QUESTIONS

1. An entrepreneur is engaged in tree growing. He purchases a seedling for 4 dollars, incurs a cultivation cost flow at a rate of G(t) = 0.4t dollars per year during the life of a tree, and sells the tree at t = T for R(T) = 4 + 8T - T 2 dollars. The market rate of interest is 0.20. Determine an optimal length for his cultivation period, T. Apply the appropriate second-order condition to verify that your solution is a maximum.
2. Assume that there are two consumers and two commodities. Let the utility functions be U1 = q11q12 and U2 = q21q22 with q11 + q21 =q1 and q12 + q22 = q2. Show that Scitovsky contours are given by q1q2 = ( + ) 2 .
3. Consider the following statements and select the 'normative' ones regarding policy making by a democratic government: 1. India spent Rs. 50,000 crore on welfare schemes. 2. India should do more to promote irrigation. 3. India's reservation policy needs expansion. 4. Express Highways are serving economic purpose.
4. Select the international organisation/Report which recently concluded - "Development policies become more effective when combined with insights into human behavior" - from the given list : (a) World Development Report 2015 (b) World Happiness Report 2013 (c) World Economic Forum, 2015 (d) Human Development Report, 2015
5. In the context of balance of payments, 'portfolio investment' relates to (a) Takeover of foreign companies (b) Purchase of shares in foreign companies (c) Purchase of real estate in foreign companies (d) Private remittances to foreign countries
6. Which of the following will not be true if exchange rates are determined according to purchasing power parity (PPP)? (a) If two countries have zero rate of inflation, their bilateral exchange rate will be constant. (b) In response to a monetary shock, there will occur a overshooting of exchange rates. (c) The prices of goods will be the same in all the countries when converted at the going rate of exchange. (d) Exchange rate between any two currencies will be equal to the inflation differential between the two concerned economics.
7. While operating a "pegged exchange rate", a government must do which of the following? (a) Use its forex reserves to intervene in the forex market -foreign currency is sold when the domestic currency is in excess supply and foreign currency is bought when domestic currency is in excess demand. (b) Use its forex reserves to intervene in the forex market - foreign currency is bought when the domestic currency is in excess supply and foreign currency is in excess demand. (c) Peg its currency with the strongest currency of the world on voluntary basis. (d) None of the above.
8. Which of the following will be correct if an economy follows a 'floating exchange rate' regime? (a) The exchange rate will adjust to keep the current account deficit/surplus just equal to the capital account surplus/deficit. (b) The government does not need to maintain a forex reserve. (c) For such regime to follow, the economy must maintain more foreign assets than foreign liabilities. (d) The current account deficit must be maintained at the zero level by the economy.
9. One of the following is a correct statement regarding the tradeoff between 'inflation' and 'unemployment': (a) There is a shortrun but not a longrun tradeoff between inflation and unemployment. (b) There is always a tradeoff between inflation and unemployment. (c) There is a longrun tradeoff between inflation and unemployment. (d) There is a longrun but no shortrun tradeoff between inflation and unemployment.
10. What does a shortrun 'Phillips curve' show? (a) The rate of moneywage inflation for each level of possible unemployment and for a specific expected rate of inflation. (b) The rate of moneywage inflation that is generated at fullemployment (c) The rate of moneywage inflation, which was already expected (d) None of the above