Institute of Actuaries of India: Examinations
Institute of Actuaries of India: Examinations
Institute of Actuaries of India: Examinations
EXAMINATIONS
1. Please read the instructions inside the cover page of answer booklet and instructions
to examinees sent along with hall ticket carefully and follow without exception.
3. Attempt all questions beginning your answer to each question on a separate sheet.
However, answers to objective type questions could be written on the same sheet.
4. Please check if you have received complete Question Paper and no page is missing. If
so, kindly get new set of Question Paper from the Invigilator.
Please return your answer book and this question paper to the supervisor separately. You are not
allowed to carry the question paper in any form with you.
IAI CB2-1123
Q. 1) Which of the following item doesn’t affect the cost of production for mobile phones?
A. The cost of rare earth metals used to make micro-chips for the phones.
B. The cost of R&D undertaken by the Company to develop new features.
C. Geopolitical conflicts.
D. Competition between firms. [1.5]
Q. 3) A company has suffered a severe hit to its brand name. What do you think will happen to
its demand curve?
Q. 4) Which of the following is income effect on the change in price of a particular good?
A. When the prices of tomatoes increase people started consuming more onions which are
cheaper and less of tomatoes.
B. When the prices of laptops increase the demand of laptops fall.
C. When the price of wooden furniture increases people started buying more steel furniture
which was cheaper.
D. Both A and C. [1.5]
A. Lack of information.
B. Lack of time & effort and perhaps expense of obtaining relevant information.
C. Lack of understanding of complex situations.
D. All of the Above. [1.5]
Q. 6) Which of the following is/are true about short run marginal cost?
I. Marginal cost is the addition to total costs as a result of producing one more unit of
Output.
II. Short run marginal cost is equal to the increase in short-run variable cost.
III. The shape of short run marginal cost curve is U shaped.
A. Both I and II
B. Only I
C. All I, II and III
D. Only III [1.5]
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A. Economies of Scope
B. Managerial Factors
C. Increasing Pollution
D. The opportunity cost of production [1.5]
Q. 9 There are a few restaurants and pubs operating in an area. What could be the market structure
that appropriately defines them?
A. Oligopoly
B. Monopolistic Competition
C. Perfect Competition
D. Monopoly [1.5]
Q. 10) In limit pricing strategy the oligopolist charges are price that is below the:
Q. 11) The cab aggregators strategy of charging different prices for different types of cabs (bike,
mini, prime, prime play) is which type of price discrimination?
Q. 12) In which of the four stages of product cycle the competition is likely to be most intense?
A. Launch
B. Growth
C. Maturity
D. Decline [1.5]
A. Pensions
B. Wireless Internet access in a restaurant
C. Pay per view TV broadcasting
D. Private Parks [1.5]
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IAI CB2-1123
A. Greater productivity
B. Higher liquidity
C. Capital mobility
D. Reduction in exposure to systemic risk [1.5]
I. Overdrafts
II. Reverse Repo
III. Repo
IV. Time Deposit
A. I, II, III
B. II and III
C. III and IV
D. I and III [1.5]
A. Gross Domestic Product (GDP) can be measured as the sum of all goods and services
produced in the country in a year.
B. GDP can be measured as the sum of all income in the form of wages, salaries, profits,
rents and interest earned in a year.
C. GDP is the difference between all goods & services produced and the expenditure
necessary to purchase them, in a particular year.
D. All the methods of calculating GDP must yield the same result. [1.5]
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IAI CB2-1123
A. I only
B. II only
C. I and IV
D. II, III and IV [1.5]
A. There is a trade off between unemployment and inflation in the short term.
B. There is a trade off between unemployment and inflation in the long term.
C. Expectations are rational but are based on imperfect information.
D. Expectations are rational and are based on perfect information. [1.5]
Q. 24) The extent of crowding out in response to an increase in Government spending will be
greater:
A. I and II
B. I and III
C. I, II and III
D. None of the above [1.5]
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IAI CB2-1123
Q. 25) All else being equal, the real exchange rate will increase if:
I. In the short run, changes in aggregate demand can have no effect on output and
employment.
II. In the long run, changes in aggregate demand have a smaller effect on output and
employment and a larger effect on prices.
III. Excessive growth in the money supply will lead to inflation.
IV. In a deep recession, expansion of the money supply might be necessary.
A. I and II
B. I and III
C. I and IV
D. II, III and IV [1.5]
Q. 27) What are the external benefits of Government Health insurance scheme? [2]
Q. 28) Consider a market for tabletop calendars and explain the effect of each of the following
scenarios on the supply curve for tabletop calendars:
iii) A new process of recycling is developed in Country C due to which the cost of
cardboard decreases because wastepaper from developed countries are used to make
cardboard. (1)
iv) Government makes it more difficult to cut trees needed for producing glazed paper. (1)
[4]
Q. 29) Poor rice crop yields because of floods is likely to result in rise in its price. Highlight how
self-fulfilling speculation will have a destabilising effect on the price. [2]
Q. 30) Describe the role of behavioural economics in design of economic policy with a suitable
example. [4]
Q. 31) Mr. Raju runs a hardware store. In the last year his accountant calculated Mr. Raju’s profit
by comparing his review with his expenditure on staff wages, depreciation, loan interest,
rent and cost of items sold. The resulting figure was INR 9,50,000 which his accountant
calls as profit. His accountant is amazed how Mr. Raju is running such a profitable business
• He feels he could have earned a salary of INR 8,00,000 has he been working as a
software engineer.
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• The INR 7,50,000 of the money that he has put in the business, he could have earned
INR 48,000 in interest had he left that money in his bank account.
i) Please state which costs are implicit and which are explicit. (1)
iii) Mr. Raju has hired you an Actuary to redo the numbers. Determine the economic
profit that he made last year. (2)
iv) Assuming Mr. Raju can sell the bookshop business next year for INR 800,000. What
your answer suggests Mr Raju should do next year? (2)
The next year Mr. Raju’s accountant again calculate the accounting profits as being INR
8,75,000.
v) Assuming that Mr. Raju’s salary as a software engineer would have been INR
8,77,000 and his initial investment in the business would have earned INR 50,000
how will Mr. Raju view this? (2)
[9]
Q. 32) Describe three ways in which firms can use their market power to the detriment of the
consumers. Define each one of them with an example. [5]
Q. 33) Provide two important features of the new classical school. What is the key accompanying
element in the thinking of new classical school. [3]
Q. 34) Much of the work in the farming industry is mechanized, meaning fewer farmers are
necessary, and many lose work.
iii) Discuss the factors affecting the level of such unemployment. (3)
Q. 35) Explain why market-oriented supply side policies may be superior to interventionist supply
side policies and describe three possible market-oriented supply side policies. [5]
Q. 36) List the advantages of having a single currency for the member states of European Economic
and Monetary Union (EMU). [2]
Q. 37) Discuss the main factors that affect investment in an economy. [5]
Q. 38) Why capital adequacy is important for Banks? Define the formula for Capital Adequacy
Ratio (CAR) and explain the components of CAR. [5]
Q. 39) List the macroeconomic objectives that are dependent on the aggregate demand in the short
term and explain how they vary through the expansionary phase of business cycle. [6]
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