[SAMPLE] Admission Test MS/MPhil Applied Economics [FATE] Instructions for Candidates: 1. 2. 3. 4. 5. 6. Please write down your full NAME in BLOCK letters on cover page & on answer sheet as well. Use ANSWER SHEET to answer the questions. En-circle (i.e. ©) / Tick (i.e. √) ONLY ONE option. Overwriting / cutting / duplication will be considered WRONG. Each question carries ONE point. TIME Allowed is 90 minutes. NAME: Marks Obtained: Marked By: Reviewed By: Department of Economics Part‐I: Micro Economics 1 a. b. c. d. An inferior good is one for which an increase in income causes an increase in supply. a decrease in supply. an increase in demand. a decrease in demand. a. b. c. d. Any situation where quantity supplied does not equal quantity demanded indicates a market equilibrium. a situation in which the actions of buyers do not match the actions of sellers. a place where the laws of supply and demand do not hold. a point where quantity demanded is equal to quantity supplied. a. b. c. d. The total surplus created if the market shown in the following diagram is in equilibrium $320. $240. $160. $80. a. b. c. d. If an increase in the price of a good has no impact on the total revenue that market demand must be price inelastic. price elastic. unit price elastic. all of the above. a. b. c. d. Diminishing marginal product refers to the fact that the marginal product of an input decreases as the quantity of the input increases. the marginal product of an input increases as the quantity of the input increases. the marginal product of an input does not change as the quantity of the input increases. output will increase at an increasing rate as more inputs are hired. a. b. c. d. Which of the following best illustrates a firm operating in a monopolistically competitive Industry? an automobile producer. a wheat farmer. an electric utility. a firm selling pizzas. a. b. c. d. Points inside the production possibilities curve are unattainable and inefficient. unattainable and efficient. attainable and efficient. attainable and inefficient. 2 3 4 5 6 7 Page 1 of 9 8 a. b. c. d. 9 The fact that indifference curves tend to be convex to the origin shows us that people exhibit diminishing marginal utility characteristics. people prefer more rather than less. consumer's preference ordering is transitive. consumers can rank all possible combinations of goods and services. For perfect substitutes the indifference curve is a straight line. there is no diminishing marginal utility. the consumer will either pick a corner solution or be totally indifferent between all possible market baskets. d. all of the above statements are correct. a. b. c. 10 a. b. c. d. Suppose the price of gasoline increases 40 percent causing quantity demanded to fall 20 percent, the elasticity of demand would be equal to the absolute value of 0.5 800 2 20 a. b. c. d. The long‐run market supply curve is always more elastic than the short‐run market supply curve. is always less elastic than the short‐run market supply curve. has the same elasticity as the short‐run market supply curve. is always perfectly elastic. a. b. c. d. In long run equilibrium in a competitive market, firms are operating at the minimum of their average‐total‐cost curves. the intersection of marginal cost and marginal revenue. zero economic profit. all of the above. a. b. c. d. A monopolist maximizes profit by producing the quantity at which marginal revenue equals marginal cost. marginal revenue equals price. marginal cost equals price. marginal cost equals demand. 11 12 13 14 a. b. c. d. 15 a. b. c. d. 16 a. b. c. As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like monopoly. monopolistic competition. a competitive market. a collusion solution. When an oligopolistic individually chooses its level of production to maximize its profits, It charges a price that is more than the price charged by a monopoly and less than the price charged by a competitive market. less than the price charged by a monopoly and more than the price charged by a competitive market. more than the price charged by either monopoly or a competitive market. less than the price charged by either monopoly or a competitive market. In the short run, if the price is above average total cost in a monopolistically competitive market. the firm makes losses and firms enter the market. the firm makes losses and firms exit the market. the firm makes profits and firms enter the market. Page 2 of 9 d. the firm makes profits and firms exit the market. a. b. c. d. Which of the following firms is most likely to spend a large percentage of their revenue on advertising? the manufacturer of an undifferentiated commodity the manufacturer of an industrial product the producer of a highly differentiated consumer product the producer of a low quality product that costs the same to produce as a similar high quality product. a. b. c. d. If the cross‐price elasticity between two goods is negative, the two goods are likely to be luxuries. necessities. substitutes. none of above. a. b. c. d. If a fisherman must sell all of his daily catch before it spoils for whatever price, he is offered, once the fish are caught the fisherman's price elasticity supply for fresh fish is zero. one. infinite. unable to be determined from this information. a. b. c. d. Suppose both buyers and sellers of wheat expect the price of wheat to raise the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today? the impact on both price and quantity is ambiguous. price will increase, quantity is ambiguous. price will increase, quantity will increase. price will decrease, quantity is ambiguous. 17 18 19 20 Page 3 of 9 Part‐2: Macro Economics 1 a. b. c. d. Gross Domestic Product can be measured as the sum of consumption, investment, government purchases, and net exports. consumption, transfer payments, wages, and profits. investment, wages, profits, and intermediate production. final goods and services, intermediate goods, transfer payments, and rent. a. b. c. d. An increase in the budget deficit is a decrease in public saving. an increase in public saving. a decrease in private saving. an increase in private saving. a. b. c. d. The amount of unemployment that the economy normally experiences is known as efficiency wage unemployment. frictional unemployment. cyclical unemployment. the natural rate of unemployment. a. b. c. d. Which of the following government policies would fail to lower the unemployment rate? reduce unemployment benefits. establish employment agencies. establish worker training programs. raise the minimum wage. a. b. c. d. If the reserve requirement is 25%, the value of the money multiplier is 0.25 4 5 25 a. b. c. d. The quantity theory of money concludes that an increase in the money supply causes a proportional increase in velocity. a proportional increase in prices. a proportional increase in real output. a proportional decrease in velocity. 2 3 4 5 6 7 If money is neutral a. an increase in the money supply does nothing. b. the money supply cannot be changed because it is tied to a commodity such as gold. c. a change in the money supply only affects real variables such as real out put. d. a change in the money supply only affects nominal variables such as prices and dollar wages. 8 If the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is a. 3% b. 6% c. 9% d. 18% 9 a. b. c. d. The model of aggregate supply and aggregate demand that assumes sticky prices does not explain economic fluctuations. shows that output depends on demand as well as supply. shows that monetary and fiscal policies are always destabilizing influences on the economy. shows that monetary policy is neutral. Page 4 of 9 10 a. b. c. d. The quantity equation MV = PY implies that the AD curve is vertical. upward sloping. horizontal. downward sloping. a. a. b. c. According to the IS‐LM model, an increase in government purchases causes a(n) increase in income and a decrease in the interest rate. decrease in income and a decrease in the interest rate. increase in income and an increase in the interest rate. decrease in income and an increase in the interest rate. a. b. c. d. Suppose that the government raises taxes. According to the IS‐LM model, what does? The central bank has to do to keep income constant and what is the subsequent effect on interest rates? The bank needs to increase the money supply; interest rates remain unchanged. The bank needs to increase the money supply; interest rates go down. The bank needs to decrease the money supply; interest rates remain unchanged. The bank needs to decrease the money supply; interest rates go up. a. b. c. d. The key difference between the IS‐LM model and the Mundell‐Fleming Model is that the Mundell‐Fleming model does not take the price level as fixed. Mundell‐Fleming model assumes a small open economy. Mundell‐Fleming model stresses the interaction between markets different from those in the IS‐LM model. a. b. c. d. The Mundell‐Fleming model predicts that, in Y ‐ e space, an appreciation of the exchange rate will cause the IS curve to shift to the left. shift to the right. become steeper. remain unchanged. a. b. c. d. In the imperfect‐information model, it is assumed that firms can observe both the price of their output and the overall price level. can observe the price of their output but cannot observe the overall price level. cannot observe the price of their output but can observe the overall price level. cannot observe either the price of their own output or the overall price level. a. b. c. d. In the sticky‐price model, if the fraction of firms in the economy that set prices in advance rises, then it would be expected that the aggregate supply curve shifts upward. shifts downward. becomes steeper. becomes flatter. 11 12 13 14 15 16 17 If a firm rents capital at a rental rate R and sells its output at price P, then the real cost of an extra unit of capital is a. R / P. b. R * P. c. R ‐ P. d. R + P. 18 a. b. In the sticky‐wage model, output deviates from the natural rate through unexpected changes in the nominal wage. expected changes in the price level. Page 5 of 9 c. d. unexpected changes in the price level. expected changes in the real wage. a. b. c. d. The inflation caused by supply shocks is called expected inflation. wage inflation. demand‐pull inflation. cost‐push inflation. a. b. c. d. In a small open economy with a floating exchange rate, a fiscal expansion increases income. decreases income. leaves income unchanged. could increase or decrease income, depending on what happens to the exchange rate. 19 20 Page 6 of 9 Part‐3: Econometrics 1 a. b. c. d. In a two variable linear regression model the slope coefficient measures The mean value of Y. The change in Y which the model predicts for a unit change in X. The change in X which the model predicts for a unit change in Y. The value of Y for any given value of X. a. b. c. d. One tailed tests can be used to test hypotheses about regression coefficients when the estimated coefficient has the sign predicted by theory. a larger significance level than 5% is to be used. the sample size is large enough to use the normal approximation to the t distribution. testing a hypothesis other than that the parameter equals zero. a. b. c. d. There are several reasons why serial correlation occurs. One reason which does not cause serial correlation is Most time‐series data exhibit business cycles. Researchers may have excluded some important variable from the regression. Some variables react with a lag. Large variation exist in the observed X variables. a. b. c. d. By autocorrelation we mean that the residuals of a regression model are not independent. that the residuals of a regression model are not equally spread. that the squared residuals of a regression model are not equally. that the variance of the residuals of a regression model is not constant for all observations. a. b. c. d. One of the easiest ways of the detecting autocorrelation is the graphical method where we plot the error terms against their standardized values. plot the error terms against each X variable. plot the error terms against the Y variable. plot the error terms against time. 2 3 4 5 6 d. If regressing Y on X we find the errors to be autocorrelated, transforming the model in to log‐linear model would help us get rid of this problem. The statement is always true. The statement is always false. The statement is sometimes true and sometimes false. Given information is not sufficient to make a decision. The statement makes no sense. a. b. c. d. Chow‐test does not tell us that the two regressions are different. there is significant structural break in the data. the source of difference between the two regressions. the estimates of the two regression function are statistically significant. a. b. c. d. Heteroscedasticity may arise due to various reasons. Which one of these is not a reason? Extremely low or high values of X and Y coordinates in the dataset. Correlation of variables over time. Incorrect specification of the functional form of the model. Incorrect transformation of variables. a. b. c. 7 8 9 Confidence intervals of estimators estimated using OLS in presence of serial correlation in the dataset will be Page 7 of 9 a. b. c. d. larger than the confidence interval derived from GLS procedure. smaller than the confidence interval derived from GLS procedure. equal to the confidence interval derived from GLS procedure. can’t say anything about GLS procedure. a. b. c. d. This is not an important assumption for computing the d statistics The regression model includes an intercept term. The explanatory variables are fixed in repeated sampling. The error terms are generated by the first order autoregressive scheme. The error terms are not correlated with each other. 10 Page 8 of 9