Hyderabad 2010 Doubts

[Ayushya Kaul]

Hey,
Have a couple of niggles and doubts regarding this paper. On some, I wasn't clear on the correct answers while in some I had no idea how to arrive at the answer at all.
I'll post of them some of them here:

10. The effect that holds that nominal interest rates should move to the natural rate of
interest plus the expected rate of inflation is called the:
A. Adaptive Effect
B. Keynes Effect
C. Pigou Efbct
D. Fisher Effect

My ANSWER-D

15. A firm is employing 100 units of labor and 50 units of capital to produce 200 widgets.
Labor costs Rs.10 per unit and capital Rs.5 per unit. For the quantities of inputs
employed, MPL: 2 and MPK: 5. In this situation, the firm
A. is producing the maximum output possible given the prices and relative productivities
of the inputs.
B. could iower its production costs by using more labor and less capital.
C. could increase its output at no extra cost by using more capital and less labor.
D. should use more of both inputs in equal proportions.

My Answer-C
I wasn't quite clear on this. I know that the optimum condition is fL/fK=w/v=2(in this case).

17. The kinked demand curve faced by an oligopolist is based on the assumption that
A. rivals will follow a price increase but not a price cut.
B. rivals will follow a price decrease but not a price increase.
C. rivals will follow both a price decrease and a price increase.
D. rivals will ignore both a price increase and a price decrease.

I had no idea about this at all!

25.ln the Keynesian model with a fixed money wage but a flexible price level, an
increase in taxes will lower
A. output and the price level, but leave the interest rate unchanged.
B. output, the price level and the interest rate.
C. output and the interest rate, but leave the price level unchanged.
D. output and the price level, but increase the interest rate.

My answer- A. But once, not sure if right, and even if it is, the proper reasoning. Is it because the AD curve shifts to the left?

29. Indian growth 2002 onwards until the global economic crisis can be termed as:
A. Consumption-led
B. lnvestment-led
C. Government Spending-Led
D. Net-Export led

My best guess is A- Consumption Led.

28. The main causes for the rising Indian inequality after economic reforms are:
A. Rising rural-urban gap
B. Rising intra-urban inequality
C. Rising inter-state inequality
D. All of the above

I chose D as my answer.


32.If a monopolist had no costs, the best possible price would be where demand is
A. infinitely elastic.
B. relatively (but not perfectly) elastic.
C. unit elastic.
D. relatively (but not completely) inelastic.

I have no idea regarding this one. Any hint or clue would be helpful.

35. In a linear programming problem, which is not true?
A. It has linear objective function
B. Both negative and non-negative restrictions are put on choice variables
C. Optimal solution values in the primal and dual problems may nor may not be similar
D. Objective function values in the primal and dual solutions are similar

36. Which one of the following statements is false?
A. The null set is a subset of all sets
B. If S is a set, then S union S is equal to S.
C. If M is a set with four elements, then M intersection M is equal to M
D. If V is an empty set, then V has one zero element, i.e., V : { 0 }

38. The cause for the increased agrarian distress since 1990s in India is:
A. Increased dependence of farmers on moneylenders
B. Decreased public investment in agriculture as a proportion of GDP
C. Decreased yields since 1990s.
D. Each of the above

39. Conditions for successful price discrimination are
A. firms must have some degree of market power
B. the firms must be able to separate customers into two or more groups
C. the firms must be able to prevent arbitrage
D. all the above

49. The annual rate of interest on a 3-month Rs. 10,000 bond that sells for Rs. 9,600 is:
4.12%
B. 10%
C.14%
D. 16%

50. According to Lewis model of development with unlimited supply of labour surplus,
expansion of the modern sector is determined by:
A. Availability of market surplus from agriculture
B. Availability of surplus labour
C Both of the above
D. None of the above

[Ayushya Kaul]

56. Population rate is not a constraint to economic growth
A' As long as rate of technological growth and rate of capital formation exceeds rate of
population
R. As long as rate of exploitation of non-exhaustible resources exceeds population rate
c. As long as agricultural output growth exceeds population rate
D. As long as national income growth exceeds population rate.

55. If interest rates, prices, and output are all rising, then according to the Keynesian
model, these changes must be caused by
A. an increase in aggregate supply.
B. a shift to the right of the LM curve.
C. a shift to the right of the LM curve.
D. a shift up in the IS curve.

Is the answer- D?

67.The three givens in neoclassical economic theory are:
A. Technology, preferences and endowments
B. Markets, technology and innovation
C. Markets, preferences and profits
D. Preferences, technology and innovation.

Is it B?

73. An increase in the money stock has no effect on equilibrium income whenever the
A. IS curve is horizontal
B, IS curve is vertical
C. LM curve is vertical.
D. LM curve is horizontal.

Is it C?

75.In spending all his or her income, the consumer chooses the market basket that
maximizes his or her utility. Which of the following statements will be correct?
l. The marginal utility is the same for each commodity.
2. The marginal utility per dollar spent is the same for each commodity.
3. The marginal utility of each commodity is proportional to its price.
A. 1 only.
B.  2 only.
C. 1 and 2 only.
D. 2 and 3 only.

76. Recent inflation in India is said to be primarily due to:
A. Excessive growth of money supply due to heavy accumulation of foreign exchange
with RBI
B. Supply constraints in primary articles
C. Dollar appreciation affecting our exports
D. Sub-prime crisis in US

83. How many subsets can be formed from the set N : {7,3,8,2,9,6} ?
A.6 subsets
B. 64 subsets
C. 18144 subsets
D.35 subsets

94. All entries in the balance of payments statement should collectively sum to
A. GDP of the country
B. official reserve account
C. errors and omission
D. zero

96. In the Keynesian model with a variable money wage and variable price level, an
increase in the money supply would lead to a rise in all of the following exsept
A. price level.
B. output.
C. real wage.
D. level of employment.




99. Assume the marginal propensity to consume is .8. To offset a fall in income of
1,000, the government should
A. increase taxes by Rs.200.
B, raise taxes by Rs.250.
C. increase government spending and tues by Rs. 1,000.
D. cut taxes by Rs.200.

[Ayushya Kaul]

Any help/hint/clue regarding any of the questions above, would be of immense help>
Thanks in advance :)

[Sinistral]

i cant help you with most of the questions but keep a few things in mind while dealing with set theory:

* empty set ∅ doesn't contain any element, not even zero (because zero is also an element)

* if X not equal to ∅
   then power set of X = p(X) (also denoted by 2^X)  ≡ all subsets of X.
   and card(p(X))= 2^card(X)

[Sumit]

10.D). Fisher Effect.

15.B). could Lower its production costs by using more labor and less capital.
 Reason:
As We can see slope of Isocost line=w/r=10/5=2.
And MRTS=d(k)/d(L)=MPK/MPL=5/2=2.5..

In this question we have MRTS>Slope of Isocost line.This means If you plot a graph of it you will see..where the firm is producing it incurring high cost{i.e it is producing at a point which is on the right of lowest isocost line(the line which is just tangent to Isoquant curve) and on left of the point where MRTS=w/r on Isoquant curve...(the cost is minimum where MRTS=w/r).}. This means it can reduce it cost by using more labor and less capital(by doing so firm move down along isoquant curve to the point where MRTS=w/r...

17.B) It should be B) only coz suppose the oligopolist and its rival selling thier product at price=p....Now suppose If the oligopolist decide to cut price below p to capture mkt share (i.e to sell more of its output)....then the result of this will be rivals reduce its price too to the level of oligopolist...so, As the rivals reduces its price too the demand of the oligopolist will remain same....And if oligopolist further decide to cut price rivals will also cut price to the same level n result of this price cut will be price war....n kinked demand curve of oligopolist..(Note: oligopolist demand curve will be kinked coz the price cut will result in same qty sell by oligopolist due to price cut by rivals...).

25.B). output, the price level and the interest rate..
The tax increase leads to lower consumption spending which in turn reduce AD, lower AD result in lower level of output, for the same rate of interest lower level of output means IS curve shift to left....Shift of IS curve to the left leads to Equilibrium level of Int. rate to fall with fall in equilibrium level of output(which we have already seen above)...As the the question says price are flexible AS is upward sloping....the AD curve will shift to the left coz for same price level AD is lower...the shift of AD curve to left will reduce price level.....
So,output, Int. rate and price all will be lower.

29.A).should be A) only coz generally we have Consumption spending is greater than private investment and govt spending..but could be other ones too depend upon economy well being...but I'm more inclined towards consumption-led coz question mentioned  '2002 onwards until the global economic crisis'...In this period Consumption spending is definitely greater than the after this period...i.e 2008 onwards...

28.If I had this question in the exam I would have also chosen option-D)....

32.The Formula P(1+1/Ed)=Mc where Ed<0..says that it should be unit elastic...Also suppose in future if monopolist cost increase to some positive number then in order to earn same profit he need to increase its price but if demand is relatively elastic than result of this will be lower in total revenue.(this is due to the reason of relative elastic demand i.e x% increase in price will result in more than x% reduce in quantity..which leads to lower revenue than before)...

N one more thing monopolist never set its price where the demand is inelastic....you can also check that from above formula....when Ed<-1 say -0.5 than Price will be come out to be negative which is not possible...

36.D). If V is an empty set, then V has one zero element, i.e., V : { 0 }.

39.D) All of the above.

[Sumit]

56.A).As long as rate of technological growth and rate of capital formation exceeds rate of
population.
55.D). a shift up in the IS curve.
67.I think it's B) Markets, technology and innovation but not sure...
73.D).LM curve is horizontal. ..i.e when there is a liquidity trap..
75.B).2 only.
83.B).64 subsets..
94.D).zero,In BOP we have Assets=Liabilities
                ==>Assets-libalities=zero.
96.B).output.
99.D).cut taxes by Rs.200.

[Ayushya Kaul]

Mate, I think you've done 15 wrong.
MRTS=dk/dl=MPL/MPK not MPK/MPL.

[Ayushya Kaul]

How did you calculate for 83? @Sumit

And thanks for other responses btw :)

[Ayushya Kaul]

Also, what is the reasoning behind the answer for 96?

[Ayushya Kaul]

for 83, is this how you arrived at the answer:
6c1+6c2+6c3+6c4+6c5+6c6=2^6=^4

[Ayushya Kaul]

Bump.

[Ayushya Kaul]

Could someone have a look at QUESTION 15 please?
And yes the rest of the remaining questions too?

[MR]

I think in 15th the firm should reduce it's use of labour. As see firm should compensate each factor of production as per their marginal products. Here capital is being paid equal to it's marginal product but labour is being paid higher. And nothing is mentioned about diminishing marginal utility and all. So if we assume that it's constant then labour is being paid more than they are producing. Hence, lower the usage of labour. I guess this is the way. :|

[Ayushya Kaul]

Anyone, question 15 please?

[Darth Vader]

Can anyone sort out question 15? :s

[Ayushya Kaul]

Bump.