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Posted By: Kenny Member Level: Gold Posted Date: 22 May 2008
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2006 ICFAI University M.B.A Economics (MB141): January 2006 Question paper
1Economics (MB141): January 2006
??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 automatically fixed only by the market forces (d) Government exercises its power only in the important sectors while in the other sectors a free market economy exists (e) Prices are only fixed by the farmers. (1 mark) < Answer > 2. A good is said to be luxury, when the value of 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) < Answer > 3. Which of the following is true of a straight-line demand curve? (a) Elasticity is equal to zero at the midpoint (b) As we move down along the curve, the elasticity falls (c) As we move down along the curve, the elasticity rises, and then falls (d) As we move down along the curve, the elasticity rises (e) The elasticity remains unchanged throughout the curve. (1 mark) < Answer > 4. When a decrease in price leads to increase in quantity purchased so much as to increase the total revenue, the price elasticity of demand is (a) Less than unity (b) Equal to unity (c) More than unity (d) Zero (e) Infinity. (1 mark) < Answer > 5. Let the market demand for a food product be P = 200 – Qd. Calculate the point price elasticity of demand when the price of the food product is Rs.75 per kg. (a) – 0.600 (b) – 0.606 (c) – 0.660 (d) – 0.616 (e) – 0.661. (2 marks) < Answer > 6. The demand and supply functions of a good are as follows: Demand function : P = 104 – 4Q Supply function : P = 2 + 0.5Q Where P = price of the good and Q = quantity of goods If the price of the good is Rs.20, the surplus/shortage of goods in the market is (a) 15 units (surplus) (b) 15 units (shortage) (c) 20 units (surplus) (d) 20 units (shortage) (e) 12 units (surplus). (2 marks) < Answer > 7. Demand and supply functions of cigarettes are given by the following functions: QD = 5,800 – 80P QS = 1,000 + 40P If the government imposes a tax of Rs.12 on each unit to discourage smoking, what would be the new equilibrium price? < Answer > 2 (a) Rs.40.0 (b) Rs.44.0 (c) Rs.48.0 (d) Rs.52.0 (e) Rs.42.5. (2 marks) 8. 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) 1.052. (2 marks) < Answer > 9. Which of the following statements is true? (a) A consumer experiencing diminishing marginal utility from consumption of a good should stop further consumption of that good (b) Tastes and preferences will ultimately determine how much of a good a consumer will buy (c) When both supply and demand increase, equilibrium price will always increase (d) When income increases, demand for all goods will increase (e) Price and quantity demanded is inversely related for normal goods. (1 mark) < Answer > 10. A consumer’s demand curve can be obtained from (a) Income-consumption curve (b) Indifference curve (c) Price-consumption curve (d) Iso-cost curve (e) Isoquant. (1 mark) < Answer > 11. Management of a company has finally agreed to increase the salaries of the staff by 10% after hard negotiations with the labor union. Which of the following would not be affected by this decision? (a) Economic costs (b) Accounting profit (c) Direct costs (d) Implicit costs (e) Fixed costs. (1 mark) < Answer > 12. If the marginal utilities of A and B are 1,050 utils and 1,575 utils, and the price of B is Rs.60, what would be the price of A, given that the consumer is at equilibrium? (a) Rs.15 (b) Rs.30 (c) Rs.40 (d) Rs.35 (e) Rs.25. (1 mark) < Answer > 13. The utility function of a consumer is estimated to be TU = 100 + 0.25Y2 If the price of the good Y is Rs.10, how many units of good Y the consumer would be willing to consume? (a) 25 units (b) 20 units (c) 30 units (d) 40 units (e) 45 units. (2 marks) < Answer > 14. The intersection of marginal product curve and average product curve characterizes the point of (a) Maximum profit (b) Maximum total product (c) Maximum average product (d) Maximum marginal product (e) Zero marginal product. (1 mark) < Answer > 15. Which of the following represents the marginal rate of technical substitution (MRTS)? (a) Slope of the isocost curve (b) Slope of the indifference curve (c) Slope of the isoquant (d) Slope of the budget line (e) Slope of the average cost curve. < Answer > 3 (1 mark) 16. Production function for a firm is TPL = 20L – L2. The number of labor units after which marginal production becomes negative is (a) 4 (b) 6 (c) 5 (d) 10 (e) 8. (2 marks) < Answer > 17. MRTSL,K for the production function, Q = 10K0.5L0.5 is (a) 0.5 K/L (b) 0.5 L/K (c) K/L (d) L/K (e) 0.5+K/L. (2 marks) < Answer > 18. A firm is experiencing increasing returns to scale. If both labor and capital inputs of the firm increase by 10%, the output increases by (a) 7% (b) 8% (c) 9% (d) 10% (e) 22%. (1 mark) < Answer > 19. Total cost function for a firm is TC = 20Q – 0.25Q2 + 0.01Q3. What is the output at which marginal cost is minimum? (a) 6 units (b) 7 units (c) 8 units (d) 9 units (e) 10 units. (2 marks) < Answer > 20. The difference between the total utility derived from the consumption of a good and the amount of money actually paid for it is called (a) Marginal utility (b) Average utility (c) Consumer surplus (d) Producer surplus (e) Opportunity cost. (1 mark) < Answer > 21. Mr. Sachin can earn money from various activities. His hourly earnings from cricket is Rs.5,000, acting Rs.30,000, coaching Rs.10,000 and ceremonies Rs.15,000. The opportunity cost of an hour of coaching for Sachin is (a) Rs.5,000 (b) Rs.10,000 (c) Rs.15,000 (d) Rs.30,000 (e) Rs.40,000. (1 mark) < Answer > 22. The following is the marginal cost schedule for a good: Output Marginal Cost 1 6 2 5 3 4 4 5 5 7 If the firm produces four units of output, the average cost of production would be (a) Rs.6 (b) Rs.5 (c) Rs.4 (d) Rs.7 (e) Rs.10. (1 mark) < Answer > 23. The total cost function of Marico Ltd. is TC = 300Q - 10Q2 + Q3. The average cost of the firm, if the output is 10 units is (a) Rs.120 (b) Rs.140 (c) Rs.160 (d) Rs.300 (e) Rs.200. (1 mark) < Answer > 24. Which of the following is an example of fixed cost? (a) Payments for raw materials (b) Labor costs (c) Transportation charges (d) Insurance premiums on property (e) Depreciation of the factory. (1 mark) < Answer > 4 25. Which of the following cost curves is not ‘U’ shaped? (a) Long run average cost curve (b) Long run marginal cost curve (c) Short run average cost curve (d) Average variable cost curve (e) Average fixed cost curve. (1 mark) < Answer > 26. A firm realizes least-cost in production, if it substitutes the factors until their (a) Prices are equal (b) Marginal physical products are equal (c) Marginal physical products are equal to their factor prices (d) Marginal physical products are equal to zero (e) Marginal physical product to the factor price ratio is equal for all factor inputs. (1 mark) < Answer > 27. Refer to the diagram below: According to this equilibrium position, the firm (a) Makes neither profit nor loss (b) Makes normal profit (c) Incurs loss (d) Makes more than the normal profits (e) Shuts down its operation. (1 mark) < Answer > 28. If a perfectly competitive firm finds itself operating at loss in the short run, it will (a) Reduce the size of its plant to lower fixed costs (b) Raise the price of its product (c) Shut down (d) Continue to operate as long as it covers variable cost (e) Continue to operate as long as it covers its fixed cost. (1 mark) < Answer > 29. In a perfectly competitive market, the marginal revenue curve (a) Slopes downward (b) Slopes upward (c) Is vertical (d) Is horizontal (e) Is absent. (1 mark) < Answer > 30. Which of the following is not true with respect to a perfectly competitive market? (a) There are many sellers in the market (b) Individual firms are price makers (c) Products sold by the firms are identical (d) Anyone can enter or exit the industry without difficulty in long run (e) Buyers and sellers have perfect information about the market. (1 mark) < Answer > 31. If a producer sells 29 units of a good for Rs.290, the average revenue that can be earned by the producer will be (a) Rs.290.00 (b) Rs.100.00 (c) Rs.29.00 (d) Rs.10.00 (e) Re.0.10. < Answer > 5 (1 mark) 32. The cost function of Alco & Co. is TC = 2,850 + 3.5Q. If the current market price of the good produced by the firm is 5 per unit, what will be the break-even output for the firm? (a) 1,600 units (b) 1,200 units (c) 1,550 units (d) 1,900 units (e) 1,750 units. (2 marks) < Answer > 33. Ralcorp Ltd. is operating in a perfectly competitive market. The Average Variable Cost function of Ralcorp is AVC = 300 – 40Q + 2Q2 The firm has an obligation to pay Rs.500 towards lease rental irrespective of the output produced. What is the price below which the firm has to shut-down its operation in the short run? (a) Rs.300 (b) Rs.100 (c) Rs.225 (d) Rs.210 (e) Rs.150. (2 marks) < Answer > 34. The supply curve of a monopolist (a) Is the portion of MC curve that lies above the AVC curve (b) Is the portion of MC curve that lies above the AC curve (c) Is vertical (d) Is horizontal (e) Is absent. (1 mark) < Answer > 35. Which of the following is not the characteristic feature of a monopoly? (a) Single buyer (b) Single producer (c) Absence of close substitutes for the product (d) Entry barriers for the new firms (e) Marginal revenue is less than average revenue. (1 mark) < Answer > 36. Which of the following is not a predominant feature of an oligopolistic market?_ (a) Group behaviour (b) Few firms supply entire market (c) Interdependence of firms (d) Free entry and exit of firms (e) Some firms have a large share and can influence the price. (1 mark) < Answer > 37. From kinked demand curve one can infer that (a) Oligopoly prices remain stable (b) Oligopoly lead to monopoly in the short run (c) Oligopolies lead to perfect competition in the long run (d) Oligopolies lead to monopoly in the long run (e) There is quantity rigidity. (1 mark) < Answer > 38. Alfa Mangoes Co. which supplies mangoes to England and Australia faces the following total cost function. C = 300 + 10Q Where Q = number of units of mangoes supplied. The demand functions for mangoes in England and Australia are estimated as England : PE = 52 – 3QE Australia : PA = 120 – 10QA If the monopolist practices price discrimination, the difference in price charged in England and Australia would be (a) Rs.20 (b) Rs.34 (c) Rs.75 (d) Rs.10 (e) Rs.85. (2 marks) < Answer > 6 39. A monopoly firm has the total cost function as TC = 500 + 20Q2. The demand equation is P = 400 – 20Q. The profit maximizing output for the firm is (a) 10 units (b) 8 units (c) 6 units (d) 5 units (e) 4 units. (2 marks) < Answer > 40. Which of the following variables is a flow variable? (a) Capital stock (b) A firm’s assets (c) Gross fixed investment (d) Price index (e) Public debt. (1 mark) < Answer > 41. The value-added approach to GDP measurement (a) Adds up the difference between the value of output and costs of intermediate goods (b) Adds up all income received by the household sector in the economy (c) Removes the effect of inflation from the nominal GDP (d) Adds up all the expenditures incurred on the goods and services produced by the domestic sector (e) Adds the total money value of goods and services purchased by their ultimate buyers. (1 mark) < Answer > 42. The net factor income earned within the domestic territory of a country must be equal to (a) Net Domestic Product at factor cost (b) Net Domestic Product at market price (c) Net National Product at factor cost (d) Net National Product at market price (e) Personal income. (1 mark) < Answer > 43. Which of the following statements is not true? (a) GDP deflator is also known as implicit price deflator (b) GDP deflator reflects the change in overall price level of the economy (c) GDP deflator is the most comprehensive index of prices (d) GDP deflator reflects on the purchasing power of the people (e) GDP deflator measures economic growth. (1 mark) < Answer > 44. The circular flow diagram shows I. Households providing firms with factors of production. II. Income for factors of production flowing from households to firms. III. Firms owning factors of production. (a) Only (I) above (b) Only (III) above (c) Both (I) and (III) above (d) Both (II) and (III) above (e) (I), (II) and (III) above. (1 mark) < Answer > 45. The difference between personal disposable income and personal income is (a) Residential investment (b) Indirect taxes (c) Subsidies (d) Transfer payments (e) Personal taxes. (1 mark) < Answer > 46. The following information is given from the national accounts of a country for the year 2005-06. Particulars Million Units of Currency (MUC) Factor income earned within domestic territory 13,000 Gross domestic fixed capital formation 1,200 Net domestic fixed capital formation 700 GNP at market prices 17,000 Indirect taxes 600 Subsidies 200 < Answer > 7 The net factor income from abroad for the year 2005-06 is (a) 3,000 MUC (b) 3,100 MUC (c) 3,200 MUC (d) 3,400 MUC (e) 2,200 MUC. (2 marks) 47. The following data is taken from National Income Accounts of a country: Particulars Rs. Cr. GNP at market prices 8,500 Transfer payments 1,210 Indirect taxes 865 Personal taxes 1,015 Consumption of capital 950 Undistributed corporate profits 140 Corporate tax 375 Subsidies 100 National income in the country is (a) Rs.6,815 cr (b) Rs.5,605 cr (c) Rs.6,150 cr (d) Rs.6,685 cr (e) Rs.6,785 cr. (2 marks) < Answer > 48. The following is the information from national accounts of an economy: Particulars MUC Direct taxes 2,400 Indirect taxes 11,400 Factor income paid abroad 12,000 Factor income received from abroad 9,000 Depreciation 12,000 Subsidies 6,000 National income 48,000 The GDP at market prices is (a) 24,800 MUC (b) 30,200 MUC (c) 68,400 MUC (d) 52,350 MUC (e) 45,600 MUC. (2 marks) < Answer > 49. Consumption demand does not depend upon the level of (a) Income (b) Propensity to consume (c) Propensity to save (d) Wealth (e) Marginal efficiency of investment. (1 mark) < Answer > 50. The following information relates to an economy: Particulars MUC National income 3,000 Wages & Salaries : 1,800 Interest income : 450 Rental income : 400 The profit in the economy is (a) 150 MUC (b) 250 MUC (c) 350 MUC (d) 450 MUC (e) 550 MUC. (1 mark) < Answer > 51. The slope of the consumption curve connotes (a) Average propensity to save (b) Average propensity to consume (c) Marginal propensity to consume (d) Marginal propensity to save (e) Level of consumption in the economy. (1 mark) < Answer > 8 52. If the Average Propensity to Save (APS) is negative, then the Average Propensity to Consume (APC) is (a) Negative (b) Zero (c) Positive but less than one (d) One (e) Greater than one. (1 mark) < Answer > 53. Monetary policy will be more effective when (a) The economy is facing recession (b) The private investment is more sensitive to interest rate (c) The private investment is less sensitive to interest rate (d) The economy is suffering from liquidity trap (e) The economy is in boom. (1 mark) < Answer > 54. Suppose that people hold 25% of their money in currency. If the reserve ratio is 12% and total demand for money is Rs.10,000, then the amount required by banks to meet the reserve requirement is equal to (a) Rs.900 (b) Rs.2,750 (c) Rs.3,000 (d) Rs.4,500 (e) Rs. 7,500. (2 marks) < Answer > 55. Stagflation is a period of I. High inflation. II. High growth of real GDP. III. High unemployment. IV. High aggregate demand. (a) Both (I) and (III) above (b) Both (III) and (IV) above (c) (I), (II) and (III) above (d) (II), (III) and (IV) above (e) All (I), (II), (III) and (IV) above. (1 mark) < Answer > 56. Which of the following is not a cause for growing fiscal deficit of the Union Government? (a) Subsidies (b) Interest payments (c) Reduction in revenue expenditure (d) Employee salaries/pensions (e) Defense expenditure. (1 mark) < Answer > 57. Bank rate is (a) The rate at which Central Bank discounts the government bills (b) The rate at which Central Bank discounts the eligible bills of commercial banks (c) The rate at which Commercial banks give loans to other commercial banks (d) The rate at which Commercial banks lend to the public (e) The rate at which Central Bank discounts the foreign bills. (1 mark) < Answer > 58. Which of the following is not advocated by supply-side economics? (a) Promote competition (b) Reduce government controls (c) Increase corporate tax rate (d) Decrease excise duty (e) Remove institutional barriers. (1 mark) < Answer > 59. Which of the following is/are not considered in the calculation of national income? I. Teaching in a class. II. Shirt stitched by a father for his son. III. Patient attended to by a doctor. IV. Services of a housewife. (a) Both (I) and (II) above (b) Both (I) and (IV) above (c) Both (II) and (IV) above (d) Both (II) and (III) above (e) All (I), (II), (III) and (IV) above. < Answer > 9 (1 mark) 60. 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 > 61. When there is an unanticipated inflation, which of the following sections of an economy benefit? (a) Borrowers (b) Fixed income earners (c) Holders of currency (d) Lenders (e) Speculators. (1 mark) < Answer > 62. An expansionary monetary policy includes measure such as (a) Increase in Bank rate (b) Increase in cash reserve ratio (c) Reduction in cash reserve ratio (d) Selling government securities in open market (e) Devaluation of the currency. (1 mark) < Answer > 63. Which of the following is not an example of Automatic Stabilizers? (a) National defense spending (b) Social welfare payments (c) Unemployment compensation (d) Personal income tax (e) Corporate income tax. (1 mark) < Answer > 64. Consumption function for an economy is estimated to be C = 400+0.75Yd, where C and Yd are measured in Rs. cr. The level of consumption at which the savings will be zero is (a) Rs.1,400 cr (b) Rs.1,500 cr (c) Rs.1,600 cr (d) Rs.1,700 cr (e) Rs.1,300 cr. (1 mark ) < Answer > 65. Which of the following is true if the RBI decreases cash reserve ratio (CRR)? (a) Monetary liabilities of the RBI decreases (b) High-powered money in the economy increases (c) The value of money multiplier increases (d) Aggregate demand in the economy decreases (e) Price level in the economy falls. (1 mark) < Answer > 66. Which of the following policy instruments has the least ‘outside lag’? (a) Cash reserve ratio (b) Bank rate (c) Repo rate (d) Taxes (e) Open market operations. (1 mark) < Answer > 67. Which of the following is a liability for a commercial bank? (a) Reserves with the RBI (b) Loans to Public Sector Undertakings (c) Credit to the Central Government (d) Deposits from the public (e) Discounted commercial bills. (1 mark) < Answer > 68. Immediately following a depression, (a) Unemployment rate increases moderately (b) Aggregate demand decreases further because of recession (c) There will be rapid increase in wages but less than the increase in prices of goods and services (d) The cost of production will gradually increase because of gradual increase in wages (e) Output will decrease rapidly. (1 mark) < Answer > 10 69. Phases of business cycles in an economy are designated primarily based on the (a) Unemployment rate (b) Price levels (c) Real GDP (d) Inventory levels (e) Gross investment. (1 mark) < Answer > 70. The overall Balance of Payments of a country for the year 2005-06 is given below. (Rs. million) Items Credit Debit Merchandise 159,000 196,422 Services 74,958 56,340 Transfers 45,675 1,101 Income 8,478 23,124 Foreign Direct Investment 14,370 3,537 Portfolio Investment 22,605 19,773 External Assistance 8,319 15,699 Commercial Borrowings (MT & LT) 8,211 13,305 Commercial Borrowings (Short Term) 24,567 21,630 Commercial Banks 50,778 16,919 Others 1,608 738 Rupee Debt Service — 1,422 Other Capital 19,206 8,727 Errors & Omissions 1,902 –– During the year 2005-06, overall Balance of Payments position for the country is (a) Rs.60,940 million (surplus) (b) Rs.60,940 million (deficit) (c) Rs.50,940 million (surplus) (d) Rs.50,940 million (deficit) (e) Rs.52,740 million (surplus). (2 marks) < Answer > 71. The following information relates to an economy. Particulars Rs. in crore Consumption 1,000 Investment 340 Government expenditure 280 If the velocity of money is 4, money supply in the economy is (a) Rs. 162.50 crore (b) Rs. 245.00 crore (c) Rs. 262.50 crore (d) Rs. 405.00 crore (e) Rs. 487.50 crore. (2 marks) < Answer > 72. The central bank’s monetary liabilities as on 31 December 2005 stood at 10,500 MUC and Government money at 1,500 MUC. The currency deposit ratio is estimated to be 0.25. If the Central bank intends to maintain the money supply at 48,000 MUC, what should be the reserve ratio specified by the Central bank? (a) 6.25% (b) 8.10% (c) 9.10% (d) 5.00% (e) 4.25%. (2 marks) < Answer > 73. The following information pertains to the balance of payments of a country for the year 2005-06: Particulars MUC Merchandize imports 140,240 Merchandize exports 116,320 Services rendered to foreigners 230,010 Services rendered by foreigners to residents 125,234 Gifts sent to non-residents by the residents 2,000 Cash remitted by non-residents for their family maintenance 4,000 < Answer > 11 Income earned by residents on ownership of financial assets 1,000 Foreign direct investment 100,000 If the capital account balance (credit) is 202,000 MUC, what is the change in foreign exchange reserves? (a) 69,056 MUC (b) 179,056 MUC (c) 285,856 MUC (d) 23,920 MUC (e) 123,144 MUC. (2 marks) 74. The monetary liabilities of the central bank of an economy are 20,000 MUC. The government money in the economy is 200 MUC. Currency deposit ratio for the economy is estimated to be 0.2 and reserve ratio imposed by the central bank is 5 percent. If foreign exchange reserves of the country decline by 200 MUC, what would happen to the money supply? (a) Decline by 960 MUC (b) Increase by 960 MUC (c) Decline by 820 MUC (d) Increase by 820 MUC (e) Decline by 480 MUC. (2 marks) < Answer > 75. The following data pertains to a hypothetical economy. Consumption function (C) = 70 + 0.75Yd Investment (I) = 80 MUC Government spending (G) = 70 MUC Tax function (T) = 0.2Y At equilibrium, the budget surplus (deficit) in the economy is (a) (30) MUC (b) 30 MUC (c) 40 MUC (d) 50 MUC (e) (40) MUC. (2 marks) < Answer > 76. If the marginal propensity to save is 0.25, the value of multiplier is (a) 0.75 (b) 1.50 (c) 4.00 (d) 8.00 (e) 10.00. (1 mark) < Answer > 77. The following are the indicators of financial development of an economy for the year 2005. Finance Ratio 0.25 Intermediation Ratio 0.70 If the Net Physical Capital Formation and the new issues for the year 2005 are 42,500 MUC and 30,000 MUC respectively, the financial interrelation ratio is (a) 1.2 (b) 1.4 (c) 2.4 (d) 0.6 (e) 0.1. (2 marks) < Answer > 12
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