Paper II: Subject-specific Paper
- Number of Questions: 100 questions (all compulsory)
- Total Marks: 200 marks
- Type of Questions: Multiple Choice Questions (MCQs)
- Marking Scheme: Each question carries 2 marks.
- Duration: 2 hours (120 minutes)
Section A: Microeconomics (20 Questions)
1. The law of diminishing marginal utility assumes that:
a) Total utility increases at an increasing rate.
b) Marginal utility decreases as the consumer consumes more of a good.
c) Marginal utility increases as the consumer consumes more of a good.
d) Total utility decreases as more units are consumed.
Answer: b) Marginal utility decreases as the consumer consumes more of a good.
2. In a perfectly competitive market, firms:
a) Have no control over the price.
b) Set the price for the market.
c) Sell differentiated products.
d) Face entry barriers in the market.
Answer: a) Have no control over the price.
3. The concept of “indifference curves” refers to:
a) Combinations of goods that provide the consumer with the same level of satisfaction.
b) Combinations of goods that reduce the total utility.
c) Combinations of income and goods.
d) Combinations of market prices and quantity supplied.
Answer: a) Combinations of goods that provide the consumer with the same level of satisfaction.
4. The law of demand is based on the assumption that:
a) The consumer’s income remains constant.
b) The price of the good remains constant.
c) The substitution effect is less than the income effect.
d) The price of a good increases as its quantity demanded increases.
Answer: a) The consumer’s income remains constant.
5. According to the theory of monopolistic competition, firms can:
a) Set the market price.
b) Produce differentiated goods and have some price-setting power.
c) Face no competition in the market.
d) Earn only normal profits in the long run.
Answer: b) Produce differentiated goods and have some price-setting power.
6. In a monopolistic market, the firm maximizes profit by producing at:
a) The level where marginal cost equals average revenue.
b) The level where marginal cost equals marginal revenue.
c) The level where average cost equals total cost.
d) The level where marginal cost equals average cost.
Answer: b) The level where marginal cost equals marginal revenue.
7. A price ceiling typically results in:
a) A surplus of goods.
b) A shortage of goods.
c) An increase in supply.
d) A decrease in demand.
Answer: b) A shortage of goods.
8. If the price of a good rises and the quantity demanded falls, the good is said to be:
a) Elastic.
b) Inelastic.
c) Perfectly elastic.
d) Perfectly inelastic.
Answer: a) Elastic.
9. The production possibility frontier (PPF) shows:
a) The relationship between production and consumption.
b) The maximum combination of goods that can be produced given the available resources.
c) The combination of prices and outputs in the economy.
d) The possible wages in a market economy.
Answer: b) The maximum combination of goods that can be produced given the available resources.
10. The “Giffen good” violates which economic principle?
a) The law of demand.
b) The law of supply.
c) The theory of price elasticity.
d) The principle of diminishing marginal utility.
Answer: a) The law of demand.
11. In perfect competition, in the long run, firms:
a) Earn profits equal to zero.
b) Have large fixed costs.
c) Produce at a level where average cost equals marginal cost.
d) Experience economies of scale.
Answer: a) Earn profits equal to zero.
12. The average total cost curve is U-shaped because:
a) The firm’s total revenue decreases as output increases.
b) The firm’s fixed costs increase as output rises.
c) Initially, average cost decreases as output increases due to economies of scale, but after a certain point, it increases due to diseconomies of scale.
d) The firm’s average revenue is always constant.
Answer: c) Initially, average cost decreases as output increases due to economies of scale, but after a certain point, it increases due to diseconomies of scale.
13. In an oligopoly market, firms are likely to engage in:
a) Price discrimination.
b) Price leadership.
c) Perfect competition.
d) Pure monopoly.
Answer: b) Price leadership.
14. The “income effect” refers to:
a) The effect of a change in income on the quantity demanded of a good.
b) The effect of a change in the price of a good on the quantity demanded of that good.
c) The effect of a change in the consumer’s wealth on demand.
d) The effect of advertising on demand.
Answer: a) The effect of a change in income on the quantity demanded of a good.
15. A monopolist maximizes profit by producing at the output level where:
a) Marginal cost equals price.
b) Marginal revenue equals marginal cost.
c) Total revenue exceeds total cost.
d) Average total cost equals average revenue.
Answer: b) Marginal revenue equals marginal cost.
16. The marginal cost curve intersects the average total cost curve at:
a) The point where average total cost is minimized.
b) The point where marginal cost is highest.
c) The point where the firm is earning the maximum profit.
d) The point where fixed costs are zero.
Answer: a) The point where average total cost is minimized.
17. The concept of “consumer surplus” is defined as:
a) The total utility gained from consuming a good.
b) The difference between what consumers are willing to pay and what they actually pay.
c) The total expenditure on goods in the economy.
d) The amount of money spent on producing a good.
Answer: b) The difference between what consumers are willing to pay and what they actually pay.
18. “Price discrimination” refers to:
a) The practice of charging different prices for the same good or service to different consumers.
b) The practice of charging a uniform price for a good.
c) The practice of charging higher prices for superior quality goods.
d) The practice of setting prices based on market demand.
Answer: a) The practice of charging different prices for the same good or service to different consumers.
19. The optimal level of output in a monopoly is determined by:
a) Where average cost equals marginal cost.
b) Where marginal revenue equals marginal cost.
c) Where price equals marginal revenue.
d) Where total cost equals total revenue.
Answer: b) Where marginal revenue equals marginal cost.
20. In the long run, firms in a perfectly competitive market produce:
a) At the minimum point of the long-run average cost curve.
b) At the level where marginal cost equals marginal revenue.
c) At a higher price than in the short run.
d) With increasing returns to scale.
Answer: a) At the minimum point of the long-run average cost curve.
Section B: Macroeconomics (20 Questions)
21. In the IS-LM model, the IS curve represents the relationship between:
a) Money supply and interest rates.
b) Interest rates and the level of income in the goods market.
c) Inflation and the interest rate.
d) Government spending and aggregate demand.
Answer: b) Interest rates and the level of income in the goods market.
22. The primary objective of monetary policy is to:
a) Maximize government revenue.
b) Control inflation and stabilize the currency.
c) Control the price of labor.
d) Achieve a balanced budget.
Answer: b) Control inflation and stabilize the currency.
23. The “crowding-out” effect occurs when:
a) Government spending increases private sector investment.
b) Government borrowing raises interest rates, reducing private investment.
c) Tax cuts lead to higher private consumption.
d) Government spending decreases demand for private sector goods.
Answer: b) Government borrowing raises interest rates, reducing private investment.
24. According to the Keynesian model, an increase in government spending leads to:
a) No change in national income.
b) A reduction in private investment.
c) A proportional increase in national income.
d) A less than proportional increase in national income.
Answer: d) A less than proportional increase in national income.
25. In an open economy, the “exchange rate” is determined by:
a) Central bank decisions.
b) The supply and demand for foreign exchange.
c) The level of interest rates.
d) Government policy
Section B: Macroeconomics (Continued) (15 More Questions)
26. The “multiplier effect” in fiscal policy suggests that:
a) Government spending leads to a proportionate increase in national income.
b) Government spending leads to a less than proportional increase in national income.
c) Government tax cuts have no effect on national income.
d) An increase in exports leads to a decrease in national income.
Answer: b) Government spending leads to a less than proportional increase in national income.
27. The natural rate of unemployment is determined by:
a) Changes in the labor force participation rate.
b) The level of inflation.
c) Structural and frictional factors in the labor market.
d) The level of government spending.
Answer: c) Structural and frictional factors in the labor market.
28. The “Phillips Curve” suggests a trade-off between:
a) Inflation and unemployment.
b) Growth and inflation.
c) Government spending and interest rates.
d) Investment and national income.
Answer: a) Inflation and unemployment.
29. In the Keynesian cross model, equilibrium occurs when:
a) Aggregate demand equals aggregate supply.
b) The level of income is determined by the intersection of investment and savings.
c) The government budget is balanced.
d) Consumption equals total income.
Answer: a) Aggregate demand equals aggregate supply.
30. According to the IS-LM model, an increase in government spending:
a) Shifts the IS curve to the right.
b) Shifts the LM curve to the right.
c) Leads to a decrease in interest rates.
d) Leads to an increase in the money supply.
Answer: a) Shifts the IS curve to the right.
31. The central bank uses “open market operations” to:
a) Control government spending.
b) Influence the money supply and interest rates.
c) Determine the exchange rate.
d) Influence tax policy.
Answer: b) Influence the money supply and interest rates.
32. In a closed economy, the total investment is equal to:
a) Government spending minus taxes.
b) Total savings.
c) Total imports minus exports.
d) Total consumption minus total savings.
Answer: b) Total savings.
33. The real interest rate is defined as:
a) Nominal interest rate minus the rate of inflation.
b) Nominal interest rate plus the rate of inflation.
c) The rate at which money supply grows.
d) The interest rate determined by central banks.
Answer: a) Nominal interest rate minus the rate of inflation.
34. The LM curve represents:
a) The relationship between output and interest rates in the goods market.
b) The relationship between income and interest rates that equates money supply and money demand.
c) The equilibrium level of government spending.
d) The level of foreign exchange rates.
Answer: b) The relationship between income and interest rates that equates money supply and money demand.
35. In an economy with a large government debt, the government may face the risk of:
a) Increased inflationary pressure.
b) A decrease in tax revenue.
c) Deflationary policies.
d) Reduced consumer confidence.
Answer: a) Increased inflationary pressure.
36. According to the “quantity theory of money,” an increase in the money supply will lead to:
a) A proportional increase in the level of output.
b) A proportional increase in the price level.
c) An increase in national income.
d) No change in the price level.
Answer: b) A proportional increase in the price level.
37. The trade balance of a country is defined as:
a) The difference between exports and imports of goods and services.
b) The total value of foreign investments.
c) The difference between government revenue and spending.
d) The total income from abroad.
Answer: a) The difference between exports and imports of goods and services.
38. The “liquidity preference theory” was proposed by:
a) John Maynard Keynes.
b) Milton Friedman.
c) Friedrich Hayek.
d) Adam Smith.
Answer: a) John Maynard Keynes.
39. In the classical model of economics, full employment is achieved when:
a) Aggregate demand equals aggregate supply.
b) The economy is operating on the production possibility frontier.
c) The unemployment rate is zero.
d) The price level is stable.
Answer: b) The economy is operating on the production possibility frontier.
40. The “accelerator theory” in investment suggests that:
a) Investment increases as the interest rate increases.
b) Investment is determined by the level of national income.
c) Investment is inversely related to changes in output.
d) Investment is determined by the rate of return on capital.
Answer: b) Investment is determined by the level of national income.
Section C: Public Finance (20 Questions)
41. A “progressive tax” is one in which:
a) Tax rates increase as income decreases.
b) Tax rates increase as income increases.
c) The tax rate is the same for all income levels.
d) Taxation is based only on wealth.
Answer: b) Tax rates increase as income increases.
42. The concept of “public goods” refers to goods that are:
a) Rivalrous and excludable.
b) Non-rivalrous and non-excludable.
c) Rivalrous and non-excludable.
d) Excludable but not rivalrous.
Answer: b) Non-rivalrous and non-excludable.
43. The “Laffer Curve” shows the relationship between:
a) Inflation and government spending.
b) Tax rates and tax revenue.
c) Government spending and output.
d) Tax rates and investment levels.
Answer: b) Tax rates and tax revenue.
44. “Crowding out” occurs when:
a) Government spending increases private sector investment.
b) Government spending leads to lower interest rates and more investment.
c) Government borrowing raises interest rates, thereby reducing private investment.
d) Government spending crowds out government savings.
Answer: c) Government borrowing raises interest rates, thereby reducing private investment.
45. The “benefit principle” of taxation suggests that:
a) Taxes should be equal for everyone.
b) Taxation should be based on the benefits received from government services.
c) Only the rich should pay taxes.
d) Taxes should be proportional to income.
Answer: b) Taxation should be based on the benefits received from government services.
46. A “regressive tax” system is one where:
a) Tax rates increase with income.
b) Tax rates decrease as income increases.
c) Tax rates are fixed for all income levels.
d) Taxation is based on wealth.
Answer: b) Tax rates decrease as income increases.
47. “Deficit financing” refers to:
a) Borrowing money from foreign lenders.
b) The government borrowing to cover its budget deficit.
c) The government cutting its budget spending.
d) Increasing taxes to meet the revenue target.
Answer: b) The government borrowing to cover its budget deficit.
48. “Indirect taxes” are:
a) Taxes that are levied on the income of individuals.
b) Taxes on the consumption of goods and services.
c) Taxes on business profits.
d) Taxes on the capital gains of individuals.
Answer: b) Taxes on the consumption of goods and services.
49. A “balanced budget” occurs when:
a) Government revenue is greater than its spending.
b) Government revenue equals government expenditure.
c) Government expenditure is greater than its revenue.
d) The government borrows from international markets.
Answer: b) Government revenue equals government expenditure.
50. The “optimal tax theory” suggests that:
a) Taxes should be as low as possible for all citizens.
b) Taxes should be structured to maximize total revenue while minimizing the distortion in economic behavior.
c) All taxes should be progressive.
d) Taxes should be uniform across all income groups.
Answer: b) Taxes should be structured to maximize total revenue while minimizing the distortion in economic behavior.
Section D: International Economics (20 Questions)
51. The Heckscher-Ohlin theory of international trade suggests that:
a) Countries will export goods that require more labor.
b) Countries will export goods that use the factors of production they have in abundance.
c) Countries will only export goods that are highly differentiated.
d) Countries will import goods that they cannot produce themselves.
Answer: b) Countries will export goods that use the factors of production they have in abundance.
52. The “balance of payments” records:
a) All financial transactions between a country and the rest of the world.
b) Only the export and import of goods.
c) Only the government’s budget and fiscal policies.
d) The total amount of capital in the economy.
Answer: a) All financial transactions between a country and the rest of the world.
53. A fixed exchange rate regime:
a) Allows the currency value to be determined by market forces.
b) Pecks the domestic currency value to another currency or a basket of currencies.
c) Is the same as a floating exchange rate regime.
d) Eliminates trade deficits.
Answer: b) Pecks the domestic currency value to another currency or a basket of currencies.
54. The theory of comparative advantage suggests that:
a) Countries should try to export everything they produce.
b) Countries should specialize in producing goods in which they have a relative efficiency advantage.
c) Countries should only trade with neighbors.
d) Only developed countries should engage in trade.
Answer: b) Countries should specialize in producing goods in which they have a relative efficiency advantage.
55. A “depreciation” of the domestic currency makes:
a) Imports cheaper.
b) Exports more expensive for foreign buyers.
c) Exports cheaper for foreign buyers.
d) Imports more expensive for domestic consumers.
Answer: c) Exports cheaper for foreign buyers.
56. The “terms of trade” between two countries is defined as:
a) The rate at which one country’s currency exchanges for another.
b) The amount of exports a country must give up to obtain imports.
c) The relative price of a country’s exports and imports.
d) The quantity of goods a country imports and exports.
Answer: c) The relative price of a country’s exports and imports.
57. A “trade deficit” occurs when:
a) A country’s exports exceed its imports.
b) A country’s imports exceed its exports.
c) The government runs a budget surplus.
d) The country’s domestic production exceeds consumption.
Answer: b) A country’s imports exceed its exports.
58. The “Mundell-Fleming model” in open economy macroeconomics emphasizes:
a) The role of government spending in the economy.
b) The relationship between exchange rates, output, and capital flows.
c) The trade-off between inflation and unemployment.
d) The effect of fiscal policy on domestic income.
Answer: b) The relationship between exchange rates, output, and capital flows.
59. The “foreign exchange market” is where:
a) Goods and services are traded internationally.
b) Different countries trade their currencies.
c) National governments purchase foreign goods.
d) Central banks lend money to governments.
Answer: b) Different countries trade their currencies.
60. The “Bretton Woods System” was established to:
a) Promote trade barriers between countries.
b) Fix exchange rates between major currencies.
c) Establish global free markets.
d) Standardize international tariff rates.
Answer: b) Fix exchange rates between major currencies.
Section E: Quantitative Methods/Econometrics (20 Questions)
61. The purpose of “ordinary least squares” (OLS) estimation is to:
a) Maximize the likelihood function.
b) Minimize the sum of squared residuals.
c) Maximize the total error in the model.
d) Minimize the error between observed and predicted values.
Answer: b) Minimize the sum of squared residuals.
62. The “coefficient of determination” (R²) indicates:
a) The level of significance of the model.
b) The proportion of the variance in the dependent variable that is predictable from the independent variables.
c) The number of independent variables in the model.
d) The bias in the model.
Answer: b) The proportion of the variance in the dependent variable that is predictable from the independent variables.
63. In regression analysis, multicollinearity refers to:
a) A situation where independent variables are highly correlated with each other.
b) A situation where the dependent variable is correlated with the error term.
c) The absence of any correlation among the independent variables.
d) The perfect relationship between the dependent and independent variables.
Answer: a) A situation where independent variables are highly correlated with each other.
64. The Durbin-Watson statistic is used to test for:
a) Heteroscedasticity.
b) Multicollinearity.
c) Autocorrelation in the residuals.
d) The significance of regression coefficients.
Answer: c) Autocorrelation in the residuals.
65. The term “heteroscedasticity” refers to:
a) A situation where residuals have constant variance.
b) The correlation between the independent variables.
c) The residual variance being non-constant across observations.
d) The absence of multicollinearity.
Answer: c) The residual variance being non-constant across observations.
66. In a simple linear regression, if the p-value is less than 0.05, it indicates:
a) The independent variable has a weak relationship with the dependent variable.
b) There is a statistically significant relationship between the independent and dependent variables.
c) The model is invalid.
d) The residuals are perfectly normally distributed.
Answer: b) There is a statistically significant relationship between the independent and dependent variables.
67. In econometrics, “endogeneity” refers to:
a) The problem where explanatory variables are correlated with the error term.
b) The problem where variables are measured incorrectly.
c) The issue of multicollinearity.
d) The variance of errors in regression analysis.
Answer: a) The problem where explanatory variables are correlated with the error term.
68. The assumption of “homoscedasticity” implies that:
a) The error terms have the same variance for all observations.
b) The error terms have different variances for different observations.
c) The dependent variable is normally distributed.
d) The independent variables are not correlated with each other.
Answer: a) The error terms have the same variance for all observations.
69. “Spurious regression” occurs when:
a) The data do not follow a linear trend.
b) The regression model has irrelevant independent variables.
c) There is no correlation between the variables.
d) The regression coefficients are biased due to endogeneity.
Answer: b) The regression model has irrelevant independent variables.
70. The “F-statistic” in a regression model tests:
a) The significance of the independent variables collectively.
b) The goodness of fit of the model.
c) The level of autocorrelation in the residuals.
d) The heteroscedasticity in the residuals.
Answer: a) The significance of the independent variables collectively.
Section C: Public Finance (Continued) (10 Questions)
71. The “ability-to-pay” principle of taxation suggests that:
a) Taxes should be based on the benefits received from government services.
b) Taxation should be proportional to a person’s income or wealth.
c) Only the rich should pay taxes.
d) The tax rate should be fixed regardless of income levels.
Answer: b) Taxation should be proportional to a person’s income or wealth.
72. The “incidence of a tax” refers to:
a) The legal responsibility for paying the tax.
b) The person or group that bears the economic burden of the tax.
c) The rate at which the tax is applied.
d) The ability of the government to collect the tax.
Answer: b) The person or group that bears the economic burden of the tax.
73. A “tax expenditure” is:
a) The total value of taxes collected by the government.
b) The amount of tax revenue foregone due to deductions, exemptions, or credits.
c) The total budgetary allocation for government expenditure.
d) The cost of collecting taxes by the government.
Answer: b) The amount of tax revenue foregone due to deductions, exemptions, or credits.
74. The “public choice theory” in public finance focuses on:
a) How the government maximizes social welfare.
b) How government decisions are influenced by self-interested behavior of individuals in the political process.
c) The study of public debt management.
d) The optimal allocation of public goods.
Answer: b) How government decisions are influenced by self-interested behavior of individuals in the political process.
75. “Fiscal federalism” refers to:
a) The relationship between taxes and government spending.
b) The allocation of financial responsibilities between different levels of government.
c) The study of international trade and tariffs.
d) The process of government debt management.
Answer: b) The allocation of financial responsibilities between different levels of government.
76. A “value-added tax” (VAT) is an example of:
a) A direct tax.
b) A proportional tax.
c) An indirect tax.
d) A progressive tax.
Answer: c) An indirect tax.
77. A “luxury tax” is typically imposed on:
a) Basic necessities.
b) Essential goods and services.
c) Goods that are considered non-essential or luxury items.
d) Agricultural goods.
Answer: c) Goods that are considered non-essential or luxury items.
78. “Public debt” can be classified into:
a) Domestic debt and foreign debt.
b) Revenue expenditure and capital expenditure.
c) Direct taxes and indirect taxes.
d) Short-term debt and long-term debt.
Answer: a) Domestic debt and foreign debt.
79. The “crowding-in” effect refers to:
a) Government spending stimulating private sector investment.
b) Private sector investment leading to a decrease in government spending.
c) The government providing subsidies to private firms.
d) A reduction in government investment.
Answer: a) Government spending stimulating private sector investment.
80. The primary objective of “public debt management” is to:
a) Maximize interest payments on government loans.
b) Ensure that government debt does not exceed its revenue.
c) Minimize the total level of public debt.
d) Ensure that government borrowing is allocated for development projects only.
Answer: b) Ensure that government debt does not exceed its revenue.
Section D: International Economics (Continued) (10 Questions)
81. The “Balassa-Samuelson effect” suggests that:
a) Inflation in developing countries is always higher than in developed countries.
b) Exchange rates adjust to equalize the price levels between countries.
c) Developing countries tend to experience higher price inflation due to increased productivity in the tradable sector.
d) Developing countries should avoid trade liberalization.
Answer: c) Developing countries tend to experience higher price inflation due to increased productivity in the tradable sector.
82. According to the “Ricardian theory of trade,” the basis for trade between countries is:
a) Differences in factor endowments.
b) Differences in technology and productivity.
c) Differences in consumer preferences.
d) Differences in currency values.
Answer: b) Differences in technology and productivity.
83. “Capital mobility” refers to:
a) The ease with which capital can be invested across borders.
b) The ability of a country to attract foreign direct investment.
c) The movement of skilled labor across borders.
d) The international movement of raw materials.
Answer: a) The ease with which capital can be invested across borders.
84. In the context of the “world trade organization” (WTO), the “most-favored-nation” principle means that:
a) A country must treat all countries equally with respect to trade.
b) A country must give preferential treatment to its former colonies.
c) Countries must prioritize domestic industries over international trade.
d) All trade barriers should be removed.
Answer: a) A country must treat all countries equally with respect to trade.
85. The “general equilibrium theory” of international trade assumes that:
a) The economy is always at a state of disequilibrium.
b) The economy can simultaneously achieve equilibrium in all markets.
c) International trade is based solely on comparative advantage.
d) Exchange rates do not affect trade balances.
Answer: b) The economy can simultaneously achieve equilibrium in all markets.
86. The “Mundell-Fleming model” in an open economy with flexible exchange rates assumes that:
a) The central bank does not influence the money supply.
b) The interest rate is fixed in the economy.
c) Capital is immobile between countries.
d) The balance of payments is in equilibrium.
Answer: a) The central bank does not influence the money supply.
87. “Dumping” refers to:
a) A country’s practice of exporting goods at a price lower than their production cost.
b) The imposition of tariffs on imported goods.
c) A country imposing price floors on domestic goods.
d) The export of goods at market price.
Answer: a) A country’s practice of exporting goods at a price lower than their production cost.
88. A “currency peg” refers to:
a) The practice of allowing a currency’s value to fluctuate freely.
b) The practice of fixing a currency’s value to another currency or basket of currencies.
c) A situation where a currency becomes too weak to trade.
d) The restriction of foreign currency transactions.
Answer: b) The practice of fixing a currency’s value to another currency or basket of currencies.
89. The “trade creation” effect in customs unions refers to:
a) The increase in trade due to the reduction of trade barriers within member countries.
b) The reduction of trade due to the introduction of tariffs on non-member countries.
c) The improvement in the terms of trade for non-member countries.
d) The redistribution of resources from member countries to non-member countries.
Answer: a) The increase in trade due to the reduction of trade barriers within member countries.
90. “Factor price equalization” refers to:
a) The equalization of the price of goods between trading countries.
b) The equalization of wages and returns to factors of production across countries.
c) The imposition of equal tariffs on imported goods.
d) The leveling of prices for raw materials across countries.
Answer: b) The equalization of wages and returns to factors of production across countries.
Section E: Quantitative Methods/Econometrics (Continued) (10 Questions)
91. In a regression model, the assumption of “exogeneity” means that:
a) The independent variables are correlated with the error term.
b) The dependent variable is correlated with the error term.
c) The independent variables are not correlated with the error term.
d) The error term is normally distributed.
Answer: c) The independent variables are not correlated with the error term.
92. The “partial correlation” coefficient measures:
a) The correlation between two variables after removing the effect of other variables.
b) The correlation between all variables in a regression model.
c) The relationship between the dependent variable and the independent variable.
d) The overall fit of the regression model.
Answer: a) The correlation between two variables after removing the effect of other variables.
93. In a multiple regression model, the “adjusted R-squared” adjusts for:
a) The number of variables in the model.
b) The number of observations in the sample.
c) The level of significance of the regression coefficients.
d) The normality of the residuals.
Answer: a) The number of variables in the model.
94. In hypothesis testing, the null hypothesis typically states that:
a) There is a significant relationship between the variables.
b) There is no significant relationship between the variables.
c) The regression model fits the data perfectly.
d) The error terms are normally distributed.
Answer: b) There is no significant relationship between the variables.
95. The “t-statistic” in regression analysis is used to:
a) Test the significance of individual regression coefficients.
b) Test the overall fit of the model.
c) Test for heteroscedasticity.
d) Measure the strength of the relationship between variables.
Answer: a) Test the significance of individual regression coefficients.
96. “Instrumental variables” are used in econometrics to:
a) Estimate causal relationships when endogenous explanatory variables are present.
b) Increase the sample size.
c) Improve the precision of the dependent variable.
d) Remove multicollinearity in regression analysis.
Answer: a) Estimate causal relationships when endogenous explanatory variables are present.
97. “Sample bias” in econometrics occurs when:
a) The sample is too large.
b) The sample is unrepresentative of the population.
c) The sample contains only high-income individuals.
d) The sample is selected at random.
Answer: b) The sample is unrepresentative of the population.
98. The “lagged dependent variable” model is used to:
a) Predict future values of the dependent variable based on past values.
b) Test for stationarity in time-series data.
c) Handle multicollinearity.
d) Remove autocorrelation in the residuals.
Answer: a) Predict future values of the dependent variable based on past values.
99. In time series analysis, “stationarity” refers to:
a) The absence of a trend in the data.
b) The constancy of the variance of the error terms over time.
c) The absence of serial correlation.
d) The constancy of the mean and variance of a series over time.
Answer: d) The constancy of the mean and variance of a series over time.
100. In a “difference-in-differences” (DiD) estimation, the goal is to:
a) Estimate the impact of a treatment or policy by comparing changes over time between a treatment group and a control group.
b) Compare the means of two different groups.
c) Test for the causality between two variables.
d) Remove time trends in the data.
Answer: a) Estimate the impact of a treatment or policy by comparing changes over time between a treatment group and a control group.
Disclaimer:
The questions provided here are designed to aid in your preparation for the UGC NET Economics exam. They are for practice purposes only and are not officially endorsed by the NTA or UGC. While we strive for accuracy, we do not guarantee that the questions or answers exactly match the exam format. Always refer to official resources for final exam preparation.