Instructions:
Time Limit: 60 minutes (Adjust as needed for practice)
Number of Questions: 25
Each question carries 2 marks.
Negative Marking: There is NO negative marking.
Instructions: Read each question carefully and choose the best answer.
Note: this exam is for practice purposes only and not a direct representation of the actual UGC NET Examination.
UGC NET Economics Practice Test
1. Which of the following is NOT a characteristic of a perfectly competitive market?
(a) Many buyers and sellers
(b) Homogeneous products
(c) Free entry and exit
(d) Differentiated products
2. The Phillips curve illustrates the relationship between:
(a) Inflation and unemployment
(b) Interest rates and investment
(c) Money supply and inflation
(d) Exchange rates and trade balance
3. In the Solow growth model, an increase in the savings rate will lead to:
(a) A decrease in the steady-state level of capital per worker.
(b) An increase in the steady-state level of capital per worker.
(c) No change in the steady-state level of capital per worker.
(d) A decrease in the rate of technological progress.
4. Which of the following is a measure of income inequality?
(a) GDP
(b) CPI
(c) Gini coefficient
(d) Unemployment rate
5. What is the opportunity cost of holding money, according to Keynesian economics?
(a) The risk of theft.
(b) The risk of inflation.
(c) The interest rate foregone.
(d) The transaction costs of using money.
6. Which of the following is a monetary policy tool used by central banks?
(a) Government spending
(b) Taxation
(c) Reserve requirements
(d) Fiscal policy
7. The Ricardian equivalence proposition suggests that:
(a) Government debt is always harmful to the economy.
(b) Government debt has no effect on private saving.
(c) Government debt is equivalent to future taxes, so rational consumers will increase saving when the government increases borrowing.
(d) Government debt is only harmful if it is used to finance unproductive spending.
8. Which of the following is NOT a function of money?
(a) Medium of exchange
(b) Store of value
(c) Unit of account
(d) Hedge against inflation
9. The Coase Theorem states that:
(a) Government intervention is always necessary to solve externalities.
(b) Externalities can be efficiently resolved through private bargaining if property rights are well-defined and transaction costs are low.
(c) Externalities always lead to market failure.
(d) Pigouvian taxes are the only way to correct for externalities.
10. Which of the following statements is true regarding the concept of 'crowding out'?
(a) It refers to a situation where increased government spending leads to lower investment.
(b) It refers to a situation where increased private investment leads to lower government spending.
(c) It refers to a situation where increased exports lead to lower imports.
(d) It refers to a situation where increased imports lead to lower exports.
11. According to the Heckscher-Ohlin theory of international trade, a country will export goods that:
(a) Are produced with relatively abundant factors of production.
(b) Are produced with relatively scarce factors of production.
(c) Have high transportation costs.
(d) Have low value added.
12. What is Moral Hazard?
(a) The problem that arises when one party in a transaction has more information than the other.
(b) The tendency for people with more risk to seek insurance.
(c) The tendency for people to behave recklessly because they are insured.
(d) The tendency for firms to collude to fix prices.
13. Which sampling method ensures that every member of the population has an equal chance of being selected?
(a) Convenience sampling
(b) Stratified sampling
(c) Simple random sampling
(d) Cluster sampling
14. What does a high R-squared value in a regression analysis indicate?
(a) The independent variables have a weak relationship with the dependent variable.
(b) The regression model poorly fits the data.
(c) The independent variables explain a large proportion of the variance in the dependent variable.
(d) There is multicollinearity in the model.
15. What is the difference between GDP at market prices and GDP at factor cost?
(a) Indirect taxes
(b) Subsidies
(c) Net indirect taxes
(d) Depreciation
16. Which of the following is a characteristic of a developing economy?
(a) High per capita income
(b) Low levels of poverty and inequality
(c) High levels of human capital
(d) Dualistic economic structure
17. The 'demographic dividend' refers to:
(a) A period of high fertility rates.
(b) A period when the dependency ratio is low, leading to increased economic growth.
(c) A period of rapid population decline.
(d) A period of high mortality rates.
18. What is the Laffer Curve?
(a) It shows the relationship between inflation and unemployment.
(b) It shows the relationship between tax rates and tax revenue.
(c) It shows the relationship between savings and investment.
(d) It shows the relationship between the money supply and interest rates.
19. A situation where one party is unable to observe the actions of another party is called:
(a) Adverse selection
(b) Asymmetric information
(c) Moral Hazard
(d) Principal Agent Problem
20. Which of the following is an example of a public good?
(a) A chocolate bar
(b) A car
(c) National defense
(d) A private university education
21. What is the meaning of stationarity in a time series?
(a) The time series data has a deterministic trend
(b) The time series data has a constant mean, variance and covariance
(c) The time series data has a seasonal pattern
(d) The time series data is growing exponentially
22. What is meant by 'Dutch Disease'?
(a) A disease that affects agricultural products.
(b) The negative consequences arising from large increases in a country's income, often due to natural resource discoveries.
(c) A condition of chronic government debt.
(d) A situation where a country's exports are declining.
23. Match the following concepts with their economists:
1. Demonstrated Preference Theory
2. Social Welfare Function
3. Shadow Pricing
4. Big Push Theory
a. A.K. Sen
b. Paul Rosenstein-Rodan
c. Paul Samuelson
d. Jan Tinbergen
**Codes:**
(a) 1-c, 2-a, 3-d, 4-b
(b) 1-c, 2-d, 3-a, 4-b
(c) 1-b, 2-a, 3-d, 4-c
(d) 1-a, 2-c, 3-b, 4-d
24. Match the following economists with their respective contributions to economics:
Adam Smith
Karl Marx
John Maynard Keynes
Milton Friedman
a. The General Theory of Employment, Interest and Money
b. Das Kapital
c. An Inquiry into the Nature and Causes of the Wealth of Nations
d. A Monetary History of the United States
Codes:
(a) 1-c, 2-b, 3-a, 4-d
(b) 1-c, 2-b, 3-d, 4-a
(c) 1-b, 2-a, 3-d, 4-c
(d) 1-a, 2-c, 3-b, 4-d
25. What are Giffen goods?
(a) Goods for which demand falls when income rises
(b) Goods with a positive income elasticity of demand
(c) Goods for which demand rises when price rises
(d) Goods that are perfectly elastic in supply
Answer Key:
(d)
(a)
(b)
(c)
(c)
(c)
(c)
(d)
(b)
(a)
(a)
(c)
(c)
(c)
(c)
(d)
(b)
(b)
(c)
(c)
(b)
(b)
(a)
(a)
(c)
Explanation of some answers:
Q3: An increase in the savings rate means more resources are being channeled into investment, leading to a higher steady-state capital stock per worker.
Q5: Holding money means forgoing the interest you could have earned by investing it.
Q7: The Ricardian equivalence proposition argues that rational consumers will anticipate future tax increases to pay off government debt and will therefore save more today, offsetting the effect of government borrowing.
Q9: The Coase Theorem is a cornerstone of property rights economics, highlighting the potential for private solutions to externalities when transaction costs are low.
Q11: The Heckscher-Ohlin theory states that countries will export goods that utilize their abundant factors intensively.
Q14: R-squared measures the proportion of variance in the dependent variable explained by the independent variables. A high R-squared indicates a good fit.
Q15: GDP at market prices includes indirect taxes (e.g., sales tax) but GDP at factor cost does not. Subsidies are generally deducted to show the true cost of factors of production. Thus, the difference is Net Indirect Taxes (Indirect Taxes - Subsidies).
Q21: Stationarity means that statistical properties like mean, variance, and autocorrelation are constant over time.
Q22: "Dutch Disease" is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflows lead to currency appreciation, making the country's other products less competitive.
How to Use This Practice Test:
Simulate Exam Conditions: Take the test under timed conditions, without referring to notes or textbooks.
Review Your Answers: After completing the test, carefully review the answer key and explanations.
Identify Weak Areas: Pay close attention to the questions you missed. These are the areas you need to focus on in your studies.
Further Study: Use the topics covered in the questions you missed as a guide for further reading and practice.
Repeat and Refine: Take more practice tests and continue to refine your understanding of the material.
Important Notes:
This is just a sample test. The actual UGC NET Economics exam may cover different topics or have a different format.
This test is designed to help you identify areas for improvement and to familiarize yourself with the types of questions that may be asked.
It is important to consult the official UGC NET Economics syllabus and to use a variety of study resources to prepare for the exam.
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