### RAS Pre Exam Economics Sample paper

1.Keynesian Liquidity Preference theory explains
the:
(a) operation of the money market in an economy.
(I interaction between the real and monetary sectors.
(c) motivation of a speculator.
(d) process of adjustment in money and capital markets for bringing about changes in the interest rate.

Ans: a

Q.2. Which one of the following conditions is assumed by Euler in his adding up theorem?
Elasticity of substitution is:
(a) equalto zero.
(b) greater than zero but less than one.
(c) greater than one.

Ans: b

Q. 3. The cars used by the police department of the government for patrolling should be treated as:
(a) final goods because these are sold by business sector to government.
(b) consumers goods because these are not re- sold by the government.
(c) capital goods because these add to the capital formation in the country.
(d) intermediate goods because police services are consumed through the use of these cars.

Ans: d

Q.4 Which one of the following consumption functions corresponds to the income multiplier, R= 4?
(a) C=24+0.5 Y
(b) C=240+0.25Y
(c) C= 24+ 0.55Y
(d) C = 240 + 0.75Y
Ans: d

5. Given that
GNP at market prices = Rs. l92866 crores
Consumption of fixed capital = Rs. 13371 crqres
Net factor income from abroad = Rs-975 crores
the NDP at market prices will be:
(a)Rs. 178520 crores
(b) Rs. 207212 crores
(c)Rs. 180470 Crores
(d) Rs. 205262 crores
Ans: a

6. In the theory of investment decision the most appropriate Internal Rate of Return (IRR) is the one which makes the:
(a) net present value, the maximum.
(b) gross present value, the maximum.
(c) net present value, zero.
(d) gross present value, zero.

Ans: c

Q. 7. In Keynes General Theory, investment and savings are brought to equality primarily through changes in the:
(a) rate of interest.
(b) income velocity of money.
(c) national income
(d). level of prices.

Ans: c

Q. 8 During a recession, consumers typically react to falling incomes by:
(a) increasing the fraction of consumption devoted to durable goods.
(b) reducing the fraction of durables quickly before incomes fall further.
(c) reducing the worn-out durables quickly before incomes goods.
(d) reducing the fraction of non-durables and services more quickly than purchases of durables.
Ans: b

Q. 9. Consider the following statements:
1. Points to the left of the IS curve indicate excess supply of goods.
2. Points to the right of the LM curve indicate excess demand for money.
3. ?oints to the right of the IS curve indicate excess supply of money.
4.. Points to the right of the IS curve indicate excess supply of goods.
Of these statements
(a)2 and 4 are correct
(b)1 and 3 are correct
(c)2 and 3 are correct
(d)1, 2 and 3 are correct

Ans: a

Q.10 . Suppose, MPC falls. The IS curve shifts to the left. Then what happens ceteris paribus?
(a) The level of equilibrium becomes lower
(b) The level of equilibrium becomes higher
(c) There is no change in equilibrium
(d) Only the rate of interest becomes lower

Ans: a

Q 11. The author of employment multiplier is:
(a) Lord Beveridge
(c) R. V Kahn
(b) J. M . Keynes
(d) J.R. Hicks
Ans: c

Q. 12 In a two sector economy, the saving and investment functions are as follows:
S=—10+0.2Y
I= —3+0.1 Y
What will be the equilibrium level of income?
(a) 70
(b) 80
(c) 90
(d) 100

Ans: a

Q. 13 The IS-LM model has been formulated by:
(a) J.R. Hicks
(b) E Modigliani
(c)P.A. Samuelson
(d) J.M. Keynes
Ans: a

Directions
The following item consist of two statements, one labelled the Assertion (A) and the other labelled the Reason (R,). You are to exam inc these two statements carefully and decide if the Assertion (A) and the Reason (R) are individually true and if so, whether the Reason is a correct explanation of Assertion.

Q. 14. Assertion (A): The level of employment in an economy, according of Keynes, is a function of GNP.
Reason (R): GNP is determined by aggregate demand, which in turn depends upon consumption of the households and investment decisions of business.
Codes:
(a) Both A and R is true and R is the correct explanation of A.
(b) Both A and R are true But R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Ans: a

Q. 15. Which one of the following structural changes in the composition of National Income of India would characterize economic development?
(a) A large proportion of income from agriculture relative to other sectors.
(b) A small proportion of income from the tertiary sector compared to that from agriculture.
(c) A larger proportion of income from industry as compared to that from agriculture.
(d) A smaller portion of income from industry as compared to that from the tertiary sector.
Ans: b

Q. 16. Which of the following methods were used by the conventional series in computing National Income in India?
1. Output method.
2. Expenditure method.
3. Income method.
Select the correct answer using the codes given below:
Codes:
(a) 1 and 2
(b) l and 3
(c) 2 and 3
(d) 1,2 and 3
Ans: b

Q. 17. Between 1951-52 and 1955-56 and 1985-86 and 1989-90, the share of agriculture in the GDP of India decreased from about 55% to about 33% and that of the tertiary sector increased from nearly 29% to 39%. This indicates that the
(a) productivity of land has been on the decline.
(b) the productivity of labour has been increasing.
(c) secondary sector has done much better than the primary and tertiary sectors.
(d) output of tangible commodities has not been increasing as fast as the GDP.

Ans: d

Q. 18 What is the correct sequence of the following?

1. Marrohkesh Declaration.
2. Smithsonian Agreement.
3. Keynes Plan.
Select the correct answer using the codes given below:
(a)1,2,3
(b)2,3,1
(c)3,2,1
(d)3,1,2

Ans: c

Q. 19. The following economists are associated with the “Exploitation Dependency Theory”:
1. Paul Baran
2. A.G. Frank
3. S. Amin ‘
4. G. Palma
Which one of the following is the correct chronological order of them?
(a) 1,2,3,4
(b) 2,1,3,4
(c)2,1,4,3
(d) 1,2,4,3
Ans: b

Q 20. According to Hirschman, ‘convergent’ series comprises investment projects the appropriate more external economies then they create and ‘ divergent’ series comprises investment projects that create more external economies than what they appropriate.
In terms of this,investments in power and transport is: .
(a)convergent series.
(b)divergent series.
(c)respectively convergent and divergent series.
(d)both convergent series with diminishing returns.
Ans: b

Q. 21 According to neoclassical theory of distribution, constancy of wage share, in national income would come about only when elasticity of factor substitution:
(a) equals one.
(b) is greater than one.
(c) is less than one
(d) is zero.

Ans: a

Q. 22. The ‘Compensation criterion’ that state X is socially preferable to state Y, if those who gain from X can compensate the losers and still be in a better position than at Y has been proposed by:
(a) Bergson
(b) Pareto
(c) Kaldor
(d) Walras
Ans: c

Q. 23. According to Pigou, National Dividend will be the maximum when:
(a) marginal cost is minimized.
(b) net social marginal productivity is maximized.
(c) net private marginal productivity is maximized.
(d) net social marginal productivity becomes equal to net private marginal productivity.
Ans: d

Q. 24. A consequence of the Kaldor-Hicks compensation principle is that a change in the economic policy leads to an improvement in social welfare if the:
(a) gainers can compensate the losers for their loss and still remain better-off themselves than they were before.
(b) losers can profitably bribe the gainers to induce them to stay in the initial position.
(c) gainers can just compensate the losers out of their gains.
(d) Losers do not oppose the change.
Ans: a

Q. 25. Transfer payments by the government are not included in the net domestic product because:
(a) these are gifts from the government to the recipients.
(b) their opportunity cost is zero.
(c) such payments may not ‘ultimately reach the recipients.
(d) no corresponding production of goods and services has taken place to match the payment of such funds.
Ans: d

Q. 26. Liquidity preference refers to:
(a) the extent to which investors prefer to keep their assets in money.
(b) RB I’s shareholdings in other financial institutions.
(c) community’s preference for gold.
(d) community’s effective demand for capital goods.

Ans: a

Q. 27. Which of the following method(s) are used to
compute national income in India?
1. Net output method.
2. Net income method.
3. Expenditure method.
Select the correct. answer using the codes given below:
Codes:
(a)2 alone
(b) 1 and 2
(c)3 alone
(d) l,2 and 3
Ans: d

28. Assuming that
Change in investment I= 20
Marginal propensity to save (MPS)= 0.5
Marginal propensity to investment (MP) = 0.
The change in income Y will be equal to:
(a) 25
(b) 50
(c) 100
(d) 200
Ans: b

Q. 29. Consider the following statements
Intersection of the I—S and L—M Curves corresponds to:
1. equilibrium in the real sector.
2. equilibrium in the monetary sector.
3. liquidity trap necessarily
4. Walrasian general equilibrium.
Of these statements
(a) 1 and 3 are correct
(b) 1 and 2 are correct
(c) 2, 3 and 4 are correct
(d) 1,2,3. and 4 are correct
Ans: b

Q. 30. Consider the following statements
The study of national income accounts is of great importance because it:
1. reveals the changes in the size and composition of the national product.
2. provides us with information about the distribution of national income in the society among various groups.
3. reveals the manner in which national expenditure is divided between consumption and investment. Of these statements
(a)1 and 2 are correct
(b)2 and 3 are correct
(c)1 and 3 are correct
(d) 1,2 and 3 are correct

Ans: d

Q. 31. Consider the following types of income:
1. Personal income.
2. Private income.
3. Disposable income
4. National income
The correct sequence in descending order of their magnitude is:
(a) 4,2,1,3
(b) 4,2,3,1
(c) 2,4,3,1
(d) 2,4,1,3

Ans: a

Q. 32. Disposable personal income is:
(a) the sum of wages, salaries, commissions, bonuses and other forms of employee earnings before deduction of any taxes of social security contributions, net income from royalties and rentals, interest income and profits of a corporation, partnership of proprietorship.

(b) disposable income plus personal taxes; or current personal income receipts after deducting social security contributions but before deduction of personal taxes.

(c) a concept of receipts rather than a concept of earnings and is computed after taxes and social security contributions. One must add receipts that are not payments for current productive purposes and one must deduct all earnings not currently received and all taxes and social security contributions.

(d) the concept of individual’s income as the money value of his earnings from productive services currently rendered by him or by his property after deduction of personal taxes and social security contributions.

Ans: d

Q. 33. Given the total investment expenditure, an increase in the propensity to save will lead to a
(a) fall in the quantity of income.
(b) fall in income.
(c) rise in interest rate.
(d) rise in income.

Ans: d

Q. 34. The national income of a country for a given period is equal to the:
(a) total value of goods and services produced by the nationals
(b) sum of total consumption and investment expenditure.
(c) sum of personal income of all individuals.
(d) money value of final goods and services produced.
Ans: b

Q. 35. Gross National Sayings measure the
(a) amount of GNP not consumed.
(b) excess of income over consumption plus the net taxes.
(c) sum of retained earnings and depreciation amounts:
(d) excess of disposable income over consumption.

Ans: b

Q. 36. Social Accounting system in India is classified into which one of the following sets of sectors?
(a) Enterprise, households and government
(b) Assets, liabilities and debt position
(c) Public sector, private sector and joint sectors
(d) Income, product and expenditure
Ans: c

Q. 37. For a closed economy having no foreign trade which one of the following is correct?
(a) GDP= GNP
(b) GDP > GNP
(c) GDP
(d) GDP < or = GNP
Ans: a

Q. 38. According to the permanent income hypothesis. the
(a) long-run aggregate Average Propensity to Consume (APC) equals the long-run aggregate Marginal Propensity to Consume (MPC)
(b) long-run aggregate APC is greater than the long- run aggregate MPC.
(c) long-run aggregate APC is less than the long-run aggregate MPC.
(d) APC of every individual is equal irrespective of different will be encouraged.
Ans: a

Q. 39. If there is an expectation of a rise in the price level, investment will be encouraged because:
(a) there will be an increased production of capital goods
(b) there will be arise in the prospective return from capital.
(c) the people save more and interest rate will fall.
(d) None of these
Ans: b
Q. 40 . Which of the following statements explain the difference between NNP
(Net National Product) and NMP. (Net Material Product)?
1. NNP includes services.
2. NNP excludes services.
3. NMP includes services.
4. NMP excludes services.
Select the correct answer using the codes given below
Codes
(a) l and 4
(b) 2 and 4
(c)l and 3
(d) 2 and 3

Ans: a

Q. 41. According to Keynes, marginal propensity to consume:
(a) can never exceed unity.
(b) may exceed unity when dissaving occurs.
(c) can never exceed the average propensity to consume.
(d) is the reciprocal of the marginal propensity to save.

Ans: c

Q. 42. Super multiplier refers to:
(a) interaction of the mu1t and the accelerator.
(b) reciprocal of the marginal propensity to consume.
(c) capital output ratio
(d) budget multiplier.
Ans: a

Q. 43. In the liquidity preference theory of interest of Keynes nioney acts as a link between the present
and the future in the case of:
(a) transactions demand for money.
(b) precautionary demand for money
(d) speculative demand for money.
Ans: d

Q. 44 . In 1970-71 the NDP measured at the prices prevailing in that year, amounted to Rs. 34368 Crores. In 1976-77 while this NDP measured at the prices prevailing in that year amounted to Rs. 66561 crores, at 1970-71 prices it amounted to Rs. 40395 crores. The rise in real NDP is
(a) insignificant
(b) Rs. 6027 crores
(c) Rs.31193crores
(d) Rs. 66561 crores
Ans: b

Q. 45. Assertion (A): A rise in the aggregate demand and aggregate supply of goods and services raises national income.
Reason (R) : National income represents the value of aggregate. production in monetary terms.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A;
(c) A is true but R is false.
(d) A is false but R is true.
Ans: b

Q.46 Excess of ex-ante saving over ex-ante investment means that: -
(a) income will fall.
(b) income will rise.
(c) income will rise and inventories will remain the
same.
(d) price will rise and inventories will accumulate.

Ans: a

1. 2. 