Bharat Ratna Dr. B.R.

Ambedkar University, Delhi

School of Liberal Studies

Entrance Test 2015-16

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 (application number and roll number) below before answering the paper.

Application Number

Entrance Test Roll Number

Providing your name or any other identifying information (other than the above) would lead to cancellation
of the paper.
_______________________________________________________________________________________

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) A, B, C, and D are four commodity bundles. If the consumer has ranked them so that D is preferred to
C, A is not preferred to B, and B is not preferred to C, then

a) A is preferred to C.
b) A is preferred to D.
c) D is preferred to A.
d) D is not preferred to B.

2) If the demand curve for a good is upward sloping, then which of the following statements must be true?
1. The good is inferior.
2. The substitution effect is in the opposite direction to the income effect.
3. The substitution effect overwhelms the income effect.

a) 1 only
b) 2 only
c) 1 and 2 only
d) 1, 2, and 3

3) The 14th Finance Commission has increased the States’ share of taxes

a) from 30 per cent to 40 per cent.

b) from 32 per cent to 44 per cent.
c) from 32 per cent to 42 per cent.
d) from 30 per cent to 42 per cent.

4) Which of these economists would you most closely associate with the statement: “Any monetary policy that is
perfectly forecastable has no real effects”?

a) James Tobin
b) Franco Modigliani
c) Robert Lucas
d) Amartya Sen

5) Production possibility frontier may shift outward because of

a) a shift of resources from one sector of the economy to another.

b) a decrease in input prices.
c) better training of workers.
d) an improvement in the terms of trade.

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6) An agent chooses between consumption (𝑐) and leisure (𝑙) according to the utility function 𝑈 𝑐, 𝑙 = 𝑐𝑙. The agent
has an endowment of 𝐿 units of time of which it can sell some at the wage rate 𝑤. Any time not sold counts as leisure.
The consumption good is the numeraire. If the wage rate 𝑤 goes up this agent will

a) supply more labour.

b) The answer depends on the initial wage
c) supply less labour.
d) supply the same amount of labour.

7) Consider a consumer who consumes only two goods x and y. For which of the following utility functions is the
consumer’s demand for x independent of her income for all positive values of the prices of x and y and income?

𝑎) 𝑈 𝑥, 𝑦 = 𝑥 + 𝑦
𝑏) 𝑈 𝑥, 𝑦 = 𝑥 + 𝑦
𝑐) 𝑈 𝑥, 𝑦 = min 𝑥, 𝑦 + max(𝑥, 𝑦)
𝑑) None of the above

8) In the Simple Keynesian Model, if government expenditure and tax increases by the same amount, then consumers’
disposable income

a) increases.
b) remain the same.
c) decreases.
d) Cannot be said

9) Consider an economy described by the Solow growth model which is initially at its steady state. Now the rate of
population growth in the economy is exogenously increased. In the new steady state

a) both the wage rate and the rental rate of capital are higher.
b) the wage rate is higher and the rental rate of capital is lower.
c) the wage rate is lower and the rental rate of capital is higher.
d) both the wage rate and the rental rate of capital is lower.

10) Let X, Y, Z be statements. Suppose we know that `X is true implies Z is true', and `Y is true implies Z is true'. Then
we can conclude that

a) if X is false then Z is false.

b) X and Y are identical statements.
c) if both Z and X are true then Y is true.
d) if Z is false then Y is false.

11) Let A be a m × n matrix with m ≤ n. Consider the two propositions: P1: “There exists a non-zero x with Ax = 0”,
and P2: “There exists a non-zero y with y ′ A = 0.”. Which of the following is true?

𝑎) 𝑃1 ⇒ 𝑃2
𝑏) 𝑃2 ⇒ 𝑃1
𝑐) 𝑃1 ⇔ 𝑃2
e) None of the above

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12) Jack and Jill were riding a moving escalator at the same time in opposite directions. Jill was walking upwards with a
speed of 2 steps per second. She reaches the top after 60 steps. Jack was running downwards the same escalator at the
same time with a speed of 6 steps per second and reaches the bottom after 108 steps. How many steps do they need if
the escalator stands still?

a) 84
b) 90
c) 100
d) Cannot be determined.

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13) If Z1, Z2,…, Zn are n identically and independently distributed normal variables, then the distribution i=1 Zi will
have

a) Normal distribution.
b) Chi-square distribution.
c) F- distribution.
d) None of the above.

14) Let 𝑋1 and 𝑋2 be two random variables with variances 𝜎12 and 𝜎22 respectively. Define 𝑌 = 𝑋1 + 𝑋2 and let 𝜎𝑌2
denote the variance of 𝑌. Which of the following is necessarily true:

a) 𝜎𝑌2 = 𝜎12 + 𝜎22

b) 𝜎𝑌2 ≥ 𝜎12 + 𝜎22
c) 𝜎𝑌 ≤ 𝜎1 + 𝜎2
d) None of the above

(Note: 𝜎𝑌 ≥ 0, 𝜎1 ≥ 0 and 𝜎2 ≥ 0 are the corresponding standard deviations)

15) The estimator X/n of population mean is:

a) An unbiased estimator
b) A consistent estimator
c) Both (a) and (b)
d) Neither (a) nor (b)

16) Adam and Eve have two children. The probability that the first child is a girl, is 50%. The probability that the second
child is a girl, is also 50%. Adam and Eve tell you that they have a daughter. What is the probability that their other
child is also a girl?

a) 1/2
b) 1/3
c) 1/4
d) 1

17) Banks, on the whole, usually have:

a) Liquid assets and illiquid liabilities

b) Illiquid assets and liquid liabilities
c) Liquid assets and liabilities
d) Illiquid assets and liabilities

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18) An increase in domestic money supply leads to:

a) Depreciation of exchange rate in foreign exchange market

b) Appreciation of exchange rate in foreign exchange market
c) Constancy of exchange rate in foreign exchange market
d) None of the above

19) Deindustrialization in colonial India led to the decline of :

a) Cotton textile factories

b) Iron and Steel Industry
c) Jute Industry
d) Hand Spinning and Weaving

20) The equilibrium in the Harris-Todaro Model of Rural-Urban Migration occurs when

a) surplus labour is exhausted in rural areas.

b) marginal product of labour is equalized with wages.
c) urban unemployment is reduced to zero.
d) urban-rural expected wage differential is zero.

21) The annual gross savings ratio in an economy is 32 per cent. The rate of capital depreciation is 2 per cent. For what
value of ICOR will the economy grow at 6 per cent per annum?

a) 3
b) 4
c) 5
d) 6

22) Which of the following economic variables do not feature in a feudal economy?

a) Profits
b) Economic Surplus
c) Rent
d) Labour cost

23) GNP equals:

a) GDP
b) GDP + net receipts of factor income from the rest of the world
c) GDP - net receipts of factor income from the rest of the world
d) GDP + taxes-subsidies

24) Let OPC denote the original Phillips curve and EAPC denote the expectations-augmented Phillips curve. There is a
one-to-one relationship between inflation and unemployment

a) Under the OPC but not under the EAPC

b) Under the EAPC but not under the OPC.
c) Under both the OPC and the EAPC.
d) Under neither the OPC nor the EAPC.

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25) Consider a game with two Nash equilibria. Which of the following is necessarily true:

a) Both the equilibria must be Pareto efficient.

b) At least one of the equilibria must be Pareto efficient.
c) Neither equilibrium can be Pareto superior to the other.
d) None of the above

26) India’s major trading partners in the first half of the 19th century were

a) Japan and China

b) England and Japan
c) England and USA
d) China and England

27) Consider the sets X = {a, b, c, d, e} and Y = { 7, 13, 15, 19, 23}, and let f be a bijective function from X to Y. If M
and m are the maximum and minimum values of f(c) + f(d) , respectively, over all possible bijective functions, what
is M – m ?

a) 22
b) 16
c) 0
d) Cannot be determined

28) A) If Alok is guilty, so is Barun.

B) If Barun is not guilty, Charu is.
If both of the above statements are true then which is an invalid conclusion?

a) If Charu is not guilty, Barun is.

b) If Alok is not guilty, Charu is.
c) If both Alok and Charu are not guilty, Barun is.
d) If both Alok and Charu are guilty, Barun is.

29) The fundamental balance of payments identity is:

a) Capital Account + Current Account = 0

b) Capital Account + Current Account + Financial Account = 0
c) Capital Account + Financial Account = 0
d) Current Account + Financial Account = 0

30) Level of significance is the probability of :

a) Type I error
b) Type II error
c) Not committing error
d) None of the above

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 Section B
Short Questions (10) (3 marks each)
Please limit your answer to the space provided

1) “The market mechanisms might produce a good (Pareto optimal) result, but not the very best result.” Do you
agree with the statement? Give reason in support of your answer.

2) State Say’s Law and Walras’ Law.

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3) “The permanent income hypothesis for consumption is more plausible when consumers have free access to
financial markets.” Explain why.

xp yq
4) Let x, y, p, q be positive numbers with 1 p + 1 q = 1. Prove that xy ≤ p
+ q

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5) “When looking at the overall entrance test data for Unseen University for the year 2014-15 it was found that the
proportion of female students who cleared the test was smaller than the proportion of male students who cleared
the test. But when the data was broken up by department it was found that in every department the proportion of
female students who cleared the test was larger than the proportion of male students who cleared the test”. Is this
scenario arithmetically possible? If so, provide a numerical example to illustrate. If not provide a mathematical
proof of impossibility.

6) Explain the Malthusian Population trap and give at least two reasons why such a trap may not necessarily occur.

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7) Discuss one positive and one negative impact of the building of railways in colonial India.

8) To study the effects of absenteeism on academic performance we run a regression on marks scored by students in
class XII examinations against the percentage of classes attended by them in the last year of school. Someone
points out that a major cause of absenteeism is students staying up late to watch football matches. Would adding
the number of football matches screened during the year of our study as an additional regressor in our model give
us a better estimate of the effects of absenteeism?

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9) Four unit squares are chosen at random without replacement on a chessboard. What is the probability that three
of them are of one colour and fourth is of opposite colour?

10) What does it mean when we say that the least squares estimator is the best linear unbiased estimator?

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 Section C
Passage Based Questions (2) (Total 15 marks)

Do 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:

Every market is a process of social and power relationships. In every market there are price makers and price
takers. The oil market, however, is no ordinary market, and the struggle to control the oil market, therefore, is
no ordinary struggle. With oil being rudimentary to global accumulation and the monetary system remaining
in part commodity-based, the degree of control of the oil market translates into some degree of enhanced
power in all other markets. But to control an oil market, the principal player, which is undoubtedly the US, has
to develop a strategy of intervention at the source, military or otherwise, which cuts down to size other players.
Consequently, the extent to which the US infuses tensions in oil producing areas, calibrates the degree to
which oil-states relinquish sovereignty over oil and keeps at bay other major players are measures that
represent the collateral necessary to lay the foundation of the oil-dollar standard. This unending power
exercise constitutes the cornerstone of the commodity-money or, more concretely, oil-dollar based global
monetary system.

On the surface of things, oil prices change in response to economic and geopolitical factors. In recent history,
however, the amplitude of oil-price variations has been more systematically attributed to growing Iran-related
geopolitical risks and abundant liquidity as distinct from refinery margins and smaller cushions- a cushion is
the size of the band between supply and demand. The oil bubble has come to siphon part of excess liquidity,
strengthen the dollar, and bolster US imperial rents. Despite the fact that very high international oil prices
may thwart an already fragile global recovery, which has been running on empty insofar as jobs are
concerned, US raucous war-on-Iran hubris continues to rattle the market.

Below the surface, however, oil prices are too important to be left to the „market.‟ With the oil-dollar standard
holding, rising oil prices dampen the performance of all importing economies to a higher degree than they do
the US economy. Oil price variations therefore engender a shift in the degree of power enjoyed by the US
economy vis-à-vis others. In the ongoing depressive cycle, which does not nudge in spite of rising debts,
reasserting US stature through the oil control mechanism gains ground. Financial capital has been altogether
content as a result of expanding US indebtedness and rising fictitious capital. Capital as whole has shown
robustness as a result of debts burdening working people in ways that reduce their means to acquire a decent
living. Pauperising working folk, in times of a predominant crisis in social ideology, raises the share of real
value and wealth acquired by the ruling classes. In a sense, rising debts or fictitious capital have had non-
fictitious and dire effects on the working classes in the more advanced economies. But the real dire
consequences of expanding fictitious capital fall upon the peoples of the Middle East. Wars of aggression
meant to underwrite expanding US debts by staking claims to oil rise in intensity by the weakness of the bond
tying oil to the dollar. Oil prices therefore have much more to say about the state of the global economy than
simply the cost of petrol at the pump.

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1) Based on the passage, do you think oil markets are characterized by market failure? Explain with reasons.
(7 marks)

2) What are the linkages that exist between speculative oil price movements and the real economy and society?
(8 marks)

Choice II

Read the passage carefully and answer the questions that follow:

By all accounts the geography of global manufacturing has changed with China in particular and developing
countries in general accounting for a high share of global manufacturing production and exports. This has
given rise to the view that the „old‟ international economic order that prevailed since the first industrial
revolution to the 1980s, in which developing countries were dominantly producers and exporters of primary
products and the developed the providers of modern, technologically advanced manufactured goods, has given
way to one in which developing countries increasingly dominate the manufacturing landscape.

Consider, for example, the years of intensive globalisation since 1990, when the geographical shift in global
manufacturing production reportedly occurred. In 1990 the five countries (United States, Japan, Germany,
Italy and France in that order) that were on top of the league table of country-shares in global manufacturing
valued added accounted for 57.8 per cent of the total. Within that group the spread in terms of individual
shares was large, with the US notching up 22.7 per cent and France just 4.4 per cent. China accounted for a
small 2.7 per cent. By 2000 the aggregate figure of global value added share of the top five had risen to 61 per
cent with China (6.6 per cent as compared to 26.5 per cent for the US)now having joined the leaders at rank
four and Italy now standing fifth. France had dropped out of the top five.

The real change occurred between 2000 and 2011, though even in the latter year the aggregate share of the
five countries was, at 56.3 per cent, close to its 1990 level. However, now China topped the league table, with
a 21 per cent share. Between 1990 and 2011 the other four toppers had lost share with China being the gainer.

However, imports from China are not necessarily from Chinese firms as it is from US firms. As Baizhu
Chen(“Buying from China is in fact buying American”, on Forbes.com) puts it, America is “importing from
China lots of Apple iPhones, Dell computers, Gap shirts, Hasbro toys, Mattel dolls and Nike shoes.” That is,
American companies choosing to locate production facilities or source from China account for a significant
share of US imports from that country. The result is what has been found in the case of a number of
commodities, and illustrated by the iPhone example: “In 2009, iPhones contributed about $2 billion,
equivalent to 0.8% of the Sino-U.S. bilateral trade deficit. One iPhone 3GS was sold for about $600. These
phones were exclusively manufactured by Foxconn, a factory in a Southern Chinese city called Shenzhen. To
produce them, Foxconn had to import $10.75 worth of parts from American companies. The rest of its $172.46
components came from Korea, Japan, Germany, and elsewhere. Out of a $600 iPhone, how much does China
get? A puny $6.50 or 1% of the value.” Apple and other American companies together received close to 70%
of the imported iPhone‟s value, making the contribution of Chinese value added to America‟s trade deficit
against China much smaller than $2 billion.

America may be losing out slowly. But American companies lose far less and even more slowly. If American
power is measured in terms of the strength of American firms and American capital, hegemony is still with the
US. The strident cries on the looming threat from China seem just propaganda to pre-empt any challenge to
existing imperial power. In the peculiar transformation of the geography of global manufacturing, production
may have shifted across borders, but there is a lag in any shift in the distribution of economic power.

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1) Explain what has happened to global concentration of production with the changes in the geography of
manufacturing. (7 marks)

2) Why does geographical concentration of economic power does not necessarily change with the
alteration in the global distribution of manufacturing? (8 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

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