KUET 2025 Question Paper Economics

FOR KUET PREPARATION

KUET 2025 Question
Paper Economics
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KUET 2025 Question Paper

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Question Booklet No. : .............................

ENTRANCE TEST-2025
SCHOOL OF BUSINESS STUDIES
ECONOMICS
Total Questions : 60
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Question Booklet Series A .com
Time Allowed :
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70 Minutes Entrance Test Roll No. :
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1. Which of the following is NOT a property of a typical 5. The assumption of strict convexity of indifference
budget set? curves implies that:
(A) The budget set includes all affordable (A) The indifference curve is linear
bundles
(B) The consumer prefers corner bundles over
(B) The budget set is convex if preferences are
mixed bundles
convex
(C) All points on the budget line represent (C) The marginal rate of substitution increases
bundles that exhaust the consumer ’s along the curve
income (D) The consumer prefers balanced
(D) The budget set excludes all unaffordable consumption bundles over extremes
bundles
6. The Compensating Variation (CV) is best defined as:
2. Which of the following scenarios violates the
(A) The change in income that keeps utility
transitivity assumption?
constant before the price change
(A) A  B, B  C, and A  C
(B) The change in income needed after the
(B) A ~ B, B ~ C, and A ~ C
price change to restore original utility
(C) A  B, B  C, and A ~ C
(C) The area under the demand curve
(D) A  B, B  C, and C  A
3. The Engel curve for a necessity good (with income (D) The utility difference between two bundles
elasticity < 1) is: 7. If the Income-Consumption Curve bends backward
(A) Downward sloping toward the Y-axis as income rises, it implies that:
(B) Upward sloping and convex (A) Good X is inferior
(C) Upward sloping and concave (B) Good Y is inferior
(D) Horizontal (C) Good X is a normal good
4. At consumer equilibrium under ordinal utility analysis,
(D) The Engel curve is positively sloped
which of the following conditions must be satisfied?
8. In case of a Giffen good, which of the following must
(A) MUx = MUy and Px = Py
be true?
(B) MUx / Px = MUy / Py and the indifference
curve is concave (A) Substitution effect is negative
(C) The marginal rate of substitution equals the (B) Income effect is zero
ratio of prices, and the indifference curve (C) Positive income effect dominates the
is convex to the origin
substitution effect
(D) MUx × Px = MUy × Py and the budget
(D) Negative income effect outweighs the
line is tangent to a utility function
substitution effect

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0.6 0.4 a sets price:
9. If the production function is Q =2 L K what are 14. A monopolist
the returns to scale? (A) Equal to marginal cost
(A) Increasing (B) Where marginal revenue equals marginal
(B) Constant cost
(C) Decreasing (C) Equal to average total cost
(D) Cannot be determined (D) Where demand is inelastic
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10. The ridge lines in a production function represent:
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15. Third-degree price discrimination is based on:
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(A) The limits beyond
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negative marginal (B) Consumer preferences

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(B) Iso-cost l a
lines (C) Elasticity of demand across
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(C) Minimum returns to scale segments

(D) Points of constant MRTS (D) Firm’s production costs
16. Suppose the government imposes a price ceiling
11. In the short run, a firm continues to produce at a
below the equilibrium price in a perfectly competitive
loss if :
market. What is the likely outcome?
(A) Price > average total cost
(A) Excess demand (shortage)
(B) Price < AVC m
c. o(B) Market disequilibrium
(C) Price > AVC but < ATC
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(D) Marginal cost is rising
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12. According to modern cost theory, the LAC gcurve is 17. In an open economy with government, the correct
L-shaped due to:
national income identity is:
(A) Learning and reserve capacity
(A) Y = C + I + G + NX
(B) Rising factor prices (B) Y = C + I + G
(C) Short-run inefficiencies (C) Y = C + I + X – M
(D) Diseconomies of scale (D) Y = C + S + T + NX
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13. In a perfectly competitive market, an increase in 18. In a four-sector model, leakages include:
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consumer income (assuming a normal good) will likely:
(A) Taxes, imports, and savings
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(B) Consumption, government spending, and
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a (C) Shift the demand curve rightward (C) Exports, transfers, and consumption
(D) Cause a movement along the demand curve (D) Investment, imports, and wages

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19. Which of the following statements best reflects 23. Monetary neutrality implies:
Keynes’s original consumption theory, as opposed
(A) An increase in money supply leads to
to empirical consumption patterns observed
sustained growth in real output
over time ?
(A) MPC is constant and equal to 1 (B) A change in money supply affects only
nominal variables, not real variables in the
(B) MPC lies between 0 and 1 and is assumed
to be constant long run

(C) MPC decreases as income increases due (C) Prices and wages adjust slowly to
to higher saving at higher incomes monetary shocks
(D) APC is always greater than MPC (D) Central banks can control employment
20. According to the Relative Income Hypothesis, a through money supply adjustments
person’s consumption depends primarily on: 24. According to Keynes, the primary cause of involuntary
(A) Their absolute income unemployment is:
(B) Their lifetime average income (A) Nominal wage rigidity preventing
(C) Their income relative to past income equilibrium in the labor market
(D) Their income relative to others in society (B) Overinvestment during the boom phase of
21. Classical dichotomy implies that: the business cycle
(A) Fiscal and monetary policies always work (C) Disruption in labor supply due to external
together
technological changes
(B) Real and nominal variables can be analyzed
(D) Inadequate effective demand to purchase
separately
total output at full employment
(C) Prices affect both real and nominal GDP
equally 25. The liquidity trap in Keynesian economics implies:

(D) Inflation influences real output (A) Speculative demand for money is perfectly
permanently interest-elastic
22. The size of the multiplier is inversely related to: (B) Speculative demand for money is perfectly
(A) Average propensity to consume interest-inelastic
(B) Marginal productivity of capital (C) Interest rates are rising sharply
(C) Marginal propensity to save (D) Bonds are preferred over money
(D) Tax rate

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a (A): Integration can be used to calculate
26. Which of the following theories explicitly incorporates 29. Assertion
producer surplus in perfectly competitive markets.
transaction costs in the analysis of money demand?
Reason (R): Producer surplus is the area below the
(A) Classical theory
price line and above the supply curve, which can be
(B) Keynesian theory computed using definite integrals.
Options:
(C) Tobin’s portfolio balance theory
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(D) Baumol’s inventory theory
explanation of A
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27. In Tobin’s model, an increase in bond return volatility a s the
(B) Both A and R are true, but R is lnot
will lead to: la
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(A) Lower money demand (C) A is true, but R is false
(D) A is false, but R is true
(B) Higher money demand
30. The derivative of f (x) = 5x3 – 2x + 7 at x =1 is:
(C) No change in money demand
(A) 10
(D) Only affect precautionary demand
(B) 13
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28. Assertion (A): In the Classical theory, changes in

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the interest rate do not affect the demand for money.
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Reason (R): The Classical theory assumeslathat 31. If f '  x   0 at x = a and f "  a   0 , the point
agand that x = a is a:
money is held only for transaction purposes
the velocity of money is constant. (A) Global minimum
(B) Local minimum
Options:
(C) Local maximum
(A) Both A and R are true, and R is the correct
(D) Point of inflection
explanation of A
32. The integral  (6x 2 +4x)dx is: m
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(B) Both A and R are true, but R is not the
c. o correct explanation of A (A) 2x3+2x2+C
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(C) 6x +4x +C 2

a (D) A is false, but R is true (D) 2x3+4x2+C

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33. If the standard deviation of a data set is 0, it means: 37. Which of the following is not an assumption of the
Ricardian model of Comparative Advantage?
(A) All values are different
(A) Labor is the only factor of production
(B) All values are the same (B) There is perfect mobility of labor between
countries
(C) Mean is zero
(C) There is constant opportunity cost
(D) Median is high
(D) Technology differs between countries
34. A class of students has the following marks: 55, 60, 38. Assertion (A): Comparative advantage can lead to
65, 70, 75. If the highest score increases by 15 points, gains from trade even if one country has an absolute
what happens to the mean and median? advantage in all goods.
Reason (R): Gains from trade arise from differences
(A) Mean unchanged, median increases in absolute cost only.
(B) Both mean and median decrease (A) Both A and R are true, and R is the correct
explanation of A
(C) Mean and median both increase
(B) Both A and R are true, but R is not the
(D) Mean increases, median unchanged correct explanation of A
35. If the Coefficient of Variation (CV) is 20% and the (C) A is true, but R is false
mean is 50, the standard deviation is: (D) A is false, but R is true
39. The Mercantilist belief that trade is a zero-sum game
(A) 2.5
implies:
(B) 5 (A) Trade benefits all countries involved
(C) 10 (B) Trade is only beneficial to one party at the
expense of the other
(D) 15
(C) All countries can enjoy simultaneous trade
36. The base year and current year prices and quantities surpluses
of a basket are given: (D) Trade creates value through specialization

Base Year: P = Rs. 5, Q = 10 40. Which of the following best illustrates Mill’s theory of
reciprocal demand?
Current Year: P = Rs. 8, Q = 10 (A) Trade volumes are driven solely by supply-
Using the Laspeyres Price Index, compute the index. side cost structures
(B) International prices are determined by
(A) 80 relative factor endowments
(B) 100 (C) Terms of trade are established where each
country’s demand for imports equals its
(C) 120
supply of exports
(D) 160 (D) Opportunity costs dictate all trade flows
without considering demand

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a Rate of Protection (ERP) takes into
41. The key difference between a tariff and a quota is 44. The Effective
that: account:
(A) Only the nominal tariff on final goods
(A) Tariffs are used to restrict exports, not
imports (B) Only subsidies and quotas
(C) Exchange rate fluctuations
(B) Tariffs allow market adjustments, while
(D) Tariffs on both final goods and
quotas fix quantity limits
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intermediate inputs
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(C) Quotas increase government spending
45.
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Which of the following best describes the early phase
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(D) Quotas raise revenue for the government
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of liberalization in India (1980s)?
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while tariffs (A) Full convertibility of the rupee ag
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42. The WTO’sadispute settlement mechanism is important (B) Complete deregulation of foreign
because: investment
(C) Introduction of VAT
(A) It punishes countries with high tariffs
(D) Reduction in licensing and increased
(B) It promotes bilateral trade deals
autonomy to public sector units
(C) It guarantees trade surpluses 46. Agricultural Price Policy in India is primarily
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(D) It provides a legal and institutional aimed at :
framework to resolve trade conflicts
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(A) Increasing government revenue

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43. Assertion (A): Trade diversion under a customslunion (B) Reducing export surplus

may lead to welfare losses despite increased
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bloc trade. farmer incentives
(D) Promoting non-agricultural employment
Reason (R): This occurs when a country shifts
47. Assertion (A): Industrial Policy of 1991 encouraged
imports from a lower-cost non-member country to a
Foreign Direct Investment (FDI) in core sectors.
higher-cost member country due to preferential
Reason (R): The policy eliminated licensing
treatment.
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requirements for all industries.
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(A) Both A and R are true, and R is the correct c
. and R is the correct
c. o explanation of A
(A) Both A and R are true,
explanation of A e m
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R are true, but R is not the
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a correct explanation of A
(C) A is true, but R is false
(C) A is true, but R is false
(D) A is false, but R is true
(D) A is false, but R is true

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48. Assertion (A): The Green Revolution made India 51. Which of the following statements is true regarding
the relationship between inequality and development
self-sufficient in food grain production. according to Kuznets’ hypothesis?
Reason (R): It significantly improved productivity in (A) Inequality has no relationship with
coarse cereals and pulses. development
(B) Inequality remains constant throughout
(A) Both A and R are true, and R is the correct development
explanation of A (C) Inequality falls at early stages and rises at
later stages
(B) Both A and R are true, but R is not the correct
(D) Inequality rises then falls as income
explanation of A increases
(C) A is true, but R is false 52. Which of the following is NOT a key feature of the
Capability Approach?
(D) A is false, but R is true
(A) Emphasis on individual agency and
49. Assertion (A): A low Gini coefficient implies a more freedom
equitable distribution of income. (B) Focus on outcomes rather than means
(C) Universal metric for measuring
Reason (R): The Lorenz curve will lie closer to the
development across individuals
line of equality when income distribution is more equal.
(D) Plurality of values and choices in defining
(A) Both A and R are true and R is the correct well-being

explanation of A 53. Match the economists with their associated theories/
models:
(B) Both A and R are true but R is not the Column A Column B
correct explanation of A (Economist) (Theory/Model)

(C) A is true but R is false a. Adam Smith i. Big Push Theory
b. Ragnar Nurkse ii. Division of Labor
(D) A is false but R is true
c. Paul Rosenstein- iii. Balanced Growth
50. Which poverty measure captures the intensity of Rodan Model
poverty among the poor? d. Karl Marx iv. Surplus Value and
Class Conflict
(A) Headcount Ratio
Choose the correct option:
(B) Gini Coefficient
(A) a–ii, b–iii, c–i, d–iv
(C) Poverty Gap Ratio (B) a–iii, b–ii, c–iv, d–i
(C) a–ii, b–i, c–iii, d–iv
(D) Kuznets Ratio
(D) a–iv, b–iii, c–ii, d–i

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se 54. Which of the following statements are consistent with g la
56. Which aof the following correctly distinguishes
Marx’s theory of capitalist development?
Ricardo’s and Marx’s theories of surplus?
I. Capitalist development is historically
progressive but ultimately self- (A) Ricardo viewed surplus as rent; Marx
destructive. viewed it as profit from capital
II. Capital accumulation leads to a rising
organic composition of capital, reducing (B) Ricardo and Marx both equated surplus
labor’s share in income. with net exports
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III. The capitalist state primarily functions to
maintain class harmony and prevent
(C) Ricardo believed surplus value arises from
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IV. Technological differential land rent ag
raisesgproductivity but also intensifies
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worker alienation. (D) Ricardo identified surplus with rent due
(A) I, II and IV only to diminishing returns on land; Marx saw
(B) II and III only surplus value as extracted from labor
(C) I, III and IV only
57. Which of the following is a major limitation of the
(D) I and IV only
Proportional Reserve System of note issue?
55. Which of the following combinations correctly
captures the primary mechanisms of growth in the
o m It leads to hyperinflation in the long run
(A)
respective models?
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Model Primary Mechanism
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I. Marxian Theory a. Surplus valuela and currency
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class exploitation (C) It unnecessarily locks up gold or foreign
II. Big Push Theory b. Simultaneous
exchange, limiting flexibility in monetary
investment across
sectors policy
III. Low-Level Trap c. Per capita income (D) It violates the legal tender status of money
(Nelson) too low for
investment 58. If the reserve ratio is 20% and people do not hold
IV. Balanced Growth d. Mutual demand cash, the theoretical money multiplier is:
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(Nurkse) generation through
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coordinated growth (A) 0.2
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(C) 4
(B) I–b, II–a, III–d, IV–c
(C) I–a, II–d, III–b, IV–c (D) 5
(D) I–c, II–b, III–a, IV–d

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59. Match the instruments of monetary policy with their 60. According to the legal approach, which of the
type: following qualifies as money?
Column A Column B
a. A government bond that can be traded
a. Repo rate i. Qualitative instrument
b. Cryptocurrency such as Bitcoin
b. Credit rationing ii. Quantitative instrument
c. Open Market iii. Liquidity management c. Currency notes issued by the central bank

Operations d. Demand deposits with a commercial bank
d. Moral suasion iv. Persuasive tool Choose the correct option:
Choose the correct code: (A) a, b, and c
(A) a–ii, b–iii, c–iv, d–i
(B) Only c
(B) a–ii, b–i, c–ii, d–iv
(C) b and d
(C) a–i, b–ii, c–iii, d–iv
(D) a–iii, b–i, c–ii, d–iv (D) a and c

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