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Posted By: Kenny Member Level: Gold Posted Date: 22 May 2008
|
2005 ICFAI University M.B.A Economics (MB141): April, 2005 Question paper
1
Question Paper
Economics (MB141): April, 2005
??Answer all questions.
??Marks are indicated against each question.
1. Which of the following circumstances refers to a mixed economy?
(a) Free market economy
(b) Government plays the pivotal role in the functioning of the economy
(c) Prices are determined by the market forces only
(d) Government exercises its power only in the important sectors while in the other sectors, a free
market economy exists
(e) Prices are fixed only by the farmers.
(1 mark)
2. Demand and cost functions of a monopolist are given as
P = 800 – 10Q
TC = 300Q + 2.5Q2
Profit maximizing price for the monopolist is
(a) Rs.300 (b) Rs.20 (c) Rs.600 (d) Rs.800 (e) Rs.400.
(2 marks)
3. A good is said to be a luxury, when the income elasticity of demand is
(a) Greater than one (b) Equal to one (c) Zero
(d) Less than one but more than zero (e) Infinity.
(1 mark)
4. A firm operating under perfect competition has the following cost functions:
MC = 75 – 20Q + 1.5Q2,
AVC = 75 – 10Q + 0.5Q2
The price below which the firm should shut down its operation in the short run is
(a) Rs.20 (b) Rs.25 (c) Rs.40 (d) Rs.50 (e) Rs.75.
(2 marks)
5. When a decrease in price leads to an increase in quantity purchased so as to increase the total revenue,
the price elasticity of demand is
(a) Less than one (b) Equal to one (c) More than one
(d) Zero (e) Infinity.
(1 mark)
6. The demand function for Rollex pens is estimated as
QR = 10,000 – 1,500PR + 2Y + 200PC
Where,
QR = Quantity of Rollex pens demanded
PR = Price of Rollex pen
PC = Price of Competitor’s product
Y = Per capita income of the consumer
If the current price of Rollex pen is Rs.5, the price of the competitor’s product is Rs.8 and per capita
income is Rs.5,000, the income elasticity of demand is
(a) 0.521 (b) 1.222 (c) 0.827 (d) 0.709 (e) 1.410.
(2 marks)
2
7. The total cost function is estimated to be TC = 100 – 3Q + 5Q2. If the current output is 5 units, marginal
cost is
(a) Rs.96 (b) Rs.75 (c) Rs.47 (d) Rs.26 (e) Rs.102.
(2 marks)
8. The demand function faced by a firm is estimated to be Q = 100 – 2P. The total cost function of the
firm is given by TC = 50 + 2Q. If the firm produces 12 units, profits made by the firm are
(a) Rs.352 (b) Rs.426 (c) Rs.454 (d) Rs.472 (e) Rs.502.
(2 marks)
9. The demand function for a commodity is estimated as
Qd = 3,00,000 – 30P
The arc price elasticity of demand between the prices Rs.2,500 and Rs.4,000 per unit is
(a) –0.48 (b) 0.48 (c) 4.33 (d) 0.11 (e) –0.11.
(2 marks)
10. Which of the following is an example of variable cost of production?
(a) Cost of buildings (b) Purchasing heavy machines
(c) Salaries of top-level managers (d) Salaries of temporary staff
(e) Acquiring copy-rights of the products.
(1 mark)
11. Which of the following market structures has a predominant feature of price leadership?
(a) Perfectly competitive (b) Monopoly (c) Oligopoly
(d) Monopsony (e) Monopolistic competitive.
(1 mark)
< Answer >
12. The demand function for a commodity is estimated to be
Qd = 3,50,000 – 35P
The theoretical highest price that can prevail in the market is
(a) Rs.9,000 (b) Rs.10,000 (c) Rs.11,000 (d) Rs.12,000 (e) Rs.13,000.
(2 marks)
< Answer >
13. The best possible factor input combination in the production process is indicated by the
(a) Expansion Path (b) Isoquant (c) Iso-cost line (d) Marginal revenue product
(e) Indifference curve.
(1 mark)
< Answer >
14. Which of the following is true with respect to the law of diminishing marginal utility?
(a) The more the consumption, the lesser the marginal utility from every additional unit consumed
(b) The more the consumption, the greater the marginal utility from every additional unit consumed
(c) The lesser the consumption, the lesser the marginal utility from every additional unit consumed
(d) The lesser the consumption, no marginal utility from every additional unit consumed
(e) The law of diminishing marginal utility is valid for an infinite period.
(1 mark)
< Answer >
15. Which of the following is true when the demand curve is perfectly inelastic?
(a) The whole tax burden is borne by the sellers
(b) The whole tax burden is borne by the buyers
(c) The tax burden is borne more by the sellers and less by the buyers
(d) The tax burden is borne less by the sellers and more by the buyers
(e) The tax burden is borne equally by the sellers and buyers.
(1 mark)
< Answer >
16. The production function for Woollen garments is estimated as TP = 30L2 – L3. The maximum possible
average product of labor is
< Answer >
3
average product of labor is
(a) 250 units (b) 245 units (c) 225 units (d) 200 units (e) 175 units.
(2 marks)
17. When a proportionate change in input combination causes the same proportionate change in output, the
returns to scale is said to exhibit
(a) Increasing returns (b) Decreasing returns (c) Constant returns
(d) Negative returns (e) Infinity returns.
(1 mark)
< Answer >
18. Which of the following will most likely increase the demand for a particular good?
(a) A fall in the price of substitute goods
(b) An increase in time required to purchase complementary goods
(c) A decrease in the number of consumers purchasing substitute products
(d) A decrease in the price of complementary goods
(e) A decrease in income.
(1 mark)
< Answer >
19. The shape of a short run total product curve reflects the operation of
(a) Law of diminishing marginal utility (b) Law of diminishing returns
(c) Law of returns to scale (d) Law of demand
(e) Law of supply.
(1 mark)
< Answer >
20. The demand curve facing a monopoly firm is a/an
(a) Horizontal straight line (b) Rectangular hyperbola
(c) Downward sloping (d) Upward sloping (e) Indeterminate.
(1 mark)
< Answer >
21. When total utility is maximum, marginal utility is
(a) Greater than one (b) Zero (c) Less than one
(d) One (e) Infinity.
(1 mark)
< Answer >
22. For a firm, the average cost function is estimated as
AC =
100
Q + 20 + 4Q
The total variable cost for the firm at an output of 15 units is
(a) Rs.100 (b) Rs.750 (c) Rs.1,200 (d) Rs.1,340 (e) Rs.2,100.
(2 marks)
< Answer >
23. The break-even point for a perfectly competitive firm is achieved when
(a) Average Revenue = Marginal Cost (b) Average Revenue = Average Cost
(c) Total Revenue = Total Fixed Cost (d) Total Revenue = Marginal Cost
(e) Marginal Revenue = Average Variable Cost.
(1 mark)
< Answer >
24. The marginal utility function of a consumer is estimated to be
MU = 0.50Y
How many units of good Y the consumer would be willing to consume if the price of the good Y is
Rs.10?
(a) 25 units (b) 20 units (c) 30 units (d) 40 units (e) 45 units.
(2 marks)
< Answer >
4
25. A firm will shut down its operations in the short run if
(a) It incurs losses
(b) Fixed costs exceed its revenue
(c) Average variable costs exceed its average revenue
(d) Total revenue falls short of total cost
(e) Total fixed cost exceeds its total variable costs.
(1 mark)
< Answer >
26. A profit maximizing firm seeks to maximize the difference between
(a) Marginal revenue and marginal cost (b) Marginal revenue and average cost
(c) Total revenue and marginal revenue (d) Total revenue and average cost
(e) Average revenue and average cost.
(1 mark)
< Answer >
27. Production function for a firm is TPL = 10L – L2. The number of labor after which marginal production
becomes negative is
(a) 4 (b) 6 (c) 5 (d) 10 (e) 8.
(2 marks)
< Answer >
28. Which of the following statements is true?
(a) In a perfectly competitive market, an individual seller can influence the price
(b) In a monopolistically competitive market, no individual seller can influence the price
(c) In a perfectly competitive market, an individual seller is the price taker
(d) In a perfectly competitive market, advertisement plays a significant role
(e) In a perfectly competitive market, price exceeds marginal revenue.
(1 mark)
< Answer >
29. XYZ Ltd., operating in a perfectly competitive market, sells a stationery item at Rs.10 per unit. The
cost function is given as
TC = 4,000 + 4Q + 0.02Q2
The profit maximizing output is
(a) 175 units (b) 150 units (c) 125 units (d) 100 units (e) 75 units.
(2 marks)
< Answer >
30.
The average cost function of a firm is given by AC = Q3 – 6Q2 + 140Q + 750 +
100
Q The fixed cost of
the firm is
(a) Rs.100 (b) Rs.25 (c) Rs.220 (d) Rs.140 (e) Rs.52.
(2 marks)
< Answer >
31. Which of the following is not a feature of a monopolistically competitive market?
(a) Relative freedom of entry and exit of firms
(b) Relatively large number of firms
(c) Homogeneous product
(d) Non-price competition
(e) Product of a firm is not a perfect substitute to that of another firm.
(1 mark)
< Answer >
32. The demand function for a firm is P = 30 – 3Q. If the average cost is Rs.6, what is the output at which
the firm earns normal profits?
(a) 3 units (b) 30 units (c) 10 units (d) 6 units (e) 8 units.
(2 marks)
< Answer >
33. Average revenue is
(a) Total revenue divided by the number of units sold
(b) Revenue earned by the average size of the product
< Answer >
5
(c) Revenue earned by all the units of the output
(d) Revenue earned by the average sized firm in the industry
(e) Net addition made to the total revenue by selling one more unit of a commodity.
(1 mark)
34. Total cost function for a firm is TC = 20Q – 0.30Q2 + 0.01Q3. What is the output at which marginal cost
is minimum?
(a) 6 units (b) 7 units (c) 8 units (d) 10 units (e) 20 units.
(2 marks)
< Answer >
35. A curve drawn indicating the slope of the total utility curve closely resembles the
(a) Demand curve (b) Supply curve (c) Average utility curve
(d) Marginal revenue curve (e) Indifference curve.
(1 mark)
< Answer >
36. The supply schedule of a food commodity is given below:
Price
(Rs.)
Quantity Supplied
(Units)
7 15
8 30
What is the arc price elasticity of supply?
(a) 4 (b) 5 (c) – 4 (d) – 5 (e) 6.
(2 marks)
< Answer >
37. Which of the following is a flow variable?
(a) Capital stock (b) Money supply (c) Investment
(d) Price index (e) Unemployment level.
(1 mark)
< Answer >
38. The consumption function in a hypothetical economy is given by C = 50 + 0.60Y. If the investment and
government expenditure are 70 MUC and 20 MUC respectively, the equilibrium output of the economy
is
(a) 100 MUC (b) 150 MUC (c) 350 MUC (d) 225 MUC (e) 125 MUC.
(2 marks)
< Answer >
39. Which of the following ratios best describes the GNP deflator?
(a) Nominal GNP to real GNP (b) Real GNP to nominal GNP
(c) Nominal GNP to real GDP (d) Real GNP to nominal GDP
(e) Nominal NNP to real GNP.
(1 mark)
< Answer >
40. Imperfect information about the labor market leads to
(a) Structural unemployment (b) Cyclical unemployment
(c) Frictional unemployment (d) Disguised unemployment
(e) Natural unemployment.
(1 mark)
< Answer >
41. Consider the following information:
Particulars Rs. (crore)
NDP at market prices 77,000
Net factor income from abroad -700
Depreciation 1,700
Subsidies 6,700
Indirect Taxes 7,700
National income is
(a) Rs.76,000 Crores (b) Rs.75,300 Crores (c) Rs.77,000 Crores
< Answer >
6
(d) Rs.77,700 Crores (e) Rs.79,700 Crores
(2 marks)
42. In balance of payments statement, short term inflows and outflows of capital are recorded in
(a) Current account (b) Capital account
(c) Official reserves account (d) Errors and omissions account
(e) Transfer payments account.
(1 mark)
< Answer >
43. The high powered money in an economy is given as 22,000 MUC. The currency-deposit ratio is
estimated to be 0.25. If the Central Bank wants to set the money supply at 50,000 MUC, what should be
the reserve ratio that the Central Bank should impose on banks to achieve the targeted money supply?
(a) 0.250 (b) 0.300 (c) 0.500 (d) 0.425 (e) 0.200.
(2 marks)
< Answer >
44. The following information is extracted from the National Income Accounts of an economy.
Particulars MUC
Exports of goods and services 134
Depreciation 118
Government expenditure 594
Gross domestic investment 639
Imports of goods and services 165
Personal consumption expenditure 2,191
NDP at market prices is
(a) 1,472 MUC (b) 3,275 MUC (c) 2,346 MUC (d) 1,782 MUC (e) 3,393 MUC.
(2 marks)
< Answer >
45. The phrase “business cycle” refers to
(a) The pattern of fluctuations in the general level of prices as measured by the consumer price index
(b) The pattern of fluctuations in interest rate as measured by the prime lending rate
(c) The pattern of fluctuations in economic activity
(d) The pattern of fluctuations in budget surplus or deficit
(e) The pattern of fluctuations in stock market index.
(1 mark)
< Answer >
46. In an economy the GDP at factor cost is Rs.60,000, depreciation is Rs.6,000. GNP at market prices is
Rs.75,000 and indirect taxes are Rs.5,000. There are no subsidies in the economy. The net factor
income from abroad is
(a) Rs.5,000 (b) Rs.15,000 (c) Rs.10,000 (d) Rs.20,000 (e) Rs.25,000.
(2 marks)
< Answer >
47. Which of the following is included in the aggregate demand of an economy?
I. Consumption demand.
II. Investment demand.
III. Net exports.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) Both (II) and (III) above
(e) (I), (II) and (III) above.
(1 mark)
< Answer >
48. Which of the following is included in GDP of a country?
(a) The sale of a used car (b) The sale of an old house
(c) The sale of stocks and bonds (d) The fee paid to a broker for selling a stock
(e) The sale of a used computer.
(1 mark)
< Answer >
7
49. The Phillips curve shows the short run trade-off between
(a) Inflation and unemployment (b) Unemployment and output
(c) Inflation and the nominal interest rate (d) Nominal interest rate and investment
(e) Inflation and output.
(1 mark)
< Answer >
50. If consumption is Rs.10 million when the disposable income is Rs.10.5 million and consumption is
Rs.10.5 million when the disposable income is Rs.11.5 million, the marginal propensity to consume is
(a) 0.25 (b) 0.50 (c) 0.75 (d) 0.80 (e) 0.90.
(1 mark)
< Answer >
51. A contractionary fiscal policy combined with a tight monetary policy results in
I. A lower level of output.
II. A higher level of output.
III. A lower interest rate.
IV. A higher interest rate.
V. A lower or higher interest rate depending on the relative magnitude of fiscal and monetary
policies.
(a) (I) and (III) above (b) (I) and (IV) above (c) (II) and (V) above
(d) (II) and (IV) above (e) (I) and (V) above.
(1 mark)
< Answer >
52. Inflation accompanied by slowing down of economic activity is known as
(a) Deflation (b) Recession (c) Depression (d) Stagflation (e) Galloping inflation.
(1 mark)
< Answer >
53. The following balances are taken from the balance sheet of the Central Bank:
Particulars MUC
Financial assets 3,520
Other assets 60
Non-monetary liabilities 280
If the government money is 100 MUC, high-powered money in the economy is
(a) 3,000 MUC (b) 3,050 MUC (c) 3,100 MUC (d) 3,300 MUC (e) 3,400 MUC.
(2 marks)
< Answer >
54. The principle of the multiplier states that
(a) Any increase in aggregate spending that causes the aggregate demand curve to shift will result in a
larger increase in national income
(b) In the long run, the aggregate demand curve becomes relatively flat as the economy approaches
full employment
(c) Any increase in national income will result in a larger increase in aggregate spending
(d) For any given increase in income, there will be a less than proportional increase in consumer
spending
(e) Any increase in national income will result in a decrease in net exports.
(1 mark)
< Answer >
55. Automatic stabilizers refer to
(a) Inherent mechanisms in the stock market that automatically cause stock market gains to be
cancelled out by losses, which make expected long-run returns equal to zero
(b) The invisible hand mechanisms which automatically bring the economy out of a recession
(c) Government revenue and expenditure items that change automatically in response to changes in
economic activity
(d) Discretionary monetary policy maneuvers designed to keep inflation under control automatically
(e) Discretionary monetary policy maneuvers designed to keep exchange rate under control
automatically.
(1 mark)
< Answer >
8
56. Consumption function for an economy is estimated to be
C = 1,000 + 0.80 Yd
Which of the following is true if Yd is zero?
(a) Consumption is zero (b) Savings are 1,000 MUC
(c) Income must be greater than taxes (d) Dissavings are 1,000 MUC
(e) Savings are zero.
(1 mark)
< Answer >
57. Which of the following is not a quantitative instrument of RBI’s monetary policy?
(a) Bank rate (b) Cash reserve requirements
(c) Moral suasion (d) Open market operations
(e) Statutory liquidity ratio.
(1 mark)
< Answer >
58. The following data is taken from National Income Accounts of a country:
Particulars Rs. Cr.
National income 1,357
Transfer payments 242
Undistributed corporate profits 28
Corporate tax 75
Personal income in the country is
(a) Rs.1,363 cr (b) Rs.1,121 cr (c) Rs.1,230 cr (d) Rs.1,296 cr (e) Rs.1,496 cr.
(2 marks)
< Answer >
59. Which of the following is not advocated by supply-side economists?
(a) Promote competition (b) Reduce government controls
(c) Increase corporate tax rate (d) Reduce the role of government
(e) Remove institutional barriers.
(1 mark)
< Answer >
60. Unexpected inflation causes
(a) Loss to debtors (b) Gains to creditors
(c) Gains to pensioners (d) Loss to firms that pay pensions
(e) Loss to fixed income groups.
(1 mark)
< Answer >
61. Which of the following ratios is not an indicator of financial development of a country?
(a) Finance Ratio (b) Financial Interrelations Ratio
(c) New Issue Ratio (d) Intermediation Ratio
(e) Cost Benefit Ratio.
(1 mark)
< Answer >
62. The capital inflows and outflows in an economy during the year 2004-05 are 6,300 MUC and 4,300
MUC respectively. Suppose there is no change in the official foreign reserve assets held by the central
bank, what could be the current account balance for the economy?
(a) 1,500 MUC (Deficit) (b) 1,500 MUC (Surplus)
(c) 2,000 MUC (Deficit) (d) 2,000 MUC (Surplus) (e) Zero.
(2 marks)
< Answer >
63. Which of the following is / are the objectives of fiscal policy?
I. Attaining full employment.
II. Stable prices in the economy.
III. Widening tax base.
IV. Regulating money supply.
(a) Only (I) above (b) Only (II) above
< Answer >
9
(c) Both (I) and (II) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
64. Which of the following is not a component of aggregate expenditure in an economy?
(a) Consumption (b) Investment (c) Government purchases
(d) Net exports (e) Taxes.
(1 mark)
< Answer >
65. Which of the following is true if the central bank does not impose any reserve ratio?
(a) The banking system can no longer affect the supply of money in the economy
(b) The banking sector can create unlimited money supply
(c) The lending capacity of banks would narrow down to zero
(d) A rupee deposited in a bank reduces the money supply in the economy by one rupee
(e) Money supply in the economy will be equivalent to the high-powered money.
(1 mark)
< Answer >
66. Bank rate is the rate at which
(a) RBI rediscounts approved bills of exchange
(b) Commercial banks lend to borrowers
(c) Commercial banks accept deposits
(d) Commercial banks discount foreign bills
(e) Term lending institutions lend to borrowers.
(1 mark)
< Answer >
67. The unemployment in the Keynesian model is caused by
I. Demand deficiency.
II. Supply deficiency.
III. Demand sufficiency.
IV. Supply sufficiency.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (I) and (IV) above
(e) Both (II) and (III) above.
(1 mark)
< Answer >
68. Which of the following is termed as an expansionary monetary policy?
(a) An increase in the cash reserve ratio
(b) An increase in the discount rate
(c) A reduction in the taxes which banks pay on their profits
(d) The central bank buys government securities in the open market
(e) The central bank sells government securities in the open market.
(1 mark)
< Answer >
69. Which of the following refers to the instruments of fiscal policy?
(a) Bank rate (b) Open market operations (c) Cash reserve requirements
(d) Levy of taxes (e) Moral suasion.
(1 mark)
< Answer >
70. The following information is available from the consolidated balance sheet of the banking sector:
Particulars Rs. billion
Net Bank Credit to the Government 2,000
Bank Credit to the Commercial Sector 3,000
Net Foreign Exchange Assets of the Banking Sector 2,200
Net Non-Monetary Liabilities of the Banking Sector 1,200
Money supply in the economy 6,200
Government Currency Liabilities to the Public is
(a) Rs.200 billion (b) Rs.6,000 billion (c) Rs.6,200 billion
< Answer >
10
(d) Rs.7,400 billion (e) Rs.7,900 billion.
(1 mark)
71. Which of the following is most likely to happen during a recession?
(a) Decrease in inventory (b) Producers will be cautiously optimistic
(c) Capacity under utilization (d) Expansion in bank credit
(e) Increasing income levels.
(1 mark)
< Answer >
72. If planned consumption equals 70 + 0.80 Yd and planned investment is 90 MUC, the equilibrium level
of income is
(a) 100 MUC (b) 200 MUC (c) 400 MUC (d) 800 MUC (e) 1,000 MUC.
(2 marks)
< Answer >
73. The relationship between aggregate consumption and aggregate income is known as the
(a) Consumption function (b) Saving function (c) Production function
(d) Demand function (e) Aggregate supply function.
(1 mark)
< Answer >
74. If the multiplier is 2.5, the marginal propensity to consume is
(a) 0.20 (b) 0.60 (c) 0.75 (d) 1.00 (e) 4.00.
(2 marks)
< Answer >
11
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