SYLLABUS AND SAMPLE QUESTIONS FOR MSQE

(Program Code: MQEK and MQED)

2015
Syllabus for PEA (Mathematics), 2015

Algebra: Binomial Theorem, AP, GP, HP, Exponential, Logarithmic Series,

Sequence, Permutations and Combinations, Theory of Polynomial Equations;
(up to third degree).

Matrix Algebra: Vectors and Matrices, Matrix Operations, Determinants.

Calculus: Functions, Limits, Continuity, Differentiation of functions of one
or more variables. Unconstrained Optimization, Definite and Indefinite In-
tegrals: Integration by parts and integration by substitution, Constrained
optimization of functions of not more than two variables.

Elementary Statistics: Elementary probability theory, measures of central

tendency, dispersion, correlation and regression, probability distributions,
standard distributions-Binomial and Normal.

Sample questions for PEA (Mathematics), 2015

1. lim
sin{ x }, where {x} = decimalpart of x, is
x →0+
{ x}
(a) 0 (b) 1 (c) non-existent (d)none of these

2. f : [0, 1]→ [0, 1] is continuous.Then it is true that

(a) f (0) = 0, f (1) = 1

1
(b) f is differentiable only at x =
2
(c) is constant for all ∈ 0,1
(d) = for at least one ∈ [0,1]

3. f ( x) = x − 2 + x − 4 .Then f is
(a) continuously differentiable at x = 2
(b) differentiable but not continuously differentiable at x = 2
(c) f has both left and right derivatives at x = 2
(d) none of these
4. In an examination of 100 students, 70 passed in Mathematics, 65 passed in Physics
and 55 passed in Chemistry. Out of these students, 35 passed in all the three subjects,
50 passed in Mathematics and Physics, 45 passed in Mathematics and Chemistry and
40 passed in Physics and Chemistry.Then the number of students who passed in
exactly one subject is

(a) 30 (b) 25 (c) 10 (d) none of these

a b
5. The square matrix of the matrix is a null matrix if and only if
c 0
(a) = = = 0
(b) = = 0, is any non-zero real number
(c) a = b = 0 , c is any non-zero real number
(d) a = 0 and either = 0 = 0
6. If the positive numbers x, y, z are in harmonic progression, then
log (x + z) + log (x – 2y + z) equals

(a) 4 log ( x − z ) (b) 3 log ( x − z )

(c) 2 log ( x − z ) (d) log ( x − z )

7. If f (x+2y, x-2y)= xy, then f (x,y) equals

x2 − y2 x2 − y2 x2 + y2
(a) (b) (c) (d) none of these
8 4 4

8. The domain of the function f ( x) = x 2 − 1 − log ( 1 − x ) ,x≥ 0,is

(a) −∞, -1) (b) (− 1, 0) (c) null set (d) none of these

9. The graph of the function y = log (1 − 2 x + x 2 ) intersects the x axis at

(a) 0, 2 (b) 0,- 2 (c) 2 (d) 0

10. The sum of two positive integers is 100.The minimum value of the sum of their
reciprocals is

3 6 1
(a) (b) (c) (d) none of these
25 25 25
11. The range of the function f ( x) = 4 x + 2 x + 4 − x + 2 − x + 3 , where ∈ −∞, ∞ , is

3  3 
(a)  , ∞  (b)  , ∞  (c) (7, ∞ ) (d) [7, ∞ )
4  4 

12. The function f : R → R satisfies f ( x + y ) = f ( x ) + f ( y ) ∀ x, y ∈ R , where R is the

n
real line, and f (1) = 7 .Then ∑r =1
f (r ) equals

7n 7(n + 1) 7 n (n + 1)
(a) (b) (c) (d) 7 n ( n + 1)
2 2 2

13. Let f and g be differentiable functions for 0 < x < 1 and f (0) = g (0) = 0, f (1) = 6
.Suppose that for all x ∈ (0, 1) , the equality f ' ( x ) = 2 g ' ( x ) holds. Then g(1) equals

(a) 1 (b) 3 (c) -2 (d) -1

14. Consider the real valued function f ( x) = ax 2 + bx + c defined on [1, 2].Then it is

always possible to get a k ∈ (1, 2) such that

(a) =2 + (b) = +2 (c) =3 + (d) none of these

1
15. In a sequence the first term is .The second term equals the first term divided by 1
3
more than the first term. The third term equals the second term divided by 1 more
than the second term, and so on. Then the 500thterm is
1 1 1
(a) (b) (c) (d) none of these
503 501 502

16. In how many ways can three persons, each throwing a single die once, make a score
of 10?

(a) 6 (b) 18 (c) 27 (d) 36

17. Let a be a positive integer greater than 2.The number of values of x for which
+ = 0 holds is

(a) 1 (b) 2 (c) a (d) a + 1

∗ ∗
18. Let , be a solution to any optimization problem , ∈ℜ" , subject to
#$ , ≤
Let ,
′ ′
$. be a solution to the same optimization problem
, ∈ℜ" , subject to #$ , ≤ $ with an added constraint that #& , ≤
& .Then which one of the following statements is always true?
∗ ∗ ∗ ∗
(a) , ≥ , )
′ ′
(b) , ≤ ,
′ ′
∗ ∗ ∗ ∗
(c) | , |≥| , |
′ ′
(d) | , |≤| , |
′ ′

19. Let ∗ , ∗ be a real solution to: , ∈ℜ" √ + subject to * + ≤ , where

> 0, * > 0 and ∗ ∈ 0, .Then which one of the following statements is true?
(a) ∗ depends only on p (b) ∗ depends only on m
(c) ∗ depends on both p and m (d) ∗ is independent of both p and m.

20. Let 0 < $ < & < 1 and let ; $, &= −| − $ | − | − & |.Let X be the set of
all values of x for which ; $, & achieves its maximum. Then
$2 "
(a) . = { | ∈ 0 ,
&
1
&
3} (b) . = { | ∈ { $ , & }}
12 "
(c) . = { | ∈ 00, &
, 13} (d) . = { | ∈ [ $ , & ]}.

21. Let A and B be two events with positive probability each, defined on the same sample
space. Find the correct answer:
(a) P(A/B) > P(A) always (b) P(A/B) < P(A) always
(c) P(A/B) > P(B) always (d) None of the above

22. Let A and B be two mutually exclusive events with positive probability each, defined
on the same sample space. Find the correct answer:
(b) A and B are necessarily independent
(c) A and B are necessarily dependent
(d) A and B are necessarily equally likely
(e) None of the above

23. The salaries of 16 players of a football club are given below (units are in thousands of
rupees).
100, 100, 111, 114, 165, 210, 225, 225, 230,
575, 1200, 1900, 2100, 2100, 2650, 3300
 Now suppose each player received an extra Rs. 200,000 as bonus. Find the correct
answer:
(a) Mean will increase by Rs. 200,000 but the median will not change
(b) Both mean and median will be increased by Rs. 200,000
(c) Mean and standard deviation will both be changed
(d) Standard deviation will be increased but the median will be unchanged

24. Let Pr(X=2)= 1. Define 5&6 = 7 . − 5 &6 , 5 = 7 . . Then:

(a) 5&6 =2 (b) 5&6 =0 (c) 5&6 > 0 (d) None of the above

25. Consider a positively skewed distribution. Find the correct answer on the position of
the mean and the median:

(a) Mean is greater than median (b) Mean is smaller than median
(c) Mean and median are same (d) None of the above

26. Puja and Priya play a fair game (i.e. winning probability is ½ for both players)
repeatedly for one rupee per game. If originally Puja has a rupees and Priya
has b rupees (where a>b), what is Puja’s chances of winning all of Priya’s money,
assuming the play goes on until one person has lost all her money?

(a) 1 (b) 0 (c) b/(a+b) (d) a/(a+b)

27. An urn contains w white balls and b black balls (w>0) and (b>0).The balls are
thoroughly mixed and two are drawn, one after the other, without replacement.
Let Wi denote the outcome 'white on the i-th draw' for i=1,2.Which one of the
following is true?
(a) P(W2) = P(W1) = w/(w+b)
(b) P(W2) = P(W1) = (w-1)/(w+b-1)
(c) P(W1)= w/(w+b), P(W2)= (w-1)/(w+b-1)
(d) P(W1)= w/(w+b), P(W2) = {w(w-1)}/{(w-b)(w+b-1)}

28. A bag contains four pieces of paper, each labeled with one of the digits 1, 2, 3, 4, with
no repeats. Three of these pieces are drawn, one at a time without replacement, to
construct a three-digit number. What is the probability that the three-digit number is a
multiple of 3?

(a) ¾ (b) ½ (c) ¼ (d) 9/24

 29. Consider two random variables X and Y where X takes values -2,-1,0,1,2 each with
probability 1/5 and Y=|X|. Which of the following is true?
(a) The variables X and Yare independent and Pearson's correlation coefficient
between X and Y is 0.
(b) The variables X and Y are dependent and Pearson's correlation coefficient
between X and Y is 0.
(c) The variables X and Y are independent and Pearson's correlation coefficient
between X and Y is 1.
(d) The variables X and Y are dependent and Pearson's correlation coefficient
between X and Y is 1.
30. Two friends who take the metro to their jobs from the same station arrive to the
station uniformly randomly between 7 and 7:20 in the morning. They are willing to
wait for one another for 5 minutes, after which they take a train whether together or
alone. What is the probability of their meeting at the station?

(a) 5/20 (b) 25/400 (c) 10/20 (d) 7/16

Syllabus for PEB (Economics), 2015

Microeconomics: Theory of consumer behaviour, theory of production, market structure

under perfect competition, monopoly, price discrimination, duopoly with Cournot and
Bertrand competition (elementary problems) and welfare economics.

Macroeconomics: National income accounting, simple Keynesian Model of income

determination and the multiplier, IS-LM model, models of aggregate demand and
aggregate supply, Harrod-Domar and Solow models of growth, money, banking and
inflation.

Sample questions for PEB (Economics), 2015

1. Consider an agent in an economy with two goods .$ and .&.Suppose she has income
20.Suppose also that when she consumes amounts $ and & of the two goods
respectively, she gets utility
< $ , & = 2 $ + 32 & − 3 & & .
(a) Suppose the prices of .$ and .& are each 1.What is the agent's optimal
consumption bundle? [5 marks]
(b) Suppose the price of .& increases to 4, all else remaining the same.Which
consumption bundle does the agent choose now? [5 marks]
(c) How much extra income must the agent be given to compensate her for the
increase in price of .&? [10 marks]
2. Suppose a government agency has a monopoly in the provision of internet
connections. The marginal cost of providing internet connections is ½, whereas the
inverse demand function is given by: p = 1 – q. The official charge per connection is
set at 0; thus, the state provides a subsidy of ½ per connection. However, the state can
only provide budgetary support for the supply of 0.4 units, which it raises through
taxes on consumers. Bureaucrats in charge of sanctioning internet connections are in
a position to ask for bribes, and consumers are willing to pay them in order to get
connections. Bureaucrats cannot, however, increase supply beyond 0.4 units.
(a) Find the equilibrium bribe rate per connection and the social surplus.
[5 marks]
(b) Now suppose the government agency is privatized and the market is
deregulated; however, due large fixed costs of entry relative to demand, the
privatized company continues to maintain its monopoly. Find the new
equilibrium price, bribe rate and social surplus, specifying whether
privatization increases or reduces them. [10 marks]
(c) Suppose now a technological innovation becomes available to the privatized
monopoly, which reduces its marginal cost of providing an internet
connection to c, 0 < c < ½.Find the range of values of c for which
privatization increases consumers' surplus. [5 marks]
3. Suppose the borders of a state, B, coincide with the circumference of a circle of
radius r > 0, and its population is distributed uniformly within its borders (so that the
proportion of the population living within some region of B is simply the proportion
of the state's total land mass contained in that region), with total population
normalized to 1.For any resident of B, the cost of travelling a distance d is kd, with k>
0.Every resident of B is endowed with an income of 10, and is willing to spend up to
this amount to consume one unit of a good, G, which is imported from outside the
state at zero transport cost. The Finance Minister of B has imposed an entry tax at the
rate 100t% on shipments of G brought into B. Thus, a unit of G costs p(1+t) inside
the borders of B, but can be purchased for just p outside; p(1+t) < 10.Individual
residents of B have to decide whether to travel beyond its borders to consume the
good or to purchase it inside the state. Individuals can travel anywhere to shop and
consume, but have to return to their place of origin afterwards.
(a) Find the proportion of the population of B which will evade the entry tax by
shopping outside the state. [5 marks]
(b) Find the social welfare-maximizing tax rate. Also find the necessary and
sufficient conditions for it to be identical to the revenue-maximizing tax rate.
[5 marks]
(c) Assume that the revenue-maximizing tax rate is initially positive. Find the
elasticity of tax revenue with respect to the external price of G, supposing that
the Finance Minister always chooses the revenue-maximizing tax rate.
[10 marks]

4. Suppose there are two firms, 1 and 2, each producing chocolate, at 0 marginal cost.
However, one firm's product is not identical to the product of the other. The inverse
demand functions are as follows:
*$ = =$ − $$ >$ − $& >& , *& = =& − &$ >$ − && >& ;
where *$ and >$ are respectively price obtained and quantity produced by firm 1 and
*& and >& are respectively price obtained and quantity produced by firm
2.=$ , =& , $$ , $& , &$ , && are all positive.Assume the firms choose independently
how much to produce.
(a) How much do the two firms produce, assuming both produce positive
quantities? [10 marks]
(b) What conditions on the parameters =$ , =& , $$ , $& , &$ , && are together both
necessary and sufficient to ensure that both firms produce positive quantities?
[5 marks]
(c) Under what set of conditions on these parameters does this model reduce to
the standard Cournot model? [5 marks]
5. Suppose a firm manufactures a good with labor as the only input. Its production
function is ? = @, where Q is output and L is total labor input employed. Suppose
further that the firm is a monopolist in the product market and a monopsonist in the
labor market. Workers may be male (M) or female (F); thus, @ = @A + @B .Let the
inverse demand function for output and the supply functions for gender-specific labor
C
be respectively * = = − & ; @D = ED FG , HD > 0; where p is the price received per unit of
the good and ED is the wage the firm pays to each unit of labor of gender I , I ∈
{J, K}.Let HA HB = 1.Suppose, in equilibrium, the firm is observed to hire both M and
F workers, but pay M workers double the wage rate that it pays F workers.
(a) Derive the exact numerical value of the elasticity of supply of male labor. [10
marks]
(b) What happens to total male labor income as a proportion of total labor income
when the output demand parameter A increases? Prove your claim.
[10 marks]

6. An economy comprises of a consolidated household sector, a firm sector and the

government. The household supplies labour (@) to the firm.The firm produces a single
good (L) by means of a production functionL = K @ ; K > 0, K′′ < 0, and
maximizes profits Π = PY − WL ,where N is the price of L and O is the wage rate.The
household, besides earning wages, is also entitled to the profits of the firm. The
household maximizes utility (P), given by:
1 1 M
U = ln C + ln − d ( L) ;
2 2 P
M
where C is consumption of the good and is real balance holding. The term @
P
denotes the disutility from supplying labour; with > 0, > 0.The household's
budget constraint is given by:
NQ + J = O@ + R + J − NS;
where M is the money holding the household begins with, J is the holding they end
up with and S is the real taxes levied by the government. The government's demand
for the good is given by T .The government's budget constraint is given by:
J − J = NT − NS.
Goods market clearing implies: Y = C + G .
UV
(a) Prove that ∈ 0,1 , and that government expenditure crowds out private
UW
UX
consumption (i.e., UW < 0). [15 marks]
(b) Show that everything else remaining the same, a rise in J leads to an equi-
proportionate rise in P. [5 marks]
7. Consider the Solow growth model in continuous time, where the exogenous rate of
technological progress, g, is zero. Consider an intensive form production function
given by:
= Y − 6 [ + 11 & − 6 ; (1)
\
where = ]
(the capital labour ratio).
(a) Specify the assumptions made with regard to the underlying extensive form
production function K ^, @ in the Solow growth model, and explain which
ones among these assumptions are violated by (1). [10 marks]
(b) Graphically show that, with a suitable value of _ + ` , where _ is the
population growth rate, and ` ∈ [0,1] is the depreciation rate on capital, there
exist three steady state equilibria. [5 marks]
(c) Explain which of these steady state equilibria are locally unstable, and which
are locally stable. Also explain whether any of these equilibria can be globally
stable. [5 marks]

8. Consider a standard Solow model in discrete time, with the law of motion of capital is
given by
^ a+1 = 1−` ^ a +b a ,
where b a is investment at time t and^ a is the capital stock at time t; the capital
stock depreciates at the rate ` ∈ [0,1].Suppose output, L a , is augmented by
government spending, T a , in every period, and that the economy is closed; thus:
L a =Q a +b a +T a ,
where Q a is consumption at time t. Imagine that government spending is given by:
T a = cL a ,
where c ∈ [0,1].
(a) Suppose that: Q a = ∅ − ec L a ; where e ∈ [0,1].Derive the effect of
higher government spending (in the form of higher c) on the steady state
equilibrium. [10 marks]
(b) Does a higher c lead to a lower value of the capital stock in every period (i.e,
along the entire transition path)? Prove your claim. [10 marks]
 SYLLABUS FOR MSQE
(Program Code: MQEK and MQED) 2016

Syllabus for PEA (Mathematics), 2016

Algebra: Binomial Theorem, AP, GP, HP, Exponential, Logarithmic Series,

Sequence, Permutations and Combinations, Theory of Polynomial Equations;
(up to third degree).

Matrix Algebra: Vectors and Matrices, Matrix Operations, Determinants.

Calculus: Functions, Limits, Continuity, Differentiation of functions of one

or more variables. Unconstrained Optimization, Definite and Indefinite
Integrals: Integration by parts and integration by substitution, Constrained
optimization of functions of not more than two variables.

Elementary Statistics: Elementary probability theory, measures of central

tendency, dispersion, correlation and regression, probability distributions,
standard distributions-Binomial and Normal.

Syllabus for PEB (Economics), 2016

Microeconomics: Theory of consumer behaviour, theory of production,

market structure under perfect competition, monopoly, price discrimination,
duopoly with Cournot and Bertrand competition (elementary problems) and
welfare economics.

Macroeconomics: National income accounting, simple Keynesian Model of

income determination and the multiplier, IS-LM Model, models of aggregate
demand and aggregate supply, Harrod-Domar and Solow models of growth,
money, banking and inflation.
 PEA 2016 (Mathematics)

Answer all questions

1. Consider the polynomial P (x) = ax3 + bx2 + cx + d, where a, b, c, d ∈ {1, 2, . . . , 9}. If

P (10) = 5861, then the value of c is

(a) 1.

(b) 2.

(c) 6.

(d) 5.

2. Let A ⊂ R, f : A → R be a twice continuously differentiable function, and x∗ ∈ A be

∂f ∗
such that (x ) = 0.
∂x
∂2f ∗
(a) (x ) ≤ 0 is a sufficient condition for x∗ to be a point of local maximum of f
∂x2
on A;
∂ 2f ∗
(b) (x ) ≤ 0 is a necessary condition for x∗ to be a point of local maximum of f
∂x2
on A;
∂ 2f ∗
(c) (x ) ≤ 0 is necessary and sufficient for x∗ to be a point of local maximum of
∂x2
f on A;
∂ 2f ∗
(d) (x ) ≤ 0 is neither necessary nor sufficient for x∗ to be a point of local
∂x2
maximum of f on A.

3. You are given five observations x1 , x2 , x3 , x4 , x5 on a variable x, ordered from lowest to

highest. Suppose x5 is increased. Then,

(a) The mean, median, and variance, all increase.

(b) The median and the variance increase but the mean is unchanged.

(c) The variance increases but the mean and the median are unchanged.

1
 (d) None of the above.

4. Suppose the sum of coefficients in the expansion (x+y)n is 4096. The largest coefficient
in the expansion is:

(a) 924.

(b) 1024.

(c) 824.

(d) 724.

5. There are three cards. The first is green on both sides, the second is red on both sides
and the third is green on one side and red on the other. I choose a card with equal
probability, then a side of that card with equal probability. If the side I choose of the
card is green, what is the probability that the other side is green?

1
(a) 3
.
1
(b) 2
.
2
(c) 3
.
3
(d) 4
.

6. The value of  π
2
x sin xdx
0

is:

(a) 0.

(b) −1.
1
(c) 2
.

(d) 1

2
7. Let f : R → R be defined as follows:

⎧
⎨ ax + b if x ≥ 0
f (x) =
⎩ sin 2x if x < 0

For what values of a and b is f continuous but not differentiable?

(a) a = 2, b = 0.

(b) a = 2, b = 1.

(c) a = 1, b = 1.

(d) a = 1, b = 0.

8. A student wished to regress household food consumption on household income. By

mistake the student regressed household income on household food consumption and
found R2 to be 0.35. The R2 in the correct regression of household food consumption
on household income is

(a) 0.65.

(b) 0.35.

c) 1 − (.35)2 .

(d) None of the above.

9. Let f : R2 → R be defined by

f (x, y) = 3xey − x3 − e3y

Which of the following statements is true?

(a) (x = 1, y = 0) is a local maximum of f .

(b) (x = 1, y = 0) is a local minimum of f .

3
 (c) (x = 1, y = 0) is neither a local maximum nor a local minimum of f .

(d) (x = 0, y = 0) is a global maximum of f .

10. Let √
x+ 3
f (x) = √
1 − 3x
for all x = √1 . What is the value of f (f (x))?
3
√
x−√ 3
(a) 1+ 3x
.
√
x2 +2
√ 3x+3 .
(b) 1−2 3x+3x
√
x+√ 3
(c) 1− 3x
.
√
x+√ 3
(d) 1− 3x
.

11. The continuous random variable X has probability density f (x) where
⎧
⎪
⎪
⎪ a if 0 ≤ x < k
⎨
f (x) = b if k ≤ x ≤ 1
⎪
⎪
⎪
⎩ 0 otherwise

where a > b > 0 and 0 < k < 1. Then E(X) is given by:

b(1−a)2
(a) 2a(a−b)
.
1
(b) 2
.
a−b
(c) (a+b)
.
1−2b+ab
(d) 2(a−b)
.

12. The set of values of x for which x2 − 3|x| + 2 < 0 is given by:

(a) {x : x < −2} ∪ {x : x > 1}.

(b) {x : −2 < x < −1} ∪ {x : 1 < x < 2}.

(c) {x : x < −1} ∪ {x : x > 2}.

4
 (d) None of the above.

13. The system of linear equations

(4d − 1)x + y + z = 0

−y + z = 0

(4d − 1)z = 0

has a non-zero solution if:

(a) d = 14 .

(b) d = 0.

(c) d = 14 .

(d) d = 1.

14. Suppose F is a cumulative distribution function of a random variable x distributed in

[0, 1] defined as follows:
⎧
⎨ ax + b if x ≥ a
F (x) =
⎩ x2 − x + 1 otherwise

where a ∈ (0, 1) and b is a real number. Which of the following is true?

(a) F is continuous in (0, 1).

(b) F is differentiable in (0, 1).

(c) F is not continuous at x = a.

(d) None of the above.

5
15. The solution of the optimization problem

max 3xy − y 3
x,y

subject to

2x + 5y ≥ 20

x − 2y = 5

x, y ≥ 0.

is given by:

(a) x = 19, y = 7.

(b) x = 45, y = 20.

(c) x = 15, y = 5.

(d) None of the above.

16. Let f : R → R be a strictly increasing function. Let g be the inverse of the function
f . If f  (1) = g(1) = 1, then g  (1) equals to

(a) 0.
1
(b) 2
.

(c) −1.

(d) 1.

17. Consider a quadratic polynomial P (x). Suppose P (1) = −3, P (−1) = −9, P (−2) = 0.
Then, which of the following is true.

(a) P ( 12 ) = 0.

(b) P ( 52 ) = 0.

(c) P ( 54 ) = 0.

6
 (d) P ( 34 ) = 0.

18. For any positive integers k,  with k ≥ , let C(k, ) denote the number of ways in
which  distinct objects can be chosen from k objects. Consider n ≥ 3 distinct points
on a circle and join every pair of points by a line segment. If we pick three of these
line segments uniformly at random, what is the probability that we choose a triangle?

C(n,2)
(a) C(C(n,2),3)
.
C(n,3)
(b) C(C(n,2),3)

2
(c) n−1
.
C(n,3)
(d) C(C(n,2),2)
.

19. Let X = {(x, y) ∈ R2 : x + y ≤ 1, 2x + y2 ≤ 1, x ≥ 0, y ≥ 0}. Consider the optimization

problem of maximizing a function f (x) = ax + by, where a, b are real numbers, subject
to the constraint that (x, y) ∈ X. Which of the following is not an optimal value of f
for any value of a and b?

(a) x = 0, y = 1.

(b) x = 13 , y = 23 .

(c) x = 14 , y = 14 .

(d) x = 12 , y = 0.

20. Let F : [0, 1] → R be a differentiable function such that its derivative F  (x) is increasing
in x. Which of the following is true for every x, y ∈ [0, 1] with x > y?

(a) F (x) − F (y) = (x − y)F  (x).

(b) F (x) − F (y) ≥ (x − y)F  (x).

(c) F (x) − F (y) ≤ (x − y)F  (x).

(d) F (x) − F (y) = F  (x) − F  (y).

7
21. A bag contains N balls of which a (a < N ) are red. Two balls are drawn from the bag
without replacement. Let p1 denote the probability that the first ball is red and p2 the
probability that the second ball is red. Which of the following statements is true?

(a) p1 > p2 .

(b) p1 < p2 .
a−1
(c) p2 = N −1
.
a
(d) p2 = N
.
√
22. Let t = x + x2 + 2bx + c where b2 > c. Which of the following statements is true?

dx t−x
(a) dt
= t+b
.
dx t+2x
(b) dt
= 2t+b
.
dx 1
(c) dt
= 2x+b
.

(d) None of the above.

23. Let A be an n × n matrix whose entry on the i-th row and j-th column is min(i, j).
The determinant of A is:

(a) n.

(b) 1.

(c) n!

(d) 0.

24. What is the number of non-negative integer solutions of the equation x1 +x2 +x3 = 10?

(a) 66.

(b) 55.

(c) 100.

(d) None of the above.

8
25. The value of  2b
xdx
,
b x2+ b2
b > 0 is:

1
(a) b
.

(b) ln 4b2 .
1
(c) 2
ln( 52 ).

(d) None of the above.

26. Let f and g be functions on R2 defined respectively by

f (x, y) = 13 x3 − 32 y 2 + 2x,

and
g (x, y) = x − y.

Consider the problems of maximizing and minimizing f on the constraint set C =

{(x, y) ∈ R2 : g (x, y) = 0} .

(a) f has a maximum at (x = 1, y = 1) , and a minimum at (x = 2, y = 2).

(b) f has a maximum at (x = 1, y = 1) , but does not have a minimum.

(c) f has a minimum at (x = 2, y = 2) , but does not have a maximum.

(d) f has neither a maximum nor a minimum.

27. A particular men’s competition has an unlimited number of rounds. In each round,
every participant has to complete a task. The probability of a participant completing
the task in a round is p. If a participant fails to complete the task in a round, he is
eliminated from the competition. He participates in every round before being elimi-
nated. The competition begins with three participants. The probability that all three
participants are eliminated in the same round is:

9
 (1−p)3
(a) 1−p3
.
1
(b) 3
(1 − p).
1
(c) p3
.

(d) None of the above.

28. Three married couples sit down at a round table at which there are six chairs. All of
the possible seating arrangements of the six people are equally likely. The probability
that each husband sits next to his wife is:

2
(a) 15
.
1
(b) 3
.
4
(c) 15
.

(d) None of the above.

29. Let f : R2 → R be a function. For every x, y, z ∈ R, we know that f (x, y) + f (y, z) +

f (z, x) = 0. Then, for every x, y ∈ R2 , f (x, y) − f (x, 0) + f (y, 0) =

(a) 0.

(b) 1.

(c) −1.

(d) None of the above.

30. The minimum value of the expression below for x > 0 is:
 6  
x + x1 − x6 + x16 − 2
 3  
x + x1 + x3 + x13

(a) 1.

(b) 3.

(c) 6

(d) 12.

10
1. The dimension of the space spanned by the vectors (−1, 0, 1, 2),
(−2, −1, 0, 1), (−3, 2, 0, 1) and (0, 0, −1, 1) is

A. 1
B. 2
C. 3
D. 4.
2. How many onto functions are there from a set A with m > 2 ele-
ments to a set B with 2 elements?

A. 2m
B. 2m − 1
C. 2m−1 − 2
D. 2m − 2.
3. The function f : R2+ → R given by f (x, y) = xy is

A. quasiconcave and concave

B. concave but not quasiconcave
C. quasiconcave but not concave
D. none of the above.
4. The function f : R2+ → R given by f (x, y) = xy is

A. homogeneous of degree 0
B. homogeneous of degree 1
C. homogeneous of degree 2
D. not homothetic.
5. You have n observations on rainfall in centimeters (cm) at a certain
location, denoted by x, and you calculate the standard deviation,
variance, and coefficient of variation (CV). Now, if instead, you
were given the same observations measured in millimeters (mm),
then

1
 A. the standard deviation and CV would increase by a factor
of 10, and the variance by a factor of 100
B. the standard deviation would increase by a factor of 10,
the variance by a factor of 100, and the CV would be
unchanged
C. the standard deviation would increase by a factor of 10,
and the variance and CV by a factor of 100
D. none of the above.

6. You have n observations on rainfall in centimeters (cm) at two lo-

cations, denoted by x and y respectively, and you calculate the
covariance, correlation coefficient r, and the slope coefficient b of
the regression of y on x. Now, if instead, you were given the same
observations measured in millimeters (mm), then

A. the covariance would increase by a factor of 10, b by a

factor of 100, and r would be unchanged
B. the covariance and b would increase by a factor of 100,
and r would be unchanged
C. the covariance would increase by a factor of 100, and b
and r would be unchanged
D. none of the above.

7. Let 0 < p < 100. Any solution (x∗ , y ∗ ) of the constrained maxi-
mization problem
( )
−1
max +y
x,y x
subject to

px + y ≤ 10,
x, y ≥ 0,

must satisfy
A. y ∗ = 10 − p
B. x∗ = 10/p
√
C. x∗ = 1/ p

2
 D. none of the above.

8. Suppose the matrix equation Ax = b has no solution, where A is a

3 × 3 non-zero matrix of real numbers and b is an 3 × 1 vector of
real numbers. Then,
A. The set of vectors x for which Ax = 0 is a plane.
B. The set of vectors x for which Ax = 0 is a line.
C. The rank of A is 3.
D. Ax = 0 has a non-zero solution.

9. k people get off a plane and walk into a hall where they are as-
signed to at most n queues. The number of ways in which this can
be done is

A. Ckn
B. Pkn
C. nk k!
D. n(n + 1) . . . (n + k − 1).

10. If P r(A) = P r(B) = p, then P r(A ∩ B) must be

A. greater than p2
B. equal to p2
C. less than or equal to p2
D. none of the above.

11. If P r(Ac ) = α and P r(B c ) = β, (where Ac denotes the event ‘not

A’), then P r(A ∩ B) must be
A. 1 − αβ,
B. (1 − α)(1 − β)
C. greater than or equal to 1 − α − β
D. none of the above.

12. The density function of a normal distribution with mean µ and

standard deviation σ has inflection points at
A. µ
B. µ − σ, µ + σ

3
 C. µ − 2σ, µ + 2σ
D. nowhere.

13. In how many ways can five objects be placed in a row if two of
them cannot be placed next to each other?
A. 36
B. 60
C. 72
D. 24.

14. Suppose x = 0 is the only solution to the matrix equation Ax = 0

where A is m × n, x is n × 1, and 0 is m × 1. Then, of the two
statements (i) The rank of A is n, and (ii) m ≥ n,
A. Only (i) must be true
B. Only (ii) must be true
C. Both (i) and (ii) must be true
D. Neither (i) nor (ii) has to be true.

15. Mr A is selling raffle tickets which cost 1 rupee per ticket. In the
queue for tickets, there are n people. One of them has only a 2-
rupee coin while all the rest have 1-rupee coins. Each person in the
queue wants to buy exactly one ticket and each arrangement in the
queue is equally likely to occur. Initially, Mr A has no coins and
enough tickets for everyone in the queue. He stops selling tickets as
soon as he is unable to give the required change. The probability
that he can sell tickets to all people in the queue is:
n−2
A. n
1
B. n
n−1
C. n
.
n−1
D. n+1
.

16. Out of 800 families with five children each, how many families would
you expect to have either 2 or 3 boys? Assume equal probabilities
for boys and girls.
A. 400
B. 450

4
 C. 500
D. 550

17. The function f : R → R given by

{
x
, if x ̸= 0,
f (x) = |x|
1, if x = 0.

is
A. concave
B. convex
C. neither concave nor convex
D. both concave and convex
2
18. As n → ∞, the sequence { 2n 2 +3 }
n +1

A. diverges
B. converges to 1/3
C. converges to 1/2
D. neither converges nor diverges.

19. The function x1/3 is

A. differentiable at x = 0
B. continuous at x = 0
C. concave
D. none of the above.

20. The function sin(log x), where x > 0

A. is increasing
B. is bounded and converges to a real number as x → ∞
C. is bounded but does not converge as x → ∞
D. none of the above.

21. For any two functions f1 : [0, 1] → R and f2 : [0, 1] → R, define the
function g : [0, 1] → R as g(x) = max(f1 (x), f2 (x)) for all x ∈ [0, 1].
A. If f1 and f2 are linear, then g is linear

5
 B. If f1 and f2 are differentiable, then g is differentiable
C. If f1 and f2 are convex, then g is convex
D. None of the above
22. Let f : R → R be the function
f (x) = x3 − 3x ∀ x ∈ R.
Find the maximum value of f (x) on the set of real numbers x
satisfying x4 + 36 ≤ 13x2 .
A. 18
B. −2
C. 2
D. 52
23. A monkey is sitting on 0 on the real line in period 0. In every
period t ∈ {0, 1, 2, . . .}, it moves 1 to the right with probability p
and 1 to the left with probability 1 − p, where p ∈ [ 12 , 1]. Let πk
denote the probability that the monkey will reach positive integer
k in some period t > 0. The value of πk for any positive integer k
is
A. pk
B. 1
pk
C. (1−p) k

p
D. k
.
24. Refer to the previous question. Suppose p = 12 and πk now denotes
the probability that the monkey will reach any integer k in some
period t > 0. The value of π0 is
A. 0
B. 21k
C. 12
D. 1
25. Suppose f : R → R is a differentiable function with f ′ (x) > 0 for
all x ∈ R and satisfying the property
lim f (x) ≥ 0.
x→−∞

Which of the following must be true?

6
 A. f (1) < 0
B. f (1) > 0
C. f (1) = 0
D. None of the above
26. For what values of x is
x2 − 3x − 2 < 10 − 2x
A. 4 < x < 9
B. x < 0
C. −3 < x < 4
D. None of the above
∫ e2 1
27. e x(log x)3
dx =
A. 3/8
B. 5/8
C. 6/5
D. −4/5
28. The solution of the system of equations
x − 2y + z = 7
2x − y + 4z = 17
3x − 2y + 2z = 14
is
A. x = 4, y = −1, z = 3
B. x = 2, y = 4, z = 3
C. x = 2, y = −1, z = 5
D. none of the above.
29. Let f : R2 → R be a twice-differentiable function with non-zero
second partial derivatives. Suppose that for every x ∈ R, there is
a unique value of y, say y ∗ (x), that solves the problem
max f (x, y).
y∈R

Then y ∗ is increasing in x if

7
 A. f is strictly concave
B. f is strictly convex
∂2f
C. ∂x∂y
>0
∂2f
D. ∂x∂y
< 0.

30. ∫ √
2x+1
3 dx =

A. √ √
2x+1
3 2x + 1
+ +c
ln 3 ln 3
B. √
2x+1
√ √
3 2x + 1 3 2x+1
− +c
ln 3 (ln 3)2
C. √
2x+1
√ √
3 2x + 1 3 2x+1
− +c
(ln 3)2 ln 3
D. none of the above.

8
1. Suppose that the level of savings varies positively with the level of income and that
savings is identically equal to investment. Then the IS curve:

(a) slopes positively.

(b) slopes negatively.
(c) is vertical.
(d) does not exist.

2. Consider the Solow growth model without technological progress. Suppose that the
rate of growth of the labor force is 2%. Then, in the steady-state equilibrium:

(a) per capita income grows at the rate of 2%.

(b) per capita consumption grows at the rate of 2%.
(c) wage per unit of labor grows at the rate of 2%.
(d) total income grows at the rate of 2%.

3. Consider a Simple Keynesian Model for a closed economy with government. Suppose
there does not exist any public sector enterprise in the economy. Income earners
are divided into two groups, Group 1 and Group 2, such that the saving propensity
of the former is less than that of the latter. Aggregate planned investment is an
increasing function of GDP (Y ). Start with an initial equilibrium situation. Now,
suppose the government imposes and collects additional taxes from Group 1 and uses
the tax revenue so generated to make transfer payments to Group 2. Following this:

(a) aggregate saving in the economy remains unchanged.

(b) aggregate saving in the economy declines.
(c) aggregate saving in the economy rises.
(d) aggregate saving in the economy may change either way.

4. Suppose, in an economy, the level of consumption is …xed, while the level of investment
varies inversely with the rate of interest. Then the IS curve is:

(a) positively sloped.

(b) negatively sloped.

1
 (c) vertical.
(d) horizontal.

5. Suppose, in an economy, the demand function for labor is given by:

Ld = 100 5w;

whereas the supply function for labor is given by:

Ls = 5w;

where w denotes the real wage rate. Total labor endowment in this economy is 80 units.
Suppose further that the real wage rate is ‡exible. Then involuntary unemployment
in this economy is:

(a) 30.
(b) 50.
(c) 70.
(d) 0.

6. Consider again the economy speci…ed in Question 5. Suppose now that the real wage
rate is mandated by the government to be at least 11. Then total unemployment will
be:

(a) 35.
(b) 0.
(c) 30.
(d) 10.

7. Consider a macro-economy de…ned by the following equations:

M = kP y + L(r);
S (r) = I (r) ;
y = y;
where M , P , y and r represent, respectively, money supply, the price level, output
and the interest rate, while k and y are positive constants. Furthermore, S (r) is the
savings function, I (r) is the investment demand function and L(r) is the speculative
demand for money function, with , S 0 (r) > 0, I 0 (r) < 0 and L0 (r) < 0. Then, an
increase in M must:

2
 (a) increase P proportionately.
(b) reduce P .
(c) increase P more than proportionately.
(d) increase P less than proportionately.

8. Two individuals, X and Y, have to share Rs. 100. The shares of X and Y are denoted
by x and y respectively, x; y 0; x + y = 100: Their utility functions are UX (x; y) =
1 1
x+ 4
y and UY (x; y) = y + 2
x: The social welfare function is W (UX ; UY ) =
min fUX ; UY g : Then the social welfare maximizing allocation is:

(a) (44; 56) :

(b) (48; 52) :
(c) (50; 50) :
(d) (60; 40) :

9. Consider two consumers. They consume one private good (X) and a public good
(G). Consumption of the public good depends on the sum of their simultaneously and
non-cooperatively chosen contributions towards the public good out of their incomes.
Thus, if g1 and g2 are their contributions, then the consumption of the public good is
g = g1 + g2 : Let the utility function of consumer i (i = 1; 2) be Ui (xi ; g) = xi g: The
price of the private good is p > 0 and the income of each consumer is M > 0: Then
the consumers’equilibrium contributions towards the public good will be:

M M
(a) 2
; 2 :
M M
(b) 3
; 3 :
M M
(c) 4
; 4 :
M M
(d) p
; p :

10. Consider two …rms, 1 and 2, producing a homogeneous product and competing in
Cournot fashion. Both …rms produce at constant marginal cost, but …rm 1 has a lower
marginal cost than …rm 2. Speci…cally, …rm 1 requires one unit of labour and one unit
of raw material to produce one unit of output, while …rm 2 requires two units of labour
and one unit of raw material to produce one unit of output. There is no …xed cost.
The prices of labour and material are given and the market demand for the product is

3
 determined according to the function q = A bp; where q is the quantity demanded
at price p and A; b > 0: Now, suppose the price of labour goes up, but that of raw
material remains the same. Then, the equilibrium pro…t of …rm 1 will:

(a) increase.
(b) decrease.
(c) remain unchanged.
(d) go up or down depending on the parameters.

11. Considered again the problem in Question 10. As before, suppose that the price of
labour goes up, but that of raw material remains the same. Then, the equilibrium
pro…t of …rm 2 will:

(a) increase.
(b) decrease.
(c) remain unchanged.
(d) go up or down depending on the parameters.

12. Consider a …rm which initially operates only in market A as a monopolist and faces
market demand Q = 20 p: Given its cost function C (Q) = 41 Q2 ; it charges a monopoly
price Pm in this market. Now suppose that, in addition to selling as a monopolist in
market A, the …rm starts selling its products in a competitive market, B, at price p = 6:
Under this situation the …rm charges Pm in market A. Then:

(a) Pm > Pm :
(b) Pm < Pm :
(c) Pm = Pm :
(d) given the available information we cannot say whether Pm > Pm or Pm < Pm :

13. Two consumers, A and B, have utility functions UA = min fxA ; yA g and UB = xB +
yB ;respectively. Their endowments vectors are eA = (100; 100) and eB = (50; 0) :
Consider a competitive equilibrium price vector (PX ; PY ) : Then,

1 2
(a) ;
5 5
is the unique equilibrium price vector.
1 2
(b) ;
5 5
is one of the many possible equilibrium price vectors.

4
 1 2
(c) ;
5 5
is never an equilibrium price vector.
(d) an equilibrium price vector does not exist.

14. Suppose a …rm is a monopsonist in the labor market and faces separate labor supply
functions for male and female workers. The labor supply function for male workers is
given by lM = (wM )k ; where lM is the amount of male labor available when the wage
o¤ered to male workers is wM ; and k is a positive constant. Analogously, the labor
supply function for female workers is given by lF = wF : Male and female workers are
perfect substitutes for one another. The …rm produces one unit of output from each
unit of labor it employs, and sells its output in a competitive market at a price of p per
unit. The …rm can pay male and female workers di¤erently if it chooses to. Suppose
the …rm decides to pay male workers more than female workers. Then it must be the
case that:

(a) k < 21 :
1
(b) 2
k < 1:
(c) k = 1:
(d) k > 1:

15. Consider the problem in Question 14, and assume that the …rm pays male workers
more than female workers. Suppose further that p > 2: Then the …rm must:

(a) hire more male workers than female workers.

(b) hire more female workers than male workers.
(c) hire identical numbers of male and female workers.
(d) hire more females than males if 2 < p 4; but more males than females if p > 4:

16. Consider the system of linear equations:

(4a 1) x + y + z = 0;
y + z = 0;
(4a 1) z = 0:

The value of a for which this system has a non-trivial solution (i.e., a solution other
than (0; 0; 0)) is:

5
 1
(a) 2
:
1
(b) 4
:
3
(c) 4
:
(d) 1:

17. Let f : R ! R be a convex and di¤erentiable function with f (0) = 1; where R denotes
the set of real numbers. If the derivative of f at 2 is 2, then the maximum value of
f (2) is:

(a) 3:
(b) 5:
(c) 10:
(d) 1:

18. Consider the equation 2x + 5y = 103. Then how many pairs of positive integer values
can (x; y) take such that x > y?

(a) 7:
(b) 8:
(c) 13:
(d) 14:

19. Let X be a discrete random variable with probability mass function (PMF) f (x) such
that
f (x) > 0 if x = 0; 1; :::; n; and
f (x) = 0 otherwise,
where n is a …nite integer. If P rob (X mjX m) = f (m); then the value of m is:

(a) 0:
(b) 1:
(c) n 1:
(d) none of the above.

20. Consider the function f (x) = 2ax loge x ax2 where a 6= 0: Then

6
 (a) the function has a maximum at x = 1.
(b) the function has a minimum at x = 1.
(c) the point x = 1 is a point of in‡exion.
(d) none of the above.

21. Let f : [0; 10] ! [10; 20] be a continuous and twice di¤erentiable function such that
f (0) = 10 and f (10) = 20. Suppose jf 0 (x)j 1 for all x 2 [0; 10]. Then, the value of
f 00 (5) is

(a) 0:
1
(b) 2
:
(c) 1:
(d) cannot be determined from the given information.

22. Consider the system of linear equations:

x + 2ay + az = 0;
x + 3by + bz = 0;
x + 4cy + cz = 0:

Suppose that this system has a non-zero solution. Then a; b; c

(a) are in arithmetic progression.

(b) are in geometric progression.
(c) are in harmonic progression.
(d) satisfy 2a + 3b + 4c = 0:

23. Let a; b; c be real numbers. Consider the function f (x1 ; x2 ) = min fa x1 ; b x2 g :Let
(x1 ; x2 ) be the solution to the maximization problem

max f (x1 ; x2 ) subject to x1 + x2 = c:

Then x1 x2 equals

c+a b
(a) 2
:

7
 c+b a
(b) 2
:
(c) a b:
(d) b a:

24. Suppose that you have 10 di¤erent books, two identical bags and a box. The bags can
each contain three books and the box can contain four books. The number of ways in
which you can pack all the books is

10!
(a) 2!3!3!4!
:
10!
(b) 3!3!4!
:
10!
(c) 2!3!4!
:
(d) none of the above.

25. Real numbers a1 ; a2 ; :::; a99 form an arithmetic progression. Suppose that

a2 + a5 + a8 + ::: + a98 = 205:

P99
Then the value of k=1 ak is

(a) 612:
(b) 615:
(c) 618:
(d) none of the above.

26. A stone is thrown into a circular pond of radius 1 meter. Suppose the stone falls
uniformly at random on the area of the pond. The expected distance of the stone from
the center of the pond is

1
(a) 3
:
1
(b) 2
:
2
(c) 3
:
(d) p1 :
2

8
27. Suppose that there are n stairs, where n is some positive integer. A person standing
at the bottom wants to reach the top. The person can climb either 1 stair or 2 stairs
at a time. Let Tn be the total number of ways in which the person can reach the top.
For instance, T1 = 1 and T2 = 2. Then, which one of the following statements is true
for every n > 2?

(a) Tn = n:
(b) Tn = 2Tn 1 :
(c) Tn = Tn 1 + Tn 2 :
P
(d) Tn = nk=11 Tk :

2
28. Let Y1 ; Y2 ; :::; Yn be the income of n individuals with E(Yi ) = and V ar(Yi ) = for
all i = 1; 2; :::n. These n individuals form m groups, each of size k. It is known that
individuals within the same group are correlated but two individuals in di¤erent groups
are always independent. Assume that when individuals are correlated, the correlation
P
coe¢ cient is the same for all pairs. Consider the random variable Y = n1 ni=1 Yi : The
limiting variance of Y when m is large but k is …nite is

(a) 0:
1
(b) k
:
(c) 1:
2
(d) k
:

29. A person makes repeated attempts to destroy a target. Attempts are made indepen-
dently of each other. The probability of destroying the target in any attempt is 0:8.
Given that he fails to destroy the target in the …rst …ve attempts, the probability that
the target is destroyed in the 8-th attempt is

(a) 0:032:
(b) 0:064:
(c) 0:128:
(d) 0:160:

30. Let E and F be two events such that 0 < P rob (E) < 1 and P rob (E j F )+P rob (E j F c ) =
1: Then

9
(a) E and F are mutually exclusive.
(b) P rob (E c j F ) + P rob (E c j F c ) = 1:
(c) E and F are independent.
(d) P rob (E j F ) + P rob (E c j F c ) = 1:

10
1. Consider the functions
1


x sin x if x 6= 0
f (x) =
0 if x = 0
and
1
x2 sin


x if x 6= 0
g(x) =
0 if x = 0
Then

(a) f is differentiable at zero but g is not differentiable at zero

(b) g is differentiable at zero but f is not differentiable at zero
(c) f and g are both differentiable at zero
(d) Neither f nor g is differentiable at zero

2. How many ordered pairs of numbers (x, y) are there, where x, y ∈

{1, 2, . . . , 100}, such that |x − y| ≤ 50?

(a) 2550
(b) 5050
(c) 7550
(d) None of the other options are correct

3. Let ABC be a right angled isosceles triangle with angle ∠ABC being
right-angled. Let D be the mid-point of AB, E be the foot of the
perpendicular drawn from D to the side AC, and F be the foot of the
FC
perpendicular drawn from E to the side BC. What is the value of BC ?

(a) √1
2
3
(b) 4
√
(c) 2 − 2
(d) None of the other options are correct

4. Suppose that there are 30 MCQ type questions where each question has
four options: A, B, C, D. For each question, a student gets 4 marks
for a correct answer, 0 marks for a wrong answer, and 1 mark for not
attempting the question. Suppose in each question, the probability that
option A is correct is 0.5, option B is correct is 0.3, option C is correct
is 0.2, and option D is correct is 0. Two students Gupi and Bagha have
no clue about the right answers. Gupi answers each question randomly,
that is, ticks any of the options with probability 0.25. Whereas Bagha
attempts each question with probability 0.5, but whenever he attempts a
question, he randomly ticks an option. Which of the following is correct?
 (a) Both Gupi and Bagha have expected scores more than 30
(b) Gupi’s expected score is greater than or equal to 30 and Bagha’s
expected score is strictly less than 30
(c) Gupi’s expected score is less than or equal to 30 and Bagha’s ex-
pected score is strictly more than 30
(d) None of the other options are correct
1
5. Evaluate: lim e3x − 5x x

x→∞

(a) e3
(b) 3
(c) 1
(d) None of the other options are correct
( )
|x−3|
x−3 , for x 6
= 3
6. Suppose f (x) = . Then, lim f (x) :
0, for x = 3 x→3

(a) is -1
(b) is 0
(c) does not exist
(d) is 1

7. Consider the following system of equations in x, y, z :

x + 2y − 3z = a
2x + 6y − 11z = b
x − 2y + 7z = c

For what values of a, b, c, does the above system have no solution?

(a) c + 2b − 5a 6= 0
(b) c + 2b − 5a = 0
(c) c + 2b − 4a = 0
(d) None of the other options are correct

8. The sequence xn is given by the formula: for every positive integer n

xn = n3 − 9n2 + 631.
The largest value of n such that xn > xn+1

Page 2
 (a) is 4
(b) is 5
(c) is 6
(d) None of the other options are correct

9. Suppose an unbiased coin is tossed 10 times. Let D be the random

variable that denotes the number of heads minus the number of tails.
What is the variance of D?

(a) 10
(b) 1
(c) 0
(d) None of the other options are correct

10. Suppose we are given a 4 × 4 square matrix A, which satisfies Aij = 0

if i < j. Suppose the each diagonal entry Aii is drawn uniformly at
random from {0, 1, . . . , 9}. What is the probability that A has full rank?
1
(a) 104
3
(b) 5
(c) 1 − 1014
9 4


(d) 10

11. Let a and b be two real numbers where b 6= 0 and g : R → R is a

continuous function which satisfies

g(g(x)) = ag(x) + bx ∀ x ∈ R.

Which of the following must be true?

(a) g is strictly increasing

(b) g is strictly decreasing
(c) limx→∞ g(x) is finite
(d) Either (a) or (b)

12. For every positive integer n, let S(n) denote the sum of digits in n. For
instance, S(387) = 3 + 8 + 7 = 18. The value of the sum

S(1) + S(2) + . . . + S(99)

is

Page 3
 (a) 450
(b) 495
(c) 900
(d) 990

13. Suppose five cards are randomly drawn without replacement from an
ordinary deck of 52 playing cards, with four suits of 13 cards each, which
has been well shuffled. Let a flush be the event that all five cards are of
the same suit. What is the probability of getting a flush?
4C 13 C
(a) 1
52 C
5
5
4 C 13 C
(b) 2
52 C
4
5
4 P 13 C
(c) 1
52 P
5
5
4 C 12 C
(d) 1
52 C
5
5

xn ln xdx, where n > 1

R
14. Evaluate:
n+1
(a) ln x xn+1 − 1
(n+1)2
xn+1 +c
x n+1 1
(b) ln x 2(n+1) − (n+1)2
xn+1 +c
xn+1 1 n+1
(c) ln x n+1 − (n+1) x +c
(d) None of the other options are correct

15. The area of the region bounded by the curve y = ln(x), the Y − axis,
and the lines y = 1 and y = −1
e
(a) is 2
(b) is 2
1
(c) is e − e
(d) None of the other options are correct

16. A price discriminating monopolist finds that a person’s demand for its
product depends on the person’s age. The inverse demand function of
someone of age y, can be written p = A(y)−q where A(y) is an increasing
function of y. The product cannot be resold from one buyer to another
and the monopolist knows the ages of its consumers. (This is often the
case with online subscriptions.) If the monopolist maximizes its profits,
then

Page 4
 (a) older people will pay higher prices and purchase more of this prod-
uct compared to younger people
(b) everyone pays the same price but older people consume more
(c) older people will pay higher prices compared to the younger people
but everyone will consume the same quantity of the product
(d) None of the other options are correct

17. Pam’s family consists of herself and her 3 sisters. They own a small farm
in the agricultural sector in Agri-land. The value of their total output
is $4000 which is divided equally amongst the four. The urban sector
has two kinds of jobs: informal sector (which anyone can get) pays $500
and formal sector jobs give $1200. Pam would like to maximize her own
total income and calculates her own expected returns to migration. The
proportion of formal sector jobs to urban labor force that would deter
her from migrating is:

(a) Less than 2/3

(b) More than 5/6
1
(c) More than 2
(d) Less than 5/7

18. Hu and Li are two dealers of used tractors in a rural area of China. Hu
sells high quality second hand tractors while Li sells low quality ones.
Hu would be willing to sell his high quality tractor at $8000 while Lu
would sell his low quality one for $5000. Consumers are willing to pay
up to $10,000 for a high quality tractor and $7000 for a low quality
one. They expect a 50% chance of buying a high quality second-hand
tractor. In order to signal the quality of their tractors Hu and Li can
offer warranties. The cost of warranty for a high quality tractor is 500Y
and 1000Y for a low quality one (Y is the number of years of warranty).
What is the optimal number of years of warranty that Hu should offer
so that consumers know his tractors are of good quality?

(a) Less than 2 years

(b) 0.5 years
(c) More than 1.5 years
(d) 3 years

19. Suppose the capacity curve for each laborer is described as follows: for
all payments up to $100, capacity is zero and then begins to rise by 2

Page 5
 units for each additional $ paid. This happens until the payment rises
to $500. Thereafter, an additional $ payment increases work capacity by
only 1.1 units, until total income paid is $1000. At this point additional
payments have no effect on work capacity. Assume all income is spent
on nutrition. Suppose you are an employer faced by the above capacity
curve of your workers. You need 8000 units of work or capacity units.
How many workers would you hire and how much would you pay each
worker so that you get 8000 units of work at minimum cost?

(a) 5 workers; $1000 per worker

(b) 10 workers; $700 per worker
(c) 10 workers; $500 per worker
(d) 15 workers; $400 per worker

20. Suppose you were to believe that “money illusion” exists, that is as
prices and income rise proportionally, then people buy more. Which of
the following statements about demand should not be true?

(a) Demand functions are downward sloping

(b) Demand functions are homogenous of degree zero
(c) Demand has a positive vertical intercept
(d) Demand functions are homogenous of degree one

21. Consider a Bertrand price competition model between two profit maxi-
mizing widget producers, say A and B. The marginal cost of producing
a widget is 4 for each producer. Each widget producer has a capacity
constraint to produce only 5 widgets. There are 8 identical individuals
who demand 1 widget only, and value each widget at 6. If the firms are
maximizing profits, then the following statement is true:

(a) Firm A and B will charge 4

(b) Firm A and B will charge 6
(c) Firm A and B will charge greater than or equal to 5
(d) None of the other options are correct

22. The government estimates the market demand (QD ) and market supply
(QS ) for turnips to be the following: QD = 30 − 2P, QS = 4; where P
is the per unit price and Q is the quantity measured in kilograms. The
government aims to increase the market price of turnips to $8 per unit

Page 6
 to improve the welfare of domestic producers of turnips. Is is consider-
ing three possible choices: (i) a per unit subsidy; (ii) a price floor and
purchase of any surplus production, and (iii) a production quota. Which
of these policies should the government adopt if it wants to maximize
the producers’ welfare but minimize the loss of efficiency?

(a) A production quota

(b) A price subsidy
(c) Either a price subsidy or a price floor
(d) Either a production quota or a price floor

5
23. A monopolist faces a demand curve: q = . Her cost function is: C (q) =
p
3q. Suppose, in the same market, there are some competitive suppliers
ready to sell the good at the price p = 5. The monopolist’s profit
maximizing price and output could be given by

(a) p = 3, q = 35 .
5
(b) p = 3.01, q = 3.01
5
(c) p = 2.99, q = 2.99
5
(d) p = 4.99, q = 4.99

24. The consumption function is given by C = AY β with β = 0.5 and

A = 0.3. The marginal propensity to save is

(a) equal to 0.5

(b) increasing in income, Y
(c) equal to 0.3
(d) equal to 0.7

25. The production function is given by Y = AL. The wage rigidity con-
straint is given by W ≥ B. The labour endowment is given by C. Here
A, B, and C are finite and positive constants. Assume that the entire
labor endowment is supplied. If A > B, then in a labour market equi-
librium

(a) L = C
(b) L = 0
(c) 0 < L < C
(d) None of the other options are correct

Page 7
26. Consider the Mundell-Flemming model with perfect capital mobility and
a flexible exchange rate in the short run. A monetary expansion leads
to a/an in output; a fiscal expansion leads to in output.

(a) decrease; no change

(b) increase; decrease
(c) increase; no change
(d) increase; increase

27. Mr. X has an exogenous income W and his utility from consumption c
is u(c). Mr. X knows that an accident can occur with probability p and
if it occurs, the monetary equivalent to the damage is T . Mr. X can
however affect the accident probability p through the prevention effort
e. In particular, e can take two values - zero and a and an assumption
is that p(0) > p(a), that is by putting prevention effort, probability of
occurring an accident can be reduced. Let us also assume that if Mr.
X puts an effort e, the disutility from the effort is Ae2 where A is the
per unit effort cost. What is the critical value of A, A∗ , below which
the effort will be undertaken, and above which the effort will not be
undertaken, by Mr. X ?
[p(a)−p(0)][u(W −T )−u(W )]
(a) A∗ = a2
[p(a)−p(0)]a2
(b) A∗ = [u(W −T )−u(W )]
p(a)

(c) A∗ = p(0)
u(W −T ) 2
u(W )
a
p(a)p(0)a2
(d) A∗ = u(W −T )u(W )

28. Labor supply in macro models results from individual decision making.
Let c denote an individual’s consumption and L denote labor supply.
Assume that individuals solve the following optimization problem
11 2
M ax U (c, L) = log c − L
{c,L} 2b

subject to c + S̄ = wL where U (·) is the utility function, b > 0 is a

constant, S̄ is a constant exogenous level of savings, and w is the real
wage the person can earn in the labor market. Derive the optimal labor
supply. It is

(a) increasing in w; increasing in c

(b) decreasing in w; decreasing in c

Page 8
 (c) increasing in w; decreasing in c
(d) decreasing in w; increasing in c

29. Consider a Solow economy that begins in steady state. Then a strong
earthquake destroys half the capital stock. The steady state level of
capital , the level of output on impact, and the growth rate of
the economy as the economy approaches its steady state.

(a) decreases; decreases; decreases

(b) remains the same; decreases; decreases
(c) remains the same; decreases; increases
(d) decreases; remains the same, decreases

30. Suppose the economy is characterized by the following equations

C = c0 + c1 YD
YD = Y − T
I = b0 + b1 Y

where C = Consumption, c0 = Autonomous Consumption, c1 ∈ [0, 1],

YD = Disposable Income, Y = Aggregate GDP, T = Taxes, I = Investment, b0 =
Autonomous Investment, and b1 ∈ [0, 1]. For the multiplier to be posi-
tive, what condition needs to be satisfied?

(a) b1 + c1 = 0
(b) b1 + c1 = 1
(c) b1 + c1 < 1
(d) b1 + c1 > 1

Page 9
 P∞ 2n2 +2
1. If the nth partial sum of the series n=1 an is sn = 3n2 +1
, then
P∞
n=1 an is

(A) 0
(B) divergent
2
(C) 3
3
(D) 2

2. Using data from a sample of size n, the intercept and slope coefficients
from an ordinary least squares regression of y on x, are a and b
respectively. Which of the following is false?

Pn
(A) i=1 (yi − a − bxi )xi = 0

(B) n1 ni=1 yi = a + nb ni=1 xi

P P
Pn
(C) a and b are the solution to minα,β i=1 (yi − α − βxi )2 = 0
Pn
(D) a and b are the solution to minα,β i=1 |yi − α − βxi | = 0

px
3. Consider a production function z = 2x + 3y. For what price ratio py
,
will a corner solution in y, i.e. (x = 0) be possible, if the objective is
to minimize the cost of producing a given positive quantity z0 of z?
px px
(A) py
= 2/3 (B) py
≥ 2/3
px px
(C) py
< 2/3 (D) py
≤ −2/3

4. A number is chosen randomly from the first billion natural numbers.

The probability that the product of the number with its two immedi-
ate successors is divisible by 24 is closest to
1 3 5 2
(A) 2
(B) 4
(C) 8
(D) 3

5. Each of the four entries of a 2 × 2 matrix is filled by independently

choosing either 1 or −1 uniformly at random. What is the probablity
that the matrix is singular?
1 1
(A) 16 (B) 4
1 1
(C) 2
(D) 3
6. We need to fill a 3 × 3 matrix by either 0 or 1 such that each row
has exactly one 0 and each column has exactly one 0. The number of
ways we can do this is
(A) 8 (B) 6
(C) 4 (D) 2

7. Let f : [0, 1] → R be a convex function with f (0) = 0. Which of the

following is always true for f ?

(A) f is differentiable
(B) f may not be differentiable but it is continuous
(C) f (x) ≥ xf 0 (x) for all x ∈ [0, 1] if f is differentiable
(D) none of the above

8. If f : R → R is strictly quasi-concave, then it follows that

(A) f is not strictly convex

(B) f is not linear
(C) f is monotonic
(D) if f is quadratic, then the coefficient of x2 ≤ 0

9. The rank of the matrix

 
2 1 0
 1 2 −1
 

−1 1 1

is
(A) 0 (B) 1
(C) 2 (D) 3

2
10. Let V be the vector space of polynomials p(x) of degree less than or
equal to 2 that have real coefficients. Then T is a linear transforma-
tion from V to V if T is defined by

(A) T (p(x)) = x + p(x)

(B) T (p(x)) = xp(x)
dp(x)
(C) T (p(x)) = dx
R
(D) T (p(x)) = p(x)dx where the constant of integration is taken to
be zero.

11. X is a random variable that can take values only in [0, 10].
2
P (X > 5) ≤ 5
and P (X < 1) ≤ 12 . Then

(A) E(X) ≥ 1
(B) E(X) ≤ 5
(C) E(X) ≥ 0.5 and E(X) ≤ 8.5
(D) None of the above is true

12. Given data (−1, 1), (0, 0), (1, 1) on (x, y), the standard deviations of
x and y and the correlation coefficient of x and y are respectively

√ √ √
(A) σx = 2/ 3, σy = 2/3, r=0
(B) σx = 2/3, σy = 2/9, r=0
(C) σx = 0, σy = 0, r is undefined
(D) None of the above

13. An island nation has two potential vaccine firms: denoted as 1 and
2. Both need to invest in R&D to manufacture vaccines. The cost of
R&D for firms 1 and 2 are f1 and f2 respectively. Once R&D is done,
the cost of per unit manufacturing of vaccine is drawn unformly from

3
 [0, 1]. The firms know their (fixed) cost of R&D but only know that
the cost of per unit manufacturing is uniformly drawn from [0, 1].

Total demand of vaccine is 1 unit and if firm i ∈ {1, 2} supplies

qi ∈ [0, 1] units and has a per unit cost of ci , it incurs a manufacuring
cost of ci qi (along with fi ).

Suppose both firms invest in R&D but only the lowest per unit cost
firm is chosen to supply the entire one unit of vaccine. What is the
total expected cost of vaccination (expected cost is the fixed cost of
R&D and expected cost of manufacturing)?
1 1
(A) f1 + f2 + 2
(B) f1 + f2 + 3
2 3
(C) f1 + f2 + 3
(D) f1 + f2 + 4

14. India and China produce only shirts and phones using only 2 factors
of production: either higher skilled labour H or low skilled labour L.
Shirts are high skill labour intensive while phones are low skill labour
intensive. The production function for each good is identical in both
countries. India and China have equal amounts of lower skilled labour,
but India has a greater amount of higher skilled labour. Which good
will India import?

(A) Shirts
(B) Phones
(C) Both Shirts and Phones
(D) Neither Shirts nor Phones

15. Consider a duopoly with market demand p = 10−q. The cost function
of firm 1 is 7q1 , and that of firm 2 is 2q2 , where qi is the quantity
produced by firm i, i = 1, 2. In equilibrium, firm 2 charges a price of:
(A) 7 (B) 6
(C) 10 (D) 0

4
16. Virat and Mithali eat rice and drink milk in exactly the same quan-
tities. The price of rice falls. In response, Virat increases the amount
of milk but decreases the amount of rice he consumes. Mithali, on the
other hand, increases both rice and milk consumption. Both Virat
and Mithali spend all their income on eating rice or drinking milk.
For Virat’s behaviour to be consistent with standard, well-behaved
indifference curves, his preferences over rice consumption imply that
for him, rice must be a:
(A) Inferior good (B) Giffen good
(C) Luxury good (D) Normal good

17. If the short-run IS-LM equilibrium occurs at a level of income above

the natural rate of output, in the long run output will return to the
natural rate via
(A) an increase in the price level
(B) a decrease in the interest rate
(C) an increase in the money supply
(D) a downward shift of the consumption function

18. If the short-run aggregate supply curve is steep, the Phillips curve will
be:
(A) flat
(B) steep
(C) backward-bending
(D) unrelated to the slope of the short-run aggregate supply curve

19. There are no capital controls between the US and the UK. If the
interest rate is higher in the US than in the UK, then we can conclude
that
(A) The US dollar is expected to appreciate with respect to the pound
(the UK’s currency)
(B) The pound is expected to appreciate with respect to the US dollar

5
 (C) The interest rate in the US is expected to increase
(D) The interest rate in the US is expected to decrease

20. Suppose there are two countries, B and C, that have no trade and no
financial transactions with any countries except each other. B imports
a total of goods worth 10 million bollars from C, where a bollar is a
unit of B’s currency. B has no exports. Which of the following must
be true?
(A) B has a capital account deficit
(B) C has a current account deficit
(C) C is buying assets from B.
(D) The exchange rate of collars per bollar is bigger than 1, where a
collar is a unit of C’s currency.

21. Inventory investment can be expected to

(A) rise when the real interest rate rises, other things being equal
(B) not depend on the real interest rate, other things being equal
(C) fall when the real interest rate rises, other things being equal
(D) depend only on the change in real GDP

22. A cake of size 1 is to be divided among two individuals 1 and 2.

Let xi be the share of the cake going to individual i, i = 1, 2, where
0 ≤ xi ≤ 1. The utility functions are u1 (x1 , x2 ) = x1 , and u2 (x1 , x2 ) =
x2 + |x1 − x2 |, where |a| is the absolute value of a. The Pareto optimal
cake divisions include:
(A) (1, 0) (B) (1/2, 1/2)
(C) (3/4, 1/4) (D) None of the above

23. Rohit spends all his money on dosas and filter coffee. He stays in
Delhi where each dosa and filter coffee cost the same. He eats 15
dosas and drinks 35 filter coffees in a week. He gets a chance to move
to either Chennai or Bangalore. In Chennai, he can just afford to have

6
 40 dosas and 10 filter coffees in a week. Like in Delhi, each dosa and
filter coffee cost the same. In Bangalore, he can just afford to have
10 dosas and 20 filter coffees in a week. Here, 2 filter coffees costs the
same as 1 dosa. Where will Rohit prefer to stay?
(A) Delhi (B) Chennai
(C) Bangalore (D) Indifferent between Delhi
and Chennai

24. Consider the IS-LM model with the real interest rate, R, on the
vertical axis and output, Y, on the horizontal axis. Now suppose
that the central bank chooses R for the economy, based on its own
assessment, at R = R̄. In this case the LM curve will

(A) not exist

(B) will be horizontal at R = R̄
(C) upward sloping like the usual LM curve
(D) None of the other options

25. Consider a supply-demand diagram for the labor market with an up-
ward sloping labor supply curve (Ls ) and a downward sloping labor
demand curve (Ld ). Let the wage be on the vertical axis, and the
level of employment (L) be on the horizontal axis. Suppose the wage
is rigid above the equilibrium wage at w̄, i.e., it fails to adjust to clear
the labor market. Then a reduction in labor demand leads to

(A) A larger reduction in employment compared to the case if wages

were flexible
(B) A smaller reduction in employment compared to the case if wages
were flexible
(C) The same reduction in employment compared to the case if wages
were flexible
(D) None of the other options.

7
1. The number of ways in which the word PANDEMIC can be
arranged such that the vowels appear together is

(A) 6 × (3!)(5!) (B) 5 × (3!)(5!)

(C) 4 × (3!)(5!) (D) 1 × (3!)(5!)

2. Consider the functions f (x) = x2 − x − 1 and g(x) = x + 1,

both defined for all real values of x. Let α1 > 0 be the positive
real root and α2 < 0 be the negative real root of the equation
f (x) = 0. Let β1 > 0 be the positive real root and β2 < 0 be the
negative real root of the equation f (g(x)) = 0. After identifying
the exact values of α1 , α2 , β1 and β2 , identify which one of the
following four statements is incorrect.
(A) α1 − β1 = α2 − β2 = 1
(B) α1 + β2 = α2 + β1 = 0
√
(C) α1 + β1 = −(α2 + β2 ) = 5
(D) α1 + α2 = −(β1 + β2 ) = −1

√
3. Let the function f (x) = 1 − 1 − x2 be defined only over all x
belonging in [0, 1]. Then f (1 − f (x)) equals

(A) x (B) 1 − x
(C) x2 (D) 1 − x2

4. Suppose f (x) is increasing, concave and twice differentiable and

g(x) is decreasing, convex and twice differentiable. Then the
function G(x) = g(f (x)) is
(A) increasing and convex
(B) decreasing and convex
(C) increasing and concave
(D) decreasing and concave

1
5. Let A and B be two non-singular matrices of the same order
and let C be a matrix such that C = BAB −1 . Then for any
scalar λ, the value of det(C + λI) (where I is the identity
matrix) is

(A) detA (B) detB

(C) det(A + λI) (D) det(B + λI)

6. Suppose that f : R → R is a twice differentiable function

satisfying f ′′ (x) > 0 for all x ∈ R. Furthermore, assume that
f (1) = 1 and f (2) = 2. Then,

(A) 0 < f ′ (2) < 1 (B) f ′ (2) > 1

(C) f ′ (2) = 1 (D) f ′ (2) = 0

7. The value of limx→e loge x−1

x−e
is

(A) 0 (B) e
(C) 1
e
(D) None of these

8. Let f : [0, ∞) → R be a function such that f (0) = 0 and

f ′′ (x) > 0 for all x > 0. Then the function g : (0, ∞) → R,
defined by g(x) = f (x)
x
, is
(A) increasing in (0, ∞)
(B) decreasing in (0, ∞)
(C) increasing in (0, 1] and decreasing in (1, ∞)
(D) decreasing in (0, 1] and increasing in (1, ∞)

9. Let f : A → B be a function where A = {1, 2, 3, 4, 5} and

B = {1, 2}. How many onto functions can one generate?

(A) 52 − 1 (B) 52 − 2
(C) 25 − 1 (D) 25 − 2

2
 x
10. Let f : R → R be a function defined by f (x) = for all
1 + x2
x ∈ R. Then,

(A) −1 ≤ f (x) ≤ 1 (B) −1 ≤ f (x) ≤ 1/2

(C) −1/2 ≤ f (x) ≤ 1 (D) −1/2 ≤ f (x) ≤ 1/2

11. If a 3 × 3 matrix A has rank 3 and a 3 × 4 matrix B has rank

3, then the rank of AB is

(A) 3 (B) 4 (C) 6 (D) 7

 
2 0 3 1 −1
 
2 3 1 −10
 
12. Let A = 
3 1 2  . Which one is an eigenvalue of
0 −1
 
1 2 3 −1 0 
2 1 −1 0 3
A?

(A) 2 (B) 1 (C) 3 (D) 5

13. Let A be a 5 × 5 non-null singular matrix. Then which of the

following statement is true?
(A) Ax = 0 has only a trivial solution
(B) Ax = 0 has 5 solutions
(C) Ax = 0 has no solution
(D) Ax = 0 has infinitely many solutions

14. A family has two children. What is the probability that both
are boys given that at least one is a boy?

(A) 1
2
(B) 2
3
(C) 1
3
(D) 1
4

3
15. Consider two boxes, one containing one black ball and one
white ball, the other containing two white balls and one black
ball. A box is selected at random, and a ball is selected at
random from the selected box. What is the probability that the
ball is black?

(A) 5
12
(B) 2
5
(C) 1
6
(D) 5
11

16. The function f : R → R, defined by f (x) = (x2 + 1)2022 , is

(A) one-one but not onto

(B) onto but not one-one
(C) both one-one and onto
(D) neither one-one nor onto

17. Consider an economy with two goods X and Y . Let the utility
√
function be given by u(x, y) = A xy where A > 0, x ≥ 0 is
the amount of good X consumed and y ≥ 0 is the amount of
good Y consumed. Suppose that the budget constraint is given
by PX x + PY y ≤ M where M > 0 is the money income of
the consumer and PX and PY are the prices of the goods X
and Y , respectively. Let PX = PY > 1 and let (x∗ , y ∗ ) be the
equilibrium quantities of this consumer who maximizes utility
subject to the budget constraint. Then,

(A) it must always be that x∗ > y ∗

(B) it must always be that x∗ = y ∗
(C) it must always be that x∗ < y ∗
(D) it must always be that x∗ + y ∗ = M

18. Consider the utility function u(x1 , x2 ) = 3x1 + 2x2 of a

consumer defined for all x1 ≥ 0 and x2 ≥ 0. Let the price

4
 of good 1 be p1 > 0 and that of good 2 be p2 > 0. Let M > 0 be
the money income of the consumer. Consider the optimization
problem maxx1 ≥0,x2 ≥0 3x1 + 2x2 subject to 2x1 + 3x2 ≤ M . The
associated Lagrangian function for this maximization problem
is L(x1 , x2 ; λ) = 3x1 + 2x2 + λ[M − 2x1 − 3x2 ]; where λ denotes
the non-negative Lagrangian multiplier. Then the equilibrium
solution (x∗1 , x∗2 , λ∗ ) to this Lagrangian function maximization
problem is
M
(A) (x∗1 = 2
, x∗2 = 0, λ∗ = 23 )
M
(B) (x∗1 = 2
, x∗2 = 0, λ∗ = 32 )
(C) (x∗1 = 0, x∗2 = M3 , λ∗ = 23 )
M
(D) (x∗1 = 0, x∗2 = 3
, λ∗ = 32 )

19. Consider a two good economy where the two goods are X and
Y and consider two consumers A and B. In a month when the
price of good X was Rs. 2 and that of good Y was Rs. 3,
consumer A consumed 3 units of good X and 8 units of good Y
and consumer B consumed 6 units of both goods. In the next
month, when the price of good X was Rs. 3 and that of good
Y was Rs. 2, consumer A consumed 8 units of good X and 3
units of good Y and consumer B consumed 4 units of good X
and 9 units of good Y . Given this information which one of the
following statements is correct?
(A) Both consumers satisfy the weak axiom of revealed
preference
(B) Neither consumer satisfies the weak axiom of revealed
preference
(C) Consumer A satisfies the weak axiom of revealed preference
but not consumer B
(D) Consumer B satisfies the weak axiom of revealed preference
but not consumer A

5
20. Let the production function be Y (L, K) = min{2L, K}, where
L and K are the amounts of labor and capital, respectively.
Consider the cost function C(L, K) = wL + rK, where w > 0
denotes the price of labor and r > 0 denotes the price of capital.
Suppose that (L∗ , K ∗ ) is the combination of labor and capital at
which cost is minimized subject to the constraint Y (L, K) ≥ Ȳ .
Then,

(A) L∗ = Ȳ and K ∗ = Ȳ /2
(B) L∗ = Ȳ and K ∗ = Ȳ
(C) L∗ = Ȳ /2 and K ∗ = Ȳ
(D) None of the other options is correct

21. Suppose that there are two firms 1 and 2 that produce the same
good. Let the inverted demand function be P (q1 , q2 ) = 1−q1 −q2 ,
where firm 1 produces q1 ≥ 0 and firm 2 produces q2 ≥ 0.
Suppose that the cost function of firm i ∈ {1, 2} is given by
( )
ci (qi ) = κi qi , where κi ∈ 0, 12 . Note that there is no fixed cost
for either firm. Then, the Cournot equilibrium profit of firm 2
is

(A) (1−κ1 +κ2 )2

9
(B) (1−κ2 +κ1 )2
9
(C) (1−2κ1 +κ2 )2
9
(D) (1−2κ2 +κ1 )2
9

22. A non-transitive preference relation can be represented by a

utility function

(A) Always
(B) Only if preferences are complete
(C) Only if preferences are complete and convex
(D) Never

6
23. Which of the following statements is correct in a two-good
world?

(A) Diminishing marginal utility of both goods is sufficient for

diminishing marginal rate of substitution

(B) Diminishing marginal utility of both goods is necessary for

diminishing marginal rate of substitution

(C) Diminishing marginal utility of at least one good is

necessary for diminishing marginal rate of substitution

(D) Diminishing marginal utility of at least one good is neither

necessary nor sufficient for diminishing marginal rate of
substitution

24. Rahul consumes two goods, X and Y , in amounts x and y,

respectively. Rahul’s utility function is U (x, y) = min{x, y}.
Rahul makes Rs 200; the price of X and price of Y are both
Rs 2. Rahul’s boss is thinking of sending him to another town
where the price of X is Rs 2 and the price of Y is Rs 3. The boss
offers no raise in pay. Rahul, who understands compensating
and equivalent variations perfectly, complains bitterly. He says
that although he doesn’t mind moving for its own sake and the
town is just as pleasant as the old, having to move is as bad as
a cut in pay of Rs A in his current location. He also says that
he would not mind moving if, when he moved, he got a raise of
Rs B. What are A and B equal to?

(A) A = 30, B = 70 (B) A = 40, B = 50

(C) A = 50, B = 75 (D) A = 60, B = 60

7
25. Let U (x, y) = −[(10 − x)2 + (10 − y)2 ] be a utility function of
some consumer. All prices are equal to 1, and income is 40.
Then the optimal values of x and y will be

(A) 10, 10 (B) 0, 0

(C) 5, 5 (D) None of these

26. Consider a production function be F (K, L) = min{ Ka , Lb }; a, b >

0 and a ̸= b. For any given K = K > 0, the marginal
productivity of labor is

(A) 0
(B) 1
a
if L < ( ab )K and 0 otherwise
(C) 1
b
if L < ( ab )K and 0 if L > ( ab )K
(D) None of the above

27. Let ei (p0 ) be the price elasticity of demand for a good X

of consumer i (i = 2, · · · , N ) at price p0 , given its demand
function. Consumers do not consume identical amounts of X
at p0 . Then the price elasticity of demand at price p0 for the
aggregate demand function for X is
∑ ∑
(A) ∑ i (ei (p0 ))2 (B) i ei (p0 )
(C) i ei (p0 )
N
(D) None of these

28. There are m identical competitive firms in an industry. Every

firm has the (total) cost function C(q) = q 2 + 1, where q is the
level of its output, q ≥ 0. Industry demand for the product is
given by D(P ) = a − bP , where P is price, and a, b > 0. Then
the short-run equilibrium output of each firm is

(A) 0 (B) a
m+2b
(C) m
a
+b
(D) a
m+ 2b
2

8
29. Suppose the (total) cost function for a monopolist is
C = 3q 2 + 800, where q is its output. The inverse
market demand function is p = 280 − 4q. What is the
price elasticity of demand at the profit maximizing price?

(A) −4.5 (B) −3.5 (C) −2.5 (D) −1.5

30. Consider the Solow growth model with constant average saving
propensity s, rate of depreciation δ, and labor supply growth
rate n. There is no technological progress. Then, at steady
state, the capital-output ratio is

(A) s
n+δ
(B) n
δ+n
(C) δ
s+n
(D) 1
s+n+δ

9
 SYLLABUS AND SAMPLE QUESTIONS FOR MSQE
(Program Code: MQEK and MQED)
2015
Syllabus for PEA (Mathematics), 2015

Algebra: Binomial Theorem, AP, GP, HP, Exponential, Logarithmic Series,

Sequence, Permutations and Combinations, Theory of Polynomial Equations;
(up to third degree).

Matrix Algebra: Vectors and Matrices, Matrix Operations, Determinants.

Calculus: Functions, Limits, Continuity, Differentiation of functions of one
or more variables. Unconstrained Optimization, Definite and Indefinite In-
tegrals: Integration by parts and integration by substitution, Constrained
optimization of functions of not more than two variables.

Elementary Statistics: Elementary probability theory, measures of central

tendency, dispersion, correlation and regression, probability distributions,
standard distributions-Binomial and Normal.

Sample questions for PEA (Mathematics), 2015

1. lim
sin{ x }, where {x} = decimalpart of x, is
x →0+
{ x}
(a) 0 (b) 1 (c) non-existent (d)none of these

2. f : [0, 1]→ [0, 1] is continuous.Then it is true that

(a) f (0) = 0, f (1) = 1

1
(b) f is differentiable only at x =
2
(c) is constant for all ∈ 0,1
(d) = for at least one ∈ [0,1]

3. f ( x) = x − 2 + x − 4 .Then f is
(a) continuously differentiable at x = 2
(b) differentiable but not continuously differentiable at x = 2
(c) f has both left and right derivatives at x = 2
(d) none of these
4. In an examination of 100 students, 70 passed in Mathematics, 65 passed in Physics
and 55 passed in Chemistry. Out of these students, 35 passed in all the three subjects,
50 passed in Mathematics and Physics, 45 passed in Mathematics and Chemistry and
40 passed in Physics and Chemistry.Then the number of students who passed in
exactly one subject is

(a) 30 (b) 25 (c) 10 (d) none of these

a b
5. The square matrix of the matrix is a null matrix if and only if
c 0
(a) = = = 0
(b) = = 0, is any non-zero real number
(c) a = b = 0 , c is any non-zero real number
(d) a = 0 and either = 0 = 0
6. If the positive numbers x, y, z are in harmonic progression, then
log (x + z) + log (x – 2y + z) equals

(a) 4 log ( x − z ) (b) 3 log ( x − z )

(c) 2 log ( x − z ) (d) log ( x − z )

7. If f (x+2y, x-2y)= xy, then f (x,y) equals

x2 − y2 x2 − y2 x2 + y2
(a) (b) (c) (d) none of these
8 4 4

8. The domain of the function f ( x) = x 2 − 1 − log ( 1 − x ) ,x≥ 0,is

(a) −∞, -1) (b) (− 1, 0) (c) null set (d) none of these

9. The graph of the function y = log (1 − 2 x + x 2 ) intersects the x axis at

(a) 0, 2 (b) 0,- 2 (c) 2 (d) 0

10. The sum of two positive integers is 100.The minimum value of the sum of their
reciprocals is

3 6 1
(a) (b) (c) (d) none of these
25 25 25
11. The range of the function f ( x) = 4 x + 2 x + 4 − x + 2 − x + 3 , where ∈ −∞, ∞ , is

3  3 
(a)  , ∞  (b)  , ∞  (c) (7, ∞ ) (d) [7, ∞ )
4  4 

12. The function f : R → R satisfies f ( x + y ) = f ( x ) + f ( y ) ∀ x, y ∈ R , where R is the

n
real line, and f (1) = 7 .Then ∑r =1
f (r ) equals

7n 7(n + 1) 7 n (n + 1)
(a) (b) (c) (d) 7 n ( n + 1)
2 2 2

13. Let f and g be differentiable functions for 0 < x < 1 and f (0) = g (0) = 0, f (1) = 6
.Suppose that for all x ∈ (0, 1) , the equality f ' ( x ) = 2 g ' ( x ) holds. Then g(1) equals

(a) 1 (b) 3 (c) -2 (d) -1

14. Consider the real valued function f ( x) = ax 2 + bx + c defined on [1, 2].Then it is

always possible to get a k ∈ (1, 2) such that

(a) =2 + (b) = +2 (c) =3 + (d) none of these

1
15. In a sequence the first term is .The second term equals the first term divided by 1
3
more than the first term. The third term equals the second term divided by 1 more
than the second term, and so on. Then the 500thterm is
1 1 1
(a) (b) (c) (d) none of these
503 501 502

16. In how many ways can three persons, each throwing a single die once, make a score
of 10?

(a) 6 (b) 18 (c) 27 (d) 36

17. Let a be a positive integer greater than 2.The number of values of x for which
+ = 0 holds is

(a) 1 (b) 2 (c) a (d) a + 1

∗ ∗
18. Let , be a solution to any optimization problem , ∈ℜ" , subject to
#$ , ≤
Let ,
′ ′
$. be a solution to the same optimization problem
, ∈ℜ" , subject to #$ , ≤ $ with an added constraint that #& , ≤
& .Then which one of the following statements is always true?
∗ ∗ ∗ ∗
(a) , ≥ , )
′ ′
(b) , ≤ ,
′ ′
∗ ∗ ∗ ∗
(c) | , |≥| , |
′ ′
(d) | , |≤| , |
′ ′

19. Let ∗ , ∗ be a real solution to: , ∈ℜ" √ + subject to * + ≤ , where

> 0, * > 0 and ∗ ∈ 0, .Then which one of the following statements is true?
(a) ∗ depends only on p (b) ∗ depends only on m
(c) ∗ depends on both p and m (d) ∗ is independent of both p and m.

20. Let 0 < $ < & < 1 and let ; $, &= −| − $ | − | − & |.Let X be the set of
all values of x for which ; $, & achieves its maximum. Then
$2 "
(a) . = { | ∈ 0 ,
&
1
&
3} (b) . = { | ∈ { $ , & }}
12 "
(c) . = { | ∈ 00, &
, 13} (d) . = { | ∈ [ $ , & ]}.

21. Let A and B be two events with positive probability each, defined on the same sample
space. Find the correct answer:
(a) P(A/B) > P(A) always (b) P(A/B) < P(A) always
(c) P(A/B) > P(B) always (d) None of the above

22. Let A and B be two mutually exclusive events with positive probability each, defined
on the same sample space. Find the correct answer:
(b) A and B are necessarily independent
(c) A and B are necessarily dependent
(d) A and B are necessarily equally likely
(e) None of the above

23. The salaries of 16 players of a football club are given below (units are in thousands of
rupees).
100, 100, 111, 114, 165, 210, 225, 225, 230,
575, 1200, 1900, 2100, 2100, 2650, 3300
 Now suppose each player received an extra Rs. 200,000 as bonus. Find the correct
answer:
(a) Mean will increase by Rs. 200,000 but the median will not change
(b) Both mean and median will be increased by Rs. 200,000
(c) Mean and standard deviation will both be changed
(d) Standard deviation will be increased but the median will be unchanged

24. Let Pr(X=2)= 1. Define 5&6 = 7 . − 5 &6 , 5 = 7 . . Then:

(a) 5&6 =2 (b) 5&6 =0 (c) 5&6 > 0 (d) None of the above

25. Consider a positively skewed distribution. Find the correct answer on the position of
the mean and the median:

(a) Mean is greater than median (b) Mean is smaller than median
(c) Mean and median are same (d) None of the above

26. Puja and Priya play a fair game (i.e. winning probability is ½ for both players)
repeatedly for one rupee per game. If originally Puja has a rupees and Priya
has b rupees (where a>b), what is Puja’s chances of winning all of Priya’s money,
assuming the play goes on until one person has lost all her money?

(a) 1 (b) 0 (c) b/(a+b) (d) a/(a+b)

27. An urn contains w white balls and b black balls (w>0) and (b>0).The balls are
thoroughly mixed and two are drawn, one after the other, without replacement.
Let Wi denote the outcome 'white on the i-th draw' for i=1,2.Which one of the
following is true?
(a) P(W2) = P(W1) = w/(w+b)
(b) P(W2) = P(W1) = (w-1)/(w+b-1)
(c) P(W1)= w/(w+b), P(W2)= (w-1)/(w+b-1)
(d) P(W1)= w/(w+b), P(W2) = {w(w-1)}/{(w-b)(w+b-1)}

28. A bag contains four pieces of paper, each labeled with one of the digits 1, 2, 3, 4, with
no repeats. Three of these pieces are drawn, one at a time without replacement, to
construct a three-digit number. What is the probability that the three-digit number is a
multiple of 3?

(a) ¾ (b) ½ (c) ¼ (d) 9/24

 29. Consider two random variables X and Y where X takes values -2,-1,0,1,2 each with
probability 1/5 and Y=|X|. Which of the following is true?
(a) The variables X and Yare independent and Pearson's correlation coefficient
between X and Y is 0.
(b) The variables X and Y are dependent and Pearson's correlation coefficient
between X and Y is 0.
(c) The variables X and Y are independent and Pearson's correlation coefficient
between X and Y is 1.
(d) The variables X and Y are dependent and Pearson's correlation coefficient
between X and Y is 1.
30. Two friends who take the metro to their jobs from the same station arrive to the
station uniformly randomly between 7 and 7:20 in the morning. They are willing to
wait for one another for 5 minutes, after which they take a train whether together or
alone. What is the probability of their meeting at the station?

(a) 5/20 (b) 25/400 (c) 10/20 (d) 7/16

Syllabus for PEB (Economics), 2015

Microeconomics: Theory of consumer behaviour, theory of production, market structure

under perfect competition, monopoly, price discrimination, duopoly with Cournot and
Bertrand competition (elementary problems) and welfare economics.

Macroeconomics: National income accounting, simple Keynesian Model of income

determination and the multiplier, IS-LM model, models of aggregate demand and
aggregate supply, Harrod-Domar and Solow models of growth, money, banking and
inflation.

Sample questions for PEB (Economics), 2015

1. Consider an agent in an economy with two goods .$ and .&.Suppose she has income
20.Suppose also that when she consumes amounts $ and & of the two goods
respectively, she gets utility
< $ , & = 2 $ + 32 & − 3 & & .
(a) Suppose the prices of .$ and .& are each 1.What is the agent's optimal
consumption bundle? [5 marks]
(b) Suppose the price of .& increases to 4, all else remaining the same.Which
consumption bundle does the agent choose now? [5 marks]
(c) How much extra income must the agent be given to compensate her for the
increase in price of .&? [10 marks]
2. Suppose a government agency has a monopoly in the provision of internet
connections. The marginal cost of providing internet connections is ½, whereas the
inverse demand function is given by: p = 1 – q. The official charge per connection is
set at 0; thus, the state provides a subsidy of ½ per connection. However, the state can
only provide budgetary support for the supply of 0.4 units, which it raises through
taxes on consumers. Bureaucrats in charge of sanctioning internet connections are in
a position to ask for bribes, and consumers are willing to pay them in order to get
connections. Bureaucrats cannot, however, increase supply beyond 0.4 units.
(a) Find the equilibrium bribe rate per connection and the social surplus.
[5 marks]
(b) Now suppose the government agency is privatized and the market is
deregulated; however, due large fixed costs of entry relative to demand, the
privatized company continues to maintain its monopoly. Find the new
equilibrium price, bribe rate and social surplus, specifying whether
privatization increases or reduces them. [10 marks]
(c) Suppose now a technological innovation becomes available to the privatized
monopoly, which reduces its marginal cost of providing an internet
connection to c, 0 < c < ½.Find the range of values of c for which
privatization increases consumers' surplus. [5 marks]
3. Suppose the borders of a state, B, coincide with the circumference of a circle of
radius r > 0, and its population is distributed uniformly within its borders (so that the
proportion of the population living within some region of B is simply the proportion
of the state's total land mass contained in that region), with total population
normalized to 1.For any resident of B, the cost of travelling a distance d is kd, with k>
0.Every resident of B is endowed with an income of 10, and is willing to spend up to
this amount to consume one unit of a good, G, which is imported from outside the
state at zero transport cost. The Finance Minister of B has imposed an entry tax at the
rate 100t% on shipments of G brought into B. Thus, a unit of G costs p(1+t) inside
the borders of B, but can be purchased for just p outside; p(1+t) < 10.Individual
residents of B have to decide whether to travel beyond its borders to consume the
good or to purchase it inside the state. Individuals can travel anywhere to shop and
consume, but have to return to their place of origin afterwards.
(a) Find the proportion of the population of B which will evade the entry tax by
shopping outside the state. [5 marks]
(b) Find the social welfare-maximizing tax rate. Also find the necessary and
sufficient conditions for it to be identical to the revenue-maximizing tax rate.
[5 marks]
(c) Assume that the revenue-maximizing tax rate is initially positive. Find the
elasticity of tax revenue with respect to the external price of G, supposing that
the Finance Minister always chooses the revenue-maximizing tax rate.
[10 marks]

4. Suppose there are two firms, 1 and 2, each producing chocolate, at 0 marginal cost.
However, one firm's product is not identical to the product of the other. The inverse
demand functions are as follows:
*$ = =$ − $$ >$ − $& >& , *& = =& − &$ >$ − && >& ;
where *$ and >$ are respectively price obtained and quantity produced by firm 1 and
*& and >& are respectively price obtained and quantity produced by firm
2.=$ , =& , $$ , $& , &$ , && are all positive.Assume the firms choose independently
how much to produce.
(a) How much do the two firms produce, assuming both produce positive
quantities? [10 marks]
(b) What conditions on the parameters =$ , =& , $$ , $& , &$ , && are together both
necessary and sufficient to ensure that both firms produce positive quantities?
[5 marks]
(c) Under what set of conditions on these parameters does this model reduce to
the standard Cournot model? [5 marks]
5. Suppose a firm manufactures a good with labor as the only input. Its production
function is ? = @, where Q is output and L is total labor input employed. Suppose
further that the firm is a monopolist in the product market and a monopsonist in the
labor market. Workers may be male (M) or female (F); thus, @ = @A + @B .Let the
inverse demand function for output and the supply functions for gender-specific labor
C
be respectively * = = − & ; @D = ED FG , HD > 0; where p is the price received per unit of
the good and ED is the wage the firm pays to each unit of labor of gender I , I ∈
{J, K}.Let HA HB = 1.Suppose, in equilibrium, the firm is observed to hire both M and
F workers, but pay M workers double the wage rate that it pays F workers.
(a) Derive the exact numerical value of the elasticity of supply of male labor. [10
marks]
(b) What happens to total male labor income as a proportion of total labor income
when the output demand parameter A increases? Prove your claim.
[10 marks]

6. An economy comprises of a consolidated household sector, a firm sector and the

government. The household supplies labour (@) to the firm.The firm produces a single
good (L) by means of a production functionL = K @ ; K > 0, K′′ < 0, and
maximizes profits Π = PY − WL ,where N is the price of L and O is the wage rate.The
household, besides earning wages, is also entitled to the profits of the firm. The
household maximizes utility (P), given by:
1 1 M
U = ln C + ln − d ( L) ;
2 2 P
M
where C is consumption of the good and is real balance holding. The term @
P
denotes the disutility from supplying labour; with > 0, > 0.The household's
budget constraint is given by:
NQ + J = O@ + R + J − NS;
where M is the money holding the household begins with, J is the holding they end
up with and S is the real taxes levied by the government. The government's demand
for the good is given by T .The government's budget constraint is given by:
J − J = NT − NS.
Goods market clearing implies: Y = C + G .
UV
(a) Prove that ∈ 0,1 , and that government expenditure crowds out private
UW
UX
consumption (i.e., UW < 0). [15 marks]
(b) Show that everything else remaining the same, a rise in J leads to an equi-
proportionate rise in P. [5 marks]
7. Consider the Solow growth model in continuous time, where the exogenous rate of
technological progress, g, is zero. Consider an intensive form production function
given by:
= Y − 6 [ + 11 & − 6 ; (1)
\
where = ]
(the capital labour ratio).
(a) Specify the assumptions made with regard to the underlying extensive form
production function K ^, @ in the Solow growth model, and explain which
ones among these assumptions are violated by (1). [10 marks]
(b) Graphically show that, with a suitable value of _ + ` , where _ is the
population growth rate, and ` ∈ [0,1] is the depreciation rate on capital, there
exist three steady state equilibria. [5 marks]
(c) Explain which of these steady state equilibria are locally unstable, and which
are locally stable. Also explain whether any of these equilibria can be globally
stable. [5 marks]

8. Consider a standard Solow model in discrete time, with the law of motion of capital is
given by
^ a+1 = 1−` ^ a +b a ,
where b a is investment at time t and^ a is the capital stock at time t; the capital
stock depreciates at the rate ` ∈ [0,1].Suppose output, L a , is augmented by
government spending, T a , in every period, and that the economy is closed; thus:
L a =Q a +b a +T a ,
where Q a is consumption at time t. Imagine that government spending is given by:
T a = cL a ,
where c ∈ [0,1].
(a) Suppose that: Q a = ∅ − ec L a ; where e ∈ [0,1].Derive the effect of
higher government spending (in the form of higher c) on the steady state
equilibrium. [10 marks]
(b) Does a higher c lead to a lower value of the capital stock in every period (i.e,
along the entire transition path)? Prove your claim. [10 marks]
 SYLLABUS FOR MSQE
(Program Code: MQEK and MQED) 2016

Syllabus for PEA (Mathematics), 2016

Algebra: Binomial Theorem, AP, GP, HP, Exponential, Logarithmic Series,

Sequence, Permutations and Combinations, Theory of Polynomial Equations;
(up to third degree).

Matrix Algebra: Vectors and Matrices, Matrix Operations, Determinants.

Calculus: Functions, Limits, Continuity, Differentiation of functions of one

or more variables. Unconstrained Optimization, Definite and Indefinite
Integrals: Integration by parts and integration by substitution, Constrained
optimization of functions of not more than two variables.

Elementary Statistics: Elementary probability theory, measures of central

tendency, dispersion, correlation and regression, probability distributions,
standard distributions-Binomial and Normal.

Syllabus for PEB (Economics), 2016

Microeconomics: Theory of consumer behaviour, theory of production,

market structure under perfect competition, monopoly, price discrimination,
duopoly with Cournot and Bertrand competition (elementary problems) and
welfare economics.

Macroeconomics: National income accounting, simple Keynesian Model of

income determination and the multiplier, IS-LM Model, models of aggregate
demand and aggregate supply, Harrod-Domar and Solow models of growth,
money, banking and inflation.
 PEB (2016)
Answer any 6 questions. All questions carry equal marks.

1. Consider an exchange economy consisting of two individuals 1 and 2, and two goods,
X and Y. The utility function of individual 1 is U1 = X1 + Y1 , and that of individual 2 is
min{X2 , Y2 }, where Xi (resp. Yi ) is the amount of X (resp. Y ) consumed by individual i,
where i = 1, 2. Individual 1 has 4 units of X and 8 units of Y, and individual 2 has 6 units
of X and 4 units of Y to begin with.

(i) What is the set of Pareto optimal outcomes in this economy? Justify your answer.

(ii) What is the competitive equilibrium in this economy? Justify your answer.

(iii) Are the perfectly competitive equilibria Pareto optimal?

(iv) Now consider another economy where everything is as before, apart from individual
2’s preferences, which are as follows: (a) among any two any bundles consisting of X and
Y, individual 2 prefers the bundle which has a larger amount of commodity X irrespective
of the amount of commodity Y in the two bundles, and (b) between any two bundles with
the same amount of X, she prefers the one with a larger amount of Y . Find the set of
Pareto optimal outcomes in this economy. [6]+[6]+[2]+[6]

2. Consider a monopolist who can sell in the domestic market, as well as in the export
market. In the domestic market she faces a demand pd = 10 − qd , where pd and qd are
domestic price and demand respectively. In the export market she can sell unlimited
2
quantities at a price of 4. Suppose the monopolist has a single plant with cost function q4 .

(a) Solve for total output, domestic sale and exports of the monopolist.

(b) Solve for the domestic and world welfare at this equilibrium. [10]+[10]

3. A consumer consumes electricity, denoted by E, and butter, denoted by B. The per

unit price of B is 1. To consume electricity the consumer has to pay a fixed charge R, and
a per unit price of p. If consumption of E ≤ 12 then p = 1; otherwise p = 2. The utility
function of the consumer is 3E + B, and her income is I > R.

(i) Draw the consumer’s budget line.

(ii) If R = 0 and I = 1, find the consumer’s optimal consumption of E and B.

(iii) Consider a different pricing scheme where there is a rental charge of R and the price
of E is 1 for any X ≤ 1/2, and every additional unit beyond 12 is priced at p = 2. Find the
optimal consumption of B and E when R = 1 and I = 3. [7]+[7]+[6]
1
2

4. A monopoly publishing house publishes a magazine, earning revenue from selling the
magazine, as well as by publishing advertisements. Thus R = q.p(q) + A(q), where R is
total revenue, q denotes quantity, p(q) is the inverse demand function, and A(q) is the
advertising revenue. Assume that p(q) is decreasing and A(q) is increasing in q. The cost
of production c(q) is also increasing in the quantity sold. Assume all functions are twice
differentiable in q.

(i) Derive the profit-maximising outcome.

(ii) Is the marginal revenue curve necessarily negatively sloped?

(iii) Can the monopolist fix the price of the magazine below the marginal cost of pro-
duction?[7]+[7]+[6]

5. Consider a Solow style growth model where the production function is given by
Yt = At F (Kt , Ht )
where Yt = output of the final good, Kt is the capital stock, At = the level of technology,
and Ht = the quantity of labor used in production (the labor force). Assume technology
is equal to At = A0 (1 + α)t where α > 0 is the growth rate of technology, A0 is the time 0
level of technology, and Ht+1 = (1+n)Ht , where n > 0 is the labour force growth rate. The
production function is homogenous of degree 1 and satisfies the usual properties. (Assume
that inputs are essential and Inada conditions hold). Assume that capital evolves according
to
Kt+1 = (1 − δ)Kt + It
where It is the level of investment.

(i) Define yt = Ht .Show

Yt
that
yt = At f (kt )
where f (k) = F (k, 1).

(ii) Define kt = Kt
Ht and it = It
Ht . Show that
(1 − δ)kt + it
kt+1 =
1+n

(iii) Suppose the savings rate is given by st = σyt where σ ∈ [0, 1]. Derive the condition
that determines the steady state capital stock when α = 0. How many non-zero steady
states are there ?

(iv) Let γt = kt+1

kt be the gross growth rate. Suppose α = 0. Derive an expression for γt
dγt
and evaluate and discuss the sign for dk t
.
 3

kt+1
(v) Let f (kt ) = ktθ , A0 = 1, and α > 0. Along a balanced growth path show that kt
and yt+1
yt grow at the same rate. [2]+[3]+[5]+[5]+[5]

6. Consider the aggregate supply curve for an economy given by

Pt = Pte (1 + μ)F (ut , z)
where Pt = actual price level at time period t, Pte = expected prices at time t, and the
function, F, given by,
F (ut , z) = 1 − αut + z
captures the effects of the unemployment rate (ut ) at time t and the level of unemploment
benefits (z) on the price level (through their effects on wages). Assume μ > 0 denotes the
monopoly markup. Assume μ and z are constant.

(i) Show that the aggregate supply curve can be transformed to be written in terms of
πt (the inflation rate) and the expected inflation rate, πte , i.e. πt = πte + (μ + z) − αut ,
P e −Pt
where πt = Pt−1Pt−Pt and πte = t+1Pt . What is this equation called ? Briefly interpret it.

(ii) Now assume that πte = θπt−1 where θ > 0. What is this equation called ? Re-write
the equation in the above bullet and interpret when θ = 1 and θ = 1.

(iii) Let πte = πt−1 Derive the natura rate of unemployment, and express the change in
the inflation rate in terms of the natural rate. Briefly interpret this equation.

(iv) How would you think about wage indexation in this model ? Does wage indexation
increase the effect of unemployment on inflation? Assume πte = πt−1 . [8]+[3]+[6]+[6]

7. Consider an inter-temporal choice problem in which a consumer maximises utility,

u(c2 )
U (c1 , c2 ) = u(c1 ) + ,
1+δ
where ci is the consumption in period i, i = 1, 2, and δ is the discount factor (measure of
the consumer’s impatience), subject to
c2 Y2
c1 + = Y1 + ≡ W,
1+δ 1+r
where Yi is the consumer’s income in period i = 1, 2, and r is the rate of interest. Assume
ci > 1 ∀i.

(i) Let u(ci ) = log(ci ). Find a condition such that there is consumption smoothing.

(ii) Plot the two cases where (a) the consumer biases its consumption towards the future,
and (b) where the consumer biases it consumption towards the present. Put c2 on the
vertical axis and c1 on the horizontal axis.

(iii) Suppose there is consumption smoothing. Solve for c∗1 = c1 (r, Y1 , Y2 ). Interpret this
equation.
4

(iv) Define YP , the permanent income, as that constant stream of income (YP , YP ) which
gives the same lifetime income as does the fluctuating income stream (Y1 , Y2 ). What does
this imply about the optimal choice of c1 , c2 , and YP ? Interpret your result graphically.
[5]+[6]+[4]+[5]

8. Consider a cake of size 1 which can be divided between two individuals, A and B. Let
α (resp. β) be the amount allocated to A (resp. B), where α + β = 1 and 0 ≤ α, β ≤ 1.
Agents A’s utility function is uA (α) = α and that of agent B is uB (β) = β.

(i) What is the set of Pareto optimal allocations in this economy?

(ii) Suppose A is asked to cut the cake in two parts, after which B can choose which of
the two segments to pick for herself, leaving the other segment for agent A. How should A
cut the cake?

(iii) Suppose A is altruistic, and his utility function puts weight on what B obtains, i.e.
uA (α, β) = α + μβ, where μ is the weight on agent B’s utility. (a) If 0 < μ < 1, does the
answer to either 8(i) or 8(ii) change? (b) What if μ > 1? [5]+[5]+[10]

9. A firm uses four inputs to produce an output with a production function

f (x1 , x2 , x3 , x4 ) = min{x1 , x2 } + min{x3 , x4 }.

(i) Suppose that 1 unit of output is to be produced and factor prices are 1, 2, 3 and 4 for
x1 , x2 , x3 and x4 respectively. Solve for the optimal factor demands.

(ii) Derive the cost function.

(iii) What kind of returns to scale does this technology exhibit? [6]+[8]+[6]

10. Consider an IS-LM model where the sectoral demand functions are given by
C = 90 + 0.75Y,
G = 30, I = 300 − 50r,
M M
( )d = 0.25Y − 62.5r, ( )s = 500.
P P
Any disequilibrium in the international money market is corrected instantaneously through
a change in r. However, any disequilibrium in the goods market, which is corrected through
a change in Y , takes much longer to be eliminated.
(a) Now consider an initial situation where Y = 2500, r = 1/5. What is the change in
the level of I that must occur before there is any change in the level of Y ?
(b) Draw a graph to explain your answer.
(c) Calculate the value of (r, Y ) that puts both the money and goods market in equilib-
rium. What is the value of investment at this point compared to (r = 2, Y = 2500)?
[10]+[5]+[5]
1. A researcher has 100 hours of work which have to be allocated
between two research assistants, Aditya and Gaurav. If Aditya is
allocated x hours of work, his utility is, −(x − 20)2 . If Gaurav is
allocated x hours of work, his utility is, −(x − 30)2 . The researcher
is considering two proposals: (I) Aditya does 60 hours and Gaurav
40 hours (II) Aditya does 90 hours and Gaurav 10 hours. Which
of the following statements is correct.
A. Proposal I is Pareto-efficient but Proposal II is not.
B. Proposal II is Pareto-efficient but Proposal I is not.
C. Both proposals are Pareto-efficient.
D. Neither proposal is Pareto-efficient.

2. The industry demand curve for tea is: Q = 1800 − 200P. The in-
dustry exhibits constant long run average cost (ATC) at all levels
of output at Rs 1.50 per unit of output. Which market form(s)
– perfect competition, pure monopoly and first-degree price dis-
crimination – has the highest total market (that is, producer +
consumer) surplus?
A. perfect competition
B. pure monopoly
C. first degree price discrimination
D. perfect competition and first degree price discrimination

3. The following information will be used in the next question also.

OIL Inc. is a monopoly in the local oil refinement market. The
demand for refined oil is

Q = 75 − P

where P is the price in rupees and Q is the quantity, while the

marginal cost of production is

M C = 0.5Q.

The fixed cost is zero. Pollution is emitted in the refinement of

oil which generates a marginal external cost (MEC) equal to 31
Rs/unit. What is the level of Q that maximizes social surplus?

1
 A. 50
B. 29 31
C. 17.6
D. 44

4. Refer to the previous question. Suppose the government decides to

impose a per unit pollution fee on OIL Inc. At what level should
the fee (in Rs/unit) be set to produce the level of output that
maximizes social surplus? You may use the fact that the marginal
revenue is given by: M R = 75 − 2Q.
A. 1/3
B. 2
C. 3/4
D. 5/3

5. Mr. X has an exogenous income W, and his utility from consump-

tion is given by U (c). With probability p, an accident can occur.
If it occurs, the monetary equivalent of the damage is T. Mr. X
can however affect the accident probability, p, by taking preven-
tion effort, e . In particular, e can take two values: 0, and a > 0.
Assume that p(0) > p(a). Let us also assume that the utility cost
of effort is Ae2 . Calculate the value of A below which effort will be
undertaken.
[p(a)−p(0)][u(W −T )−U (W )]
A. a2
p(a)−p(0)
B. u(W −T )−U (W )
p(a)p(0)a2
C. u(W −T )−u(W )
p(a)/p(0)
D. u(W −T )/u(W )
a2

6. Suppose Mr. X maximizes inter-temporal utility for 2 periods. His

total utility is given by

log(c1 ) + β log(c2 )

where β ∈ (0, 1) and c1 and c2 are his consumption in period 1

and period 2, respectively. Suppose he earns a wage only in period

2
 1 and it is given by W. He saves for the second period on which
he enjoys a gross return of (1 + r) where r > 0 is the net interest
rate. Suppose the government implements a scheme where T ≥ 0
is collected from agents (thus also from Mr. X) in the first year,
and gives the same amount, T , back in the second period. What
is the optimum T for which his total utility is maximized?
A. T = 0
W
B. T = 2β
βW
C. T = 2(1−β)
W
D. T = 2(1−β)

7. Suppose there is one company in an economy which has a fixed

supply of shares in the short run. Suppose there is new information
that causes expectations of lower future profits. How does this new
stock market equilibrium affect final output and the final price
level of the economy if you assume that autonomous consumption
spending and household wealth are positively related?
A. real GDP increases; price decreases
B. real GDP decreases; price increases
C. real GDP decreases; price decreases
D. real GDP increases; price stays constant.

8. A monopolist faces a demand function, p = 10 − q. It has two

plants at its disposal. The cost of producing q1 in the first plant is
300 + q12 , if q1 > 0, and 0 otherwise. The cost of producing q2 in
the second plant is 200 + q22 , if q2 > 0, and 0 otherwise. What are
the optimal production levels in the two plants?
A. 10 units in both plants,
B. 20 units in the first plant and 10 units in the second plant
C. 0 units in the first plant and 15 units in the second plant
D. None of the above.

3
 9. Consider a firm facing three consumers, 1, 2 and 3, with the follow-
ing valuations for two goods, X and Y (All consumers consume at
most 1 unit of X and 1 unit of Y .)

Consumers X Y
1 7 1
2 4 5
3 1 6
The firm can produce both goods at a cost of zero. Suppose the
firm can supply both goods at a constant per unit price of pX for
X, and py for Y. It can also supply the two goods as a bundle, for
a price of pXY . The optimal vector of prices (pX , py , pXY ) is given
by
A. (7,6,9).
B. (4,1,4).
C. (7,7,7).
D. None of the above.

10. Two individuals, Bishal (B) and Julie (J), discover a stream of
mountain spring water. They each separately decide to bottle some
of this water and sell it. For simplicity, presume that the cost of
production is zero. The market demand for bottled water is given
by P = 90−0.25Q, where P is price per bottle and Q is the number
of bottles. What would Bishal’s output QB , Julie’s output QJ ,
and the market price be if the two individuals behaved as Cournot
duopolists?
A. QB = 120; QJ = 120; P = 42
B. QB = 90; QJ = 90; P = 30
C. QB = 120; QJ = 120; P = 30
D. QB = 100; QJ = 120; P = 30

11. The next three questions (11, 12, 13) are to be answered together.
Consider the following model of a closed economy

4
 △Y = △C + △I + △G
△C = c△Yd
△Yd = △Y − △T
△T = t△Y + △T0

where △Y = change in GDP, △C = change in consumption, △I =

change in private investment, △G = change in government spend-
ing, △Yd = change in disposable income (i.e., after tax income),
△T = the change in total tax collections, t is the tax rate between
(0, 1), and △T0 = the change in that portion of tax collections that
can be altered by government fiscal policy measures. The value of
the balanced budget multiplier (in terms of G and T0 ) is given by:
1
A. 1−c(1−t)
−c
B. 1−c(1−t)
1−c
C. 1−c(1−t)
D. none of the above.

12. Refer to the previous question. Suppose the marginal propensity

to consume, c = .8, and t = .375. The value of the government
expenditure multiplier is
A. 2,
B. -1.6
C. .4
D. .5

13. Refer to the previous two questions. Suppose the marginal propen-
sity to consume, c = .8, and t = .375. The value of the tax multiplier
(with respect to T0 ) is
A. -1.6
B. 2
C. .4
D. .3

5
14. In the IS-LM model, a policy plan to increase national savings
(public and private) without changing the level of GDP, using any
combination of fiscal and monetary policy involves
A. contractionary fiscal policy, contractionary monetary pol-
icy
B. expansionary fiscal policy, contractionary monetary pol-
icy
C. contractionary fiscal policy, expansionary monetary pol-
icy
D. expansionary fiscal policy, expansionary monetary policy

15. Consider the IS-LM-BP model with flexible exchange rates but with
no capital mobility. Consider an increase in the money supply. At
the new equilibrium, the interest rate is , the exchange rate
is , and the level of GDP is , respectively.
A. higher, lower, higher
B. lower, higher, higher
C. lower, higher, lower
D. higher, lower, lower

16. Consider a Solow model of an economy that is characterized by the

following parameters: population growth, n; the depreciation rate,
δ; the level of technology, A; and the share of capital in output,
α. Per-capita consumption is given by c = (1 − s)y where s is the
exogenous savings rate, and y = Ak α , where y denotes output per-
capita, and k denotes the per-capita capital stock. The economy’s
golden-rule capital stock is determined by which of the following
conditions?
A. ∂c
∂k
= Ak α − (n + δ)k = 0
B. ∂c
∂k
= αAk α−1 − (n + δ) = 0
C. ∂c
∂k
= (n + δ)k − sAk α = 0
D. none of the above.

6
17. In the Ramsey model, also known as the optimal growth model,
with population growth, n, and an exogenous rate of growth of
technological progress, g, the steady-state growth rates of aggregate
output, Y, aggregate capital, K, and aggregate consumption, C, are
A. 0, 0, 0
B. n + g, n + g, n + g
C. g, n + g, n
D. n + g, n + g, g

18. Consider the standard formulation of the Phillips Curve,

πt − πte = −α(ut − un )

where πt is the current inflation rate, πte is the expected inflation

rate, α is a parameter, and un is the natural rate of unemployment.
Suppose the economy has two types of labour contracts: a propor-
tion, λ, that are indexed to actual inflation, πt , and a proportion,
1 − λ, that are not indexed and simply respond to last year’s infla-
tion, πt−1 . Wage indexation (relative to no indexation) will
the effect of unemployment on inflation.
A. strongly decrease
B. increase
C. not change
D. mildly decrease

19. Consider a Harrod-Domar style growth model with a (i) Leontieff

aggregate production function, (ii) no technological progress, and
(iii) a constant savings rate. Let K and L denote the level of
capital and labor employed in the economy. Output, Y, is produced
according to
Y = min{AK, BL}
where A and B are positive constants. Let L̄ be the full employment
level. Under what condition will there be positive unemployment?
A. AK > B L̄
B. AK < B L̄

7
 C. AK = B L̄
D. none of the above.

20. The next two questions (20 and 21) are to be answered together.
People in a certain city get utility from driving their cars but each
car releases k units of pollution per km driven. The net utility of
each person is his or her utility from driving, v, minus the total
pollution generated by everyone else. Person i’s net utility is given
by
∑
n
Ui (x1 , ..., xn ) = v(xi ) − kxj
j=1
j̸=i

where xj is km driven by person j, n is the city population, and

the utility of driving v has an inverted U-shape with v(0) = 0,
limx→0+ v ′ (x) = ∞, v ′′ (x) < 0, and v(x̄) = 0 for some x̄ > 0. In an
unregulated city, an increase in population will
A. increase the km driven per person
B. decrease the km driven per person
C. leave the km driven per person unchanged
D. may or may not increase the km driven per person.

21. Refer to the information given in the previous question. A city

planner decides to impose a tax per km driven and sets the tax
rate in order to maximize the total net utility of the residents.
Then, if the population increases, the optimal tax will
A. increase
B. decrease
C. stay unchanged
D. may or may not increase.

22. The production function

F (L, K) = (L + 10)1/2 K 1/2

has

8
 A. increasing returns to scale
B. constant returns to scale
C. decreasing returns to scale
D. none of the above.

23. Consider the production functions

F (L, K) = L1/2 K 2/3 and G(L, K) = LK.

where L denotes labour and K denotes capital.

A. F is consistent with the law of diminishing returns to
capital but G is not.
B. G is consistent with the law of diminishing returns to
capital but F is not.
C. Both F and G are consistent with the law of diminishing
returns to capital
D. Neither F nor G is consistent with the law of diminishing
returns to capital

24. A public good is one that is non-rivalrous and non-excludable. Con-

sider a cable TV channel and a congested city street.
A. A cable TV channel is a public good but a congested city
street is not
B. A congested city street is a public good but a cable TV
channel is not
C. Neither is a public good
D. Both are public goods.

25. Firm A’s cost of producing output level y > 0 is, cA (y) = 1 + y
while Firm B’s cost of producing output level y is, cB (y) = y(1−y)2

A. A can operate in a perfectly competitive industry but B

cannot
B. B can operate in a perfectly competitive industry but A
cannot

9
 C. Neither could operate in a perfectly competitive industry
D. Either could operate in a perfectly competitive industry.

26. Suppose we generically refer to a New Keynesian model as a model

with a non vertical aggregate supply (AS) curve. Under sticky
prices, the AS curve will be , and under sticky wages, the AS
curve will be , respectively.
A. horizontal, upward sloping
B. upward sloping, upward sloping
C. downward sloping, horizontal
D. upward sloping, horizontal

27. With perfect capital mobility, and , monetary policy is

at influencing output.
A. fixed exchange rates, effective
B. fixed exchange rates, ineffective
C. flexible exchange rates, ineffective
D. none of the above are correct

28. The next three questions (28, 29 and 30) use the following infor-
mation. Consider an economy with two goods, x and y, and two
consumers, A and B, with endowments (x, y) given by (1, 0) and
(0, 1) respectively. A’s utility is

UA (x, y) = x + 2y

while B’s utility is

UB (x, y) = 2x + y.
Using an Edgeworth box with x measured on the horizontal axis
and y measured on the vertical axis, with A’s origin in the bottom-
left corner and B’s origin in the top-right corner, the set of Pareto-
optimal allocations is

A. a straight line segment

B. the bottom and right edges of the box

10
 C. the left and top edges of the box
D. none of the above.

29. Referring to the information given in the previous question, the

following allocations are the ones that may be achieved in some
competitive equilibrium.
A. (0,1)
B. The line segment joining (0, 1/2) to (0, 1) and the line
segment joining (0, 1) to (1/2, 1)
C. The line segment joining (1/2, 0) to (1, 0) and the line
segment joining (1, 0) to 1, 1/2)
D. (1,0)

30. Referring to the information given in the previous two questions, if

the price of y is 1, then the price of x in a competitive equilibrium
A. must be 1/2
B. must be 1
C. must be 2
D. could be any of the above.

11
 There are 6 questions: 2 in Group A, 2 in Group B, and 2 in Group C.

Answer 4 questions in total and at least 1 question from each Group.

Each question carries equal marks.

The maximum possible score is 100.

Group A
1. Suppose a government agency has a monopoly in the provision of internet connections.
The marginal cost of providing internet connections is 12 , whereas the inverse demand
function is given by: p = 1 q. The o¢ cial charge per connection is set at 0; thus,
1
the state provides a subsidy of 2
per connection. However, the state can only provide
budgetary support for the supply of 0:4 units, which it raises through taxes on con-
sumers. Bureaucrats in charge of sanctioning internet connections are in a position
to ask for bribes, and consumers are willing to pay them in order to get connections.
Bureaucrats cannot, however, increase supply beyond 0:4 units.

(a) Find the equilibrium bribe rate per connection and the social surplus.
(b) Now suppose the government agency is privatized and the market is deregulated;
however, due large …xed costs of entry relative to demand, the privatized company
continues to maintain its monopoly. Find the new equilibrium price, bribe rate
and social surplus, specifying whether privatization increases or reduces them.
(c) Suppose now a technological innovation becomes available to the privatized monopoly,
which reduces its marginal cost of providing an internet connection to c, 0 < c < 12 .
Find the range of values of c for which privatization increases consumers’surplus.

2. Consider an exchange economy consisting of two individuals 1 and 2, and two goods,
X and Y . The utility function of individual 1 is U1 = X1 + Y1 , and that of individual
2 is minfX2 ; Y2 g, where Xi (resp. Yi ) is the amount of X (resp. Y ) consumed by
individual i, where i = 1; 2. Individual 1 has 4 units of X and 8 units of Y , and
individual 2 has 6 units of X and 4 units of Y to begin with.

(a) What is the set of Pareto optimal outcomes in this economy? Justify your answer.
(b) What is the competitive equilibrium in this economy? Justify your answer.

1
 (c) Are the perfectly competitive equilibria Pareto optimal?
(d) Now consider another economy where everything is as before, apart from individ-
ual 2’s preferences, which are as follows: (a) among any two bundles consisting
of X and Y , individual 2 prefers the bundle which has a larger amount of com-
modity X irrespective of the amount of commodity Y in the two bundles, and (b)
between any two bundles with the same amount of X, she prefers the one with a
larger amount of Y . Find the set of Pareto optimal outcomes in this economy.

Group B
1. An economy comprises of a consolidated household sector, a …rm sector and the gov-
ernment. The household supplies labour (L) to the …rm. The …rm produces a single
good (Y ) by means of a production function Y = F (L) ; F 0 (L) > 0, F 00 (L) < 0; and
maximizes pro…ts = PY W L, where P is the price of Y and W is the wage rate.
The household, besides earning wages, is also entitled to the pro…ts of the …rm. The
household maximizes utility (U ), given by

U = 12 ln C + 21 ln M
P
d (L) ;

M
where C is consumption of the good and P
is real balance holding. The term d (L) de-
notes the disutility from supplying labour with d0 (L) > 0, d00 (L) > 0: The household’s
budget constraint is given by:

PC + M = WL + +M P T;

where M is the money holding the household begins with, M is the holding they end
up with and T is the real taxes levied by the government. The government’s demand
for the good is given by G. The government’s budget constraint is given by:

M M = PG P T:

Goods market clearing implies Y = C + G:

dY
(a) Prove that dG
2 (0; 1) ; and that government expenditure crowds out private
dC
consumption (i.e., dG
< 0).
(b) Show that everything else remaining the same, a rise in M leads to an equipro-
portionate rise in P .

2
2. Consider an IS-LM model where the sectoral demand functions are given by

C = 90 + 0:75Y;
G = 30;
I = 300 50r;
M
P d
= 0:25Y 62:5r;
M
P s
= 500:

Any disequilibrium in the international money market is corrected instantaneously

through a change in r. However, any disequilibrium in the goods market, which is
corrected through a change in Y , takes much longer to be eliminated.

(a) Consider an initial situation where Y = 2500, r = 15 . What is the change in the
level of I that must occur before there is any change in the level of Y ?
(b) Draw a graph to explain your answer.
(c) Calculate the value of (r; Y ) that puts both the money and goods market in
equilibrium. What is the value of investment at this point compared to (r =
0:2; Y = 2500)?

Group C
1. Answer the following questions.

(a) Let f : R ! R be a function de…ned as

jxj
f (x) = 8 x 2 R n f0g:
2x
Can f (0) be de…ned in a way such that f is continuous at 0? Justify your answer.
(b) Consider the following optimization problem:

max x(1 x);

x2[0; ]

where 2 [0; 1]. Let x be an optimal solution of the above optimization problem.
For what values of will we have x = ?
(c) A …rm is producing two products a and b. The market price (per unit) of a and b
are respectively 3 and 2. The …rm has resources to produce only 10 units of a and
b together. Also, the quantity of a produced cannot exceed double the quantity
of b produced. What is the revenue-maximizing production plan (i.e., how many
units of a and b) of the …rm?

3
2. Answer the following questions.

(a) A slip of paper is given to person A, who marks it with either (+) or ( ). The
probability of her writing (+) is 13 . Then, the slip is passed sequentially to B; C,
2
and D. Each of them either changes the sign on the slip with probability 3
or
1
leaves it as it is with probability 3
.

i. Compute the probability that the …nal sign is (+) if A wrote (+).
ii. Compute the probability that the …nal sign is (+) if A wrote ( ).
iii. Compute the probability that A wrote (+) if the …nal sign is (+).

(b) There are n houses on a street numbered h1 ; : : : ; hn . Each house can either be
painted blue or red.

i. How many ways can the houses h1 ; : : : ; hn be painted?

ii. Suppose n 4 and the houses are situated on n points on a circle. There
is an additional constraint on painting the houses: exactly two houses need
to be painted blue and they cannot be next to each other. How many ways
can the houses h1 ; : : : ; hn be painted under this new constraint?
iii. How will your answer to the previous question change if the houses are located
on n points on a line.

4
 PEB
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 Group A
1. [30 marks: 5+10 +15].

Let X1 , ..., Xn be independent and identically distributed random variables

with a uniform distribution on (0, θ] where θ > 0.

(a) [5 marks] Write down the joint probability density function of X1 , ..., Xn .

(b) [10 marks] Suppose xi is a realization of Xi , for each i = 1, ..., n. And

suppose the value of θ is unknown. Find the value of θ that maximizes
the joint p.d.f. in part (a) given that x1 , ..., xn have been observed. (This
is called the maximum likelihood estimate of θ.)

(c) [15 marks] Consider the function: f (x, y) = x2 + y 2 − 2x

(i) Find the maximum value of f over the region {(x, y) | 2x2 + 3y 2 −
2x ≤ 100}
(ii) Find the minimum value of f over the region {(x, y) | 2x2 + 3y 2 −
2x ≥ 100}

2. [30 marks: 3+5+10+6+6]

A tournament consists of n players and all possible C(n, 2) = n(n−1)2 pair-

wise matches between them. There are no ties in a match: in any match, one
of the two players wins. The score of a player is the number of matches she
wins out of all her (n − 1) matches in the tournament. Denote the score vector
of the tournament as s ≡ (s1 , . . . , sn ) and assume without loss of generality
s1 ≥ s2 ≥ . . . ≥ sn .

(a) (3 marks) For any 2 ≤ k ≤ n, show that s1 + . . . + sk ≥ C(k, 2), where

C(k, 2) = k(k−1)
2 .

(b) (5 marks) Suppose n > 3 and players 1, 2, 3 win every match against
players in {4, . . . , n}. Find the value of s4 + . . . + sn ?

(c) (10 marks) Suppose sn = s0 , sn−1 = s0 + 1, sn−2 = s0 + 2 for some

positive integer s0 and n ≥ 3. Show that
(n − 2)(n − 3)
s0 ≤ .
2n

(d) (6 marks) A tournament generates a score vector s such that

sj − sj+1 = 1 for all j ∈ {1, . . . , n − 1}.

1
 What is the score vector of this tournament? For every Player j, who does
Player j beat in this tournament?

(e) (6 marks) Suppose there are six players, i.e., n = 6. There is a tourna-
ment such that each player has a score of at least two and difference in
scores of any two players is not more than one. What is the score vec-
tor of this tournament? Construct a tournament (describing who beats
who) which generates this score vector.

3. [30 marks: 6+6+6+4+8]

Consider the following equation in x:

(x − 1)(x − 2) · · · (x − n) = k, (1)

where n > 1 is a positive integer and k is a real number. Argue whether

the following statements are true or false by providing a proof or a counter
example.

(a) (6 marks) Suppose n = 2. There is a real solution to Equation (1) for

every value of k.

(b) (6 marks) Suppose n = 3. There is a real solution to Equation (1) for

every value of k.

(c) (6 marks) For all k ≥ 0 and for every positive integer n > 1, there is a
real solution to Equation (1).

(d) (4 marks) For all k < 0 and for every odd positive integer n > 1, there
is a real solution to Equation (1)

(e) (8 marks) For all k < 0, there is some even positive integer n such that
a real solution to Equation (1) exists.

2
 Group B
1. Consider an economy inhabited by identical agents of size 1. A represen-
tative agent’s preference over consumption (c) and labour supply (l) is
given by the utility function

u (c, l) = cα (24 − l)1−α , 0 < α < 1.

Production of the consumption good c is given by the production func-

tion c = Al, where A > 0 is the productivity of labour. Both the com-
modity market and labour market are perfectly competitive: the buyers
and sellers take the price as given while taking demand and supply de-
cisions. Let us denote the hourly wage rate by w > 0 and price of the
consumption good by p > 0.

(a) [25 marks: 13 + 7 + 5] Competitive Equilibrium:

A competitive equilibrium is given by the allocation of consumption and

labour, cCE , lCE , and the relative price ratio, wp , such that, given w

and p, a representative agent decides her labour supply, lS , and con-

sumption demand, cD , to maximize her utility; a firm decides its labour
demand, lD , and supply of consumption good, cS , to maximize its profit;
and, finally, both the commodity market and labour market clear, that
is, lD = lS and cD = cS .

(i) [13 marks] Set up the representative agent’s utility maximization

problem. Write down the first order conditions for this maximiza-
tion problem and determine lS and cD as functions of w and p.
(ii) [7 marks] Set up a firm’s profit maximization problem. Determine
lD and cS as functions of w and p.
(iii) [5 marks] Determine the competitive equilibrium allocation, cCE , lCE ,

and the relative price ratio, wp .

(b) [5 marks] Pareto efficient allocation:

For this economy define the concept of a Pareto efficient allocation of

consumption and labour. Find out a Pareto efficient allocation of consumption
and labour in this economy. Provide a clear explanation.

3
 2. [30 marks = 12 + 18]

(a) [12 marks] Ms. A’s income consists of Rs.1,00,000 per year from pension
plus the earnings from whatever she sells of the 2,000 kilograms of rice
she harvests annually from her farm. She spends this income on rice (x)
and on all other expenses (y). All other expenses (y) are measured in
rupees, so that the price of y is Rs. 1. Last year rice was sold for Rs. 20
per kilogram, and Ms. A’s rice consumption was 2,000 kilograms, just
the amount produced on her farm. This year the price of rice is Rs. 30
per kilogram. Ms. A has standard convex preferences over rice and all
other expenses. Answer the following two questions without referring to
any utility function or indifference curves.

(i) [7 marks] What will happen to her rice consumption this year –
increase, decrease, or remain the same? Give a clear explanation
for your answer.
(ii) [5 marks] Will she be better or worse off this year compared to last
year? Explain clearly.

(b) [18 marks] There are two goods x and y. Mr. B has standard convex
preferences over the two goods. He has endowments of ex > 0 units of
good x and ey > 0 units of good y. He does not have any other source
of income. When the price of good y is Rs. 1 and the price of good x is
Rs. px , he decides neither to buy nor to sell good x.

(i) [8 marks] Suppose that, for good x, the prices have become Rs.
pL < px if an individual is a seller and Rs. pH > px if an individual
is a buyer. The price of good y remains Rs. 1 no matter whether
an individual buys or sells good y. Write down the equation of the
new budget constraint and draw it labelling the important points
clearly.
(ii) [10 marks] Will Mr. B buy or sell good x? By how much? Give
a clear explanation for your answer without referring to any utility
function or indifference curves.

4
 3. [30 marks = 6+7+7+10]
Consider a moneylender who faces two types of potential borrowers: the
safe type and the risky type. Each type of borrower needs a loan of the same
size L to invest in some project. The borrower can repay only if the investment
produces sufficient returns to cover the repayment. Suppose that the safe type
is always able to obtain a secure return of R from the investment, where R > L.
On the other hand, the risky type is an uncertain prospect; he can obtain a
higher return R0 (where R0 > R), but only with probability p. With probability
1 − p, his investment backfires and he gets a return of 0. The money lender has
enough funds to lend to just one applicant, and there are two of them – one
risky, one safe. Each borrower knows his own type, but the moneylender does
not know the borrower’s type. He just knows that one borrower is a safe type
and the other one is a risky type. Since the moneylender has enough funds
to lend to just one applicant, when both the borrowers apply for the loan, he
gives the loan randomly to one of them, say by tossing a coin. Assume that
the lender supplies the loan from his own resources and his opportunity cost
is zero.
(a) [6 marks] What is the highest interest rate, call it is , for which the
safe borrower wants the loan? What is the highest interest rate, ir , for
which the risky borrower wants the loan? Who is willing to pay a higher
interest rate, the risky borrower or the safe borrower?
(b) [7 marks] The lender’s objective is to maximize his expected profit.
Argue clearly that the lender’s effective choice is between two interest
rates, is and ir . (That is, argue that the lender will not choose any
interest rate strictly lower than min {ir , is } , any interest rate strictly
higher than max {ir , is } , or any interest rate strictly in between ir and
is .)
(c) [7 marks] Argue that when the lender charges ir , his expected profit is
given by p (1 + ir ) L − L. Derive, with a clear argument, the expression
of lender’s expected profit when he charges is .
(d) [10 marks] An equilibrium with credit rationing occurs when, at the
equilibrium interest rate, some borrowers who want to obtain loans are
unable to do so; however, lenders do not raise the interest rate to elimi-
nate the excess demand.

Explain clearly that we have an equilibrium with credit rationing when

R
p< .
2R0
−R

5
 Group C
1. [30 marks=3+8+2+10+4+3]

Consider an economy where identical agents (of mass 1) live for two peri-
ods: youth (period 1) and old age (period 2). The utility function of a repre-
sentative agent born at time t is given by

u (c1,t , c2,t+1 ) = log (c1,t ) + β log (c2,t+1 ) ,

where c1 denotes consumption in youth, c2 denotes consumption in old age,

and 0 < β < 1 is the discount factor reflecting her time preference. In her
youth the representative agent supplies her endowment of 1 unit of labour
inelastically and receives the market-determined wage rate wt . So in her youth
the agent faces the budget constraint c1,t + st = wt , where st denotes her
savings. When old, she just consumes her savings from youth plus the interest
earning on her savings, st rt+1 , where rt+1 is the market-determined interest
rate in period t + 1. That is, when old, her budget constraint is c2,t+1 =
(1 + rt+1 ) st .

(a) [3 marks] Set up the agent’s utility maximization problem by showing

her choice variables clearly.
(b) [8 marks] Write down the first order conditions for this maximization
problem and derive the savings function. Explain how savings, st , if it
does, depends on the interest rate rt+1 .

The production function of the economy is given by Yt = AKtα Lt1−α ,

0 < α < 1, where K and L denote the amounts of capital and labour in
the economy, respectively. Capital depreciates fully after use, that is, the
rate of depreciation of capital is one. Factor markets being competitive, the
equilibrium factor prices are given by their respective marginal products.

(c) [2 marks] Derive the equilibrium wage rate (wt ) of the economy in terms
of Kt . [Keep in mind that the mass of agents is 1 and each agent supplies
her endowment of 1 unit of labour inelastically.]

The role of the financial sector (banks, stock market, and so on) is to mo-
bilize the savings of households to bring it for effective use by the production
sector. But the financial sector does not work well and a fraction 0 < θ < 1
of aggregate savings gets lost (vanishes in thin air) in the process of interme-
diation.

(d) [10 marks] Derive the law of motion of capital (that is, express capital
in period t + 1, Kt+1 , in terms of capital in period t, Kt ).

6
(e) [4 marks] Derive the steady state amount of capital of the economy.

(f ) [3 marks] How does the steady state amount of capital depend on the
inefficiency of the financial sector θ?

2. [30 marks = 5+5+10+10]

Consider a Solow-Swan model with learning by doing. Assume that the

production function is of the form

Yt = Ktα (At Lt )1−α

where A is the level of technological progress and grows at the rate g > 0, L
is the population with grows at the rate n > 0, K is the capital stock, Y is
GDP, and α ∈ [0, 1]. Assume that

K̇ = sY − δK
K
Define Z = AL as the capital labor ratio in efficiency units. Let output per
worker be given by Q = AZ α . The parameter s ∈ [0, 1] denotes the savings
rate. The parameter δ ∈ [0, 1] denotes the depreciation on capital.

Ż
(a) [5 marks] Derive an expression for Z

(b) [5 marks] Instead of assuming that the rate of technological progress is

constant (g), now assume that the instantaneous increase in A is pro-
portional to output per worker, i.e., there is learning by doing

Ȧ = γQ.

Show that the law of motion of capital is given by

Ż = (s − γZ)Z α − (δ + n)Z

(c) [10 marks] Draw a diagram describing the dynamics of growth in the
model with learning by doing. Plot Z on the x − axis, and the appro-
priate functions on the y − axis

(d) [10 marks] In contrast to the model with no learning by doing, does an
increase in the investment rate raise the balanced-growth rate ? What
does this tell you about the change in policy having level effects versus
growth effects in the model with learning by doing in contrast to the
model when there is no learning by doing ? Show your answer using the
diagram in part (c).

7
 3. [30 marks =10+10+3+3+4 ]
PT n−t ln(c )
Suppose households who live till T periods maximize n=t β n
where cn represents their income in period n = t, t + 1, t + 2, ....T and β is
a parameter with 0 < β < 1. Suppose per period income and the saving
of households are yn and sn respectively and the activity starts from the
beginning of their life t. Further, the net interest rate on saving in between
any two periods is exogenously fixed at r and so the gross rate of return is
1 + r. Households have only two activities in every period - consuming and
saving.

(a) [10 marks] Write down the sequence of budget constraints (one for each
period) and the aggregate budget constraint derived from these periodic
budget constraints where on the left hand side, consumption levels for
all the periods appear, and on the right hand side, income in all periods
appears.

(b) [10 marks] Under what condition between β and r, is the optimal so-
lution for the above problem yield constant consumption, C,
f in every
period ?

(c) Suppose the condition that you derive in (b) holds. Then answer the
following questions in (c) and (d)

(i) [3 marks] For a transitory change in income in period t only, calcu-

late the change in the constant level of consumption, C.
e
(ii) [3 marks] For a transitory change in income in period t + k only,
calculate the change in the constant level of consumption, C.
e

(d) [4 marks] For a permanent change in income (assume the same amount
of income change in all periods), calculate the change in the constant
level of consumption, C.
e Compare this value derived with part c (i).

8
 Group A
1. Let f : ℜ → ℜ be a continuously differentiable function which has at
least three distinct zeros. (We say x is a zero of f if f (x) = 0). Let
g : ℜ → ℜ be defined as follows: g(x) = ex/2 f (x) for all x ∈ ℜ.

(i) Prove that g has at least three distinct zeros.

(ii) Prove that the function f + 2f ′ has at least two distinct zeros.

(10+20=30)

2. (i) Consider the following two variable optimization problem:

max (x2 + y 2 )
x,y

subject to
x+y ≤1
x, y ≥ 0

Find all solutions of this optimization problem.

(ii) In a kingdom far, far away, a King is in the habit of inviting 1000
senators to his annual party. As a tradition, each senator brings
the King a bottle of wine. One year, the Queen discovers that one
of the senators is trying to assassinate the King by giving him a
bottle of poisoned wine. Unfortunately, they do not know which
senator, nor which bottle of wine is poisoned, and the poison
is completely indiscernible. However, the King has 10 prisoners
he plans to execute. He decides to use them as taste testers to
determine which bottle of wine contains the poison. The poison
when taken has no effect on the prisoner until exactly 24 hours
later when the infected prisoner suddenly dies. The King needs
to determine which bottle of wine is poisoned by tomorrow so
that the festivities can continue as planned. Hence he only has
time for one round of testing. How can the King administer the
wine to the prisoners to ensure that 24 hours from now he is
guaranteed to have found the poisoned wine bottle?
(12+18=30)

1
3. (i) Let A and B be matrices for which the product AB is defined.
Show that if the columns of B are linearly dependent, then the
columns of AB are linearly dependent.
(ii) Let ei denote the column vector with three elements, each of
which is zero, except for the i-th element, which is 1. Consider
a linear transformation L : ℜ3 → ℜ3 with L(e1 ) = e1 , L(e2 ) =
e1 + e2 , and L(e3 ) = e2 + e3 . Does L map ℜ3 onto ℜ3 ? Prove
your answer.
(15+15=30)

2
 Group B

4. This question pertains to a situation in which a particular commodity,

like rice, is both available at a subsidised rate from a fair price shop
(ration shop) and at a higher price from the open market. Suppose
a consumer can buy a certain (fixed) quantity of rice at a lower price
from the ration shop (that is, there is a ration quota). In addition,
he can buy more of rice (assume a uniform quality of rice) from the
open market at a higher price. (You may assume that consumers
preferences are represented by standard downward sloping, smooth,
convex indifference curves.)

(i) Graphically depict the consumer’s equilibrium (assuming he ex-

hausts the ration quota and in addition buys from the open mar-
ket).
(ii) Suppose rice is a normal good. What will happen to the quan-
tity of rice purchased from the open market (over and above the
ration quota) in equilibrium if there is a cut in the ration quota?
Briefly explain.
(iii) Suppose rice is a normal good. What will happen to the quantity
purchased in the open market (over and above the ration quota)
if the subsidised price (price at which the ration quota rice could
be bought) is increased (but is still lower than the open market
price)? Will your conclusion change if rice is an inferior good?
Briefly explain.

(10+10+10=30)

3
5. There are plenty of fish in the Dull Lake. Boats can be hired by
fishermen to catch fish and sell it on the fish market. The revenue
earned each month from a total of x boats is given by the following
expression: Rupees 10, 000{4x − 12 x2 }. Each boat costs Rupees 20,000
each month.

(i) Derive the marginal and average revenue per boat

(ii) The Dull municipality is considering giving out permits for each
boat that fishes so they can track who is fishing from the lake. If
these permits are allocated freely, how many boats will fish every
month?
(iii) If total profit is to be the maximum possible, how many boats
should fish every month?
(iv) Dull municipality decides to charge for the permits instead of
giving them out for free. What should the per-boat charge for
the permit be if total profits are to be the maximum possible?

(5+10+5+10=30)

4
6. The Shoddy Theater screens movies every week and is located on a
university campus which has only students and faculty as residents.
It is the only source of watching movies for both faculty and students,
and is large enough to accomodate all faculty and students. Faculty
demand for movie tickets is given by 500 − 4PF = QF , where PF refers
to the price of the ticket paid by faculty and QF refers to the number
of tickets purchased by faculty. Demand by students is described by
100 − 2PS = QS , where PS refers to the price of the ticket paid by
students and QS refers to the number of tickets purchased by students.
The cost to service demand equals 500.

(i) If the price charged is to be the same for faculty and students,
what price would Shoddy Theater set in order to maximize its
profits?
(ii) Now imagine that Shoddy Theater decides to charge different
prices for faculty and students. What would these prices be, if
Shoddy Theater wants to maximize profits?

(15+15=30)

5
 Group C

7. Consider a Solow type economy, producing a single good, according

to the production function:

Y (t) = K(t)α L(t)(1−α)

Where, 0 < α < 1, and Y (t), K(t) and L(t) are the output of the
good, input of capital, and input of labour used in the production
of the good, respectively, at time t. Capital and labour are all fully
employed.

Labour force grows at the exogenous rate, η > 0, i.e.,

1 dL(t)
= η > 0.
L(t) dt

Part of the output is consumed and part saved. Let 0 < s < 1 be the
fraction of output that is saved and invested to build up the capital
stock. Also assume that there is no depreciation of capital stock.

Then it follows that:

dK(t)
sY (t) =
dt
d
Where dt
is the time derivative.

With this above given description of the economy, one can find out
the steady state growth rate of Y, for this economy. Growth rate of
1 dY (t)
output is given by: Y (t) dt
≡ gY .

Assume, the economy begins at date 0, from a per capita capital stock,
K(0)
k(0) ≡ L(0)
< k ∗ , where k ∗ denotes the steady state per capita capital
stock.

(i) Demonstrate formally, whether the growth rate of output (gY ),

at the beginning date 0, is greater, equal or less than the steady
state growth rate of output.

6
 (ii) For the same economy, consider, two alternative beginning date
scenarios: with per capita capital stock, given by:
Case 1. k(0); Case 2. k ′ (0). Where, k(0) < k ′ (0) < k ∗ Can you
compare the beginning date growth rates of output in the two
cases?
(iii) Next, consider two Solow type economies, namely, A and B. They
are isolated from each other and are working on their own. Both
the economies have absolutely the same description as given be-
fore, except for the fact that the fraction of income saved in
country A, denoted by sA is greater than the fraction of income
saved in country B, denoted by sB . Let k A (0) be the initial date
per capita capital stock in country A and k B (0), the initial date
per capita capital stock in country B, which are both less than
their respective steady state values. Assume, K A (0) < K B (0).
Can you figure out whether the initial date growth rate of out-
put in country A is greater than, equal or less than the initial
date growth rate of output in country B? In case you find the
data provided to you is insufficient to make any comment on this,
please point it out.

(20+5+5=30)

8. (i) What is the money multiplier? What determines its size? What
is the relation between the monetary base, the money multiplier,
and the money supply? Which of these variables can the central
bank change to change the money supply? What is the direction
of change in each case?
(ii) Why might the cash/deposit ratio and the reserve to asset ratio
be decreasing functions of the rate of interest? How does an
interest-sensitive money supply affect the LM curve? Illustrate
with a diagram, comparing this LM curve with the standard LM.
How does this change the effectiveness of counter-cyclical fiscal
policy (in a closed economy)? Explain.
(15+15=30)

7
9. (i) What is the difference between the real and the nominal exchange
rate? Give an example to explain this to someone who has not
studied economics. Is an increase in the real cost of imports an
improvement or a deterioration in the terms of trade?
(ii) A small open economy has a government budget surplus and a
trade deficit. Explain whether there is a private sector surplus,
deficit or balance. Examine the consequences in the short run for
output, the trade balance and the government budget balance of
a sudden fall in private consumption in this economy (due to an
epidemic in the small country) under (a) fixed exchange rates,
(b) flexible exchange rates. Use the Mundell-Fleming model with
perfect capital mobility. Explain the adjustment mechanisms.
(10+20=30)

8
 Group A

1. Answer the following questions.

(a) Find all maxima and minima of the function 𝑓(𝑥, 𝑦) = 𝑥𝑦,
subject to the constraints 𝑥 + 4𝑦 = 120 and 𝑥, 𝑦 ≥ 0.
(b) Find the points on the circle 𝑥 + 𝑦 = 50 which are closest to
and farthest from the point (1,1).
(c) For what values of 𝛼 are the vectors (0,1, 𝛼), (𝛼, 1,0) and
(1, 𝛼, 1) in ℛ linearly independent?
[10+15+5]

2. Let 𝑓: ℛ → ℛ be a continuous function.

(a) Let 𝑄 denote the set of rational numbers. Prove that, if

𝑓(𝑄) ⊆ {1,2,3, … }, then 𝑓 is a constant function.
(b) Calculate the value of 𝑓′(0) when 𝑓 is differentiable and
|𝑓(𝑥)| ≤ 𝑥 for all 𝑥 ∈ ℛ.
[20+10]

1
3. Suppose a set of 𝑁 = {1,2, … , 𝑛} political parties participated in an
election; 𝑛 ≥ 2. Suppose further that there were a total of 𝑉
voters, each of whom voted for exactly one party. Each party
𝑖 ∈ 𝑁 received a total of 𝑉 votes, so that 𝑉 = ∑ 𝑉 . Given the
vector (𝑉 , 𝑉 , … , 𝑉 ), whose elements are the total number of votes
received by the 𝑛 different parties, define 𝑃 (𝑉 , 𝑉 , … , 𝑉 ) as the
probability that two voters drawn at random with replacement
voted for different parties and define 𝑃 (𝑉 , 𝑉 , … , 𝑉 ) as the
probability that two voters drawn at random without replacement
voted for different parties. Answer the following questions.

(a) Derive the ratio as a function of 𝑉 alone.

(b) Consider the special case where 𝑉 = for all 𝑖 ∈ 𝑁. For this
case, find the probabilities 𝑃 and 𝑃 .
[25+5]

Group B
4. Consider an agent living for two periods, 1 and 2. The agent
maximizes lifetime utility, given by:
1
𝑈 (𝐶 ) + 𝑈 (𝐶 ),
(1 + 𝜌)
where 𝜌 > 0 captures the time preference, while 𝐶 and 𝐶 are the
agent’s consumption in period 1 and period 2, respectively. The
agent supplies one unit of labor inelastically in period 1, earning a
wage 𝑤. A portion of this wage is consumed in period 1 and rest is
saved (denoted 𝑠). In period 2 the agent does not work, but receives
interest income on the savings. Principal plus the interest income on
savings goes to finance period 2 consumption. Thus, 𝐶 + 𝑠 = 𝑤 and
𝐶 = (1 + 𝑟)𝑠, where 𝑟 is the rate of interest. Assume that the per
period utility function can be represented by (and only by) any
positive linear transformation of the form 𝑈(𝐶) = , where
0 < 𝜃 < 1.
2
 (a) Demonstrate, deriving your claim, how optimal savings, 𝑠, would
respond to changes in 𝑟 .
(b) Now suppose, initially, 𝑟 = 𝜌. What happens to optimal savings,
𝑠, if 𝑟 and 𝜌 increase by the same amount (so that the condition
𝑟 = 𝜌 continues to hold)?
[20+10]

5. A profit maximizing monopolist produces a good with the cost

function 𝐶(𝑥) = 𝑐𝑥, 𝑐 > 0, where 𝑥 is the level of output, 𝑥 ≥ 0. It
sells its entire output to a single consumer with the following utility
function:
𝑢(𝑦) = 𝜃 𝑦 − 𝑇(𝑦);

where 𝑦 is the amount of the good purchased by the consumer and T

is the payment made by the consumer to the monopolist to purchase
the output; 0 ≤ 𝑦 ≤ 𝑥; 𝜃 > 0. Suppose

𝑇(𝑦) = 𝑝𝑦 + 𝑡;
where 𝑝 ≥ 0, 𝑡 ≥ 0 if 𝑦 > 0, and 𝑇(0) = 0. Thus, in order to
purchase any positive amount of the good, the consumer may have to
pay a lump-sum amount 𝑡, or a per unit price 𝑝, or both.
(a) Find the profit of the monopolist when it can choose any
non-negative combination of 𝑡 and 𝑝.
(b) Find the profit of the monopolist when it can choose any
non-negative p, but is forced to set 𝑡 = 0. Calculate how this
profit relates to the profit derived in part (a) and explain your
result.
(c) Calculate when social surplus is higher, explaining your result.
(d) Calculate when consumer’s surplus is higher, explaining your
result.
[10+10+5+5]

3
6. Answer the following questions.
(a) Let the input demand functions of a profit-maximizing
competitive firm operating at unit level of output be given by:
( / ) ( / )
𝑥 = 1 + 3𝑤 𝑤 and 𝑥 = 1 + 𝑏𝑤 𝑤 ;

where 𝑤 and 𝑤 are input prices. Find the values of the

parameters 𝑎, 𝑏 and c.

(b) Check whether the following data, summarizing the observed

input-output choices of a competitive firm under three different
output-input price situations, are consistent with the hypothesis of
profit maximization by that firm.

P w q x
Observation 1 50 20 20 25
Observation 2 45 15 24 36
Observation 3 40 20 16 16

Here 𝑝 and 𝑤 denote output price and input price, respectively,

while 𝑞 and 𝑥 denote, respectively, the units of output supplied
and input demanded by the firm. Each of the three rows specifies
an observation of the output-input price configuration and the
output-input choice of the firm under that particular price
configuration.

(c) Suppose, for the production function 𝑓(𝑥 , 𝑥 ), the cost function
of a competitive firm is 𝑐(𝑞; 𝑤) = 𝑤 𝑤 𝑞, where 𝑤 =
(𝑤 , 𝑤 ) is the input price vector and 𝑞 is the level of output;
𝛼 ∈ (0,1). Derive the conditional input demand functions and the
production function of the firm.
[10+10+(5 +5)]

4
 Group C

7. Consider a world economy consisting of Home (H) and Foreign (F).

Each of these countries produces a single good that is both consumed
domestically and exported. Let Foreign output be the numeraire and
let p be the relative price of the H produced good. Assume full
employment in both countries, so that H produces a fixed output Y
and F produces a fixed output Y  . Let E be the Home expenditure
in terms of its own good and let E  be the Foreign expenditure
measured in terms of the foreign good. We will treat E as a
parameter of the model, while 𝐸 ∗ is endogenous. Assume that
consumers have Cobb-Douglas utility functions with fixed
expenditure shares. Let  be the share of expenditure of Home
consumers on the Foreign produced good and let   be the share of
expenditure of Foreign consumers on the Home produced good.
Assume further 1      (i.e., the expenditure share of Home
consumers on the Home produced good is greater than the
expenditure share of Foreign consumers on the Home produced
good). World income equals world expenditure, and goods markets
clear.

Now, suppose E falls.

(a) What will happen to 𝑝?

(b) What will happen to the trade balance of Home, denominated in

units of the Foreign good (i.e., to 𝑝(𝑌 − 𝐸))?

Prove your claims.

[20+10]

5
8. Consider the Solow growth model with constant average propensity to
save 𝑠, labor supply growth rate 𝑛, no technological progress and
zero rate of depreciation. Let 𝑣 denote the capital-output ratio.

(a) Prove that, at the steady state, = 𝑛.

(b) Now suppose that, in some initial situation, > 𝑛. Explain how
market forces will operate to restore, over time, the equality
= 𝑛.

(c) In the process of adjustment in (b), in which direction will the real
wage and real rental on capital change? Explain.
[8+16+6]

9. Answer the following questions.

(a) Using a simple Keynesian model of income determination, derive
and explain the conditions under which a rise in the marginal
propensity to save will reduce aggregate savings in the economy.
(b) Using a model of aggregate demand and aggregate supply, explain
how an increase in fuel prices would impact aggregate output,
employment and the price level.
[15+15]

6
1. A consumer’s budgetary allocation for two commodities x and
y is given by m. Her demand for commodity x is given by:
2m
x(px , py , m) = . Suppose that her budget allocation (m) and
5px
the price of commodity y (py ) remains the same at (m = Rs.
1000, py = Rs. 20) while the price of commodity x (px ) falls
from Rs. 5 to Rs. 4. The substitution effect of this price change
is given by

(a) an increase in demand for x from 80 to 100

(b) an increase in demand for x from 90 to 100
(c) an increase in demand for x from 80 to 92
(d) an increase in demand for x from 80 to 90

2. You are given the following partial information about the pur-
chases of a consumer who consumes only two goods: Good 1 and
Good 2.

Year 1 Year 2
Quantity Price Quantity Price
Good 1 100 100 Good 1 120 100
Good 2 100 100 Good 2 ?? 80

Suppose that the amount of Good 2 consumed in year 2 is de-

noted by x. Think about the range of x over which you would
conclude that the consumer’s consumption bundle in year 1 is
revealed preferred to that in year 2. Also think about the range
of x over which you would conclude that the consumer’s con-
sumption bundle in year 2 is revealed preferred to that in year 1.
Which of the following ranges of x ensures that the consumer’s
behaviour is inconsistent (that is, it contradicts the weak axiom
of revealed preference)?

(a) x ≤ 75

1
 (b) x ≥ 70
(c) 70 < x < 75
(d) 75 < x < 80

3. Consider a market demand function p = 100 − q, where p is

market price and q is aggregate demand. There are 23 firms, each
qi2
with cost function, ci (qi ) = 2
, i ∈ 1, 2, . . . , 23. The Cournot-
Nash equilibrium

(a) involves each firm producing 3 units

(b) involves each firm producing 4 units
(c) involves each firm producing 5 units
(d) is not well defined

4. Consider a market demand function p = 100 − q, where p is

market price and q is aggregate demand. There are 10 firms,
each with cost function, ci (qi ) = qi , i ∈ 1, 2, . . . , 10. The firms
compete in quantities. The total deadweight loss is

92
(a) 2
992
(b) 2
102
(c) 2
1002
(d) 2

5. Consider a market demand function p = 100 − q, where p is

market price and q is aggregate demand. There is a large number
of firms with identical cost functions
(
10 + 2qi , if qi > 0
ci (qi ) =
0, otherwise.

(a) The competitive equilibrium price is 2

(b) The competitive equilibrium price is 10

2
 (c) The competitive equilibrium price is 2.1
(d) The competitive equilibrium price is not well defined

6. Consider a market demand function p = 100 − q, where p is

market price and q is aggregate demand. There are two firms,
firm 1 and firm 2, with identical cost functions
(
0, if qi ≤ 10
ci (qi ) =
∞, otherwise,

for i = 1, 2. The firms simultaneously announce their prices, p1

and p2 . The demand coming to firm i is:

 100 − pi ,
 if pi < pj
100−pi
Di (p1 , p2 ) = , if pi = pj


2
0, otherwise.

The Bertrand-Nash equilibrium is

(a) (p1 = 0, p2 = 0)
(b) (p1 = 80, p2 = 80)
(c) (p1 = 20, p2 = 20)
(d) (p1 = 90, p2 = 90)

7. 500 consumers (of health services) are distributed uniformly over

the interval [0, 1]. The government can set up two hospitals any-
where in the interval. The hospitals provide health services free
of cost, but the consumers have to incur the expenses of travel-
ling to the hospital. The travel cost of a consumer who travels
a distance d is d. The fixed cost of setting up a hospital is 300,
and the marginal cost of servicing an individual is 2. The worth
of the health services to an individual is 4. The government can,
of course, decide to set up no hospital. The optimal hospital
location decision of a welfare maximizing government is:

3
 (a) set up no hospital

(b) set up two hospitals – both at 1/2

(c) set up two hospitals – one at 1/4, the other at 3/4

(d) set up two hospitals – one at 1/3, the other at 2/3

8. There is a unit mass of consumers who buy either one unit of

a product or nothing. Consumer valuation, θ, is distributed
 
according to the distribution function F (θ) defined over θ, θ ,
 
that is, for any θ ∈ θ, θ , the proportion of consumers with
valuation less than or equal to θ is given by F (θ) . Suppose that
the inverse demand function for the product is p (q) , where p is
market price and q is aggregate demand. Then the slope of the
inverse demand function is

1
(a) p′ (q) = −
F′ (p (q))
(b) p′ (q) = −F ′ (p (q))
1
(c) p′ (q) = − ′
F (q)
(d) p′ (q) = −F ′ (q)

� Questions 9 and 10 share the following common infor-

mation.

Consider an economy where output (income) is demand deter-

mined. In this economy λ proportion (0 < λ < 1) of the total
income is distributed to the workers, and (1 − λ) proportion to
the capitalists. The capitalists save sc fraction (0 < sc < 1) of
their income and consume the rest; the workers save sw frac-
tion (0 < sw < 1) of their income and consume the rest; also
sw > sc . The aggregate demand consists of total consumption
demand and total investment demand. Investment demand is
autonomously given at I units.

4
 9. Suppose savings propensities of both the workers and capitalists
increase. Then, in the new equilibrium,

(a) aggregate savings increases and income decreases

(b) aggregate savings decreases and income increases
(c) aggregate savings remains unchanged and income decreases
(d) aggregate savings increases and income remains unchanged

10. Suppose savings propensities remain the same but the share of
total income distributed to the workers increases. Then, in the
new equilibrium,

(a) aggregate savings increases and income decreases

(b) aggregate savings decreases and income increases
(c) aggregate savings remains unchanged and income decreases
(d) aggregate savings increases and income remains unchanged

� Questions 11, 12 and 13 are related and share a common

information set. The complete set of information is revealed
gradually as you move from one question to the next. Attempt
them sequentially starting from question 11.

11. Consider an economy where the aggregate output in the short

α
run is given by Y = K L1−α , 0 < α < 1, where L is the
aggregate labour employment and K is the aggregate capital
stock (which is fixed in the short run). Let P and W denote the
aggregate price level and the nominal wage rate, respectively.
The producers in the economy maximize profit in a perfectly
competitive market.

In this economy the demand for labour as a function of real wage

rate ( W
P
) is given by

5
 1
1−α
α
(a) Ld = Y 1−α K
1
1
W −α
(b) Ld = K (1 − α) α P
1
W

α1
(c) Ld = K (1 − α) α P
1
α1
(d) Ld = K (1 − α)− α W
P

12. The above economy is characterized by a representative house-

hold which takes the aggregate price level and the nominal wage
rate as given and decides on its consumption and labour supply
by maximizing its utility subject to its budget constraint. The
household has a total endowment of L units of labour time, of
which it supplies Ls units to the market and enjoys the rest as
leisure. Its utility depends on its consumption (C) and leisure

β
(L − Ls ) in the following way: u = C β + L − Ls , 0 < β < 1.
The only source of income of the household is the wage income
and it spends its entire wage earning in buying consumption
goods at the price P .

In this economy the supply of labour as a function of real wage

rate ( W
P
) is given by

L
(a) Ls = β
1+( W
P ) β−1
L
(b) Ls = β
1+( W
P ) 1−β
h β i

1−β
W
(c) Ls = L 1 + P

L
(d) Ls = β
1−( W
P ) β−1

13. Given the labour demand and labour supply functions as derived
above, the aggregate supply curve (output (Y ) supplied as a
function of the aggregate price level (P ), with Y on x-axis and
P on y-axis) of this economy is

(a) upward sloping

6
 (b) downward sloping
(c) horizontal
(d) vertical

14. Consider an economy with aggregate income Y and aggregate

price level P. The goods market clearing condition is given by
the savings-investment equality: S (Y, r) = I (r) , where r is real
interest rate and 0 < SY < 1, Sr > 0, Ir < 0. The money market
clearing condition is given by the equality of real money supply
(M
P
) and demand for real balances (L): M
P
= L (Y, r) , where M
is the supply of money and LY > 0, Lr < 0. [For any function
f (x, y) , fx denotes the partial derivative of f with respect to x.]

The slope of the aggregate demand curve (aggregate output (Y )

demanded as a function of the aggregate price level (P ), with Y
on x-axis and P on y-axis) of this economy is

SY Lr − (Sr − Ir ) LY
(a)
− PM2 SY
SY Lr − (Sr − Ir ) LY
(b) M
P2
(Sr − Ir )
SY Lr − (Sr − Ir ) LY
(c)
− P1 SY
SY Lr − (Sr − Ir ) LY
(d) 1
P
(Sr − Ir )

15. To test the prediction of the Solow growth model, you run the
following linear regression for all the countries in the world:

gi = α + β0 log yi,0 + β1 log ni + β2 log si + γXi + εi ,

where gi is the growth rate in per capita real GDP of country i

over a certain period, yi,0 is per capita real GDP of country i at
the beginning of the period under consideration, ni is population
growth rate of country i, si is savings rate of country i, Xi stands

7
 for a set of other control variables and εi is the error term.

The Solow growth model predicts that the expected sign of the
regression coefficient β0 is

(a) positive
(b) negative
(c) zero
(d) inconclusive

16. Consider the following matrix

 
1 0 1
 
A =  0 1 1
1 1 0
The rank of A is

(a) 0
(b) 1
(c) 2
(d) 3

17. Bowl A contains two red coins; Bowl B contains two white coins;
and Bowl C contains a white and a red coin. A bowl is selected
uniformly at random and a coin is chosen from it uniformly at
random. If the chosen coin is white, what is the probability that
the other coin in the bowl is red?

1
(a) 3
1
(b) 4
1
(c) 2
1
(d) 6

8
18. A girl chooses a number uniformly at random from
{1, 2, 3, 4, 5, 6}. If she chooses n, then she chooses another num-
ber uniformly at random from {1, . . . , n}. What is the probabil-
ity that the second number is 5?

11
(a) 180
2
(b) 45
1
(c) 3
1
(d) 18

19. The cumulative distribution function F of a standard normal

distribution satisfies:

F (1.4) = 0.92, F (0.14) = 0.555, F (−0.2) = 0.42, F (−1.6) = 0.055

A manufacturer does not know the mean and standard deviation

of the diameters of ball bearings it produces. However, he knows
that the diameters follow a normal distribution with mean µ and
standard deviation σ. It rejects 8% of bearings as too small if
the diameter is less than 1.8 cm and 5.5% bearings as too large
if the diameter is greater than 2.4 cm.
Which of the following is correct?

(a) µ = 2
(b) µ = 2.33
(c) µ = 2.08
(d) µ = 2.4

20. Suppose f : R → R is a differentiable function such that f ′ (x)

is strictly increasing in x (f ′ (x) indicates the derivative of f (x)
with respect to x). Suppose f ( 12 ) = 1
2
and f (1) = 1. Then which
of the following is true ?

9
 (a) f ′ ( 12 ) < 1 < f ′ (1)
(b) f ′ ( 12 ) < f ′ (1) < 1
(c) 1 < f ′ ( 12 ) < f ′ (1)
(d) None of the above

21. For any non-negative real number x, define f (x) to be the largest
integer not greater than x. For instance, f (1.2) = 1. Evaluate
the following integral

√
Z5
f (x2 )dx
0

(a) 5
√ √ √
(b) 4 5 − 3 − 2 − 3
√
(c) 4 5
√
(d) 4( 5 − 2)

22. The constant term (i.e., the term not involving x) in the expan-
 19
sion of x + x12 is

(a) 1
(b) 19
(c) 171
(d) none of the above

23. Arjun and Gukesh each toss three different fair coins (each coin
either lands heads or tails with equal probability and with each
outcome independent of each other). Arjun wins if strictly more
of his coins lands on heads than Gukesh, and we call the proba-
bility of this event p1 . Which of the following is correct?

10
 1
(a) p1 = 3
11
(b) p1 = 32
3
(c) p1 = 8
13
(d) p1 = 32

24. How many real solutions are there to the equation x|x| + 1 =
3|x|?

(a) 0
(b) 1
(c) 2
(d) 3

25. We are given n positive integers k1 , . . . , kn (need not be distinct)

such that

k1 + . . . + kn = 5n − 4
1 1
+ ... + =1
k1 kn

What is the maximum value of n?

(a) 3
(b) 4
(c) 5
(d) 6

26. A monkey starts at the origin (0, 0) on R2 . The monkey covers a

distance of 5 units in any direction in one jump. If the monkey
can only go to integer coordinates on R2 , then the number of
possible locations after its first jump is equal to

(a) 2

11
 (b) 4
(c) 8
(d) 12

27. There is a strip made up of (n + 2) squares, where n is a positive

integer. The two end squares are coloured black and other n
squares are coloured white. A girl jumps to one of the n white
squares uniformly at random and chooses one of its two adjacent
squares uniformly at random. What is the probability that the
chosen square is white?

1
(a) 1 − n+2
1
(b) 1 − n−1
1
(c) 1 − n
1 1
(d) 2
− n+1

28. Let f : R → R be the following function

f (x) = max(|x|, x2 ), ∀ x.

Which of the following is true?

(a) f is not continuous

(b) f is continuous but not differentiable
(c) f is decreasing
(d) f is increasing

29. Let f : R → R be the following function

f (x) = max(|x|, x2 ), ∀ x.

Define
D := {(x, y) ∈ R2 : x ∈ R, y ≥ f (x)}.

Which of the following is true for D?

12
 (a) D is not convex
(b) R2 \ D is convex
(c) R2+ \ D is convex
(d) None of the above

30. Suppose f : [−1, 1] → R is a function such that

2 − x2  x 2 
f (x) = f , ∀ x ∈ [−1, 1].
2 2 − x2
Then, f (−1) is equal to

(a) −1
(b) 1
(c) 0
1
(d) 2

13
 Group A (Microeconomics)
1. [30 marks: 4 + 20 + 6]

Consider a used car market with 600 buyers each willing to buy
exactly one used car, and 500 sellers each having exactly one
used car. Out of the 500 used cars, 400 are of good quality
(peaches) and 100 are of bad quality (lemons). The monetary
valuation of owning a peach is Rs. 100 for a buyer and Rs. 50 for
a seller. On the other hand, the monetary valuation of owning
a lemon is Rs. 10 for both a buyer and a seller. A seller knows
whether the car she owns is a peach or a lemon, whereas a buyer
only knows that there are 400 peaches and 100 lemons. Both
the buyers and the sellers know the various valuations.

(a) What outcome maximizes the aggregate surplus of the economy?

Provide a clear explanation for your answer.

(b) (i) Derive, with a clear explanation, the supply of used cars
as a function of price. Draw this supply curve by plotting
number of used cars on x-axis and price on y-axis. [You
must label all the important points in the figure clearly.]
(ii) Derive, with a clear explanation, the demand for used cars
as a function of price. Draw this demand curve in the same
figure as in part (i). [You must label all the important
points in the figure clearly.]
(iii) Use the demand and supply functions above to find out
all possible competitive equilibria in the used car market
mentioning clearly which types of car, lemon or peach, are
bought and sold in each equilibrium.

(c) Now suppose that buyers also know the identity of all cars, that
is, whether any given car is a peach or a lemon. Use a similar
demand-supply analysis as above to solve for all possible com-
petitive equilibria in the used car market in this scenario.

1
 2. [30 marks: 5 + 3 + 3 + 11 + 8]

Consider an industry with 2 firms – a private firm (indexed by

r) and a public firm (indexed by u) – producing a homogeneous
product and competing in quantities. The firms face an inverse
demand function p = a − bQ, a > 0, b > 0, where Q = qr + qu
denotes aggregate output, and qr and qu denote the amounts of
output produced by the private and public firms respectively.
Each firm i faces the total cost of production cqi , i = r, u, 0 <
c < a.

(a) For any qr and qu , derive the expressions for (i) private firm’s
profit, (ii) public firm’s profit, (iii) consumer surplus, and (iv)
welfare (sum of consumer surplus and producer surplus).

(b) The private firm’s objective is to maximize its own profit. For
a given qu , set up the private firm’s maximization problem and
derive its optimal choice of output qr . [This exercise gives you
the reaction function of the private firm.]

(c) The public firm’s objective is to maximize welfare. For a given

qr , set up the public firm’s maximization problem and derive its
optimal choice of output qu . [This exercise gives you the reaction
function of the public firm.]

(d) Recall that the two firms compete in quantities.

(i) Define the concept of equilibrium in this context and find

out the amounts of output, qr∗ and qu∗ , the two firms produce
in equilibrium. Find out the expressions of price, profits of
the two firms, consumer surplus and welfare in the equilib-
rium.

(ii) Illustrate this equilibrium by drawing the two reaction func-

tions you have derived in parts (b) and (c) (plot qu in x-axis

2
 and qr in y-axis). [You must label the important points in
the figure clearly.]

(e) Suppose that the marginal cost of the private firm falls to cr < c
while the marginal cost of the public firm remains the same at
c. Draw the new reaction functions and explain clearly how the
following outcomes change in the new equilibrium (as compared
to the old equilibrium): qr , qu , Q, price, profits of the two firms,
consumer surplus and welfare. [There is no need to derive the
exact expressions; just qualitative answers are enough.]

3. [30 marks: 6 + 4 + 20]

There is a unit mass of consumers all of whom want to purchase

at most 1 unit of a good. Consumer v has a valuation v for this
good, where v ∈ [0, 1]. Assume that v is uniformly distributed
over interval [0, 1] so that the number of consumers with valua-
tion in between a and b, where 0 ≤ a < b ≤ 1, is b − a. There is
a monopoly firm with total cost of producing q units of the good
q
given by . The firm does not know the identity of any consumer
3
and hence must charge a uniform price to all the consumers.

(a) For any price p, derive, with a clear explanation, the demand
facing the monopoly firm.

(b) Derive, with a clear explanation, the monopoly price and profit
level.

(c) Suppose that the firm can, for a cost, get to know whether a
consumer belongs to the interval [0, 45 ], or to the interval ( 45 , 1].
What is the maximum amount the firm is willing to pay for this
information? Give a clear explanation for your answer.

3
 Group B (Macroeconomics)
1. [30 marks: 4 + 6 + 10 + 5 + 5]

Consider an aggregate demand and aggregate supply model

where, in the short run, aggregate capital is fixed at the level K.
The aggregate demand curve, aggregate output (Y ) demanded
as a function of aggregate price level (P ), is given by a standard
downward-sloping curve. The aggregate supply curve, aggregate
output (Y ) supplied as a function of aggregate price level (P ), is
not standard, and the question leads you to derive the aggregate
supply curve.

The aggregate production function is linear in capital and labour

(L): Y = AL+K, A > 0. The labour union is very powerful and
dictates the minimum aggregate nominal wage rate as W . Each
worker is endowed with one unit of labour which they supply
inelastically if the producers offer the nominal wage W > W .
A worker does not supply any labour if W < W . At W = W ,
a worker is indifferent between supplying and not supplying her
labour endowment. The number of workers available in the econ-
omy is fixed at L.

(a) Derive, with a clear explanation, the aggregate labour supply

(LS ) in this economy as a function of the aggregate nominal
wage rate, W.

(b) Note that the marginal product of labour is constant, A > 0.

(i) Derive, with a clear explanation, the aggregate labour de-

mand (LD ) in this economy as a function of the real wage
W
rate, P
.
(ii) Using your answer to part (i) above, derive the aggregate
labour demand (LD ) in this economy as a function of the
aggregate nominal wage rate, W.

4
(c) Choose an arbitrary aggregate price level, P, and draw the ag-
gregate labour supply (LS ) and aggregate labour demand (LD )
curves, as functions of W , by plotting labour (L) on x-axis and
nominal wage (W ) on y-axis. Think about the labour market
equilibrium for the arbitrary aggregate price level P that you
have chosen.

Note that the equilibrium employment (L∗ ) in the economy de-

pends on the arbitrary price level P that you choose. Derive,
with a clear explanation, the equilibrium employment (L∗ ) as a
function of aggregate price level P.

(d) Derive, with a clear explanation, aggregate output (Y ) supplied

as a function of aggregate price level (P ). Draw this aggregate
supply curve by plotting Y on x-axis and P on y-axis.

(e) Recall that the aggregate demand curve is given by a standard

downward-sloping curve. Explain the effectiveness of the stan-
dard monetary and fiscal policies in this set up.

2. [30 marks: 14 + 16]

Consider the following version of the Solow growth model. The

aggregate output at time t, Yt , depends on the aggregate capital
stock (Kt ) and aggregate labour force (Lt ) in the following way:

Yt = (Kt )α (Lt )1−α , 0 < α < 1.

There is perfect competition in the factor market so that, in

equilibrium, each factor is paid its marginal product and the
total output is distributed to all the households in the form of
wage earnings and interest earnings. Households save a propor-
tion 0 < s < 1 of their disposable income in every period. All
household savings are invested which augment the capital stock
over time. There is no depreciation of capital. Population and

5
 therefore the aggregate labour force grows at a constant rate
n > 0.

(a) The government taxes the interest earnings at the rate 0 < τ <
1. Wage earnings are not taxed. The government uses the col-
lected taxes to fund government consumption; in particular, the
tax collection is not used for investment at all.

(i) Derive, with clear explanations, the expressions for aggre-

gate wage earning, aggregate interest earning and aggregate
savings (St ) of the economy in terms of Yt .
Kt
(ii) Define kt ≡ Lt
, the capital-labour ratio in period t. Derive,
with a clear explanation, the law of motion of capital-labour
ratio, that is, the equation with kt+1 on the left-hand side
and kt on the right-hand side.
(iii) Derive, with a clear explanation, the steady-state level of
capital-labour ratio in this economy, k ∗ , and examine how
k ∗ changes with changes in the tax rate τ.

(b) As in part (a) above, the government continues taxing interest

earnings at the rate τ and wage earnings are not taxed. But
consider now that the tax revenue collected is used to fund in-
vestment by the government so that the capital stock is further
augmented by this public investment.

(i) Derive, with a clear explanation, the expression for aggre-

gate investment in this economy.
(ii) Derive, with a clear explanation, the new law of motion of
capital-labour ratio.
(iii) Derive the new steady-state level of capital-labour ratio
in this economy, k ∗∗ , and compare it with k ∗ . Does the
comparison make economic sense?

6
 (iv) How does k ∗∗ change with changes in τ ? Compare with the
response of k ∗ and explain the economic reason behind the
differential impact.

3. [30 marks: 9 + 5 + 6 + 4 + 6]

Consider an individual who lives for two periods. In the first

period, she earns an wage income W and takes her consumption-
savings decision once income is realized. In the second period,
she has no wage income but receives the return along with her
principal amount of savings, s. The gross rate of interest is
R > 1. Suppose that there is a government which collects an
amount T in the form of lumpsum tax from the wage income
in the first period (this can be considered as mandatory savings
of the individual) and returns the amount T in the form of a
lumpsum transfer in the second period. Suppose that the utility
derived by the individual who consumes c1 in the first period
and c2 in the second period is given by u (c1 ) + βu (c2 ) , where β
is a discount factor with 0 < β < 1 and the utility function u is
strictly increasing and strictly concave.

(a) Set up the individual’s utility maximization problem by specify-

ing her budget constraint clearly. Derive the first-order condition
of this utility maximization problem by showing your procedure
clearly. Provide a clear economic interpretation of the first-order
condition.

(b) Note that β < 1 implies that the individual is myopic (short-
sighted), she puts less weight on future period. Explain intu-
itively whether a more myopic individual will save more or less
than a less myopic individual. Verify your intuition by deter-
ds
mining the sign of .
dβ
(c) Note also that the individual’s personal savings, s, depends
on the government mandated savings T . Explain intuitively

7
 whether the government mandated savings increases or decreases
personal savings. Verify your intuition by determining the sign
ds
of .
dT
(d) One rupee received in benefits in period 2 would require an in-
1
dividual to save an amount (< 1 since R > 1) in period
R
1. Explain intuitively whether the government mandated sav-
ings make the individual cut back her personal savings at a rate
1
higher or lower than . Verify your intuition.
R
(e) In the light of your answer to part (b) and from the expression
ds
of you expect that the rate of change in personal savings
dT
in response to a change in T depends on the discount factor β.
Prove that more myopic individuals reduce their personal savings
at a higher rate.

8
 Group C (Mathematics)
1. [30 marks: 20 + 10]

Consider the following feasible region C in R2 for an optimization

program:

C := {(x, y) : 0 ≤ x ≤ 1, 0 ≤ y ≤ 1, y ≤ x}.

(a) Suppose a ̸= 0, b ̸= 0. Show that an optimal solution to

max ax + by
(x,y)∈C

is either (0, 0), (1, 0), (1, 1). Describe all possible values of a and
b for which each of {(0, 0), (1, 0), (1, 1)} is an optimal solution.

(b) Suppose a and b are independently drawn from [−1, 1] using

a probability distribution with cumulative distribution function
(cdf) F . What is the probability that the unique optimal solu-
tion to the above optimization problem is (1, 0)?

2. [30 marks: 5 + 10 + 15]

Suppose A, B, C, a, b, c are real numbers and A ̸= 0, a ̸= 0.

Suppose for all real values of x, the following holds:

|ax2 + bx + c| ≤ |Ax2 + Bx + C|.

Suppose B 2 − 4AC > 0.

(a) Argue that |A| ≥ |a|.

(b) Show that b2 − 4ac > 0.

(c) Show that B 2 − 4AC ≥ b2 − 4ac.

3. [30 marks: 5 + 5 + 15 + 5]

Let F be a class of functions from [0, ∞) to [0, ∞) with the

following properties:

9
 – The functions f1 (x) = ex − 1 and f2 (x) = ln(x + 1) are in
F.
– If f (x) and g(x) (not necessarily distinct) are in F, then
the functions f (x) + g(x) and f (g(x)) are in F.
– If f (x) and g(x) are in F and f (x) ≥ g(x) for all x ∈ [0, ∞),
then f (x) − g(x) is in F.

(a) For any positive integer n, show that h(x) = nx is in F.

(b) If f (x) and g(x) are in F, show that the functions ln(f (x) + 1)
and ln(g(x) + 1) are in F.

(c) If f (x) and g(x) are in F, show that the function f (x)g(x) +
f (x) + g(x) is in F.

(d) If f (x) and g(x) are in F, show that the function f (x)g(x) is in
F.

10