UGC NET Economics Practice Test

Instructions:

• Q.no.3 ans
  
  
  
  
  

• Time Allotment: Ideally, you should aim to complete this test in approximately 1 hour and 15 minutes (75 minutes).

• Marking: Each question is worth 2 marks. There is no negative marking.

• Answer Sheet: Keep a separate sheet of paper to record your answers.

• Calculators: You may use a calculator.

• Honesty: Try to answer the questions without referring to textbooks or notes. This is for self-assessment.

Good Luck!

UGC NET Economics – Practice Test 1

Microeconomics

1. Which of the following is NOT a characteristic of a perfectly competitive market?
   (a) Large number of buyers and sellers
   (b) Homogeneous products
   (c) Free entry and exit
   (d) Differentiated products

2. The slope of the indifference curve represents:
   (a) The consumer's income
   (b) The relative prices of the goods
   (c) The marginal rate of substitution
   (d) The consumer's budget constraint

3. If the price elasticity of demand for a good is -2, and the price increases by 5%, what will be the approximate percentage change in quantity demanded?
   (a) -2.5%
   (b) -10%
   (c) +10%
   (d) +2.5%

4. A firm's production function is given by Q = L^0.5K^0.5. This production function exhibits:
   (a) Increasing returns to scale
   (b) Decreasing returns to scale
   (c) Constant returns to scale
   (d) First increasing, then decreasing returns to scale

5. In game theory, a Nash Equilibrium is:
   (a) A strategy that maximizes a player's payoff regardless of the other players' strategies.
   (b) A situation where no player can improve their payoff by unilaterally changing their strategy, given the other players' strategies.
   (c) A situation where players cooperate to maximize their joint payoff.
   (d) The optimal strategy for the game as a whole

6. What is the Coase Theorem mainly about?
   (a) The tragedy of the commons
   (b) Externalities and bargaining solutions
   (c) Public goods and free riders
   (d) Information asymmetry and adverse selection

Macroeconomics

1. The quantity theory of money states that:
   (a) Changes in the money supply have no effect on the price level.
   (b) Changes in the money supply lead to proportional changes in the price level.
   (c) Inflation is always caused by excessive government spending.
   (d) Interest rates are the primary determinant of the money supply.

2. Which of the following is NOT a component of aggregate demand?
   (a) Consumption
   (b) Investment
   (c) Government spending
   (d) Transfer payments

3. According to the Keynesian model, if aggregate demand is less than aggregate supply, the economy will experience:
   (a) Inflation
   (b) Unemployment
   (c) Economic growth
   (d) Stagflation

4. The Phillips curve illustrates the relationship between:
   (a) Inflation and unemployment
   (b) Interest rates and investment
   (c) Money supply and inflation
   (d) Government spending and economic growth

5. What does the Solow growth model primarily explain?
   (a) Short-run business cycle fluctuations
   (b) Long-run economic growth based on capital accumulation, labor force growth, and technological progress
   (c) The effects of monetary policy on inflation
   (d) Income inequality

6. Fiscal policy primarily involves government decisions regarding:
   (a) Interest rates and the money supply
   (b) Taxation and government spending
   (c) Exchange rates
   (d) Regulation of financial markets

Statistics and Econometrics

1. The standard deviation is a measure of:
   (a) Central tendency
   (b) Dispersion
   (c) Skewness
   (d) Kurtosis

2. In hypothesis testing, a Type I error occurs when:
   (a) The null hypothesis is accepted when it is false.
   (b) The null hypothesis is rejected when it is true.
   (c) The alternative hypothesis is accepted when it is false.
   (d) The alternative hypothesis is rejected when it is true.

3. The R-squared value in a regression analysis represents:
   (a) The correlation between the independent variables.
   (b) The proportion of the variance in the dependent variable explained by the independent variables.
   (c) The standard error of the regression.
   (d) The statistical significance of the coefficients.

4. What does the Durbin-Watson statistic test for?
   (a) Heteroscedasticity
   (b) Multicollinearity
   (c) Autocorrelation
   (d) Omitted variable bias

5. What is the main purpose of using instrumental variables in econometrics?
   (a) To correct for heteroscedasticity
   (b) To address endogeneity issues
   (c) To improve the R-squared of the regression
   (d) To simplify the regression model

6. A time series is said to be stationary if its:
   (a) Mean and variance are constant over time.
   (b) Mean is constant but variance changes over time.
   (c) Mean changes over time but variance is constant.
   (d) Both mean and variance change over time.

Development Economics

1. The Gini coefficient measures:
   (a) The rate of economic growth
   (b) Income inequality
   (c) The level of poverty
   (d) The rate of inflation

2. The Human Development Index (HDI) includes which of the following dimensions?
   (a) Life expectancy, education, and income
   (b) Poverty rate, unemployment rate, and inflation rate
   (c) Environmental quality, political freedom, and social justice
   (d) Technological advancement, infrastructure development, and industrial output

3. Which of the following is NOT a characteristic of less developed countries (LDCs)?
   (a) High levels of poverty
   (b) Low levels of human capital
   (c) High rates of population growth
   (d) Highly diversified economies

4. What is microfinance primarily aimed at?
   (a) Funding large-scale infrastructure projects
   (b) Providing small loans to low-income individuals and communities
   (c) Regulating the banking sector
   (d) Promoting foreign direct investment

5. The Lewis Model of economic development focuses on the transfer of labor from:
   (a) The industrial sector to the agricultural sector
   (b) The rural sector to the urban sector
   (c) The formal sector to the informal sector
   (d) The export sector to the import sector

6. Import substitution industrialization (ISI) strategies generally involve:
   (a) Promoting exports of manufactured goods
   (b) Protecting domestic industries from foreign competition
   (c) Reducing government intervention in the economy
   (d) Encouraging foreign direct investment

International Economics

1. The theory of comparative advantage states that countries should specialize in producing goods for which they have:
   (a) A lower absolute cost of production
   (b) A lower opportunity cost of production
   (c) A higher level of technology
   (d) A larger supply of natural resources

2. What is a tariff?
   (a) A limit on the quantity of goods that can be imported
   (b) A tax on imported goods
   (c) A subsidy on exported goods
   (d) A government regulation on domestic production

3. The Heckscher-Ohlin model explains trade patterns based on differences in:
   (a) Technology
   (b) Tastes
   (c) Factor endowments (e.g., labor, capital)
   (d) Government policies

4. What is the balance of payments?
   (a) A record of a country's international transactions
   (b) A measure of a country's economic growth
   (c) A government budget statement
   (d) A central bank's monetary policy report

5. A depreciation of a country's currency will typically lead to:
   (a) An increase in exports and a decrease in imports
   (b) A decrease in exports and an increase in imports
   (c) No change in exports or imports
   (d) A decrease in both exports and imports

6. What does the Mundell-Fleming model primarily analyze?
   (a) The effects of trade on income distribution
   (b) The impact of exchange rate regimes on monetary and fiscal policy
   (c) The determinants of long-run economic growth
   (d) The causes of financial crises

More challenging Questions

1. If the cross-price elasticity of demand between good A and good B is positive, then the goods are:
   (a) Complements
   (b) Substitutes
   (c) Necessities
   (d) Inferior Goods

2. A monopolist's marginal revenue curve lies below the demand curve because:
   (a) The monopolist must lower the price on all units to sell one more unit.
   (b) The monopolist faces a perfectly elastic demand curve.
   (c) The monopolist's costs are higher than those of a competitive firm.
   (d) The monopolist is inefficient.

3. In the Ramsey-Cass-Koopmans model, the optimal savings rate is determined by balancing:
   (a) Current consumption and future consumption
   (b) The marginal product of capital and the rate of depreciation
   (c) Government spending and tax revenues
   (d) Inflation and unemployment

4. The Lucas critique argues that:
   (a) Traditional econometric models are unreliable for policy evaluation because they do not account for changes in expectations.
   (b) Government intervention is always harmful to the economy.
   (c) Monetary policy is more effective than fiscal policy.
   (d) Rational expectations are irrelevant in macroeconomics.

5. What is the main problem that Adverse Selection creates for insurance markets?
   (a) Over-insurance by low-risk individuals
   (b) Higher premiums driving out low-risk individuals
   (c) Insurance companies making excessive profits
   (d) Insufficient regulation of the insurance industry

Quantitative/Conceptual questions

1. Given the utility function U(x,y)=x^0.3y^0.7, what is the share of income spent on good x?
   (a) 0.3
   (b) 0.7
   (c) 0.21
   (d) 1

2. If the marginal propensity to consume (MPC) is 0.8 and government spending increases by $100 billion, what is the approximate change in equilibrium output according to the simple Keynesian multiplier?
   (a) $80 billion
   (b) $125 billion
   (c) $400 billion
   (d) $500 billion

3. If the nominal exchange rate (domestic currency per unit of foreign currency) increases, this indicates a:
   (a) Appreciation of the domestic currency
   (b) Depreciation of the domestic currency
   (c) No change in the value of the domestic currency
   (d) Change depends on trade balance

4. What are the eigenvalues of the following matrix? [[2,1],[1,2]]
   (a) 1, 2
   (b) 1, 3
   (c) 2, 3
   (d) 0, 1

5. What is the median of the following dataset: 5, 2, 8, 1, 9?
   (a) 1
   (b) 5
   (c) 6
   (d) 9

Assertion-Reasoning type questions (Choose the most appropriate answer)

(a) Both Assertion and Reason are true and Reason is the correct explanation of Assertion
(b) Both Assertion and Reason are true but Reason is NOT the correct explanation of Assertion
(c) Assertion is true but Reason is false
(d) Assertion is false but Reason is true

1. Assertion (A): The Laffer curve suggests that increasing tax rates beyond a certain point can lead to lower tax revenues.
   Reason (R): Higher tax rates can discourage work effort and investment.

2. Assertion (A): Monetary policy is more effective in a closed economy than in an open economy under flexible exchange rates.
   Reason (R): In an open economy with flexible exchange rates, changes in interest rates can lead to exchange rate fluctuations that offset the effects of monetary policy on aggregate demand.

3. Assertion (A): Economic growth is always beneficial for all members of society.
   Reason (R): Economic growth can lead to increased income inequality and environmental degradation.

4. Assertion (A): The WTO promotes free trade among its member countries.
   Reason (R): The WTO prohibits countries from imposing any tariffs or trade barriers.

5. Assertion (A): The efficient market hypothesis (EMH) suggests that it is impossible to consistently earn abnormal profits in the stock market.
   Reason (R): The EMH assumes that all available information is already reflected in stock prices.

Match the Following

1. Match the following concepts with their corresponding economists:

   • List I
     (i) Creative Destruction
     (ii) Liquidity Preference
     (iii) Tragedy of the Commons
     (iv) Trickle-Down Economics

   • List II
     (1) John Maynard Keynes
     (2) Garrett Hardin
     (3) Joseph Schumpeter
     (4) Arthur Laffer

   • Codes:
     (a) (i)-3, (ii)-1, (iii)-2, (iv)-4
     (b) (i)-1, (ii)-2, (iii)-3, (iv)-4
     (c) (i)-2, (ii)-3, (iii)-4, (iv)-1
     (d) (i)-4, (ii)-1, (iii)-2, (iv)-3

2. Match the following Market structures to its characteristic

• List I
  (i) Perfect Competition
  (ii) Monopoly
  (iii) Monopolistic Competition
  (iv) Oligopoly

• List II
  (1) Few Sellers
  (2) Product Differentiation
  (3) Single Seller
  (4) Many Sellers, Homogenous Product

  • Codes:
    (a) (i)-4, (ii)-3, (iii)-2, (iv)-1
    (b) (i)-1, (ii)-2, (iii)-3, (iv)-4
    (c) (i)-2, (ii)-3, (iii)-4, (iv)-1
    (d) (i)-4, (ii)-1, (iii)-2, (iv)-3

1. Match the following concepts with their description:

   • List I
     (i) Gini Coefficient
     (ii) Lorenz Curve
     (iii) Human Development Index
     (iv) Purchasing Power Parity

   • List II
     (1) Method used to compare incomes in different countries.
     (2) Graph representing the distribution of income in a population.
     (3) A measure of income inequality.
     (4) Statistic that represents a country's level of development, based on life expectancy, education, and GNI.

   • Codes:
     (a) (i)-3, (ii)-2, (iii)-4, (iv)-1
     (b) (i)-1, (ii)-2, (iii)-3, (iv)-4
     (c) (i)-2, (ii)-3, (iii)-4, (iv)-1
     (d) (i)-4, (ii)-1, (iii)-2, (iv)-3

Reading Comprehension

Read the passage carefully and answer the questions that follow:

"The Washington Consensus, a set of neo-liberal economic policies, gained prominence in the 1980s and 1990s, particularly in the context of structural adjustment programs imposed by international financial institutions (IFIs) like the World Bank and the International Monetary Fund (IMF) on developing countries. These policies typically included fiscal austerity (reducing government spending), deregulation (removing government regulations), privatization (selling off state-owned enterprises), and trade liberalization (reducing barriers to international trade). Proponents argued that these reforms would promote economic growth, attract foreign investment, and improve living standards.

However, critics have contended that the Washington Consensus often had negative consequences for developing countries. Fiscal austerity measures led to cuts in essential social services like education and healthcare, disproportionately affecting the poor. Deregulation sometimes resulted in environmental degradation and increased inequality. Privatization frequently led to job losses and higher prices for consumers. Trade liberalization, while potentially beneficial in the long run, could harm infant industries in developing countries that were unable to compete with established firms in developed nations. Furthermore, the imposition of these policies without regard for the specific context and institutional capacity of each country often led to unintended and adverse outcomes."

1. According to the passage, what is the Washington Consensus?
   (a) A set of policies promoting government intervention in the economy.
   (b) A set of neo-liberal economic policies promoted by international financial institutions.
   (c) A set of policies designed to protect infant industries in developing countries.
   (d) A set of policies focused on promoting sustainable development.

2. According to the passage, critics of the Washington Consensus argue that:
   (a) It always leads to economic growth and improved living standards.
   (b) It can have negative consequences for developing countries, such as cuts in social services and harm to infant industries.
   (c) It is essential for attracting foreign investment.
   (d) It is always implemented with careful consideration of the specific context of each country.

End of Test

Answer Key:

1. (d)

2. (c)

3. (b)

4. (c)

5. (b)

6. (b)

7. (b)

8. (d)

9. (b)

10. (a)

11. (b)

12. (b)

13. (b)

14. (b)

15. (b)

16. (c)

17. (b)

18. (a)

19. (b)

20. (a)

21. (d)

22. (b)

23. (b)

24. (b)

25. (b)

26. (b)

27. (c)

28. (a)

29. (a)

30. (b)

31. (b)

32. (a)

33. (b)

34. (a)

35. (b)

36. (a)

37. (d)

38. (b)

39. (b)

40. (b)

41. (a)

42. (a)

43. (d)

44. (c)

45. (a)

46. (a)

47. (a)

48. (a)

49. (b)

50. (b)

Scoring:

• Multiply the number of correct answers by 2 to get your total score.

• Total possible score: 100

Interpretation:

• 80-100: Excellent! You have a strong understanding of economics.

• 60-79: Good. You have a solid understanding of many key concepts. Review areas where you struggled.

• 40-59: Fair. You need to strengthen your understanding of fundamental economic principles.

• Below 40: Requires significant review and study. Focus on core concepts and practice problems.

I hope this practice test is helpful for your preparation. Let me know if you'd like another one or if you have any specific topics you'd like me to focus on! Good luck with your UGC NET exam!