UPSC Mains ECONOMICS-PAPER-I 2013

Consider 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 endowment is given by (w, w²) and B's initial endowment is (wb, wh). A can choose any bundle (x1, x2) and B can choose any bundle (x1, x2). 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.

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 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 ?

Explain the determination of output and employment in a macroeconomy under the conditions when individuals are subject to (i) no money illusion, (ii) money illusion.

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?

Suppose an industry is characterized 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.

Under Bertrand price competition with homogeneous products in an oligopoly demonstrate how is the equilibrium price that will prevail arrived at ?

Let the market demand curve for carbonated water be given by P = 20- 9Q where P is the price and Q 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 duopolist ? 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 ?

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 advocate any particular policy intervention when the economy is in such a situation ?

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?

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 ?

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 ?