Dl:PARTMENT or f.

CONO\ II CS
DELI II SCl IOOL Or- ECONO\ IICS

i\ 1.-\. ADi\l \SS I Oi\S-CU i\ I-SCI IO L\ RSI 111' Tt::.ST-1999

OPTION,\

5
77
Roll Number. D ·.7 -.,

-
bly I. 1999

- Tune: J Hours

30
36
YOU WILL IlE GI\'EN A.UOUT TEN MIN UTES II F.FO HE. TIIE Tt::.ST IJEGlNS ONLY TO READ AND
FOLLOW THE L'iSTRUQlONS ON Tll!S l':\G E. UO NOT TUltN THE l'AGf. UNTIL YOU AR£
TOLD.

88
I. Please write your roll nwnber on~to:-, of tlus p:.gc, in Lhc sp:ice piOvide<l.

;9
2. TI1ere are two question papers, A and B Make sure you are answering the one you h:we opted for in your
declaration. Tilis is Paper A. suitable for studcn:s with Econo::1ics/Co111111erce background .
.

.in
3. TI1is p:1pcr h:is two pms, l :111d l l.

a.
e
Part I is multiple choi::c, ot>i-.:::;,vc type:. Tli:s 1:i:1S1. t-.: :1a~wcrcd on the sp~::ial sheet provided for
ur
this purpose. Follow stric~I:,- ,ii:: inStr\i::;:oas g;·,cn or. that shc-.!t. Lea,:::: b0xcs 11 and 13 bind; . .
After the test starts, cn~~r tk S(!ri:::s numll::r :1: bv'\ 12
us

b. Part !l h2s longer qt:.:!Sticn~ T:1~,:: ;:·us; u:.: :-.,iS\\C:~d separ.!tcly, in the ~:iswcr book provided.
ed

Write "Option A" on :he ,O;l r,::gc o~ tfr:: ,?;:s-.\·::~ booL You may use as many answer books as you
require, but make sure th,i, :.-0u ~,.r:,e both your :::.i:nc ;md your roll number on thc.dct:id,ablc slips
@

o~ ALL the answer books you h:?'-C used io ;u1s·,\·cr Pm II Do not write yo-.ir n:une or r'-,1\ num:,cr
anpvherc else in the answc: boo\:
in

4. Each Part contains specific inst;uctions p:::rt,?ini:1g to 1~ Rc.;d them carefuily before you bc~in answclil1g
dm

the paper.

5. Use only lhc b:ick p:iges of the :1.1S\\C: too\: fo: ,.'.>ugh \\or}. f,x both P~s land II. Do not use the qucs,io:i
;a

paper or multiple choice answer she~: for rough \\O,\:

FArLURE TO FOLLOW THESE l:'<STRLiCTIONS Al';l) THOSE IN THE QUESTION PAPER 1'\AY
n

RESULT rN SIGNIFICANT PENALTfES

e.i
ur

NOW WAIT FOR THE G\V!G IL:\"1 O!~ IO .\:, -~\.) U:'-C!: rm: S l :\fff Q(i' nu: TEST. AFTER Tll E
us

ANNOUNC£i\l£0T,
ed

. b. THEN ENTER Tl-iE S~!'-:~:S r,:J:,i.iER GIVE:\ XI TOP or- PAGE NO l IN BOX 12 Oi" TilE
t-illLTlPLE CHO!CE S: i:::-::. -'·. '-:D i1i:G!~ :\~SWFRI1';G TITT: QUESTIONS GOOD LUG~.
 Roll Nu m hcc

PAPER/\
PA RT I (50 marks)

Auempl all questions . For eacli question indicate one choice. Each correct answer fetches 1 111ark
but each wrong answer has a penalty of half a mark. There is no penalty for any question not

5
- answered. For example. if you think the correct answer to ques tion 1 is (d) then darken (d) against 1

77
in the special sheet provided to you . YOU l\·1UST INDICATE THE SE.RIES MENTIO NED
ABOVE IN THE SPACE PROVlDED Oi'i TU E SPECIAL SHEET.

30
When we accept a null hypothesis. thac is ~ risk of committing

36
A. a Type I Error
B. a Type II Error .
C. either a Type I or Type !!"Error, but not both

88
D. both Type I and Type II Errors
~
., 2
2 Let X and Y be a pair of random variables with variances a;, o 1 and covariance a'!.

;9
Let Z=X-Y. Then the variance of Z is
1
A. Ox - o 12

.in
B. l 2
Ox + Oy .
e
I
2 2 I
C. Ox +_ Oy - 2oA)" '
ur . ' :1
I
1 2 I
D. Ox + Oy + o.,y
us
~1I
3 For a fr_ee good
I
ed

·' A. demand is infinitely elastic

.. ·:· ~~.-.. ~ B .. supply is infinitely elastic \
I
.;·#:~·•;.:_.,. 1• C.
@

I
there is excess demand at 1.ero p,icc
:, D. there :s excess supply ·at zero price l
in

4 Between two goods, cros~ elasticity o: 1.km:i11d is positive. Tl!rn the goods arc
dm

A. complements
!3. infe rior
C. luxuries
D.
;a

gross subst itutcs

5 Consider an economy for which the 1mrgin::l p~opensi,) to consume 1s 0.75 and tiic
n

marginal tax rate is 0.20. The ccono;-:~y is prcs..:1nly in equilibrium. and the govcriu11:::~t :s
e.i

running a deficit. An incrc:ise in govc~11111c11, sp::mling of Rs.100 crorcs. fi11a1Kcd by

issuing bonds. will inc re:isc thc.govcr1:rn::11t's bucl~d deficit. at th·~ nt:,,• cquiiibr:urn. h_:,
ur

A. Rs. 100 crorcs

B. Rs. 80 crores
us

...C. Rs. 50 crorcs

D. Rs. 40 crores
ed

6 \Vhich of the following is not one of 1h-;: s::1:H.!~.c :!SSu111p,io11s in th:: simple lin·::::,
regression model?
A. all '!rror tenns t; have zero mc::ns
B. the independe nt variable x, is corrc!~t~d ·.•:i:\1 the error tcrin (,
C. · all error terms have const:im v:i,i:!,lCt:
D. there is no co rrebtion amon~ the ::~:or 1~.:;:s (,
....
7 The minicrnm value that the function f(x.y) = 2x+y takes 011 the hyperbola xy=2. in the "
positive quadrant, is
A. 3
13. 4
C. -2
D. -1

8 Consider an economy in \','.hich the marginal propensity to consume equals 0.8 and the
marginal tax rate equals z.ero. Current (equilibrium) income cqu:ils Rs.2000. If

5
autonomous investment should then incre:ise by Rs.40 and if the economy should adjust to

77
its new equilibrium, saving would increase by ·
A. Rs.40

30
"' B . Rs.80
C. Rs.1 60
D. Rs.200

36
9 With Income on the horiz.ontal ax:s and interest rate on the vertical axis, which of the

88
following wculd make the 1£ curve steeper?
A. an increase in the interest sensitivity of money demand

;9
B. an increase in the marginal propensity to consume
.,,,e. a decrease in the interest sensitivity of planned investment
D. a decrease in the marginal tax rate

.in
;
10 In the classical model of income detennination, aggregate supply is determined by

e
A. quantity of money supply
B. real wage rate
ur
~- equilibrium employment which in turn is determined by the interaction of the
demand curve for labour and the supply curve of labour
us
D. none of the above
ed

11 Consider a production function Q = KL. It has

A. constar.t returns to scale
@

B. increasing returns to scale

C. decreasing returns to scale
in

D. indeterminate scale factor

dm

12 For any pair of random variables x :me! y [{Cov (x ,y)}2-V(x). V(y)] is

A. non-negative
.)3. non-positive
;a

C. zero
D. negative
n

13 A change in the price level affects aggrcg:ite demand by changing the real value of
e.i

A. money supply
13. bomis
ur

C. govcriunent spending
D. all of the above
us

14 Suppose demand is given by P = 10-Q . wh::rc P ;s price and Q is quantity. Two finns with
constant costs of Rs 2 per unit comDele ii1 2. duopoly. \Yh::i.t is the Cournot equilibrium
ed

price?
A. 10/3
B.-- 16/3
C. 14/3.
D. 7/3

·, .
.~.~-;~.; -;~: .:_:;~~~j~~-
 Transitivity of a preference relation P is defined as follows: For all x.y ,z in lhe

5
consumption set if xPy and yPz lhen xPz.. Which Qf the following preference patterns obey
transitivity of P? (I stands for indifference reblion)

77
A. xPy and yPz. and z.Px
· B. · xiy and yPz. and z.Px

30
C. xly and ylz. and xPz.
D. xPy and ylz. and z.Px

36
7 If there is no "money illusion" in lhe economy
A. real values and ·nominal values arc the same

88
B. consumers are irrational
K. real spending dejjends on real values

;9
D. . money supply does not deteiminc income
18 A pair of random variables x and y is said to be independent if

.in
A. Cov (x,y) = 0,
B. E (xy)=0,

e
C. E (xy)=E(x) .E(y)
D. p (x,y) = Px (x) p7 (y) for all x and )'. where p(.) denotes the joint pro~abiliry
ur
(density) function, and P .:, p Y the margina) dens hies
.
us
19 Jai smokes only when he consumes alcohol and he co~sumes alcohol only in parties.
Which of the follo,ving statemems is logically ·coi"1sis1~nt with the above?
ed

~ ... •.
-=:: •• A. on any day, if Jai did not smoke thi:n it is implied that he did not take alcohol
?~ ~~ B. if Jai didn't take alcohol on any d;;y. il means -that no parties were held on that
@

t •
;,.
I
day.,;
, ~ "1' C. Jai may smoke even without going 10 a party
in

D. Jai didn't attend any parties on a p;rnic\.!lar day meant that he didn't smoke on lh~l
day
dm

20 The least squares regression line of yon" for lhe sample of two observalions (2,4),
;a

(5.11), has the slope equal to

A. l
B. 7/3
n

C. 5/2
e.i

D. zero

=
ur

21 (x 1 , y 1), (Xi, Y:) ... (:xn, yr) is ;! SJ.i.l\)k f ,om :t bi v:i ri:ne popu bl ion with E (x)
µx, E(y) = f..Ly. Let x- and i b:! the sample means of x ~d y, respectively. The
us

sample covariance belween x and y is cl:::fin~d ;'.!S

n
ed

L X;)';
A.
n

B.

II
 ::..~. ._~:l¼~~~- :. \-~~- ·-·.>. .~..·
. . -_.r._._ ....
The price elasticity of demand for an input will be greater (i .c. , more elastic)
A. the larger the elasticity or substitution of th:i1 i11pu1 fo , 01her inputs
B: the larger the sh:irc or total cost clue to 11\:it inpu1
C. the more price-elastic the dc,mnd for the good bei llg produced by 1he inpu1.
D. all of the above

23 "The allocation of resources in cornpcti~ive cq11ilibriu111 will be efficient regardless of the

5
initial assignment of property rights". This quote best illust rates the principle of

77
A. Say's Law
B. the invisible hand

30
C comparative advantage
D. cxtcrna I economics

36
24 Consider two allocations x,y located on a utility poss ,btllly frontier . Let x=(lO, 10) and
y=(25,0) when~ the first number indicates utility of indi vidual A and the second number

88
indicates utility of individual B. Using Pareto criterion to compare these two allocations.
would you conclude that }

;9
A. x is sur,erior to y since both individuals have positive utilities for x.
B. y is superior to x since the total utility is greater in y.
.,...C. x and y are non-comparable .

.in
D. none of the above is true

25 The LM curve slopes upward to the right because

A.
e
;).S the interest rate rises, households increase s,, lowering expenditure on
ur
goods and services:increasing firms' inventory le-, ·.~ . and lowering production and
income
us
B. as the level of income rises, the transactions demand for money rises, increasing
the interest rate
ed

C. as the level of income falls, households will reduce their consumption levels,
lowering demand for credit and, therefore, lowering interest rates
@

D. none of the above

in

26 Compared to that in the Keynesian cross. tl1e effect of an increase in govcmm~l\t ./

expenditure on output in the IS-LM model is
dm

A. larger because as government increases spending, the money supply is increased .

B. the same because what happens in money markets will not affect the level of
income or expenditure
;a

fl . small'er because the rising transactions dem:!nd. fo r money will incrc~se the interest
rate and decrease planned investm:.:m sp~:1di11g :is the economy adjusts to :rn
n

increase in government cxpenditur...:

D. larger because as gove rnment spending incre:ises , the interest rate ri~•~s,
e.i

cncour:iging addit ional investment Si'~ndi11g

ur

27 Let X be a random variable with ·o· :ind · 1· :i.s th::: poss ible outcomes. Lei .. be the
pro\.)ability that X = l . The variance of X is equ:il to
us

A.

I ..,.B. ..( !-.. ) .

ed

C. '
D. non:: of tile above

28 With incom::: on the hori zo111a l axis and im-:rcsi .~,c 011 the Ycrtical ax is, an increase in
autonomous saving will
A. . shift the LM curve to the left, raisi;ig the interest rate :ll1d loweri ng income
~- shift the IS curve to the left. !owe, ,ng 1h:: interest rate and lowc1 ing illcomc
C. shift 1he IS cur\'C 10 the ri gh,. , :i is::1g 1!:(: interest r;llc a:1d raising income
D. shift the LM curve IC.l 1hc ri:;lll. 1t,-.,·e~111t: tilt: 111tcrcs1 r:11e ailC: ra i~ing i11co11:::
 ..
-..:,.i::;:~:!;~ .
2 .,t._1A ~~~jor monelarisl criticism of Keynesian policies is 1h:i1 1,cyncsi:rn dcm;111d managcmt:111
"~.;·policies •
~-~_.,. ...r-:::· A. · cannol succeed because thc Kt:ym.:si:.111 mod~ of the economy is incorrccl / Q
· · ··: · D. involve long :ind vari:ibk bgs, :incl so arc a cu1nbcrso111t: tool for correcting 0 /
cyclical swings in the ccono,ny
C. are based on the assumplion lhal inOation is a more serious problem than
unemployment

5
D. allow no role for monetary pol icy

77
30 In an open economy with a system of flexible exchange rates and perfect capital mobil ity,
an expansionary monetary policy l ,•

30
A. causes the domestic currency to apprcci:ue
B. is very effective ·

36
C. increases capital flows into the country
IX' is ineffectlve

88
31 Put x on the horizontal axis and y on vertical axis. If x is neither a good nor a oad
whereas y is a good, then the \ndifference curves for x and y are

;9
A. negatively sloped and convex to the origin
B. positively sloped
C. horizontal lines

.in
D.' vertical lines

32 · for the function f(x.) = x.•, the point x =0

e
is
ur
. A. a .point of inflection
B. a maximum
.c. . minimum a
us
1·····0-_i none of the above
}' . :
ed

33 ~ co~mer with utility function u(x,y) = 2x+y, ,income of Rs~\00, and facing price of
Re. 1 each· for both goods, will maximize utility ~
@

...,.
• A. at all points (x,y) that lie cin the budget line
B. at x = 50, y = 50 · · !i
in

£. by buying only x . 'I

D. by buying only y lj·
dm

I,'
34 ~ed apples and green apples are perfect substitutes for Sheila. Price of red apple is Rs.20
per kg and price of green apple is Rs.18 per kg. li1 equilibrium, Sheila consumes
;a

A. only green apples

B. only red apples
n

C. both the varieties but consumes more green apples th:i.n red.
D. none of the above is necessarily true
e.i

35 India's stock of foreign currrncy rest:1 vcs as at the end of i'vl:1rch 1999 stood :1pproxim:11ely
ur

at
A. S 5 billion
us

B. S 10 billion
C. $ 15 billion
ed

D. S 25 billion
36 Let (Xi, y1) (x. 1 • y.;J .... (x y be a s:1rnple irorn a bi·,uia, c popu\:;tion. The sample
1
l
0 , 0
)

correlation between x and y is - 0.S. L~t / b:.: the p~edicted value of y based on the line?.!
reg~ession of y on x. Ther. the corrclat ion b:.:, ween y and / is cqu:i.i 10
A. - 0.8
B.
C.
D.
l
-1
O.S l
 1D
37 Under perfect competition, ;in incluslry's stq,ply curve is lhc horizolll;il summation of the
individual lirms'
A. demand curves
B. marginal revenue curves

5
C. marginal cost curves

77
D. average cost cur\'.eS

38 For Ravi. MRS between two goods is incre:ising. His indifference cur\'es \\'ill be

30
A. convex to the origin
B. concave to the origin

36
C. convex but upward slop_ing
D. none of the above

88
39 The maximum of the function f(x,y) = x+y subject to the constraint x2 +l = 1 occurs at
A. x = 0, y= 1 ~

;9
B. X = l,y=O
:•·- J C. both A and B
{· D. none of the above

.in
•}
' 40 !he wholesale price index for India does not cover the price of
A. electricity

e
7
B. in~tant coffee powder
i C. medicines
ur
1 D. house rent
t
us

l 41 GDP of a given country does not include

ed

A. interest paid by government on its bor,:-·.vings

I
t
·c B. · income in the unorganized sector of th~ ;;conomy
capital gains on sale of financial assets
@

f
I
.;' C.
D. profits earned by a foreign owned bank in India
i
'i
in

i
42 The Indian Central Government's fiscal deficit as a proportion of nominal GDP has over
the last two years been of the order of
dm

I A. less than 4 %
B. between4%and5%
;a

C. between 5 % and 7 %
D. more than 7 %
n

43 Which is the most advisable me2.:1s by which India nny correct a chronic balance of
payments deficit
e.i

A. devaluation of the rupee

ur

0. increasing import lariff

C. subsidising exports
D. reduclion in public investment
us

44 Which of the following is true under monorolistic competition in lhe long run?
ed

A. P =MC>AC
B. P =AC> MC
C. P > AC= MC
D. none of the above

45 A. consumer's preferences are quasilinear and her urilily function is given by u = y + log x.
Then
A. x must be a giffen good
B. income effect for x is zero
C. both x arn;l y arc 11or111:ll comrnoditit:s
D. none of the above
 =:::;;::,========-;;:-:-;-:7"'.;:------~-~-=-~·~-~-~·-
t> .,;,.
•~ .. . . ' , -~;::-:::-~·~--~~~~
.. ' ,'L

. , If y3 = x, then
~....:. ·. . A.

13.
3x 213
1

5
C.
3x II 2

77
D. none of the above
47

30
Which of the following taxes on a monopolist will DQ! affect the equilibrium price
(assuming the monopolist does not shut down)?

36
A. sales tax
B. tax on inputs
C. lump sum tax on prof!Js

88
D. all of the above ·
48

;9
The point lying one third of the distance from P=(l, -3,4) .to Q=(5, 1, -2) is
7 5
A. ( 3' -3, 2)

.in
B.. ; (2 2 2)
' -3, 3

e
C. (3, - 1, I) . ur
D. none of the above
us
' I
49 For any random variable X, the difference £( X2) - {£( X) )2 is
A. ' negatjve
ed

B. zero
C. -non-negative
D. non-positive
@
in

50 Let (y .,y 2 , ••• , j J be the leas'l squares fitted values of y and (e , Ci ... , e,,) be the least
1
squares residuals for the sample linear regression of y on x. Then the sample covariance
dm

between j and e is equal to

A. l
B. -1
-e.
;a

zero
D. none of the above
i
n

• . I
e.i
ur
us
ed
 l'AHT II (50 1narks)

\\"Cr any TEN questions. All questions carry equal 111:irl; s. Li111it yc,ur a11s\l"crs to 200 \1·ords
.
~ questions 13, 14 a11cl 15 .

(i) While y:;u ar:: at college l~ostel, your parents give you 300 rupees as pocket ;noney.
You spend the entire amount on video games (v) and comic books(c). Video games

5
cost Rs 2 per unit and comic books cost Rs 10 and your utility function is !!iYen b,·
U =c1v. - ·

77
a) calculate your marginal rate of substilution
b) find the amounts of video games and comic books consumed in a month.

30
Sketch this in a diagram.
(ii) Suppose your father restricts you to play at most 30 video games in month. How

36
does yoJ, 0ptimum consumption change? Arc you better qff or wcrse o·ff th2.n before?

88
With the help of indifference curves, show how an increase in the wage rate could induce- a
worker to supply more or leS!i labour, depending on the strength of income and substitution
• effects. Also, briefly discuss the impact of extra non wa 6:.- in.:, .:·,e on_labour supply.

;9
A monopolist has a cost function C(Q) = bQ where b is a ;:•)r.i::-:c constant and Q de:iotes

.in
output.; The demand curve facing the monopolist is Q=ap', wL·::·c p is price, a>0 and k> 1 2.re
constants.

e
(i) Calculate the profit maximizing levels of price and output.
ur
(ii) If k=l; what is the profit maximizing level of o.utput?
us
A firm's ·demand function is given by

Q (p) = 12 - p, fo, 0 ~p ~ 8
ed

= ~O -2p, for 8 ~p ~ l 0
@

== 0 , for p :;?: 10
in

(i) sketch th~ demand curve

dm

(ii) detennine the value of output Q. at which the demand curve is kinked
(iii) find expressions for total revenue and mo.rgin~l revenue as functions of output
;a

tl
(iv) suppose C is the constant unit cost of-output. for wh:1t r.ingcs of the. ·.1alu es fo r C
will the fi rm produce outputs less th::ino· ,
equal to Q. and greater than Q'?
n

Consider a two co.intry world with t11e foll owing char;:c;cr1stics:

e.i

Ou tput per ,vorker

ur

No. of \\'Orkcrs Whc:it Cotton

us

Country A 20 5 5
ed

r,ountry B 10 5 2

Dr:iw production possibil ity curves for both cou:~;rics. [:--plain the likely pattern of
in ternational trade, if any.

Fin d the ma:--imu.n of f(x,y,z) == ;,/+y1-1z:

.
subject lo the const1,11nt ' 2 y-' -::.·' · I = 0
x-+
 : -~-. ·t..
, r,. . .
• .
"'
u stt:bo-ur supply depends 011 real wage·s in an otherwise standard /\D - 1\S 111 0 ::::I.
_Pm?." the role o f monetary
_~n0s po11cy.
· .,
\~~~t.~:;-: : .
~~f·Wha~ is uncovered interest parity?
:-~~-~~

y0 ~ t~ss .a p~\ir ~r fair dice. Let /\ be th•.: event that the ~um or the numbers (011 the :op r:,ecs
of .the dice) is odd, B the event that at least one dice shows the number I. Describe ::1t

5
events AnB, AUB, AnB'. find their probabilities.

77
Students arc e1lher "vegetarian" or "non-vegetarian". The p1oba_bilily lhal a student is. lc rnak :'
'
and vegetarian is 0.28. The probability that a student is male is 0.40. The probabili,y that a

30
student is male an"d vegetarian is 0.14
(i) what is the probability that a given female ,s \'Cgct::!rian?

36
(ii) what is the probability that a given male is non-vcgetnrian?
(iii) what is the probability that a given vegetarian is female?

88
~
(iv) are the ·events "being vegetarian" and being male independent? (justify your 2.,swcr)

;9
Suppose that the intelligence coefficients Xi (for person i) is independently and identi~ally
distributed as a normal distribution with mean = 100 and variance = 225. If you choose
four persons at random ·

.in
(i) what is the probability that the coefficient of all of the four is less than 130?

e
(ii) what is the probability that the average codiicic:r.t for the four persons is less than _
ur
115?
•I (iii) suppose the population mean is not known and the 1sample mean for a sample of four
us
iI,
is 100. Calculate the 90 per cent confidence interval for the population mean.

l
ed

ote: If ¢(t) is the p.d.f. of the standard normal variate and

!I J
·a F(t) = sl </>(t) dt
@

<
·i! 0

r.
in

·e have the following values for t and· f-(t)

dm

t: 0 .54 1.00 1.34 l.64 2.00 2. 54

F(t): 0.2054 0 .341 3 0.4099 0.4495 0.477 3 0.4945

;a

" ·:( "The state no longer has a substantial role to pl c1y in the economic develor,:.1cnt of Ir:<lia"-
n

. comment.
e.i

4. "The Green Revolu tion technology wc1s not bi:ised ::!g::!iiiSt small fa rmers as it was sci..:
ur

neutral"- discuss.
us

15 . Briefly discuss the background c1nd implemcn.tatio:1 of the tariff policy of the Government of
India in the 1890s.
ed

[Qucsrions 13 , 14, 15 hn1·c n H'Ord limit of 200 ,:-orris)

i..·•\ ' .
''
'
. '·'
: .: