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SHANKAR IAS ACADEMY

ECONOMICS OPTIONAL - PREVIOUS YEAR QUESTIONS - PAPER I


PAPER – I
Module 1- Microeconomics
2005 Question Paper
1. What is meant by oligopoly? In what respects is it different from others forms of market? Show that an
oligopolist may face a kinked demand curve.
2. Elucidate the concept of Social Welfare Function. Critically examine this approach.
3. “Marginal Productivity theory of Income Distribution is analytically sound but in real life equally
inapplicable.” Discuss this statement.
2006 Question Paper
1. “While analysing the supply side of the general theory of distribution, one has to confront various types
of supply curves.” Elaborate the statement with the help of suitable diagrams.
2. “An economist should know how to distinguish between a policy change which is an improvement and
one which makes things worse.” In the light of the above statement, outline some important criteria for
welfare judgement.
2007 Question Paper
1. What are backward-rising input supply curves? Illustrate with the help of suitable examples.
2. With the help of suitable diagrams, elaborate Cournot model. What is the significance of reaction
curves in the model?
3. “Welfare economics is a branch of economic theory which provides a theoretical framework for
optimum use of resources.”
2008 Question Paper
1. “The prevalence of excess capacity is the direct consequence of the existence of monopolistic
competition." Elaborate the given statement.
2. "If individual A is made so much better by the change that he could compensate individual B for his
loss and has still something left over, then the reorganization is unequivocal improvement." In the light
of the above statement, outline Hick's criterion of welfare.
3. "In spite of its limitations, Kalecki's theory of distribution is real in that it states that the monopoly and
not the perfect competition is found in the real world and that monopoly power affects distribution." In
the light of the above statement, elaborate Kalecki’s theory of distribution and discuss its utility.
2009 Question Paper
1. What, according to Arrow, are the axioms required for translating individual preference into social
preferences? Why is it impossible to construct social preference satisfying those axioms?
2. Demand for light bulbs can be characterized by Q = 100 – P, where Q is millions of boxes of lights sold
and P is the price per box. There are two producers of lights having Identical cost functions :
Ci = 100i + Q2i (i = 1, 2)
Q = Qi = Q1 + Q2
a. Unable to recognize the potential for collusion, managers of the two firms act as short-run perfect
competitors. What are the equilibrium values of Q 1, Q2 and P? What are each firm's profits?
b. Manager of each firm independently recognizes the oligopolistic nature of light bulbs industry and
plays Cournot. What are the equilibrium values of Ql, Q2 and P? What are each firm's profits?
c. Suppose Firm I guesses correctly, that Firm I has Cournot conjectural variation, so it plays
Stackelberg. What are the equilibrium values of Q1, Q2 and P? What are each firm's profits?
d. If the managers of two firms collude, what are the equilibrium values of Q 1, Q2? What are each
firm’s profits?"A dominant firm acts as a price leader and of the firms adjust their outputs
accordingly." Comment.
3. "The direct money burden of the tax imposed on any object is divided between the buyers and the
sellers in the proportion of the elasticity of supply of the object taxed to the elasticity of demand for
it." Discuss.

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4. What is "Scitovsky's paradox"? How far has Scitovsky been successful in removing contradictions in
Kaldor-Hicks compensation criteria of welfare?
5. “If expectations (regarding price level) were always fulfilled, short-run aggregate supply curve would
always be vertical." Critically examine this statement of New Classical Economics what would be the
shape of the curve, if expectations were not realized? What other assumption is made by New
classical Economists in this context and what is its implication?
2010 Question Paper
1. A supply curve is not used to determine the equilibrium price and quantity in a market under
monopoly because
(i) a supply curve derived by using relevant cost curves in a market under monopoly may give more
than one price for different quantities and also more than one quantity for the same prices; and
(ii) for determining profit maximizing price and quantity of a monopolist, supply curve is not
necessary.
(iii) Explain (i) and (ii) above with graphical illustration.
2. State and explain the theory of distribution in which the exhaustion of the total product is taken care
of without leaving any residual claimant and also state clearly the assumptions necessary for the
success of the theory.
3. "Pareto – optimality is a necessary but not sufficient condition for welfare maximization." Develop this
idea highlighting the role of social welfare contours' and 'utility possibility contours' In welfare
maximizing state.
4. State and explain the Law of Equi - marginal Utility and also state clearly the limitations of this law.
5. What are the ways in which a perfectly competitive market may become imperfect? Examine whether
advertisement helps an imperfectly competitive market become a perfectly competitive one.
2011 Question Paper
1. Elucidate how Kelecki’s theory of distribution shares the value of output between labour and capital.
2. The marginal efficiency of capital together with the current rate of Interest determines the profitability
of an investment project. How does it help in the selection of an investment project?
3. The 'non-rival nature' of social goods consumption has important bearing on efficient resource
allocation. Explore the problem with the examples and diagrams.
2012 Question Paper
1. “If firms produce differentiated products it is neither possible to identity the industry no possible to
draw its supply curve.” Discuss and show how Chamberlin handles the problem.
2. Show how price output decision is taken by duopolists, taking into account, their mutual reaction.
Under what condition with duopolistic market be in equilibrium?
3. “Validity of Marshall’s equal marginal utility depends on the assumption of unitary elasticity of the
marginal utility curves of the commodities under the budget.” Clearly explain this assertion.
4. Is rent a surplus? Give reasons in support of your assertion and point out the difference between `rent’
and `quasi-rent’?
5. Derive Marshall’s welfare economics from his concept of consumer surplus after explaining consumer’s
surplus along with the underlying assumptions.
6. What is prisoner’s dilemma? How is it related to a strictly dominant industry?
2013 Question Paper
1. Considerable a perfectly competitive exchange economy with no production, and two different goods 1
and 2. Let p1 and p2 be the prices of the goods. The economy is populated by two people A and B. A’s
initial endownment of the two goods is given by (w1A, w2A), and B’s initial endowment is (w1B, W2B). A
can choose any bundle (x1A, x2A), and B can choose any bundle (x1A, x2A). In this pure exchange
economy write out the conditions for a Walrasian equilibrium. Show that for such an economy for any
equilibrium set of prices that the absolute price level is indeterminate.
2. Kaldor in his theory of distribution argues, unlike Kalecki, that it is not reasonable to neglect the
constraint of labour shortage, and analyse a situation of full employment. Show how investment and

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savings propensities determine distributive shares in the Kaldor approach. Suppose that investment is
not exogenous as in Kaldor’s original model but that it varies with profits. What does this mean for the
stability of the Kaldor model of distribution?
3. Suppose an industry is characterised by the following three conditions: (i) there are a large number of
small firms, each producing a differentiated product and facing a downward sloping demand curve; (ii)
each firm ignores the effects of its actions on the decisions taken by other firms; and (iii) new firms
producing close substitutes for the product of the existing firms can enter the industry. Then, derive
the equilibrium conditions of an individual firm and of the industry.
4. Under Bertrand price competition with homogenous products in an oligopoly demonstrate how is the
equilibrium price that will prevail arrived at?

9Q
5. Let the market demand curve for carbonated water be given by P = 20 – where P is the price and Q
2
is the market output. Let there be two firms producing carbonated water, each with a constant
marginal cost of INR 2, or c1 = c2 = 2. What is the market equilibrium price and quantity when each
firm behaves as a Cournot duopolistic? What are the firms’ profits? What is the market equilibrium
price and quantity when each firm behaves as a Bertrand duopolist? What are the firms’ profits?
2014 Question Paper
1. Examine the relationship between own and cross price elasticities for a compensated demand function.
2. What do you mean by existence and uniqueness of equilibrium in a market? Examine these concepts
in a market where both demand and supply curves are downward sloping.
3. Discuss the coweb model of dynamic equilibrium with lagged adjustment. Explain how the existence of
a stable equilibrium depends on the nature of the demand and supply curves.
4. Examine the process of reaching the Ricardian steady state. How can the tendency towards steady
state be countered?
5. “The conventional analysis of profit maximisation breaks down if the entrepreneur sells his output and
possesses a production function which is homogeneous of degree one.” Explain.
2015 Question Paper
1. Explain the backward sloping supply curve of labour as a choice between income and leisure.
2. Under perfect competition, in the short run, find out graphically, without using average cost curve, the
conditions in equilibrium for the existence of (i) normal profit, (ii) supernormal profit and (iii) loss.
3. In what way Kaldor’s model of income distribution is basically a Keynesian theory?
4. Explain how Nash equilibrium provides a solution to the problem of strategic interdependence among
firms in an oligopolistic market.
5. How is Kaldor-Hicks compensation principle an improvement over Pareto optimality criterion? What
are Scitovsky’s views in this regard?
2016 Question Paper
1. State Marshallian and Walrasian stability condition of market equilibrium. Do you think that existence
of Marshallian stability necessarily ensures Walrasian stability and vice versa? Explain.
2. State Bain's limit price theory.
3. Explain kinked demand curve theory with the help of diagram
4. Examine Kaldor and Kalecki theory of distribution.
5. Write on Prisoners’ dilemma and Nash equilibrium.
6. What is a Lemon Market? What is the role of signalling and screening in it? Explain.
7. What is asymmetric information? How could it lead to adverse selection and market failure? Discuss.
8. Explain Brander-Krugman model of intra-industry trade in an oligopolistic market.

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PAPER I
Module 2 - Macroeconomics, Monetary Economics & Public Finance
2005 Question Paper
1. What is inflation? Is cost-push an adequate explanation of inflationary process?
2. Explain Keynes’ Absolute Income hypothesis. Give a critical evaluation of this theory.
3. Describe the fiscal and monetary policies of economic stabilisation. Make a comparative analysis of
their effectiveness in developed and developing economy.
4. “In the Keynesian system, aggregate demand determines the conditions of labour market, whereas in
the classical system, the labour market takes care of itself.” Explain this statement.
PF 5. Discuss the factors responsible for increasing government expenditure. In this context evaluate the
Wagnar’s law and Peacock-Wisemen hypothesis as explanations of growing public expenditure.
2006 Question Paper
1. “It is production which creates market for goods.” J.B. Say. In the light of the above statement outline
the classical theory of full employment.
PF 2. What is internal debt trap? How do the economies of developing countries commonly fall under this
trap?
3. “The objective of fiscal stabilization has become difficult to be achieved in most of the developing
countries due to economic compulsions and political pressures.” Comment upon the statement.
4. Do you agree with the view that Keynes `General Theory is a special case of the classical theory,
obtained by imposing certain restrictive assumptions on the latter? Elaborate.
5. “Simplicity of the Quantity Theory of Money is its strength as well as its weakness.” Discuss.
6. “Wicksell has added the missing chapter to the classical monetary theory by emphasizing the
importance of rate of interest in the monetary theory.”
7. How do the Keynesians, monetarists and national expectation advocates differ in their views with
regard to trade-off between inflation and employment?
2007 Question Paper
1. Outline the Keynesian theory of money and interest. What is role of expectations in the theory of
determination of rate of interest?
PF 2. “The adjustment to a tax imposition not only affects the distribution of tax burden but also bears upon
the efficiency of resource use in private sector.” Substantiate the statement highlighting the role of
taxation policy in improving allocative efficiency in an economy.
3. What are different kinds of disequilibrium in balance of payments? Suggest some measures to solve
the problem of structural disequilibrium in balance of payments.
2008 Question Paper
1. Do you subscribe to the view that 'liquidity trap' is a depression phenomenon? Elaborate your answer.
2. Outline Keynesian theory of income, output and employment. Do you subscribe to the view that the
principle of effective demand is the logical starting point of this theory? Elaborate your answer.
3. Explain the IS-LM approach of interest rate determination. Why this approach is considered superior?
PF 4. Critically examine the Wiseman - Peacock hypothesis of public expenditure. How does public
expenditure help in attaining economic stabilization and higher levels of production and growth?
Elucidate your answer.
2009 Question Paper
PF 1. "Subjective approach to taxation leads to least aggregate sacrifice principle." Elucidate. Also give the
limitations of this principle.
2. What is high-powered or base money (H)? Is it an autonomous policy-determined variable? Explain.
3. “Cambridge equation determines income (Y) assuming rate of interest (r) as given, whereas Keynes
theory of interest rate determination assumes given income. Both are thus incomplete." Do you agree
with the above assertion? How would then these two variables (Y and r) be determined
simultaneously?

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4. Define a balance of payment function and explain the factors that cause a shift in this function.
Explain the general equilibrium situation in a four-sector IS- LM model.
5. Explain Milton Friedman's reformulation of the Quantity Theory of Money.
6. Do you subscribe to the view that in a small open economy with perfect capital mobility, expansionary
fiscal policy is ineffective under freely flexible exchange rate, whereas expansionary monetary policy
will· increase the national income'? Elaborate your answer using suitable diagram.
PF 7. Bring out the differences in the definitions of deficit financing given by different authorities in India
anti examine the role of deficit financing as an instrument of monetary control.
2010 Question Paper
1. In Keynesian theory "rate of interest is what it is because it is expected to become other than it is. If it
is not expected to become other that it is, there is nothing to tell us why it is what it is." Critically
evaluate this comment and explain the role of rate of interest in determination of equilibrium income.
2. What are the different measures of money supply? Explain the concept of money multiplier and state
the factors that determine its volume.
3. Why does the point of Intersection of IS and LM curves coincide with the equilibrium of two markets?
4. What are the fiscal and monetary implications of vertical IS and vertical LM curves?
5. "There is one saving rate that is best in the sense of maximizing per capita consumption in steady
state." Explain this statement and illustrate the idea graphically.
6. Is the speculative demand for money responsible for the existence of involuntary unemployment in
Keynesian System? Give reasons.
7. If public expenditure is financed by money creation, show diagrammatically the short run and long
run crowding out effect.
8. Show that in an open economy, given full capital mobility, fiscal action has maximum effect under
fixed exchange rate and monetary action has similar effect under flexible exchange rate.
9. “New classical macro - economics not only rejects the demand management policies of Keynes, but
also the propositions of mainstream monetarists such as Friedman." you agree?
2011 Question Paper
1. Is Friedman's quantity theory of money close to Classical or Keynesian approach to the aggregate
demand for money? Give justifications for your arguments.
PF 2. How does the burden of tax distribution between buyers and sellers in the ratio of elasticity of demand
and that of supply take place?
3. 'Monetarists are of the view that only money does and Keynesians believe that money does not matter.'
What is your reasoning of the extreme views held by the monetarists and the Keynesians?
4. What is the difference between horizontal equity and vertical equity while considering ability to pay?
How should the problem be resolved? Illustrate graphically.
5. What is 'liquidity trap'? How does it occur? Illustrate.
6. Would the introduction of automatic teller machine, which allows people to withdraw cash from banks
as needed, make deposits more inconvenient and affect the money supply? Elucidate.
7. In the contemporary world of perfect capital mobility and fixed exchange rates, why is the monetary
policy ineffective to maintain equilibrium?
2012 Question Paper
1. “For most developing nations fighting persistent balance of payments crisis and inflationary crisis,
monetary contraction is a better option.” Do you agree.
2. Mention the different components of supply of money as specified by the Reserve Bank of India. In
what sense is the narrow money `narrow’?
3. Why is under employment equilibrium possible in Keynesian economics, but not possible in Classical
Economics? Give reasons.
4. What is the difference between private and social cost-benefit? Which one of the two is more relevant to
government investment decision and why?
5. Explain why money supply remains unaffected if budget deficit is met by borrowing from the public.
PF 6. Is there any significant differences between value added tax and Sales tax? If so, what is that?
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7. What do you mean by money multiplier? What are the factors that determine the value of the
multiplier?
8. Why does the point of intersection of IS and LM curves coincides with two markets?
9. What are the fiscal and monetary implications of vertical IS and vertical LM curves?
10. Transaction demand for money is interest rate elastic.”
2013 Question Paper
1. Explain the determination of output and employment in a macro economy under the conditions when
individuals are subject to (i) no money illusion. (ii) money illusion.
2. An individual finds that all his receipts (including income) and payment transactions are in the form of
money that bears no interest. However, he can convert money into bonds and earn interest income but
that involves a fixed cost of each conversion transaction. What are the determinants of the individual’s
demand for holding money?
3. If workers supply labour on the basis of an expected real wage, how is the aggregate supply of output
determined in the economy? Suppose aggregate demand and supply are below the natural rate of
employment and output. Would the New classical economists advocates any particular policy
intervention when the economy is in such a situation?
4. What are the main goals of a central bank? What are the instruments by which the central bank
manages the liquidity in the financial system and how does it use these instruments to achieve its
goals?
5. Macroeconomics is usually approached via the outcomes of economic interaction in the following four
markets – commodities, money, bonds, and labour markets. The classical economists focused on
which three of these four markets? In which market does the loanable fund theory of interest rate
determination of the Classical economists focus and how is the interest rate determined? The Neo
Classical synthesis focuses on which three markets? In which market is the interest rate primarily
determined in the liquidity preference theory?
PF 6. What are the three basic goals of public finance? Can these goals be coordinated into an overall
pattern of policy or are they always in conflict?
7. State five reasons that support government intervention in agricultural markets.
8. Suppose a given yield of tax is to be obtained from an excise on a particular product in a perfectly
competively industry. If the objective is economic efficiency the government would prefer that tax
which obtains the desired yield with a lesser increase in the price. Should the government impose a
unit tax or an ad valorem tax if the objective is that they should both impose the same burden at the
initial price before the imposition of the tax? Demonstrate your answer with a diagram.
9. What is rent seeking? Consider a proposal by a government to levy a proportional tax on income so as
to subsidize the consumption of a good. The proportional tax at a rate reduces the wage received to
w(l-t) which with a standard upward sloping supply of labour curve will reduce the hours of labour
worked from say L2 to L1. The net income of the person falls and tax revenue will be twL1. This is
transferred as a subsidy which reduces the price of the subsidized good from P to P – S and increases
the quantity demanded from Q1 to Q2. What is the valuation of the subsidy by the recipient? Is it equal
to the value of taxes paid to finance the subsidy? If the tax payer decides to devote resources to rent
seeking to forestall the policy to subsidize the good and the subsidy recipient is also willing to devote
resources to encourage the adoption of the policy, who will have the advantage in the rent seeking
context?
10. Suppose the goods, financial, current account and foreign exchange markets are initially in
equilibrium. The economy has low or imperfect capital mobility and operates at a fixed exchange rate.
The economy is subject to a favourable demand shock that raises expenditure. What is the outcome of
the shock on the aggregate income and interest rate in the short run? How is the balance of payments
equilibrium achieved? Draw a diagram in support of your answer.
2014 Question Paper
1. Explain H-theory of money supply
2. Differentiate between the complete, partial and zero crowding out effect of a given increase in
government expenditure in an economy.
3. Explain the paradox of thrift.
4. `Monetarists are of the view that only money matters and Keynesians believe that money does not
matter at all.” What is the reasoning behind these extreme views held by their protagonists?

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PF 5. What do you understand by shifting of a tax? How does a monopolist succeed in shifting the burden of
a tax under increasing marginal cost?

6. Explain with appropriate assumptions, the determination of equilibrium income and interest rate in a
Keynesian model of goods and money markets, through diagrams.

7. Compare the deposit multiplier with money multiplier. Is there any impact on money multiplier arising
out of massive use of credit and debit cards?

8. Compare the various instruments of monetary policy with respect to influencing the cost and
availability of credit.

9. Discuss the classical dichotomy that money is neutral.

10. What do you understand by a small open economy in the context of both goods and money markets?

11. Why is it that in a pure flexible exchange rate system, foreign exchange market has no direct effects on
the monetary base and money supply? Does this mean that the foreign exchange market has no effect
on the monetary policy?

2015 Question Paper

1. State Okun’s law and find out the expectations-augmented Phillips curve.

2. “If the interest elasticity of demand for money is low, the monetarists could predict the real GNP simply
by the -use of money supply.” Explain this statement.

3. Explain repo rate and reverse repo rate. How do changes in the repo rate affect EMIs of borrowers?

4. "Under rational expectations hypothesis, systematic monetary policy will be ineffective.” Explain this
statement using a suitable model.

5. Show that liquidity preference is neither necessary nor sufficient for the existence of involuntary
unemployment in Keynesian system.

6. Derive money multiplier when a part of money supply is exogenous and the other part is endogenous.

7. In the event of persistent inflation in an economy, what changes the Central Bank will bring about in
(i) reserve ratios, (ii) bank rate and (Hi) open market operations?

PF 8. “Subsidies have both positive and negative impacts on the economy.” Explain this statement and
illustrate your answer with Indian experience.

9. Explain the meaning and significance of money illusion on the part of workers in the Keynesian theory
of employment.

10. In the context of a two-country model, derive foreign trade multiplier and explain its working. What
will be its repercussion?

2016 Question Paper

1. What are the fiscal and monetary implications of vertical IS and vertical LM curves?

2. The advent of New Classical Macro-economics has tended to upset the apple-cart of Keynesian and to
a great extent, that of the Monetarists.” Discuss.

3. Discuss in brief Friedman's restatement of the quantity theory of money and find its similarity/
difference with the classical quantity theory.

4. Distinguish between Monetarist and Neo-Keynesian approaches to expectation-augmented Phillips


curve.

5. Should inflation targeting be main plank of monetary policy of a central bank in emerging market
economies like India? Show its implications on investment and growth.
PF
6. Illustrate the notion of perverse subsidy in the context of natural resource sector.
PF 7. Examine the effects of public expenditure on the development process of an economy.

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Paper I
Module 3 - International Economics, Growth & Development
2005 Question Paper
1. Discuss critically the role of International Monetary Fund in imparting stability in international
monetary system.
2. Give salient features of WTO Agreement in relation to agriculture. In this context explain the
concept of TRIPS
3. Examine the effects of quota and tariffs on terms of trade. Discuss the advantages of quota over
tariffs in the present day context.
4. Explain how Neo-Classical growth theory removes the rigidity in Harrod-Domar growth model in
explaining the growth process.
5. Do you agree with the `Limits to Growth’ thesis? Is it relevant in the context of developing
economies? In this context discuss the concept of sustainable development?
6. Examine the efficacy of HDI as Indicator of human welfare.
2006 Question Paper
1. There is a general deterioration in terms of trade of the developing countries vis-a-vis the developed
countries.” Comment upon the statement.
2. Discuss some controversial issues before the World Trade Organization. Do you think the rigid and
partial attitude of industrialized countries is the main hurdle in the way of reaching some solution?
3. Distinguish between economic growth and economic development. What desirable changes are
necessary for achieving the objective of economic development?
4. Outline the main dimensions of human capital formation highlighting their relative significance in
economic development.
5. Outline the global efforts for checking the environmental degradation. Do you think that the
advanced countries are cooperating in the efforts?
2007 Question Paper
1. “The Ministerial Declaration adopted in Hong Kong addressed some of the concerns of developing
countries, related to agriculture.” Comment upon the statement. What were the timeframes and
targets in specific areas decided in the Declaration?
2. “Under the flexible foreign exchange rate scenario, devaluation has become redundant.” Comment
upon the statement.
3. “Heckscher - Ohlin theory does not invalidate the classical theory of comparative cost but rather
powerfully supplements it.” Substantiate the statement.
4. What are the human development indices used for international comparison of status of
development? Elaborate the methodology used for developing Human Development Index.
5. “With the change in economic policies, relative role of market and state also changes.” Do you
agree with the statement? Illustrate your answer with the help of suitable examples.
6. What are the desired structural changes required for achieving the objective of economic
development?
7. Discuss Lewis model of economic growth. Do you think the model is applicable to the Indian
development process?
8. Explain sustainable development.
2008 Question Paper
1. Do you agree with the view that "international trade is an engine of growth”? Elucidate your answer
2. Explain the conditions under which optimum tariff is likely to be high or zero.
3. Do you subscribe to the view that WTO stipulations are heavily loaded against the economic
interests of the developing countries? What are the options for these countries? In the emerging
scenario to cope with various challenges on this count? Elaborate your answer.
4. "At the purely economic level, the balanced and unbalanced growth doctrines can be
complementary rather than competitive strategies." Discuss the validity of the above statement.
Which of these strategies would you advocate for a country like India and for what reasons?
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5. Critically examine Myrdal's thesis on economic development and structural change in the context
of the process of economic development of less developed countries. Do you think that the
structural changes in these countries are in the right direction? Elaborate your' answer.
6. Give an account of the 'knife-edge problem' in Harrod's model of economic development. Can this
problem be solved?
7. Do you subscribe to the view that "the controversy regarding economic planning versus market
mechanism is both unnecessary and futile". Elaborate your answer.
2009 Question Paper
1. If each country is endowed with a certain fixed commodity combination, the differences in demand
.patterns in these countries can lead to emergence of
international trade.' Explain this statement with the help 'of offer curves of
the two countries
2. “In the presence of domestic distortions, subsidies are the first best policies and tariffs are the
second best." Do you agree? Explain.
3. "Expansion of high productivity sector absorbs more and more labour from subsistence sector
indicating that dualism is a powerful tool of development planning." Critically evaluate Lewis model
of development' in the light of the above statement and examine relevance of the model for
contemporary India.
4. Critically evaluate Kuznets inverted U- shaped curve hypothesis of income distribution. Does it
hold good for less developed countries as well?
5. What is Human Development Index (HDI)? Give its limitations as a measure of economic
development and suggest improvement(s).
2010 Question Paper
1. Does the Heckscher - Ohlin theorem withstand the factor intensity reversal test? In this context,
state the relevance of Leontief Paradox.
2. Describe the structure of WTO with reference to five main agreements.
3. What do you understand by 'sterilization' effects of foreign exchange market intervention? How
does 'sterilization' work In the case of imperfect capital mobility?
4. Develop the idea that endogenous technological progress, driven by investment, In human capital
formation and R & D, offsets diminishing returns to physical capital.
2011 Question Paper
1. How do the small trading nations share the gains from trade which occur as a consequence of
gains from exchange and gains from specialisation?
2. If all assumptions hold true, how does trade between nations tend to bring about equalisation of
factor prices?
3. How is subsidy better than tariff to achieve domestic objectives?
4. How does the policy mix of fiscal and monetary policies maintain equilibrium in balance of
payments and full employment?
5. How does portfolio balance approach differ from monetary approach in determining the exchange
rate?
6. How can the structural independence between A- sector and K-sector in the dualistic economy
foster growth in the absence of external stimuli?
7. What do the following terms signify in structural transformation and growth?
(a) Kuznets' U-shaped curve
(b) Environmental Kuznets curve
(c) N-shaped Kuznets curve in the long-run
8. Compare Human Development Index (HDI) with Human Poverty Index (HPI) as a measure of
development. How is the Human Poverty Index different from the Happy Planet Index?
9. Why do energy elasticities tend to unity in industrially advanced countries? What are the negative
externalities of high energy coefficients?

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10. How is warranted growth different from natural rate of growth? Explain why Harrod's growth model
is called 'knife-edge'?
2012 Question Paper
1. Distinguish between Currency Board Arrangement and dollarization. Why would a nation adopt
one or the other?
2. The assumption of fixed coefficient production function is at the root of Harrods instability.
Discuss and explain whether giving up the assumption really helps.
3. Discuss the impact of FDI on level of output and employment of the host country. Why do we need
some precaution in allowing FDI in retail sector in India?
4. “Agriculture is not just a sector contributing a small proportion of GDP, it is a way of life for the
Indians.” Discuss
5. “Industrial development and environmental degradation are highly correlated.” If it is true what
should be, in your opinion, the policy options for industrialization process vis-a-vis pollution
control?
6. Discuss the role of multinationals in employment creation, income generation and transfer of
technology.
7. For optimal allocation of resources, which of the options market forces, planning exercise or a
combination of both-should be suitable for the third world countries? Defend your stand.
8. Show different stages of product life cycle. How do the shortcomings of diffusion lag of new
technologies in recent years cause a time compression of the cycle?
2013 Question Paper
1. What are the two key conclusions of the Heckscher-Ohlin model of international trade? Under what
assumptions are these conclusions arrived at?
2. It is said that a characteristic of the Harrod –Domar model is that even for the long run the
economy is at best balanced on a knife-edge of equilibrium growth. Explain the Harrod-Domar
model and the reason for this characteristic.
3. Explain the Lewis model of structural change from an agricultural economy to a modern industrial
economy. State three major criticisms of the Lewis model.
4. What is a speculative attack on a currency? Suppose the economy has a fixed exchange rate and
the government is following an expansionary macroeconomic policy. The government increases the
budget deficit which it finances through a monetary expansion. How does this lead to a crisis?
What is the timing of the speculative attack?
5. Suppose the goods, financial, current account and foreign exchange markets are initially in
equilibrium. The economy has low or imperfect capital mobility and operates at a fixed exchange
rate. The economy is subject to a favourable demand shock that raises expenditure. What is the
outcome of the shock on the aggregate income and interest rate in the short run? How is the
balance of payments equilibrium achieved? Draw a diagram in support of your answer.
6. What is an offer curve in international trade? For two countries engaged in trade in two goods,
draw the offer curves such that the offer curve of the home country has a section reflecting
inelastic import demand and the foreign country’s offer curve is elastic throughout. Indicate in
your diagram which part of the home country’s offer curve in inelastic. What is the reason for this
shape of the offer curve is inelastic. What is the reason for his shape of the offer curve? Suppose
the home country imposes a tariff on imports. Demonstrate the implications for trade.
7. After 2003 till 2008 many emerging economies including India received huge capital inflows. To
contain the effect of these flows the central bank sterilized the inflows. What is sterilization and
how does it affect the supply of money in the economy?
8. Summarize the main arguments of the trade optimists and trade pessimists with regard to trade
policy for developing countries, which argument does the data tend to support?
9. State five reasons that support government intervention in agricultural markets.
10. Expand on the following three explanations for the Kuznets hypothesis about inequality and
development – (i) the cohort size hypothesis, (ii) the effect of openness on inequality, and (iii) the
strong versus the weak version of the hypothesis.
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SHANKAR IAS ACADEMY
2014 Question Paper
1. Explain the Trade Related Investment Measures (TRIMs) of World Trade Organisation (WTO). What
are the major debates relating to it?
2. “Apart from bringing capital into a country, multinational corporations provide many other
advantages that cannot be obtained by borrowing from international capital market.”
Discuss.
3. Describe the different indicators that are used by UNDP to construct the Human Development
Index (HDI). Why is a logarithmic transformation applied only to per capita income in the
calculation of HDI?
4. Our development strategy has been proposed in terms of `faster’, `more inclusive’ and `sustainable’
growth. Do the three components sit together well? Argue for your answer.
5. Distinguish between single and double factor terms of trade. Explain how far terms of trade of a
developing economy would change with technological advancement and economic growth.
6. Why is it that in a pure flexible exchange rate system, foreign exchange market has no direct
effects on the monetary base and money supply? Does this mean that the foreign exchange market
has no effect on the monetary policy?
7. “With the Doha Round of multilateral trade talks stalled, regional trade agreements (RTAs) have
emerged as an alternative approach to increase trade, spur stronger economic growth and lower
unemployment rates in the participating countries.” Explain
8. “Balanced growth strategy of development in terms of pattern of investment has to be in
conformity not only with derived demands but final demands as well.” Argue whether this
statement is about avoiding bottlenecks for certain sectors and excess capacities in others or
promoting import subsidisation.
9. Explain the conditions under which complete specialisation will be possible for two nations in case
of comparative advantage. Suppose productivity per unit of labour for two nations. India and UK, is
given as under. Will mutually beneficial trade be possible for the two nations? If yes, explain
whether specialisation shall be complete or not.
Item \ Country India UK
Wheat (Kg) / man hour 6 3
Cloth (yard)/man hour 4 2
10. What is meant by `factor abundance’? How does it affect the shape of the production frontier of a
nation?
11. Can Kuznets’ hypothesis of inverted U curves be extended to environmental degradation? Explain.
12. What do you understand by a small open economy in the context of both goods and money
markets?
13. Point out the critical elements in typical Public-Private – Partnership (PPP) agreements in the
infrastructure projects to safeguard the interests of the public.
14. Analyse the partial equilibrium effects of a tariff imposed by a large country on its imports in terms
of consumers’ surplus.
2015 Question Paper
1. Do you think that the root of Harrod’s instability problem lies in the assumption of wage-price
rigidity? Give arguments in favour of your answer.
2. What is ‘immiserizing growth’? How can it be prevented through trade policy interventions?
3. How does carbon trading help in reducing environmental degradation?
4. How do depreciation and appreciation in the external value of a currency impact a country’s
balance of payments?
5. Balanced and unbalanced growth strategies are not substitutes but complementary to each other.”
Explain this statement.
6. Distinguish between Monetary union and Economic union. Do the proliferating trading blocks
adversely affect the free trade in the world? Give reasons for your answer.
7. What are the advantages and disadvantages of capital mobility for developing countries?

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SHANKAR IAS ACADEMY
8. “As long as the substitution possibilities between foreign and domestic resources are limited, the
dual-gap analysis is relevant.” Critically examine this statement.
9. In an economy having two sectors, namely, goods-producing sector and Research and Development
(R & D) sector, prove with the help of new growth theory that (i) both capital and aggregate output
must grow at the same rate and (ii) per capita output must grow at the rate of growth of
technology.
10. What is indicative planning? In this context, explain how State and markets can play a synergetic
role in economic development.
11. What do you mean by ‘green accounting*? Discuss how this concept can be incorporated in
national income accounting.
12. Discuss the role of renewable energy resources in order to maintain environmental sustainability
with special reference to India.
13. “Global warming will certainly increase the cry of the earth and the cry of the poor.* In this context,
examine the international efforts to reduce global warming.
2016 Question Paper
1. Differentiate between inter-industry and Intra-Industry trade. Can standard H-o model explain
intra-industry trade? Discuss.
2. Explain Dunning's eclectic theory of FDI.
3. Explain Kuznets’ inverted ‘U’ hypothesis. Is growth good for the poor? Explain.
4. Under what conditions economic growth reduces employment growth? Discuss.
5. Describe the growth path, which once the economy attains it, will give a higher level of per capita
consumption than any other growth path for all time.
6. Technical progress in capital-intensive sector almost invariably reduces the real wage rate and
increases the real return to capital. Technical progress in labour-intensive sector will lead to
increase in real wage rate and decrease in the real return to capital.” Explain.
7. What is the stalemate in the WTO about subsidies in less-developed economies? Discuss.
8. “The argument that export-biased growth may turn the terms of trade unfavourable to the country
and hence may not be beneficial, is applicable in the case of a large country and not a small
country.” Explain.
9. With the help of Salter-Swan diagram, define the zones of disequilibrium and assign policy
prescriptions for the situations pertaining to unemployment and inflation vis-a-vis BOP deficit.
10. To counteract under-development stagnation, discuss Leibenstein's critical minimum effort theory.
11. What are the elasticity and absorption approaches to BOP adjustment? Discuss.
12. "Pollution-income progression of agrarian communities (clean) to industrial economies (pollution
intensive) to service economies (cleaner) would appear to be false if pollution increases again at the
end due to higher levels of income and consumption of the people at large.” Discuss.
13. Indicate the Ricardo legacy which is inherent in the Lewis model of economic development.

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