of demand measures:
a) the change in demand due to change in the number of buyers in the market.
b) the number of buyers in a market.
c) the extent to which quantity demanded changes as the result of a price decline.
d) the sensitivity of suppliers to price changes in a competitive market.
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11) The expansion path identifies
a) the least costly combination of inputs required to produce various levels of output.
b) the firm‟s demand curves for the inputs.
c) the various combinations of inputs that can be used to produce a given level of output.
d) the least-cost combination of outputs.
12) In an hypothesis testing, Type II error is made if
a) we reject the null hypothesis when the alternative hypothesis is true
b) we reject the null hypothesis when the null hypothesis is true
c) we do not reject the null hypothesis when the alternative hypothesis is true
d) none of the above
13) If an economy moves from producing 10 units of A and 4 units of B to producing 7 As and 5Bs, the
opportunity cost of the 5th B is:
a) 7As
b) 10As
c) 3As
d) 1A
14) Which of the following is not a reason for international specialization?
a) tastes and preferences tend to be different in different countries
b) economies of scale can allow larger, specialized producers to operate at lower average cost
c) mineral resources are often concentrated in particular countries
d) the world price of a good is determined by the world supply and demand for it
15) In an oligopolistic market:
a) one firm may or may not be dominant.
b) products are never differentiated.
c) the largest firm account for less than 50 percent of total sales.
d) the industry is monopolistically competitive.
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16) A Lorenz curve shows:
a) a series of points where income is equally distributed
b) a series of points where both income and wealth are equally distributed
c) the actual relationship between the percentage of population (of income or wealth recipients) and the
percentage of income or wealth they actually receive
d) none of the above
17) In the simple Keynesian model if the marginal propensity to save goes up while the level of investment
remains constant then
a) both income and total savings would increase
b) both income and total savings would decrease
c) income would increase while total savings would remain constant
d) income would decrease while total savings would remain constant
18) Which of the following is not an example of a Rights-based Policy approach?
a) Right to Education Act
b) Right to Information Act
c) National Rural Employment Guarantee Act
d) None of the above
19) Dumping occurs when UK goods are sold at a ______________________ rate overseas than
________________
a) higher; their UK cost of production
b) higher; their UK price
c) lower; their UK cost of production
d) lower; their UK price
20) Which of the following commodities was most exported from India between 1830 and 1860?
a) Opium
b) Cotton Handicrafts
c) Jute products
d) Railway Wagons
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21) In North, it takes 50 labor hours to produce cloth and 100 labour hours to produce grain. In South, it takes
200 labor hours to produce cloth and 200 labour hours to produce grain. Which of the following
statements is true?
a) North should produce grain
b) North has a comparative advantage in producing cloth
c) South has an absolute advantage in the production of grain
d) South has an absolute advantage in the production of both cloth and grain
22) The record of a country's imports and exports of goods and services plus net investment incomes and
current transfers of money to and from abroad, is called its:
a) balance of payments on current account
b) visible trade balance
c) balance of trade
d) balance of payments
23) Which statement best reflects the theories of Karl Marx and Friedrich Engels?
a) Workers can expect that working conditions will improve as a result of government legislation.
b) Owners of business will eventually realize that conditions for workers must be improved.
c) Workers will experience an improved standard of living as capitalism matures.
d) Workers will change working conditions by revolutionary means.
24) Which of the following statements best captures Say‟s Law?
a) “Inflation is always a monetary phenomenon”.
b) “The total value of planned sales equals the total value of planned purchases”
c) “There can never be an excess supply of currently produced goods”
d) “Bad money drives good money out of circulation”
25) Which of these could possibly be a unit in terms of which the velocity of money might be measured?
a) 𝑦𝑒𝑎𝑟 𝑅𝑢𝑝𝑒𝑒𝑠
b) 𝑅𝑢𝑝𝑒𝑒𝑠 𝑚𝑜𝑛𝑡ℎ
c) 𝑅𝑢𝑝𝑒𝑒𝑠
d) 𝑑𝑎𝑦−1
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26) Which of these variables is not directly under the control of the Reserve Bank of India?
a) Repo rate
b) Reverse repo rate
c) Statutory liquidity ratio
d) Total money stock
27) Let 𝐴 and 𝐵 be two matrices such that 𝐴𝐵 = 0. Which of the following is necessarily true?
a) Both 𝐴 and 𝐵 are equal to 0.
b) Either 𝐴 or 𝐵 or both are equal to 0.
c) 𝐵𝐴 = 0.
d) None of the above.
28) An economic variable 𝑌 grows at a constant rate of 6% per annum while another economic variable 𝑁
grows at a constant rate of 4% per annum. As time passes, the ratio 𝑌 𝑁 would
a) increase
b) remain constant
c) decrease
d) cannot be said
29) Let 𝑃 and 𝑄 be two statements and let 𝑅 be the statement “𝑃 implies 𝑄”. Which of the following
statements is not equivalent to 𝑅?
a) 𝑃 is a sufficient condition for 𝑄.
b) 𝑄 if 𝑃.
c) “Not 𝑃” implies “Not 𝑄”
d) 𝑄 or “Not 𝑃”
30) Most Latin American countries achieved independence:
a) shortly after World War II
b) in the 1960s
c) around the time of World War I
d) in the early nineteenth century
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Section B
Short Questions (10) (3 marks each)
Please limit your answer to the space provided
1) Suppose a firm faces a demand curve for its product P = 32 - 2Q, and the firm's costs of production and
marketing are C(Q) = 2Q2. Find the price and quantity that maximize profit, and the corresponding value of
profit.
2) Describe any one economic mechanism which can cause nominal wages to be a decreasing function of the rate
of unemployment.
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3) Aliens visit earth and impart technical knowledge which doubles productivity in all sectors of the economy. No
further visits from aliens is expected. Discuss how this would affect the growth rate of output in the short run
and the long run in the context of the Solow model.
4) Explain the difference between efficiency and productivity.
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5) ‘Every Pareto efficient alternative is socially better than every inefficient alternative.’ Do you agree or
disagree? Explain your answer.
6) Prove that for any real numbers 𝑥 and 𝑦
𝑥 − 𝑦 ≤ |𝑥 − 𝑦|
[Please note that providing examples is insufficient. A formal proof is expected.]
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7) State a unique characteristic of capitalism as an economic system.
8) ‘Per-Capita income is not the best measure of economic development’- Give two reasons whether you agree or
disagree with the above statement.
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9) An opaque bag contains 4 yellow rings and 3 blue rings. 3 rings are drawn without replacement. What is the
probability that the rings drawn vary alternately by colour?
10) Mention any two causes of De-industrialization in India during the colonial period.
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Section C
Passage Based Questions (2) (Total 15 marks)
Answer either one of Choice I or II and limit answers to the space provided after them. Please indicate
the choice exercised in the space provided and number the answers. All answers should be in your own
words.
Choice I
Read the passage carefully and answer the questions that follow:
Technological change is often cited as the major driver of income inequality, (technology favours workers with
higher level of education and skills and hence the income gap between skilled and less skilled labour widens).
However, beyond this, there are other important factors to consider. Chief among these are events related to forces
of globalization, financialization, and international relocation of production – all of which weakened the
bargaining power of labour in the less developed as well as the developed countries. With the collapse of the
Bretton Woods Agreement in 1971, the international monetary system went off the US dollars-gold standard, and
from fixed to floating exchange rate. Financial liberalisation ushered in the era of free international capital flows.
Together with changes in technology and business organization, multinational corporations can now freely invest
and relocate production anywhere in the world, pitting one country against another. The entrants of billions of
unemployed or underemployed workers in peripheral countries like China, India and Southeast Asia into the global
workforce facilitated the global arbitrage of labour, i.e., capital is now able to move freely in search of countries
with the lowest costs. Many Asian countries competed, and still do, for foreign investments by repressing unions
and wages which puts a brake on wage rise in both poor and richer countries. This weakened labour’s bargaining
power globally and is reflected in the rise of temporary and contract labour and stagnating or declining labour
share of GDP. As a result of these forces, wage growth did not keep up with the rise in labour productivity in many
countries.
The implications and consequences of rising economic inequality are multi-faceted. First, social and political
democracy is undermined when there is extreme inequality. The ADB did a survey of over 500 national
policymakers in Asia in 2012 and found that 95% of respondents think it’s important to have policies to prevent
further rise in inequality to maintain political stability and economic growth.
Secondly, rising inequality is also not good for financial stability and economic growth.The recent global financial
crisis is not simply the result of greedy bankers, poor corporate governance, and banking regulations, although
these problems must be addressed. There are even more serious underlying structural causes to the crisis, one of
which is rising inequality. It is widely recognized that global trade imbalance contributed to the recent global
financial crisis, i.e., China and other Asian countries have enormous trade surpluses which funded the huge trade
deficit in US. But behind this trade imbalance is wealth and income imbalance. China’s declining GDP wage share
is reflected in its drastic drop in personal consumption (from over 50% to 35% of GDP in the last four decades) and
the concomitant rise in its savings rate from about 30% to 50% of GDP. This excess of savings over investment,
which is the current account surplus, is recycled through the international financial system and funded US debt-
driven consumption which reached 72% of GDP in 2007.
How was it possible for consumption to rise when real wages were either stagnating or even declining in the US?
Essentially consumption was supported by debt rather than income. Between 1960 and 2006, US GDP rose 26 times
but household debt 64 times reaching close to 100% of GDP in 2006. Much of this was mortgage debt that
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eventually imploded in 2007. Wages are not simply a cost factor in economic growth; it is also an important factor
driving aggregate demand. If wages are repressed, then aggregate demand and economic growth are negatively
affected unless there are compensating mechanisms to prop up aggregate demand. Debt is one such mechanism.
However, there are risks and limits to pumping up consumption through debt as amply demonstrated in the US
financial crisis.
a) Explain the relation between capital-labour asymmetry and inequality under globalization that the passage
refers to. (7 marks)
b) If economic growth can occur in spite of soaring inequality, then why do policy-makers need to be
concerned about the latter? (8 marks)
Choice II
Read the passage carefully and answer the questions that follow:
Poverty and abysmal conditions of life are necessarily linked to the existence of labour reserves. Many
economists argue that the poor economies, like all economies, are characterized not by unemployment
and underemployment but by low levels of productivity, and what is needed to overcome poverty is an
increase in labour productivity. The difference between the "high labour reserves" view of poverty and
the "low labour productivity" view of poverty may appear at first sight to be a merely semantic one; but
there is a substantive difference, namely that the rate of growth of labour demand plays no role in the
latter which sees interventions for overcoming poverty exclusively in terms of supply-side measures. (The
current emphasis of the government of India on imparting skills as a means of overcoming poverty, on
which more follows later, falls into this genre). Since labour demand in reality does play a crucial role, it
is the non-using up of "labour reserves" which constitutes in our view the basic reason for persisting
absolute poverty.
Now, there is a fundamental difference between India and China on the one hand and all the developed
capitalist economies on the other, namely that the former are saddled with substantial labour reserves
which cannot simply migrate abroad. This is a result of their colonial or semi-colonial past. Both China
and India experienced "de-industrialization" in the sense of the destruction of their craft industries, and
the throwing of large numbers of traditional craftsmen into the ranks of labour reserves that typically got
located in agriculture, but also spilt over into low-paid occupations everywhere in the economy in the so-
called "informal sector". W. Arthur Lewis calls India and China the locations of the world's labour
reserves, but these enormous labour reserves did not always exist in India and China; nor were they the
outcome of excessively high population growth rates as is often supposed. They got created as a
consequence of colonial penetration into these economies, where, in addition to de-industrialization, the
forcible introduction of a commodity economy in the context of an unpaid appropriation of economic
surplus by the metropolis also played a crucial role. By contrast, today's developed capitalist economies
not only never had such labour reserves to contend with, but even succeeded largely in exporting such
labour reserves as they had, through emigration to the "new world" consisting of the temperate regions of
White settlement.
It follows then that any growth strategy for India and China, if it is to address their social needs, must be
one capable of rapidly absorbing their labour reserves. If this does not happen, then such a growth
strategy necessarily sets up a vicious cycle. The existence of vast labour reserves keeps the real wage rate
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close to subsistence level. And the increase in growth rate, accompanied as it is by an increase in the
growth rate of labour productivity, necessarily increases the share of economic surplus in the economy.
An increase in inequality in other words is built into the system. Moreover, since those subsisting on
economic surplus tend to demand newer goods which are in vogue in the metropolis, and which entail the
use of technology with higher labour productivity, such an increase in inequality ipso facto gives rise to a
further increase in the rate of growth of labour productivity in the economy, which again raises
inequality, and so on.
In other words, a change in the structure of products and processes in the direction of higher labour
productivity, which is itself in response to a shift in demand arising from a shift in income distribution
away from wages to surplus, causes a further shift in income distribution, demand and technology in the
same direction, since the labour reserves remain unexhausted. And the labour reserves remain
unexhausted precisely because at the rate of growth of labour productivity that arises as a consequence of
this dynamics, the rate of growth of labour demand, given the growth rate of output, does not adequately
exceed the rate of growth of labour supply. We thus have a dynamics where labour reserves continue to
remain unexhausted and the pauperized mass constituting the labour reserves continues to remain a
pauperized mass; precisely because of the existence of such vast labour reserves, the wage rate remains
tied to subsistence or near subsistence level. And yet the economy experiences extraordinarily high
growth rates accompanied by extraordinarily high rates of growth of labour productivity, which both keep
swelling the share of the economic surplus and get sustained by this very fact.
a) Explain why India and China have high labour reserves. (5 marks)
b) Why is focus on labour productivity alone an insufficient growth strategy for India and China? (10
marks)
Space for Section C Answers:
Choice: I / II (Please tick the appropriate one or cross out the other)
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End of Paper
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ROUGH WORK
