Kerala SET Economics solution 2022
If two goods are complements, a rise in the price of one commodity will lead to:
* A) A rise in the price of the other commodity
* B) An upward shift in the demand for the other commodity
* C) A downward shift in the demand for the other commodity
* D) No shift in the demand for the other commodity
text**Correct Answer: C) A downward shift in the demand for the other commodity** **Explanation:** Complements are goods consumed together (e.g., cars and petrol). If the price of one complement (e.g., petrol) increases, the quantity demanded for that good will fall. Consequently, the demand for the other complementary good (e.g., cars) will also decrease, causing its demand curve to shift downwards (or to the left).
2. Match List I with List II:
* List - I
* a. Kaldor-Hicks test
* b. Impossibility theorem
* c. Quasi rent
* d. Social welfare function
* List - II
* 1. T. Scitovsky
* 2. Alfred Marshall
* 3. A. Bergson
* 4. Kenneth J. Arrow
text* A) a-3, b-2, c-4, d-1 * B) a-1, b-4, c-2, d-3 * C) a-3, b-4, c-1, d-2 * D) a-1, b-4, c-3, d-2 **Correct Answer: B) a-1, b-4, c-2, d-3** **Explanation:** * **Kaldor-Hicks test** is a welfare criterion where a change is considered an improvement if the gainers can hypothetically compensate the losers and still be better off. T. Scitovsky later identified a paradox related to this test. * **Impossibility theorem** (also known as Arrow's Impossibility Theorem) by Kenneth J. Arrow states that no ranked voting system can convert individual preferences into a community-wide (aggregate) ranking while satisfying a set of "fairness" criteria. * **Quasi rent** is a concept introduced by Alfred Marshall to describe the short-run earnings of factors of production (like machinery) whose supply is temporarily fixed, similar to rent. * **Social welfare function** is a concept in welfare economics to represent the collective preferences of a society, often associated with A. Bergson (Bergson-Samuelson Social Welfare Function).
3. Assertion (A): Utility differs from person to person, place to place and time to time. Reason (R): Utility is primarily a subjective concept that is determined by the degree of consumer’s desire or demand for a certain commodity at any given time.
* A) A is true but R is false
* B) A is false but R is true
* C) Both A and R are true R is the correct explanation of A
* D) Both A and R are true R is not the correct explanation of A
text**Correct Answer: C) Both A and R are true R is the correct explanation of A** **Explanation:** Both the assertion and the reason are true. Utility is subjective and varies because it depends on an individual's personal preferences, the context of location, and the specific time, which are all aspects of a consumer's desire or demand. The subjective nature of utility (R) directly explains why it is not uniform across individuals, places, or times (A).
4. If we plot capital on the vertical axis and labor on the horizontal axis, the slope of a straight-line isocost drawn on the same graph is:
* A) PL/PK
* B) PK/PL
* C) −PL/PK
* D) −PK/PL
text**Correct Answer: C) −PL/PK** **Explanation:** The equation for an isocost line is C = PL * L + PK * K, where C is total cost, PL is the price of labor, PK is the price of capital, L is labor, and K is capital. To find the slope with K on the vertical axis and L on the horizontal axis, rearrange the equation: PK * K = C - PL * L K = (C / PK) - (PL / PK) * L The slope is the coefficient of L, which is **-PL/PK**.
5. In the constant elasticity of substitution production function, if the value of the substitution parameter (ρ) is = -1, then the elasticity of substitution will be:
* A) Zero
* B) Infinite
* C) Unity
* D) Indeterminate
text**Correct Answer: B) Infinite** **Explanation:** The formula for the elasticity of substitution (σ) in a CES production function is σ = 1 / (1 + ρ). If ρ = -1, then σ = 1 / (1 + (-1)) = 1 / 0, which is infinite. This represents a linear production function where inputs are perfect substitutes.
6. The Prisoner’s dilemma is not a constant sum game because:
* A) Some outcomes are better than others for both players
* B) The prisoners’ sentences are necessarily non-zero
* C) The game does not have a Nash equilibrium
* D) The sum of the prisoners’ sentences is non-zero
text**Correct Answer: A) Some outcomes are better than others for both players** **Explanation:** A constant sum game is one where the sum of payoffs to all players is the same for every possible outcome. In the Prisoner's Dilemma, if both prisoners cooperate (stay silent), their combined sentence is less severe than if both defect (confess). This means the total payoff (or negative payoff, i.e., sentence) varies across different outcomes, making it a non-constant sum game. If both could cooperate, they would both be better off.
7. Negative income effect is stronger than substitution effect in case of ----- goods.
* A) Inferior
* B) Giffen
* C) Veblen
* D) Complementary
text**Correct Answer: B) Giffen** **Explanation:** For a Giffen good, when its price falls, the quantity demanded also falls, violating the law of demand. This happens because the negative income effect (due to the good being inferior and the price fall increasing real income) is so strong that it outweighs the positive substitution effect (making the good relatively cheaper).
8. A firm will be of optimum size when:
* A) Marginal cost is at minimum
* B) Average cost is at minimum
* C) Marginal cost is equal to average cost
* D) The firm maximizes its output
text**Correct Answer: B) Average cost is at minimum** **Explanation:** The optimum size of a firm refers to the scale of operation where it achieves the lowest possible average cost of production in the long run. At this point, the long-run average cost (LRAC) curve is at its minimum, and the long-run marginal cost (LRMC) curve intersects the LRAC curve at its minimum. So, options B and C essentially describe the same point for the average cost curve, but "average cost is at minimum" is a more direct definition of the optimum size.
9. Match List-I with List -II:
* List - I
* a. Multiplier
* b. Liquidity trap
* c. Neutrality of money
* d. Quantity theory of money
* List - II
* 1. Don Patinkin
* 2. Irving Fisher
* 3. J. M. Keynes
* 4. R. F. Kahn
text* A) a- 4, b- 3, c- 2 d- 1 * B) a-3, b- 2, c-4, d-1 * C) a- 4, b-3, c- 1, d -2 * D) a-3, b-2, c-1, d- 4 **Correct Answer: C) a- 4, b-3, c- 1, d -2** **Explanation:** * **Multiplier** was first developed by R. F. Kahn (employment multiplier) and later expanded by J. M. Keynes (income multiplier). * **Liquidity trap** is a concept described by J. M. Keynes, where monetary policy becomes ineffective because interest rates are so low that people prefer to hold cash rather than invest. * **Neutrality of money** is a classical concept that Don Patinkin rigorously analyzed and demonstrated its conditions and where it breaks down (e.g., in his work "Money, Interest and Prices"). * **Quantity theory of money** is most famously associated with Irving Fisher and his equation of exchange (MV = PT).
10. Which among the following is not an assumption of Pareto optimality?
* A) Every consumer wishes to maximize his level of satisfaction
* B) All the factors of production are used in the production of every commodity
* C) Conditions of perfect competition exist making all the factors of production perfectly mobile
* D) The concept of utility is cardinal and cardinal utility function of every consumer is given
text**Correct Answer: D) The concept of utility is cardinal and cardinal utility function of every consumer is given** **Explanation:** Pareto optimality can be demonstrated using ordinal utility (rankings of preferences) alone. It does not require the stronger assumption of cardinal utility (measurable and comparable utility across individuals). Assumptions A and C are generally consistent with conditions leading to Pareto efficiency, while B is an overly restrictive and generally not assumed condition for efficiency; however, D is a more fundamental distinction in welfare economics.
11. Which of the following are the components of current account in balance of payments?
* 1. Export and Import of Goods
* 2. Unilateral Transfers
* 3. Foreign Investment
* 4. Exports and Imports of Services
* A) 1, 2 and 4 only
* B) 2, 3 and 4 only
* C) 1, 3 and 4 only
* D) 1, 2, 3 and 4
text**Correct Answer: A) 1, 2 and 4 only** **Explanation:** The current account records a country's net income from international transactions. Its main components are: * **Export and Import of Goods (Visible Trade):** Transactions involving physical goods. * **Exports and Imports of Services (Invisible Trade):** Transactions involving services like tourism, shipping, software, etc. * **Primary Income:** Income from factors of production (e.g., interest, dividends, wages). * **Secondary Income (Unilateral Transfers):** Transfers without an equivalent exchange (e.g., remittances, aid, gifts). **Foreign Investment** is a component of the Capital Account or Financial Account, not the Current Account.
12. “Bandwagon effect” is found in ------ income hypothesis.
* A) Absolute
* B) Relative
* C) Permanent
* D) Life cycle
text**Correct Answer: B) Relative** **Explanation:** The "bandwagon effect," where an individual's consumption increases because a large number of other people are consuming the good, is a key component of James Duesenberry's **Relative Income Hypothesis**. This hypothesis posits that an individual's consumption depends not just on their absolute income but also on their income relative to others (demonstration effect) and their past peak income.
13. A rise in the general level of prices is caused by:
* Statement 1: an increase in the money supply
* Statement 2: a decrease in the aggregate level of output
* Statement 3: an increase in the effective demand
* A) 1 only is correct
* B) 1 and 2 only are correct
* C) 2 and 3 only are correct
* D) 1, 2 and 3 are correct
text**Correct Answer: D) 1, 2 and 3 are correct** **Explanation:** * **Statement 1 (increase in money supply):** This is a primary cause of demand-pull inflation, as more money chases the same amount of goods. * **Statement 2 (decrease in aggregate level of output):** A reduction in supply (e.g., due to supply shocks, natural disasters, or production bottlenecks) while demand remains constant or rises, leads to cost-push inflation. * **Statement 3 (increase in effective demand):** When aggregate demand exceeds aggregate supply at full employment, it leads to demand-pull inflation. All three statements describe valid causes of a rise in the general price level.
14. According to Keynes, which of the following are the determinants of investment?
* 1. The cost of capital asset
* 2. The expected rate of return of capital
* 3. The market rate of interest
* A) 1 and 3 only
* B) 1 and 2 only
* C) 2 and 3 only
* D) 1, 2 and 3
text**Correct Answer: D) 1, 2 and 3** **Explanation:** According to Keynes, investment decisions are based on a comparison between the Marginal Efficiency of Capital (MEC) and the market rate of interest. The MEC is calculated by comparing the expected future returns from an investment (Statement 2) with the supply price or cost of the capital asset (Statement 1). If the MEC exceeds the market rate of interest (Statement 3), the investment is undertaken. Thus, all three are critical determinants.
15. In Fisher’s extended equation of exchange, MI VI represents:
* A) Credit money
* B) Primary money
* C) Both A and B
* D) General Price level
text**Correct Answer: B) Primary money** **Explanation:** Fisher's original equation of exchange is MV = PT, where M is the money supply (initially referring to currency, or primary money). The extended equation is MV + M'V' = PT, where M represents primary money (currency) and M' represents credit money (bank deposits). Therefore, "MI VI" (often written as MV) in this context refers to the primary money component.
16. An inflationary gap occurs when:
* A) AD curve shifts rightward
* B) AD curve shifts leftward
* C) GDP equals full-employment GDP
* D) GDP is above full-employment GDP
text**Correct Answer: D) GDP is above full-employment GDP** **Explanation:** An inflationary gap arises when the actual aggregate output (GDP) exceeds the full-employment level of output (potential GDP). This indicates that aggregate demand is greater than the economy's capacity to produce at full employment, leading to upward pressure on prices.
17. As per the Insurance (Amendment) Bill, 2021, what is the new FDI limit in the Insurance Sector?
* A) 25 %
* B) 52%
* C) 74 %
* D) 100%
text**Correct Answer: C) 74 %** **Explanation:** The Insurance (Amendment) Bill, 2021, increased the permissible Foreign Direct Investment (FDI) limit in the Indian insurance sector from 49% to 74%.
18. Which among the following is the correct ascending order on the basis of the sex ratio in India during 2021?
* A) Andhra Pradesh > Tamil Nadu > Chhattisgarh > Kerala
* B) Kerala > Tamil Nadu > Andhra Pradesh > Chhattisgarh
* C) Chhattisgarh > Andhra Pradesh > Tamil Nadu > Kerala
* D) Chhattisgarh > Andhra Pradesh > Kerala > Tamil Nadu
text**Correct Answer: C) Chhattisgarh > Andhra Pradesh > Tamil Nadu > Kerala** **Explanation:** Based on data from the National Family Health Survey (NFHS-5, 2019-21), the sex ratios (females per 1000 males) for these states are: * Chhattisgarh: ~1015 * Andhra Pradesh: ~1040 * Tamil Nadu: ~1088 * Kerala: ~1121 Therefore, the ascending order is Chhattisgarh, Andhra Pradesh, Tamil Nadu, Kerala.
19. The Yojana which has been restructured as National Rural Livelihood Mission:
* A) Swarnajayanti Shahari Rozgar Yojana
* B) Rural Employment Generation Programme
* C) MGNREGA
* D) Swarnajayanti Gram Swarozgar Yojana
text**Correct Answer: D) Swarnajayanti Gram Swarozgar Yojana** **Explanation:** The Swarnajayanti Gram Swarozgar Yojana (SGSY), launched in 1999, was restructured into the National Rural Livelihoods Mission (NRLM) (Aajeevika) in 2011 by the Ministry of Rural Development.
20. Match List-I with List II:
* List - I
* a. The critical minimum effort
* b. Technological dualism
* c. Physical quality of life index
* d. Permissive and compulsive sequences
* List - II
* 1. H. Leibenstein
* 2. A. O. Hirschman
* 3. Benjamin Higgins
* 4. Morris D. Morris
text* A) a- 2, b- 4, c- 3, d- 1 * B) a-1, b-3, c- 2, d- 4 * C) a- 4, b- 3, c- 2, d-1 * D) a- 1, b-3, c- 4, d- 2 **Correct Answer: D) a- 1, b-3, c- 4, d- 2** **Explanation:** * **The critical minimum effort** theory is associated with Harvey Leibenstein (1). * **Technological dualism** is a concept discussed by Benjamin Higgins (3). * **Physical Quality of Life Index (PQLI)** was developed by Morris D. Morris (4). * **Permissive and compulsive sequences** are concepts related to A. O. Hirschman's theory of unbalanced growth (2).
21. Which among the following are real variables?
* 1. Price level
* 2. Rate of inflation
* 3. Employment
* A) 1 only
* B) 1 and 2 only
* C) 3 only
* D) 1, 2 and 3
text**Correct Answer: C) 3 only** **Explanation:** * **Real variables** are measured in physical units or constant prices, reflecting quantities or relative values (e.g., employment, real GDP, relative wages). * **Nominal variables** are measured in current monetary units (e.g., price level, inflation rate, nominal GDP, money supply). * **Price level** and **Rate of inflation** are nominal variables. **Employment** (number of people employed) is a real variable.
22. The impact of our activities on the environment measured as the units of tones (or Kg) of carbon dioxide each of us produces over a given period of time is known as Carbon------.
* A) Count
* B) Credit
* C) Emission
* D) Footprint
text**Correct Answer: D) Footprint** **Explanation:** A **carbon footprint** is the total greenhouse gas emissions caused by an individual, event, organization, or product, expressed as carbon dioxide equivalent.
23. Which of the following assumption(s) are correct regarding Fei and Ranis model?
* 1. There is a dual economy consisting of a stagnant agricultural sector and active industrial sector
* 2. The output of the agricultural sector is a function of land and labour alone
* 3. The output of the industrial sector is a function of capital and labour alone
* A) 1 only
* B) 2 only
* C) 1 and 2 only
* D) 1, 2 and 3
text**Correct Answer: D) 1, 2 and 3** **Explanation:** The Fei-Ranis model (a dual economy model) makes all these assumptions: * It divides the economy into a traditional, stagnant agricultural sector and a modern, active industrial sector. * Agricultural output is assumed to depend primarily on land and labor, with capital playing a limited role. * Industrial output is assumed to be a function of capital and labor, reflecting its more modern production processes.
24. Match List-I with List II:
* List - I
* a. Gunnar Myrdal
* b. Ruchir Sharma
* c. Jagdish Bhagwati
* d. Joseph Schumpeter
* List - II
* 1. Rise and Fall of Nations
* 2. In Defense of Globalization
* 3. Capitalism Socialism and Democracy
* 4. Asian Drama
text* A) a-2, b-1, c-3, d-4 * B) a-4, b-1, c-2, d-3 * C) a-4, b-1, c-3, d-2 * D) a-1, b-3, c-2, d-4 **Correct Answer: B) a-4, b-1, c-2, d-3** **Explanation:** * **Gunnar Myrdal** is known for his work "Asian Drama: An Inquiry into the Poverty of Nations". * **Ruchir Sharma** is the author of "Rise and Fall of Nations: Forces of Change in the Post-Crisis World". * **Jagdish Bhagwati** is a prominent advocate for free trade, known for "In Defense of Globalization". * **Joseph Schumpeter** is famous for his work on creative destruction, detailed in "Capitalism, Socialism and Democracy".
25. India’s position in Global Energy Transition Index (ETI) - 2021 published by Sweden:
* A) 76th
* B) 87th
* C) 91st
* D) 95th
text**Correct Answer: B) 87th** **Explanation:** India was ranked 87th in the Energy Transition Index (ETI) 2021, which is published by the World Economic Forum (WEF) in collaboration with Accenture (though the question incorrectly states 'published by Sweden').
26. Which among the following is not used in measurement of prices in India?
* A) Wholesale price index
* B) GDP deflator
* C) Consumer price index
* D) Purchasing power parity index
text**Correct Answer: D) Purchasing power parity index** **Explanation:** * **Wholesale Price Index (WPI)**, **Consumer Price Index (CPI)**, and **GDP Deflator** are all commonly used to measure price changes (inflation) within India for different sectors or levels of the economy. * The **Purchasing Power Parity (PPP) index** is used for international comparisons of income and price levels across different countries, rather than for measuring price changes over time within India.
27. Backward and forward linkages are relevant for --- growth strategy.
* A) Balanced
* B) Unbalanced
* C) Trickle down
* D) Equilibrium
text**Correct Answer: B) Unbalanced** **Explanation:** The concepts of **backward and forward linkages** are central to A.O. Hirschman's theory of **unbalanced growth**. He argued that strategic investments in certain key sectors with strong linkages would stimulate growth in other sectors, thereby creating desirable imbalances that drive economic development.
28. Which of the following models of business cycle generates constrained cycles?
* A) Kaldor
* B) Hicks
* C) Keynes
* D) Samuelson
text**Correct Answer: B) Hicks** **Explanation:** John R. Hicks' model of the business cycle, building on the multiplier-accelerator interaction, explicitly incorporated "ceilings" (e.g., full employment, resource constraints) and "floors" (e.g., autonomous investment) to explain how an economy generates **constrained cycles** that oscillate between these limits rather than exploding or damping out.
29. According to the inverted U hypothesis of Kuznets, as economies develop -----.
* A) Average household incomes first fall and later rise
* B) Industry's share of GNP first rises and later falls
* C) Income inequality first rises and later falls
* D) The population growth rate first rises and later falls
text**Correct Answer: C) Income inequality first rises and later falls** **Explanation:** The **Kuznets Curve** (inverted U hypothesis) suggests that as a country undergoes economic development (specifically industrialization), income inequality tends to first increase (as some sectors grow rapidly while others lag) and then, after a certain point, it tends to decrease (as benefits spread more widely).
30. Vaccinating people against COVID 19 substantially increases net social benefits by improving the health and productivity of the population is an example of:
* A) Economies of scale
* B) External economies
* C) Negative externality
* D) Net present value
text**Correct Answer: B) External economies** **Explanation:** When people get vaccinated, it not only protects them individually but also reduces the spread of the disease to others, leading to herd immunity, improved overall public health, and increased economic productivity. These positive spillover benefits for society as a whole, which are not directly paid for by the individual receiving the vaccine, are called **positive externalities** or **external economies**.
31. Match List-I with List - II:
* List - I
* a. Montreal Protocol
* b. Basel Convention
* c. Ramsar Convention
* d. Kyoto Protocol
* List - II
* 1. Transfer of hazardous waste
* 2. CO2 emissions and greenhouse gases
* 3. Phasing out ozone depleting substances
* 4. Sustainable utilization of wetlands
text* A) a-3, b-2, c-1, d-4 * B) a-3, b-1, c-4, d-2 * C) a-1, b-3, c-4, d-2 * D) a-3, b-1, c-2, d-4 **Correct Answer: B) a-3, b-1, c-4, d-2** **Explanation:** * **Montreal Protocol:** An international treaty designed to protect the ozone layer by phasing out the production of numerous substances that are responsible for ozone depletion (3). * **Basel Convention:** An international treaty designed to reduce the movements of hazardous waste between nations, and specifically to prevent transfer of hazardous waste from developed to less developed countries (1). * **Ramsar Convention:** An international treaty for the conservation and sustainable utilization of wetlands (4). * **Kyoto Protocol:** An international treaty that commits state parties to reduce greenhouse gas emissions, based on the scientific consensus that global warming is occurring and it is extremely likely that human-made CO2 emissions have predominantly caused it (2).
32. Government of India enacted the Environment Protection Act of 1986 under article -----of the Indian Constitution.
* A) 249
* B) 251
* C) 253
* D) 301
text**Correct Answer: C) 253** **Explanation:** The Environment (Protection) Act of 1986 was enacted by the Government of India under Article 253 of the Indian Constitution, which grants Parliament the power to make laws for implementing any international treaty, agreement, or convention. This Act was a response to the Bhopal Gas Tragedy.
33. In estimating the parameters of a linear function, the most commonly used method of estimation is:
* A) Least square method
* B) Maximum likelihood method
* C) Chi-square
* D) Method of moments
text**Correct Answer: A) Least square method** **Explanation:** For linear regression models, the **Ordinary Least Squares (OLS) method** (a form of the least squares method) is the most commonly used and widely taught technique for estimating the parameters (coefficients). It minimizes the sum of the squared differences between the observed and predicted values.
34. When a single die is thrown, the event of getting an odd number or an even number are:
* A) Mutually exclusive events
* B) Not mutually exclusive events
* C) Independent event
* D) Dependent event
text**Correct Answer: A) Mutually exclusive events** **Explanation:** Mutually exclusive events are those that cannot occur at the same time. When a single die is thrown, you can either get an odd number ({1, 3, 5}) or an even number ({2, 4, 6}), but not both simultaneously. There is no overlap between the two sets of outcomes.
35. Geometric mean of Laspeyre’s and Paasche’s indices provide------ Index.
* A) Bowley’s
* B) Marshall-Edgeworth
* C) Kelley’s
* D) Fisher’s
text**Correct Answer: D) Fisher’s** **Explanation:** Fisher's Ideal Index is calculated as the geometric mean of the Laspeyres index and the Paasche index. It is considered an "ideal" index because it satisfies several desirable properties.
36. Mean and variance of ------ distribution is same.
* A) Bernoulli
* B) Poisson
* C) Binomial
* D) Normal
text**Correct Answer: B) Poisson** **Explanation:** In a **Poisson distribution**, the mean (λ) is equal to its variance (λ). For example, if the average number of events in an interval is 5, both the mean and variance of the Poisson distribution would be 5.
37. Match List-I with List -II:
* List - I
* a. Linear function
* b. Quadratic function
* c. Exponential function
* d. Power function
* List - II
* 1. Y = 3x² +2x+9
* 2. Y = 5x³
* 3. Y = 3e²x
* 4. Y = 5x+3
text* A) a- 1, b- 4, c- 3, d- 2 * B) a-3, b- 2, c-4, d-1 * C) a- 4, b-1, c- 3, d -2 * D) a-3, b-2, c-1, d-4 **Correct Answer: C) a- 4, b-1, c- 3, d -2** **Explanation:** * **Linear function (a-4):** Y = 5x + 3 (a straight line, x has power 1). * **Quadratic function (b-1):** Y = 3x² + 2x + 9 (x has the highest power of 2, forms a parabola). * **Exponential function (c-3):** Y = 3e²x (the variable x is in the exponent). * **Power function (d-2):** Y = 5x³ (x is raised to a constant power).
38. When estimated value is subtracted from actual value, the difference is called----- Error.
* A) Absolute
* B) Estimated
* C) Relative
* D) Percentage
text**Correct Answer: A) Absolute** **Explanation:** The raw difference between the actual (observed) value and the estimated (predicted) value is often referred to as an "error" or "residual." If the magnitude of this difference (regardless of sign) is being emphasized, it's called the **absolute error**.
39. Analysis of variance is carried out by using:
* A) t-test
* B) Z-test
* C) χ² test
* D) F-test
text**Correct Answer: D) F-test** **Explanation:** **Analysis of Variance (ANOVA)** is a statistical technique used to test for differences among two or more population means by analyzing the variance. The **F-test** (or F-statistic) is the primary statistical test used in ANOVA to determine if the means of two or more groups are significantly different.
40. Match List - I with List - II:
* List - I
* a. Delphi method
* b. Dickey fuller test
* c. Durbin Watson test
* d. Students t test
* List - II
* 1. Stationarity
* 2. Autocorrelation
* 3. Testing significance of a regression coefficient
* 4. Forecasting
text* A) a-1, b-4, c-2, d-3 * B) a-4, b-1, c-2, d-3 * C) a-1, b-2, c-4, d-3 * D) a-4, b-1, c-3, d-2 **Correct Answer: B) a-4, b-1, c-2, d-3** **Explanation:** * **Delphi method** is a structured communication technique, originally developed as a systematic, interactive forecasting method (4). * **Dickey-Fuller test** is a statistical test used in econometrics to test for a unit root in a time series sample, which implies non-stationarity (1). * **Durbin-Watson test** is a test statistic used to detect the presence of autocorrelation (serial correlation) in the residuals from a regression analysis (2). * **Student's t-test** is used to test the statistical significance of individual regression coefficients (3).
41. Assertion (A): Harrod -Domar model assumes fixed technological relationship between capital flows and income flows. Reason (R): The model assumes flexible capital output ratio.
* A) A is true but R is false
* B) A is false but R is true
* C) Both A and R are true R is the correct explanation of A
* D) Both A and R are true R is not the correct explanation of A
text**Correct Answer: A) A is true but R is false** **Explanation:** The Harrod-Domar model assumes a **fixed capital-output ratio**, implying a fixed technological relationship between capital (investment, or capital flows) and output (income flows). Therefore, Assertion (A) is true. Reason (R) states it assumes a *flexible* capital-output ratio, which is false; the fixed ratio is a core assumption of the model.
42. Match List- I with List- II:
* List - I
* a. Fiscal deficit
* b. Budget deficit
* c. Revenue deficit
* d. Primary deficit
* List - II
* 1. Excess of total expenditure over total receipts
* 2. Excess of revenue expenditure over revenue receipts
* 3. Excess of total expenditure over total receipts less borrowing
* 4. Excess of total expenditure over total receipts less borrowing and interest payments
text* A) a-3, b-1, c-2, d-4 * B) a-1, b-3, c-2, d-4 * C) a-3, b-1, c-4, d-2 * D) a-1, b-3, c-4, d-2 **Correct Answer: A) a-3, b-1, c-2, d-4** **Explanation:** * **Fiscal deficit (a-3):** Total expenditure minus total receipts (excluding borrowings). It represents the government's total borrowing requirement. * **Budget deficit (b-1):** Total expenditure minus total receipts (including both revenue and capital receipts). This is a traditional measure, largely replaced by fiscal deficit in India. * **Revenue deficit (c-2):** Revenue expenditure minus revenue receipts. It indicates the government is borrowing to meet its current consumption expenditure. * **Primary deficit (d-4):** Fiscal deficit minus interest payments. It shows the government's borrowing requirement excluding the interest payment on past debts.
43. Assertion (A): In order to control inflationary tendencies, RBI raises the repo rate. Reason (R): RBI wishes to increase consumption and investment.
* A) A is true but R is false
* B) A is false but R is true
* C) Both A and R are true R is the correct explanation of A
* D) Both A and R are true R is not the correct explanation of A
text**Correct Answer: A) A is true but R is false** **Explanation:** * **Assertion (A) is true:** Raising the repo rate (the rate at which commercial banks borrow from RBI) makes borrowing more expensive for banks, leading to higher lending rates in the economy. This discourages borrowing, reduces money supply, and thus helps control inflation. * **Reason (R) is false:** When controlling inflationary tendencies, the RBI's objective is to *decrease* (or slow down) consumption and investment, thereby reducing aggregate demand and price pressures, not to increase them.
44. What are the causes of market failure? Choose the correct alternatives:
* 1. Asymmetric information
* 2. Individual property right
* 3. Public goods with externality
* 4. Private goods
* A) 1 and 2 only
* B) 1 and 3 only
* C) 1, 2 and 3 only
* D) 1, 2, 3 and 4
text**Correct Answer: B) 1 and 3 only** **Explanation:** * **Asymmetric information (1):** Occurs when one party in a transaction has more or better information than the other, leading to inefficient outcomes (e.g., adverse selection, moral hazard). This is a cause of market failure. * **Individual property right (2):** Well-defined property rights are generally a *prerequisite* for efficient markets. Their *absence* or *poor definition* can lead to market failure (e.g., tragedy of the commons), but the existence of individual property rights itself is not a cause of market failure. * **Public goods with externality (3):** Public goods (non-rivalrous and non-excludable) inherently lead to market failure (underprovision) due to the free-rider problem. Externalities (costs or benefits imposed on third parties) also cause market failure because market prices do not reflect social costs/benefits. * **Private goods (4):** Private goods (rivalrous and excludable) are typically provided efficiently by markets under ideal conditions, so they are not a cause of market failure.
45. Prebisch-Singer hypothesis relates to:
* A) Balance of payment problems of developing countries
* B) Terms of trade of developing countries
* C) Prevalence of poverty among developing countries
* D) Inequality of income in developing countries
text**Correct Answer: B) Terms of trade of developing countries** **Explanation:** The **Prebisch-Singer hypothesis** suggests that, over the long run, the price of primary commodities (typically exported by developing countries) declines relative to the price of manufactured goods (typically exported by developed countries), leading to a secular deterioration in the **terms of trade** for developing countries.
46. Which of the following is not an amber box subsidy?
* A) Minimum support price of cereals
* B) Subsidy on seeds
* C) Subsidy on irrigation rates
* D) Cost of government pest control and management
text**Correct Answer: D) Cost of government pest control and management** **Explanation:** Under the WTO's Agreement on Agriculture, domestic support measures are categorized into "boxes" based on their trade-distorting effects: * **Amber Box subsidies** are considered trade-distorting and are subject to reduction commitments (e.g., price supports like MSP, input subsidies like those on seeds or irrigation). * **Green Box subsidies** are considered minimally or non-trade-distorting and are exempt from reduction commitments. These include general government services like agricultural research, pest control and disease control, and food security stocks. Therefore, government pest control and management costs fall under the Green Box.
47. The chairman of the fifteenth Finance Commission:
* A) Ajay Narayan Jha
* B) Ashok Lahri
* C) Y.V Reddy
* D) N. K. Singh
text**Correct Answer: D) N. K. Singh** **Explanation:** N. K. Singh was the Chairman of the 15th Finance Commission of India, which submitted its report for the period 2021-26.
48. Housing finance company is considered as:
* A) Non-Banking Financial Company
* B) Specialized banks
* C) Local area banks
* D) None of the above
text**Correct Answer: A) Non-Banking Financial Company** **Explanation:** Housing Finance Companies (HFCs) are a type of **Non-Banking Financial Company (NBFC)** whose primary business is providing finance for housing. They are regulated by the Reserve Bank of India (RBI).
49. Which of the following institutions are collectively called as Market Infrastructure Institutions (MIIs)?
* 1. Stock exchanges
* 2. Depositories
* 3. Clearing corporation
* 4. National Investment Infrastructure fund
* A) 1 and 2 only
* B) 1, 2 and 3 only
* C) 2 and 4 only
* D) 1 and 4 only
text**Correct Answer: B) 1, 2 and 3 only** **Explanation:** Market Infrastructure Institutions (MIIs) are critical organizations that provide essential services to the financial markets, facilitating trading, clearing, and settlement. They typically include **stock exchanges**, **depositories**, and **clearing corporations**. The National Investment Infrastructure Fund (NIIF) is an investment vehicle, not an MII.
50. The tax which has not been subsumed in GST:
* A) Excise Duty
* B) Service Tax
* C) Value added tax
* D) Stamp duty
text**Correct Answer: D) Stamp duty** **Explanation:** The Goods and Services Tax (GST) subsumed a wide array of central and state indirect taxes, including Central Excise Duty, Service Tax, State VAT, Entry Tax, Luxury Tax, etc. However, certain taxes like Basic Customs Duty, **Stamp Duty**, Electricity Duty, and taxes on petroleum products and alcohol for human consumption were *not* subsumed under GST.
51. Which of the following effects will be seen on deposit rates, if RBI tightens its policy?
* A) The deposit rates will increase
* B) The deposit rates will decrease
* C) The deposit rates will remain unchanged
* D) The deposit rates will either increase or decrease
text**Correct Answer: A) The deposit rates will increase** **Explanation:** When the RBI tightens its monetary policy (e.g., by raising the repo rate or absorbing liquidity), it increases the cost of funds for commercial banks. To compensate for higher borrowing costs and to attract deposits (which are a cheaper source of funds), banks are likely to increase the interest rates they offer on deposits.
52. Which of the following statements about Arrow's impossibility theorem is wrong?
* A) Arrow's impossibility theorem is a social-choice paradox illustrating the impossibility of having an ideal voting structure.
* B) The problem of social choice can be satisfactorily solved by democratic voting under which social decisions are made by majority decision.
* C) Arrow has proved a general theorem about the impossibility of constructing an ordering for society as a whole which will in some way reflect all the individual orderings of the members who make up the society.
* D) It states that a clear order of preferences cannot be determined while adhering to mandatory principles of fair voting procedures.
text**Correct Answer: B) The problem of social choice can be satisfactorily solved by democratic voting under which social decisions are made by majority decision.** **Explanation:** This statement is precisely what Arrow's Impossibility Theorem challenges and proves wrong. The theorem states that no social choice mechanism (including majority rule) can consistently aggregate individual preferences into a coherent social preference ordering while satisfying a few seemingly reasonable criteria for fairness and rationality. Therefore, it implies that democratic voting, especially by majority rule, often *cannot* satisfactorily solve the problem of social choice without violating some desirable principle.
53. The trans-log production function is an approximation of:
* A) CES function
* B) Cobb-Douglas function
* C) VES function
* D) None of the above
text**Correct Answer: A) CES function** **Explanation:** The trans-log (transcendental logarithmic) production function is a flexible functional form that can be seen as a second-order approximation in logarithms to any arbitrary production function. It is a generalization of both Cobb-Douglas and CES production functions, allowing for variable elasticities of substitution, unlike the constant elasticity of substitution (CES) function. While it is more general, it can effectively approximate a CES function or a production process that is more flexible than CES but more structured than a completely arbitrary function.
54. ------cost is the cost that has already occurred and has no possibility for recovery in the future.
* A) Fixed
* B) Sunk
* C) Average variable
* D) Marginal
text**Correct Answer: B) Sunk** **Explanation:** A **sunk cost** is a cost that has already been incurred and cannot be recovered through any future action. Economic theory suggests that sunk costs should not influence future decisions, as they are irretrievable.
55. Choose the correct statement about Ricardo-Barro effect:
* 1. An economic theory that suggests that when a government tries to stimulate an economy by increasing debt-financed government spending, aggregate demand will increase
* 2. An economic theory that suggests that when a government tries to stimulate an economy by increasing debt-financed government spending, demand remains unchanged
* 3. Taxpayers will save to pay the expected future taxes, this will tend to offset the macroeconomic effects of increased government spending.
* 4. Ricardian equivalence maintains that government deficit spending is greater than spending out of current taxes.
* A) 1 and 2 only
* B) 1, 2 and 3 only
* C) 2 and 3 only
* D) 1, 2, 3 and 4
text**Correct Answer: C) 2 and 3 only** **Explanation:** The **Ricardo-Barro effect** (also known as Ricardian equivalence) posits that rational, forward-looking taxpayers will anticipate that current government debt-financed spending will eventually be paid for by future taxes. Therefore, they will save rather than consume the extra income or debt-financed stimulus, nullifying the stimulative effect on aggregate demand. * Statement 1 is incorrect because it states aggregate demand *will increase*, which is contrary to the theory. * Statement 2 is correct as it implies that demand remains unchanged. * Statement 3 is correct as it describes the mechanism through which Ricardian equivalence operates. * Statement 4 is incorrect because Ricardian equivalence is about the *equivalence* of financing methods in terms of impact, not about one being greater than the other.
56. Classical dichotomy implies that:
* A) Monetary sector influences the real sector
* B) Real sector influences the monetary sector
* C) Goods markets solves as per the says law
* D) Monetary sector and real sector are independent
text**Correct Answer: D) Monetary sector and real sector are independent** **Explanation:** The **classical dichotomy** is a theoretical concept in classical economics that proposes a separation between the real and nominal sides of the economy. It suggests that changes in the money supply (monetary sector) affect only nominal variables (like prices and nominal wages) but not real variables (like output, employment, and real wages). Thus, the monetary sector and real sector are independent.
57. Who describes the trade cycle as a purely monetary phenomenon?
* A) Schumpeter
* B) Don Patinkin
* C) Hawtrey
* D) Milton Friedman
text**Correct Answer: C) Hawtrey** **Explanation:** Ralph G. Hawtrey, a prominent member of the British Treasury, was one of the earliest proponents of the view that business (trade) cycles are a **purely monetary phenomenon**, caused by changes in the money supply and credit conditions. While other monetarists like Milton Friedman also emphasized the role of money, Hawtrey's theory was more exclusive in attributing the cycle solely to monetary factors.
58. Which of the following is not a practical consequence of multicollinearity?
* A) Although BLUE, the OLS estimators have large variances and covariances, making precise estimation difficult
* B) The confidence interval tends to be much wider, leading to acceptance of the zero null hypothesis.
* C) The t-ratio of one or more coefficients tends to be statistically insignificant.
* D) R², the overall measure of goodness of fit, can be low
text**Correct Answer: D) R², the overall measure of goodness of fit, can be low** **Explanation:** Multicollinearity (high correlation among independent variables) has several practical consequences for OLS regression: * It leads to **large standard errors** (and thus large variances and covariances) of OLS estimators, making them less precise (A is correct). * Consequently, **confidence intervals are wider**, and t-ratios are smaller, often leading to **statistically insignificant coefficients** even if the variables are theoretically important (B and C are correct). * However, one of the paradoxes of multicollinearity is that while individual coefficients might be insignificant, the **overall R² (goodness of fit) can remain very high**. A low R² is not a consequence of multicollinearity.
59. Which of the following statements are correct in respect of Niti Aayog?
* 1. It is a constitutional body.
* 2. It is a statutory body.
* 3. It is neither a constitutional body nor a statutory body.
* 4. It is a think-tank.
* A) 1 and 4 only
* B) 2 and 4 only
* C) 3 and 4 only
* D) 2, 3 and 4 only
text**Correct Answer: C) 3 and 4 only** **Explanation:** * **NITI Aayog (National Institution for Transforming India)** was established in 2015 by a resolution of the Union Cabinet. * It is **neither a constitutional body** (not created by an article of the Constitution) **nor a statutory body** (not created by an Act of Parliament). So, statement 3 is correct. * Its primary role is to serve as the premier policy **think-tank** of the Government of India, providing directional and policy inputs. So, statement 4 is correct.
60. The term ‘Yellow revolution’ is associated with:
* A) Milk production
* B) Production of oil seeds
* C) Wheat Production
* D) Production of Eggs
text**Correct Answer: B) Production of oil seeds** **Explanation:** The **Yellow Revolution** in India refers to the rapid increase in the production of oilseeds, such as mustard, groundnut, sesame, and sunflower, during the late 1980s.
61. Knife edge equilibrium is associated with:
* A) R F Harrod
* B) Joan Robinson
* C) M Kalecki
* D) P M Romer
text**Correct Answer: A) R F Harrod** **Explanation:** The concept of **"knife-edge equilibrium"** is famously associated with R. F. Harrod's growth model. It describes the extreme instability of the warranted rate of growth (Gw), where any slight deviation from this growth path leads to a cumulative divergence, making sustained steady growth highly precarious.
62. X efficiency measures:
* A) How close to allocative efficiency a firm is operating in a given market
* B) How close to optimal efficiency a firm is operating in a given market
* C) How a firm is operating in a given market
* D) Any of the above
text**Correct Answer: B) How close to optimal efficiency a firm is operating in a given market** **Explanation:** **X-efficiency**, a concept introduced by Harvey Leibenstein, refers to the degree to which a firm operates at its maximum potential output given its inputs. It measures the internal efficiency of resource utilization, distinguishing it from allocative efficiency (producing the right mix of goods). A firm is X-efficient if it is producing the maximum possible output from its inputs, meaning it is operating on its production possibility frontier due to effective management and motivation. "Optimal efficiency" in this context refers to achieving this internal maximum.
63. Assertion (A): Environmentally sound policies do not harm the environment or deplete the natural resources. Reason (R): Sustainable development is critical to the well-being of human society.
* A) Both A and R are correct and R is the correct explanation of A
* B) Both A and R are correct, but R is not the correct explanation of A
* C) A is true and R is true
* D) A is false and R is true
text**Correct Answer: A) Both A and R are correct and R is the correct explanation of A** **Explanation:** * **Assertion (A) is correct:** Environmentally sound policies are designed specifically to minimize negative impacts on the environment and ensure the sustainable use of natural resources. * **Reason (R) is correct:** Sustainable development, which aims to meet present needs without compromising the ability of future generations to meet their own needs, is indeed crucial for the long-term well-being of human society. * **R is the correct explanation of A:** The necessity of environmentally sound policies (A) stems from the critical importance of achieving sustainable development (R) for human well-being. Policies are created to support this overarching goal.
64. Match List I with List II:
* List I
* a. Big Push Theory
* b. Critical Minimum Effort thesis
* c. Theory of Unbalanced growth
* d. Low-level Equilibrium trap
* List II
* 1. Hirschman
* 2. Rosenstein-Rodan
* 3. R R Nelson
* 4. Harvey Leibenstein
text* A) a-2, b-4, c-3, d-1 * B) a-4, b-2, c-1, d-3 * C) a-3, b-4, c-1, d-2 * D) a-2, b-4, c-1, d-3 **Correct Answer: D) a-2, b-4, c-1, d-3** **Explanation:** * **Big Push Theory** is associated with Paul Rosenstein-Rodan (2). * **Critical Minimum Effort thesis** was propounded by Harvey Leibenstein (4). * **Theory of Unbalanced growth** is attributed to Albert O. Hirschman (1). * **Low-level Equilibrium trap** is a concept developed by Richard R. Nelson (3).
65. Tragedy of commons implies:
* A) Poor living standards of the common people
* B) Poor quality of environment in which common people live
* C) Total destruction of public resources by overuse of it
* D) None of the above
text**Correct Answer: C) Total destruction of public resources by overuse of it** **Explanation:** The **"Tragedy of the Commons"** describes a situation where individual users, acting independently according to their own self-interest, deplete a shared, limited resource (a "common-pool resource") even when it is not in anyone's long-term interest for this to happen. This leads to the degradation or destruction of the resource due to overuse.
66. The environmental valuation method which can be applied to determine the value of “loss of biodiversity”:
* A) Hedonic Valuation
* B) Market valuation
* C) Contingent valuation
* D) Travel cost method
text**Correct Answer: C) Contingent valuation** **Explanation:** * **Contingent Valuation Method (CVM)** is a stated preference method that uses surveys to ask people directly how much they would be willing to pay (WTP) for an environmental good or service (like preserving biodiversity) or willing to accept (WTA) for its loss. It is suitable for valuing non-market goods like biodiversity, which do not have direct market prices. * **Hedonic valuation** infers values from market prices of related goods. * **Market valuation** applies to goods with direct market prices. * **Travel cost method** values recreational sites based on travel expenses, not abstract biodiversity loss.
67. Capital Adequacy ratio is the:
* A) Measure of how much capital a bank can give as advances
* B) Measure of market capitalization of a bank
* C) Measure of how much capital a bank has available
* D) Ratio of capital of a bank to NPA
text**Correct Answer: C) Measure of how much capital a bank has available** **Explanation:** The **Capital Adequacy Ratio (CAR)**, or Capital to Risk-weighted Assets Ratio (CRAR), is a measure of a bank's financial strength and stability. It indicates how much capital a bank has available, relative to its risk-weighted assets, to absorb potential losses and protect depositors and financial stability.
68. Balanced-budget multiplier is:
* A) A measure of the change in aggregate production caused by equal changes in deficit financing
* B) A measure of the change in aggregate production caused by equal changes in government borrowings.
* C) A measure of the change in aggregate production caused by equal changes in government purchases and taxes.
* D) All of the above
text**Correct Answer: C) A measure of the change in aggregate production caused by equal changes in government purchases and taxes.** **Explanation:** The **balanced-budget multiplier** states that if government spending and taxes are increased by the same amount, aggregate output (income) will increase by exactly that same amount. The multiplier is equal to 1, meaning the change in aggregate production is equal to the equal changes in government purchases and taxes.
69. Metzler paradox is the theoretical possibility that the imposition of a tariff on imports may provide ----- to the import competing industry.
* A) No protection
* B) Positive protection
* C) Negative protection
* D) Either Zero or positive protection
text**Correct Answer: C) Negative protection** **Explanation:** The **Metzler paradox** describes a theoretical scenario where, under specific conditions (e.g., highly elastic foreign supply and/or very inelastic domestic demand for the import good, or a strong improvement in the country's terms of trade), imposing a tariff on imports can actually lead to a *fall* in the domestic price of the imported good. This effectively means the tariff provides **negative protection** to the domestic import-competing industry.
70. The notion of J curve implies that a devaluation of domestic currency:
* A) improves the country’s trade balance at first before worsening
* B) worsens the country’s trade balance at first, before improving
* C) didn’t produce any positive or negative effect on trade balance
* D) improves the country’s trade balance immediately after the devaluation
text**Correct Answer: B) worsens the country’s trade balance at first, before improving** **Explanation:** The **J-curve effect** illustrates the typical time path of a country's trade balance following a currency devaluation or depreciation. Initially, the trade balance tends to worsen (the "bottom" of the J) because the volume of imports and exports doesn't adjust immediately, while import prices in local currency rise. Over time, as consumers and producers adjust to the new relative prices, exports increase and imports decrease, leading to an eventual improvement in the trade balance (the "upward slope" of the J).
71. Snake in the tunnel refers to a system of European monetary cooperation in the 1970s which aimed at:
* A) limiting fluctuations between different European currencies
* B) allowing currency to fluctuate 4.5 % on either side of the fixed parity
* C) allowing fluctuations between different European currencies
* D) limiting fluctuations between different European currencies and other currencies
text**Correct Answer: A) limiting fluctuations between different European currencies** **Explanation:** The **"Snake in the Tunnel"** was an early attempt at European monetary integration in the 1970s. Its primary aim was to **limit exchange rate fluctuations between the participating European currencies** within a narrow band (the "snake"), while allowing these currencies collectively to fluctuate within a wider band against the US dollar (the "tunnel").
72. Marris model (theory of firm) is a:
* A) Sales maximisation model
* B) Managerial discretion model
* C) Managerial enterprise model
* D) Limit pricing model
text**Correct Answer: C) Managerial enterprise model** **Explanation:** Robin Marris's model of the firm (also known as the **Managerial Enterprise Model** or managerial theory of growth) postulates that managers, rather than owners, prioritize the growth of the firm's assets or sales, subject to a constraint on financial security (e.g., maintaining a certain stock market valuation or avoiding takeover). This distinguishes it from profit maximization (neoclassical) or sales maximization (Baumol).
73. If elasticity of substitution is equal to zero, CES production function will assume the form of:
* A) Cobb-Douglas production function
* B) Linear production function
* C) Leontief production function
* D) VES production function
text**Correct Answer: C) Leontief production function** **Explanation:** In a Constant Elasticity of Substitution (CES) production function, the elasticity of substitution (σ) dictates the form of the function: * If σ = 0, inputs are perfect complements and used in fixed proportions, which defines the **Leontief production function**. * If σ = 1, it simplifies to the Cobb-Douglas production function. * If σ = infinity, it becomes a linear production function, implying perfect substitutes.
74. The returns to scale exhibited by a firm, having a production function Q = 6K⁰.⁴ L⁰.⁷, will be:
* A) Increasing
* B) Decreasing
* C) Constant
* D) Negative
text**Correct Answer: A) Increasing** **Explanation:** For a Cobb-Douglas type production function Q = A K^α L^β, the returns to scale are determined by the sum of the exponents (α + β): * If α + β > 1, there are increasing returns to scale. * If α + β = 1, there are constant returns to scale. * If α + β < 1, there are decreasing returns to scale. In the given function Q = 6K⁰.⁴ L⁰.⁷, the sum of exponents is 0.4 + 0.7 = 1.1. Since 1.1 > 1, the firm exhibits **increasing returns to scale**.
75. Stackelberg equilibrium is reached under duopoly when:
* A) Both firms are sophisticated and both want to be leaders
* B) Both firms are sophisticated and both want to be followers
* C) One firm is sophisticated and becomes the leader and the other firm is naïve
* D) Both firms are naïve
text**Correct Answer: C) One firm is sophisticated and becomes the leader and the other firm is naïve** **Explanation:** In the **Stackelberg duopoly model**, one firm (the leader) makes its output decision first, anticipating how the other firm (the follower) will react. The leader is "sophisticated" because it takes the follower's reaction function into account. The follower is "naïve" in the sense that it simply reacts optimally to the leader's given output choice, without trying to influence the leader's initial decision.
76. As per Tobin’s Asset demand for money, the demand for money depends on:
* A) The risk and return associated with the money and other forms of assets, not with individual expectations.
* B) The risk and return associated with the other assets and other forms of assets, not with individual expectations.
* C) The risk and return associated with the money and other forms of assets, and with individual expectations.
* D) None of the above
text**Correct Answer: C) The risk and return associated with the money and other forms of assets, and with individual expectations.** **Explanation:** James Tobin's portfolio approach to money demand emphasizes that individuals hold a diversified portfolio of assets (money and bonds) to balance risk and return. The demand for money is determined by the expected returns and associated risks of holding various assets (including money itself, whose "return" might be negative due to inflation) and by individual risk aversion or **expectations**. Individuals make choices based on these factors to maximize their utility.
77. The Solow growth model shows that in the long run an economy’s rate of:
* A) Investment determines the capital stock and level of output
* B) Savings determines the capital stock and level of output
* C) Growth determines the capital stock and level of output
* D) Labour growth determines the capital stock and level of output
text**Correct Answer: B) Savings determines the capital stock and level of output** **Explanation:** In the long-run steady state of the Solow growth model (without exogenous technological progress), the **savings rate** determines the *levels* of capital per worker and output per worker. A higher savings rate leads to a higher steady-state capital stock and output per capita, but it does not determine the *long-run per capita growth rate* (which is zero in the absence of technological progress).
78. A decrease in taxes may shift the IS curve to the:
* A) Right equivalent to ∆T(1/(1-MPC))
* B) Left equivalent to ∆T(MPC/(1-MPC))
* C) Right equivalent to ∆T(MPS/(1-MPC))
* D) Right equivalent to ∆T(MPC/(1-MPC))
text**Correct Answer: D) Right equivalent to ∆T(MPC/(1-MPC))** **Explanation:** A decrease in taxes (∆T < 0) increases disposable income (Yd), which leads to an increase in consumption. This increase in autonomous spending shifts the IS curve to the right. The magnitude of this shift is given by the tax multiplier applied to the change in taxes. The tax multiplier is -MPC/(1-MPC). Since taxes are *decreasing*, the shift in equilibrium output (∆Y) is -∆T * [-MPC/(1-MPC)] = ∆T * [MPC/(1-MPC)]. So, a decrease in taxes (making ∆T negative) results in a positive shift (to the right) of magnitude ∆T(MPC/(1-MPC)).
79. The arithmetic mean of regression coefficients is always ------.
* A) equal to or less than the coefficient of correlation
* B) equal to or greater than the coefficient of correlation
* C) equal to the coefficient of correlation
* D) less than the coefficient of correlation
text**Correct Answer: B) equal to or greater than the coefficient of correlation** **Explanation:** For a simple linear regression between two variables X and Y, let b_yx be the regression coefficient of Y on X, and b_xy be the regression coefficient of X on Y. The correlation coefficient (r) is the geometric mean of these two coefficients if they have the same sign (r = sqrt(b_yx * b_xy)). A known statistical property is that the arithmetic mean of two positive numbers is always greater than or equal to their geometric mean. Therefore, if b_yx and b_xy are positive, then (b_yx + b_xy)/2 ≥ r.
80. The Flexible Inflation Target (FIT) was adopted in India in:
* A) 2006
* B) 2010
* C) 2016
* D) 2020
text**Correct Answer: C) 2016** **Explanation:** India formally adopted the Flexible Inflation Targeting (FIT) framework in **2016** through an amendment to the Reserve Bank of India Act, 1934. This formalized an agreement made in February 2015 between the Government of India and the Reserve Bank of India.
81. Identify the major features of VRR:
* 1. The objective of the VRR channel is to attract long-term and stable FPI investments into debt markets while providing FPIs with operational flexibility to manage their investments.
* 2. Any entity registered as an FPI with SEBI is eligible to participate through this Route.
* 3. The total amount that may be invested via the Route shall be decided by the Reserve Bank from time to time based on macro-prudential considerations and assessment of investment demand.
* 4. The minimum retention period shall be five years, or as decided by RBI for each auction.
* A) 1, 2 and 3 only
* B) 1, 2 and 4 only
* C) 2, 3 and 4 only
* D) 1, 2, 3 and 4
text**Correct Answer: D) 1, 2, 3 and 4** **Explanation:** The Voluntary Retention Route (VRR) for Foreign Portfolio Investors (FPIs) in India was introduced by the RBI in 2019 to attract long-term and stable FPI investments into debt markets. All the statements provided are accurate features of the VRR scheme. * 1. States the core objective. * 2. Specifies eligibility criteria. * 3. Highlights RBI's role in managing investment limits. * 4. Mentions the retention period, which ensures long-term commitment.
82. Assertion (A): Unbalanced growth strategy advocated investment in leading or core sector. Reason (R): Development is a chain disequilibria that must keep alive rather than eliminate the disequilibria.
* A) Both A and R are correct and R is the correct explanation of A
* B) Both A and R are correct, but R is not the correct explanation of A
* C) A is true and R is true
* D) A is false and R is true
text**Correct Answer: A) Both A and R are correct and R is the correct explanation of A** **Explanation:** * **Assertion (A) is correct:** Albert O. Hirschman's theory of unbalanced growth advocates for making strategic investments in a few "leading" or "core" sectors with strong forward and backward linkages. * **Reason (R) is correct:** Hirschman believed that development is not a smooth, balanced process, but rather a dynamic one driven by a continuous chain of imbalances or "disequilibria." These imbalances generate pressures and incentives for further investment and growth. * **R is the correct explanation of A:** The strategy of investing in leading sectors (A) is specifically designed to *create* and *maintain* these disequilibria (R) which Hirschman saw as the engine of development.
83. The top five countries from where FDI equity inflows were received during April 2014 and August 2021 are (in descending order):
* A) Mauritius, Singapore, USA, Netherlands, Japan
* B) USA, Singapore, Mauritius, Netherlands, Japan
* C) Singapore, Mauritius, USA, Netherlands, Japan
* D) Singapore, USA, Mauritius, Netherlands, Japan
text**Correct Answer: C) Singapore, Mauritius, USA, Netherlands, Japan** **Explanation:** As per official data from the Department for Promotion of Industry and Internal Trade (DPIIT) for the specified period (April 2014 - August 2021), the top five countries for FDI equity inflows into India, in descending order, were Singapore, Mauritius, USA, Netherlands, and Japan.
84. The idea of backwash effect was propounded by:
* A) Rosenstein Rodan
* B) H Libenstean
* C) Gunner Myrdal
* D) R.R. Nelson
text**Correct Answer: C) Gunnar Myrdal** **Explanation:** The concept of **"backwash effects"** was developed by Gunnar Myrdal. It describes the negative impacts of economic growth in a relatively advanced region on the surrounding lagging regions. These effects can include the migration of labor, capital, and goods from the periphery to the core, exacerbating regional disparities.
85. Which of the following are the objectives of Environmental Impact Study?
* 1. Detailed presentation of the proposed project and its economic advantages and disadvantages
* 2. To identify and describe the elements of the community and the environment likely to be affected by the proposed project
* 3. To identify the adverse impacts of the proposed project in major areas like air, water and other environmental services
* 4. To identify the profitability or economic gain from the proposed project
* A) 1, 3 and 4 only
* B) 1, 2 and 3 only
* C) 1, 2 and 4 only
* D) 1, 2, 3 and 4
text**Correct Answer: D) 1, 2, 3 and 4** **Explanation:** An Environmental Impact Assessment (EIA) or Environmental Impact Study aims to: * Provide a **detailed project description** including its economic aspects (1). * **Identify and describe affected environmental and social components** (2). * **Predict and evaluate adverse impacts** on environmental quality (air, water, land, biodiversity, etc.) (3). * While the primary focus is environmental, understanding the **economic implications and profitability** (4) is crucial for a comprehensive cost-benefit analysis and informed decision-making regarding project viability and overall societal welfare.
86. Money multiplier will increase when:
* A) The banking habits of the people increases
* B) Increase in CRR
* C) Increase in SLR
* D) Increase in population
text**Correct Answer: A) The banking habits of the people increases** **Explanation:** The money multiplier (m) is inversely related to the cash-deposit ratio (c), the required reserve ratio (r, i.e., CRR), and the excess reserve ratio (e). The formula is m = (1+c) / (c+r+e). * If **banking habits increase**, people hold less cash and deposit more in banks, causing the cash-deposit ratio (c) to *decrease*. A decrease in 'c' in the denominator will **increase** the money multiplier. * An increase in CRR (r) or SLR (which reduces lendable funds, similar to an increase in 'e') would *decrease* the money multiplier. * An increase in population does not directly affect the components of the money multiplier.
87. Choose the correct statements regarding narrow money and broad money:
* 1. Narrow money is a measure of the amount of money
* 2. Typically, "broad money" refers to M2, M3, and/or M4
* 3. The term "narrow money" typically covers the most liquid forms of money
* 4. Narrow money is typically denoted as M1 and is a subset of broad money
* A) 1, 2 and 3 only
* B) 1, 2 and 4 only
* C) 2, 3 and 4 only
* D) 1, 2, 3 and 4
text**Correct Answer: D) 1, 2, 3 and 4** **Explanation:** All four statements are correct: * **1. Narrow money is a measure of the amount of money:** True, it's one of the monetary aggregates. * **2. Typically, "broad money" refers to M2, M3, and/or M4:** True, these aggregates include less liquid components in addition to narrow money. In India, M3 is the primary broad money measure. * **3. The term "narrow money" typically covers the most liquid forms of money:** True, it includes currency in circulation and demand deposits. * **4. Narrow money is typically denoted as M1 and is a subset of broad money:** True, M1 is the narrowest definition of money, and broader definitions (like M2, M3) build upon M1 by adding less liquid assets.
88. The Eurocurrency market is the money market for currency:
* A) In the European Union
* B) Inside of the country where it is legal tender
* C) Outside of the country where it is legal tender.
* D) European countries which accepted Euro as home currency
text**Correct Answer: C) Outside of the country where it is legal tender.** **Explanation:** A **Eurocurrency** is a currency deposited in a bank outside of the country where it is legally recognized as domestic currency. The Eurocurrency market is where these currencies are lent and borrowed. For example, Eurodollars are U.S. dollars deposited in a bank located outside the United States. The term "Euro" in this context refers to "outside," not specifically Europe.
89. The case of dumping in which a monopolist firm sells its commodity at a very low price or at a loss in the foreign market in order to drive out some competitors is ------- dumping.
* A) Predatory
* B) Persistent
* C) Sporadic
* D) Intermittent
text**Correct Answer: A) Predatory** **Explanation:** **Predatory dumping** occurs when a foreign firm sells its products at very low prices (sometimes below cost) in the importing country, with the specific intent of eliminating domestic competition or other foreign competitors, and then potentially raising prices once competition has been driven out.
90. Rybczynski's theorem states that a rise in the endowment of one factor:
* A) Rises the output of the commodity which uses the scarce factor intensively and reduces the output of the other commodity.
* B) Reduces the output of the commodity which uses the expanded factor intensively and reduces the output of the other commodity.
* C) Rises the output of the commodity which uses the expanded factor intensively and reduces the output of the other commodity.
* D) Rises the output of the commodity which uses the expanded factor intensively and the output of the other commodity.
text**Correct Answer: C) Rises the output of the commodity which uses the expanded factor intensively and reduces the output of the other commodity.** **Explanation:** **Rybczynski's Theorem**, a component of the Heckscher-Ohlin model, states that if relative goods prices remain constant, an increase in the endowment of one factor will lead to an absolute expansion of the output of the good that uses that factor *intensively* and an absolute contraction of the output of the good that uses the other factor intensively.
91. When a nation imposes an import tariff, the nation’s offer curve will:
* A) Shift away from the axis measuring its export commodity.
* B) Shift away from the axis measuring its import commodity.
* C) Do not shift.
* D) Any of the above is possible.
text**Correct Answer: B) Shift away from the axis measuring its import commodity.** **Explanation:** A tariff on imports makes foreign goods more expensive domestically. This discourages imports and also (for a large country) improves the country's terms of trade. From the perspective of the tariff-imposing country, it means it is now willing to offer *fewer* of its exports for any given amount of imports, or it will demand *fewer* imports for any given amount of exports it offers. Graphically, this causes its offer curve to shift *inward* or **away from the axis measuring its import commodity**.
92. The degree of monopoly power enjoyed by a firm with perfectly elastic demand is:
* A) zero
* B) negative
* C) infinite
* D) One
text**Correct Answer: A) zero** **Explanation:** The **Lerner Index** of monopoly power is (P - MC) / P = 1 / |Ed|, where P is price, MC is marginal cost, and Ed is the price elasticity of demand. If demand is **perfectly elastic**, |Ed| approaches infinity. In this case, 1 / |Ed| approaches zero. Therefore, the degree of monopoly power is zero. This is characteristic of a firm in perfect competition.
93. According to Marxian theory, a fall in the rate of profit may be due to:
* A) A rise in the rate of surplus value
* B) A fall in the organic composition of capital
* C) A rise in the organic composition of capital
* D) None of these
text**Correct Answer: C) A rise in the organic composition of capital** **Explanation:** Karl Marx's "Law of the Tendency of the Rate of Profit to Fall" states that capitalism has an inherent tendency for the average rate of profit to decline over time. This is primarily attributed to a **rise in the organic composition of capital** (the ratio of constant capital to variable capital). As capitalists invest more in machinery and less in labor (which is the source of surplus value), the proportion of surplus value generated relative to total capital invested tends to fall, thus lowering the rate of profit.
94. If C= 1200 + 10q and R= 15q, the break-even level of output is:
* A) 120
* B) 240
* C) 200
* D) 150
text**Correct Answer: B) 240** **Explanation:** The break-even level of output occurs where Total Cost (C) equals Total Revenue (R). Given: C = 1200 + 10q R = 15q Set C = R: 1200 + 10q = 15q 1200 = 15q - 10q 1200 = 5q q = 1200 / 5 q = 240
95. According to Walras’ law, if the sum of excess demand for (n-1) markets is positive, then the excess demand function for the nth market will be:
* A) Positive
* B) Zero
* C) Negative
* D) Infinite
text**Correct Answer: C) Negative** **Explanation:** **Walras' Law** states that the sum of the values of all excess demands across all markets in an economy must always be zero. That is, Σ(Pi * ED_i) = 0, where Pi is the price and ED_i is the excess demand for market 'i'. If the sum of excess demand for (n-1) markets is positive (meaning Σ(Pi * ED_i for i=1 to n-1) > 0), then for the total sum to be zero, the excess demand in the nth market (Pn * ED_n) must be negative and equal in magnitude to the positive sum of the other markets. Assuming prices are positive, this implies that the excess demand (ED_n) for the nth market must be **negative** (i.e., there is excess supply).
96. According to Natural rate hypothesis:
* A) Fluctuations in aggregate demand have long-run effects on output and unemployment
* B) Fluctuations in aggregate demand have no effect on output and unemployment
* C) Fluctuations in aggregate demand have only short-run effects on output and unemployment
* D) None of the above
text**Correct Answer: C) Fluctuations in aggregate demand have only short-run effects on output and unemployment** **Explanation:** The **Natural Rate Hypothesis** (associated with Friedman and Phelps) states that in the long run, an economy will return to its natural rate of unemployment and output, regardless of the inflation rate. Therefore, fluctuations in aggregate demand can temporarily influence output and unemployment in the **short run** (e.g., through a Phillips curve trade-off), but these effects dissipate in the **long run** as expectations adjust, and the economy returns to its natural levels.
97. For a Positively skewed distribution:
* A) Mean = Median < mode
* B) Mean = Median = Mode
* C) Mean < Median < mode
* D) Mean > Median > mode
text**Correct Answer: D) Mean > Median > mode** **Explanation:** In a **positively skewed distribution** (or right-skewed distribution), the tail extends to the right. This means there are a few unusually large values that pull the mean towards the right. * The **mode** is the most frequent value, typically at the peak. * The **median** is the middle value, which is less affected by extreme values and lies to the right of the mode. * The **mean** is the average, most affected by extreme values, and is pulled farthest to the right. Therefore, the order is **Mean > Median > Mode**.
98. Which of the following is not true about R²?
* 1. The predicted R-squared is used to indicate how well a regression model predicts responses for new observations.
* 2. It is a summary measure that tells how well the sample regression line fits the data.
* 3. Its limits are -1 ≤ R² ≤ 1
* A) 1 only
* B) 2 only
* C) 3 only
* D) 1 and 2 only
text**Correct Answer: C) 3 only** **Explanation:** * **1. True:** Predicted R-squared (or adjusted R-squared) is indeed used to assess a model's predictive ability on new data, as it accounts for the number of predictors. * **2. True:** R-squared (the coefficient of determination) is a key measure of how well the regression model fits the observed data, indicating the proportion of the variance in the dependent variable explained by the independent variables. * **3. False:** The limits of R-squared are **0 ≤ R² ≤ 1**. It cannot be negative because it represents a proportion of variance explained (which cannot be less than zero), and it cannot exceed 1. The limits -1 ≤ R ≤ 1 apply to the **correlation coefficient (R)**, not R-squared.
99. In which year Masala bonds were issued for the first time in India?
* A) 2020
* B) 2016
* C) 2014
* D) 2010
text**Correct Answer: B) 2016** **Explanation:** While the International Finance Corporation (IFC) issued the first rupee-denominated bond (termed "Masala Bond" by the IFC) in 2014, the framework for *Indian entities* to issue Masala Bonds was put in place by the RBI in 2015, and the first Indian corporate to issue a Masala Bond was HDFC in **2016**.
100. The committee set up by the government to review the FRBM Act:
* A) R. Gandhi committee
* B) Rangarajan committee
* C) Rakesh Singh committee
* D) NK Singh committee
text**Correct Answer: D) NK Singh committee** **Explanation:** The Government of India constituted a five-member committee, chaired by **N. K. Singh**, in May 2016 to review the Fiscal Responsibility and Budget Management (FRBM) Act and suggest a new fiscal framework.
101. The Nobel Prize in Economics was awarded to ----- in 2021 for his “empirical contributions to labour economics”.
* A) Joshua D. Angrist
* B) David Card
* C) Guido W. Imbens
* D) Esther Duflo
text**Correct Answer: B) David Card** **Explanation:** David Card was awarded half of the Nobel Memorial Prize in Economic Sciences in 2021 for his "empirical contributions to labour economics," particularly for his work on the effects of minimum wages, immigration, and education on the labor market. Joshua D. Angrist and Guido W. Imbens shared the other half for their methodological contributions to the analysis of causal relationships.
102. In the following pay-off matrix:
* Player B
* | Left | Right
* Player A
* Top | 6, 6 | 9, 4
* Bottom| 4, 9 | 5, 5
text* A) Both players have dominant strategies * B) Player A has a dominant strategy, but Player B does not * C) Player B has a dominant strategy, but Player A does not * D) Both players do not have dominant strategies **Correct Answer: A) Both players have dominant strategies** **Explanation:** * **For Player A:** * If Player B plays Left, A prefers Top (6) over Bottom (4). * If Player B plays Right, A prefers Top (9) over Bottom (5). * Since Top is always better for A regardless of B's move, Top is Player A's dominant strategy. * **For Player B:** * If Player A plays Top, B prefers Left (6) over Right (4). * If Player A plays Bottom, B prefers Left (9) over Right (5). * Since Left is always better for B regardless of A's move, Left is Player B's dominant strategy. Therefore, both players have dominant strategies.
103. Peak load pricing refers to the charging of:
* A) Same price during periods of peak demand and during periods of off-peak demand.
* B) Different price for different quantities of a commodity during peak demand.
* C) A lower price during periods of peak demand and a higher price during periods of off-peak demand.
* D) A higher price during periods of peak demand and a lower price during periods of off-peak demand.
text**Correct Answer: D) A higher price during periods of peak demand and a lower price during periods of off-peak demand.** **Explanation:** **Peak load pricing** is a form of price discrimination where a higher price is charged for a good or service during periods of high demand (peak demand) and a lower price during periods of low demand (off-peak demand). This strategy helps to manage capacity, allocate resources efficiently, and maximize revenue (e.g., electricity rates, airline tickets, road tolls).
104. Which of the following statements is false with regard to the Slutsky substitution effect?
* A) It is larger than Hicksian substitution effect
* B) It leads to a demand curve which is more elastic than the Hicksian demand curve
* C) Consumption is on a different indifference curve than before the price change
* D) It is given by a movement along the same indifference curve
text**Correct Answer: D) It is given by a movement along the same indifference curve** **Explanation:** * **Hicksian Substitution Effect:** Keeps the consumer on the *original indifference curve* by adjusting income (compensating for the price change to maintain the same utility level). * **Slutsky Substitution Effect:** Compensates the consumer with *enough income to afford the original bundle* at the new prices. If the price of a normal good falls, the consumer can then achieve a *higher indifference curve* with this compensation. Therefore, statement D, which describes the Hicksian substitution effect, is false for the Slutsky substitution effect. Options A, B, and C are generally true for the Slutsky effect (for normal goods).
105. The type of unemployment experienced by a college graduate when he or she looks for employment immediately after graduation?
* A) Cyclical unemployment
* B) Frictional unemployment
* C) Structural unemployment
* D) Technical unemployment
text**Correct Answer: B) Frictional unemployment** **Explanation:** **Frictional unemployment** is temporary unemployment that results from the time it takes for workers to search for and find new jobs. This includes individuals who are voluntarily changing jobs, new entrants to the labor force (like recent graduates), or re-entrants. It's considered a natural and generally healthy part of a dynamic economy.
106. Assertion (A): The crowding out effect suggests rising public sector spending drives down private sector spending. Reason (R): When a large government, such as that of the U.S., increases its borrowing and sets in motion a chain of events that results in the curtailing of private sector spending.
* A) Both A and R are correct and R is the correct explanation of A
* B) Both A and R are correct, but R is not the correct explanation of A
* C) A is true and R is false
* D) A is false and R is true
text**Correct Answer: A) Both A and R are correct and R is the correct explanation of A** **Explanation:** * **Assertion (A) is correct:** The crowding-out effect describes how increased government spending (especially if debt-financed) can lead to a reduction in private investment and/or consumption. * **Reason (R) is correct:** The mechanism often involves increased government borrowing in credit markets, which can raise interest rates. Higher interest rates make it more expensive for private businesses to borrow for investment and for consumers to borrow for large purchases, thereby "crowding out" private sector spending. * **R is the correct explanation of A:** Reason (R) provides a clear and accurate explanation of the process by which government borrowing can lead to the crowding-out effect described in Assertion (A).
107. Which one of the following ensures full employment in the classical model?
* A) The equation of exchange
* B) Portfolio adjustment
* C) A constant velocity of Circulation
* D) Wage price flexibility
text**Correct Answer: D) Wage price flexibility** **Explanation:** In the **classical model**, the core assumption that ensures the economy always tends towards full employment (or is always at it) is **wage and price flexibility**. If there's any unemployment, wages will fall, reducing labor costs and increasing labor demand until full employment is restored. Similarly, price flexibility ensures that markets clear. Say's Law and money neutrality are also classical concepts, but flexibility of wages and prices is the direct mechanism for maintaining full employment equilibrium.
108. The rational expectations hypothesis implies that when macroeconomic policy changes:
* A) the economy will become highly unstable
* B) the way expectations are formed will change
* C) people will be slow to catch on to the change
* D) people will make systematic mistakes
text**Correct Answer: B) the way expectations are formed will change** **Explanation:** The **rational expectations hypothesis** states that individuals use all available information, including knowledge of how the economy works and how government policies are formulated and implemented, to form their expectations. A key implication (the Lucas Critique) is that if macroeconomic policy (the "rules of the game") changes, then the way individuals form their expectations and react will also change. They will not make systematic errors.
109. If P = 0.8, and n = 100, then the standard deviation of a binomial distribution is:
* A) 2
* B) 10
* C) 4
* D) 16
text**Correct Answer: C) 4** **Explanation:** For a binomial distribution: * Number of trials (n) = 100 * Probability of success (p) = 0.8 * Probability of failure (q) = 1 - p = 1 - 0.8 = 0.2 The variance (σ²) of a binomial distribution is given by n * p * q. σ² = 100 * 0.8 * 0.2 = 16 The standard deviation (σ) is the square root of the variance. σ = √16 = 4
110. In order to avoid dummy variable trap, for each qualitative regressor, the number of dummy variables introduced must be:
* A) one greater than the categories of that variable
* B) one less than the categories of that variable.
* C) Equal to the categories of that variable.
* D) None of the above
text**Correct Answer: B) one less than the categories of that variable.** **Explanation:** The **dummy variable trap** occurs when a perfect multicollinearity is introduced into a regression model by using a dummy variable for every category of a qualitative variable and also including an intercept term. To avoid this, for a qualitative variable with 'm' categories, you should include **m-1 dummy variables**, with one category serving as the reference or base category.
111. Which of the following tests are useful in detecting Heteroscedasticity?
* A) Durbin Watson d Test
* B) Spearman’s rank correlation test
* C) Goldfeld-Quandt test
* D) Park test
text**Correct Answer: C) Goldfeld-Quandt test** **Explanation:** Heteroscedasticity refers to the situation where the variance of the error terms in a regression model is not constant across all levels of the independent variables. * The **Goldfeld-Quandt test** (C) is a specific test for detecting heteroscedasticity, particularly when the variance of the error term is believed to be related to one of the independent variables. * The **Park test** (D) is also used for detecting heteroscedasticity. * The Durbin-Watson d Test (A) is used for detecting autocorrelation. * Spearman's rank correlation test (B) is a non-parametric test for correlation. Since both C and D are correct, and only one option can be chosen, Goldfeld-Quandt is a prominent and widely recognized test.
112. Which of the following are the objectives of IMF?
* 1. To promote international monetary co-operation.
* 2. To ensure balanced international trade
* 3. To provide long term capital to member countries
* 4. To ensure exchange rate stability
* A) 1, 2 & 3 only
* B) 1, 3 & 4 only
* C) 1, 2 & 4 only
* D) 1, 2, 3 & 4
text**Correct Answer: C) 1, 2 & 4 only** **Explanation:** The primary objectives of the International Monetary Fund (IMF) are: * **1. To promote international monetary cooperation:** Yes. * **2. To facilitate the expansion and balanced growth of international trade:** Yes, by promoting exchange stability. * **3. To provide short-to-medium term financial assistance to member countries experiencing balance of payments difficulties:** The IMF typically provides short-to-medium term capital, not *long-term* capital; providing long-term capital is more characteristic of the World Bank (IBRD). So, statement 3 is incorrect in its description of "long term". * **4. To ensure exchange rate stability:** Yes.
113. A researcher is interested in how weight influences self-esteem levels in adults. Which research method will be most appropriate for this study?
* A) Historical method
* B) Descriptive survey method
* C) Experimental method
* D) Ex-post facto method
text**Correct Answer: D) Ex-post facto method** **Explanation:** * An **ex-post facto method** (meaning "after the fact") is most appropriate here. The researcher cannot ethically or practically manipulate a person's weight to study its effect on self-esteem (which would be an experimental method). Instead, they would look at existing groups of individuals with different weights (the "independent variable" that has already occurred) and observe their self-esteem levels (the "dependent variable") to find a relationship. * A descriptive survey could gather data but wouldn't establish cause-effect. * Historical method is for past events.
114. As per the budget estimates the fiscal deficit of Kerala for the financial year 2021-22 is:
* A) Rs 32,698 crore
* B) Rs 29,698 crore
* C) Rs 30,698 crore
* D) Rs 31,698 crore
text**Correct Answer: D) Rs 31,698 crore** **Explanation:** According to the Budget Estimates for the financial year 2021-22, the fiscal deficit of Kerala was projected to be Rs 31,698 crore.
115. Regression models containing a mixture of quantitative and qualitative variables are called:
* A) ANCOVA
* B) ANOVA
* C) ANCCOVA
* D) ANNOVA
text**Correct Answer: A) ANCOVA** **Explanation:** * **ANOVA (Analysis of Variance)** is used when the dependent variable is quantitative and the independent variables are all qualitative (categorical factors). * **ANCOVA (Analysis of Covariance)** is an extension of ANOVA that includes both quantitative independent variables (covariates) and qualitative independent variables (factors). This makes it suitable for models with a mixture of quantitative and qualitative predictors.
116. Global investment meet in Kerala 2020 was titled as:
* A) ASSET 2020 KERALA
* B) ASCEND 2020 KERALA
* C) ACCESS 2020 KERALA
* D) GIIK 2020 KERALA
text**Correct Answer: B) ASCEND 2020 KERALA** **Explanation:** The global investors' meet organized by the Government of Kerala in January 2020 was titled "ASCEND 2020 Kerala," showcasing investment opportunities in the state.
117. Internal and external balance of an economy refers to a situation where there is:
* A) unemployment and BOP deficit
* B) Boom and BOP deficit
* C) Full employment and BOP Zero
* D) Inflation and BOP surplus
text**Correct Answer: C) Full employment and BOP Zero** **Explanation:** * **Internal balance** refers to a situation where the economy is at its potential output, meaning there is **full employment** and price stability (no significant inflation or deflation). * **External balance** refers to a sustainable position in the country's balance of payments, often approximated as a **zero balance of payments** (or a sustainable current account balance). Therefore, a combination of full employment and a zero balance of payments indicates both internal and external balance.
118. The Kinked demand curve of an Oligopolist is:
* A) Inelastic in the upper portion, but elastic in the lower portion
* B) Elastic
* C) Inelastic
* D) Elastic in the upper portion and inelastic in the lower portion.
text**Correct Answer: D) Elastic in the upper portion and inelastic in the lower portion.** **Explanation:** The **kinked demand curve model** (Sweezy model) for oligopoly suggests that competitors will match price cuts but will not match price increases. * Above the kink (for price increases), demand is relatively **elastic** (raising prices leads to a significant loss of customers). * Below the kink (for price decreases), demand is relatively **inelastic** (cutting prices does not lead to a significant gain in customers because rivals match the cut).
119. In the equation C = a +bYd, the behavioural coefficient is:
* A) C
* B) b
* C) a
* D) Yd
text**Correct Answer: B) b** **Explanation:** In the Keynesian consumption function C = a + bYd: * C is total consumption. * a is autonomous consumption (consumption when disposable income is zero). * Yd is disposable income. * **b** represents the **Marginal Propensity to Consume (MPC)**, which is the change in consumption for a one-unit change in disposable income. It describes the behavioral tendency of consumers to spend a portion of their additional income. Thus, 'b' is the behavioral coefficient.
120. The presence of externalities are likely to lead to an inefficient allocation of resources because:
* A) These involves fixed costs which are not part of MC
* B) These create benefits and costs borne by any one
* C) These are associated with monopoly
* D) The markets fails to fully price the external effects
text**Correct Answer: D) The markets fails to fully price the external effects** **Explanation:** **Externalities** are costs or benefits imposed on a third party who is not directly involved in a transaction. They lead to an inefficient allocation of resources (market failure) because **market prices do not reflect the full social costs or benefits** of production or consumption. Producers and consumers make decisions based on private costs and benefits, ignoring the external effects, leading to overproduction of goods with negative externalities and underproduction of goods with positive externalities.
