FINALTERM EXAMINATION
Fall 2009
ECO401- Economics (Session - 4)
Time: 120 min
M a r k s: 87
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
If the quantity demanded of a product is greater than the quantity supplied of a product, then:
► There is a shortage of the product.
► There is a surplus of the product.
► The product is a normal good.
► The product is an inferior good.
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
The cross price elasticity of demand for complementary goods is:
► Less than 0.
► Equal to 0.
► Greater than 0.
► Between 0 and 1.
Lesson 08
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
Assume leisure is a normal good. If income effect equals substitution effect then a wage rate increase will lead a person to:
► Increase hours of work.
► Decrease hours of work.
► Not change hours of work.
► None of the given options.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
_______________ arises when an increase in all inputs leads to a more-than-proportional increase in the level of output. _____________ means that as inputs are added to the production process, output increases proportionally.
► Economies of scale; constant returns to scale.
► Constant returns to scale; decreasing returns to scale.
► Decreasing returns to scale; economies of scale.
► Economies of scale; decreasing returns to scale.
Economies of scale: The increase in efficiency of production as the number of goods being produced increases.
Constant returns to scale: If output increases by that same proportional change then there are constant returns to scale (CRTS), sometimes referred to simply as returns to scale.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
An isoquant curve shows:
► All the alternative combinations of two inputs that yield the same maximum total product.
► All the alternative combinations of two products that can be produced by using a given set of inputs fully and in the best possible way.
► All the alternative combinations of two products among which a producer is indifferent because they yield the same profit.
► None of the given options.
An isoquant represents different combinations of factors of production that a firm can employ to produce the same level of output.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
Total costs are the sum of:
► Marginal costs and variable costs.
► Fixed costs and variable costs.
► Fixed costs and marginal costs.
► Average variable costs and marginal costs.
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
A firm is charging a different price for each unit purchased by a consumer. This is called:
► First-degree price discrimination.
► Second-degree price discrimination.
► Third-degree price discrimination.
► None of the given options.
2ND DEGREE PD: In this type, different prices charged to customers who purchase different quantities.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
Which of the following best expresses the law of demand?
► A higher price reduces demand.
► A lower price reduces demand.
► A higher price reduces quantity demanded.
► A lower price shifts the demand curve to the right.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
If a sales tax on beer leads to reduced tax revenue, this means:
► Elasticity of demand is < 1.
► Elasticity of demand is > 1.
► Demand is upward-sloping.
► Demand is perfectly inelastic.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
For a firm buying labor competitively, the marginal input cost is equal to the:
► Wage.
► Interest rate.
► Price of output.
► Cost of raw materials.
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
The classical economists thought that the economy would quickly overcome any short run instability because:
► Price level and quantity are flexible.
► Prices would get stuck at a low level.
► The long run aggregate supply would shift to the left.
► Prices and wages are flexible.
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
Final goods are meant for:
► Direct use by the consumers.
► Further processing.
► The term do not exist.
► None of the given options.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
The average propensity to consume is the ratio of:
► A change in consumption to a change in disposable income.
► A change in consumption to total disposable income at a specific income level.
► Total consumption to total disposable income at a specific income level.
► Total consumption to a change in disposable income.
Lesson 30
Average propensity to consume (APC) is the ratio of total consumption to total disposable income.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
The slope of the saving function (or line) is the:
► Average propensity to save.
► Average propensity to consume.
► Marginal propensity to save.
► Marginal propensity to consume.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
The government increases the number of job centres and uses more advanced computers to improve the information database. This creates:
► Structural Unemployment.
► Regional Unemployment.
► Frictional Unemployment.
► Demand Deficient Unemployment.
Question No: 16 ( M a r k s: 1 ) http://vuzs.net
Which one of the following can lead to a rise in inflation?
► An increase in costs of production.
► An increase in productive capacity.
► An increase in the level of direct taxation.
► An increase in the exchange rate.
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
What does the term "balance of payment deficit" refer to?
► An increase in official international reserves.
► A positive statistical discrepancy.
► A negative statistical discrepancy.
► A decline in official international reserves.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
How should fiscal policy be used during inflation?
► Increase Government expenditure and decrease taxes to decrease aggregate demand.
► Increase Government expenditure and decrease taxes to increase aggregate demand.
► Decrease Government expenditure and increase taxes to increase aggregate demand.
► Decrease Government expenditure and increase taxes to decrease aggregate demand.
Contractionary Fiscal Policy / During Inflation: During inflation the government has three choices:
(a) Decrease government spending,
(b) Increase taxes,
(c) Decrease transfer payments
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
If the demand curve for a good is downward sloping, then the good:
► Must be inferior.
► Must be giffen.
► Can be normal or inferior.
► Must be normal.
Question No: 20 ( M a r k s: 1 ) http://vuzs.net
Keeping in view the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause:
► Both prices and output to rise.
► Prices to fall and output to remain unchanged.
► Both prices and output to fall.
► Prices to rise and output to remain unchanged.
Question No: 21 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE according to classical economists?
► Aggregate demand curve is downward sloping and the aggregate supply curve is vertical.
► Aggregate demand curve is downward sloping and the aggregate supply curve is upward sloping.
► Aggregate demand curve is vertical and the aggregate supply curve is upward sloping.
► Aggregate demand curve is vertical and the aggregate supply curve is horizontal.
Lesson 26 & 27
Question No: 22 ( M a r k s: 1 ) http://vuzs.net
Why calculations of Gross Domestic Product (GDP) count only final goods and services?
► Because it is difficult to measure the prices of intermediate goods produced.
► Because these are the only goods and services that are purchased in an economy.
► Because counting all goods and services would lead to double-counting of many activities.
► Because one cannot calculate the quantities of intermediate goods produced.
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
------------------ plays an important role in making sure that the economy reaches and stays at equilibrium at the potential output level.
► Real exchange rate.
► The production function.
► Real price level.
► Real interest rate.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
Why a $1 increase in government spending will have a larger impact upon national income than a $1 tax cut?
► Because the government prints the currency it spends.
► Because not all of the tax cut is spent.
► Because when taxes are cut, government spending is also cut.
► Because taxes are an injection into the system.
Question No: 25 ( M a r k s: 1 ) http://vuzs.net
Commercial banks in Pakistan are supervised by:
► State bank of Pakistan.
► National bank of Pakistan.
► Finance minister of Pakistan.
► World bank.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
Trade can be beneficial in which of the following situations?
► Two countries produce the same goods at the same costs.
► Two countries produce different goods at different costs.
► Two countries are isolated.
► Two countries have the same markets.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
Firm A produces cotton worth Rs. 1000 and sells it to firm B. From this, firm B makes yarn worth Rs. 1500 and sells to firm C. Firm C manufactures cloth worth Rs. 2500 and sells to consumers. The value added is:
► 1000+1500+2500 = Rs. 5000
► 1000+500+2500 = Rs. 4000
► 1000+500+1000 = Rs. 2500
► 1000+1500+1000 =Rs. 3500
The product or value added method which sums the value added by all the productive entities in the economy. In economics, the difference between the sale price of a product and the cost of materials to produce it is the value added.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
Which of the following best defines “subsidies”?
► Payment by Government for purchase of goods and services.
► Payment by business enterprises to factors of production.
► Payment by companies to share holders.
► Payment by Government to business enterprises without buying any goods and services.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
National product at market prices incorporate:
► Prices which buyers actually pay.
► Payments made to the factor owners.
► Costs incurred in producing goods and services.
► Costs minus subsidies.
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
A marginal propensity to consume (MPC) of 0.95 indicates that:
► ∆C to ∆Yd is 0.95.
► C / Yd is 0.95.
► ∆Yd to ∆C is 0.95.
► Yd / C is 0.95.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
When MPC is 0.80 and APC is 0.95 then MPS is:
► 0.20 and APS is 0.05.
► 0.05 and APS is 0.20.
► 0.20 and APS is 0.20.
► 0.05 and APS is 0.05.
MPS=1-MPC=(1-0.80)=0.2
APS=1-APC=(1-0.95)=0.05
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
Which of the following are leakages from the circular flow?
► Consumption and saving.
► Saving and imports.
► Imports and exports.
► Exports and savings.
Leakage/Withdrawals: A non-consumption uses of income, including saving, taxes, and imports.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
The time that a laborer uses for relaxation and all activities other than work or necessary sleep is known as:
► Free time.
► Leisure.
► Time not used for earning.
► All of the given options.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
Labor supply curve is backward bending because:
► The income effect of higher income dominates the substitution effect of higher wages.
► The substitution effect of higher income dominates the income effect of higher wages.
► The income effect of higher income dominates the price effect of higher wages.
► None of the given options.
The backward bending supply curve means that the supply of labor decreases when the real wage rate increases. At high wage rates, the income effects are sufficiently large. Individual labor supply curve is “backward bending”.
At low wages, substitution effect dominates.
Eventually, income effect dominates.
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
The government supports research in basic science because:
► It is a public good.
► External costs are created.
► Internal benefits are created.
► Free markets would do so otherwise.
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
In classical theory, excess supply of a product would be associated with:
► Rising interest rates.
► Falling interest rates.
► Rising price for the product.
► Falling price for the product.
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
Which of the following is NOT a determinant of net exports?
► Domestic and foreign incomes.
► Relative price levels.
► Domestic and foreign trade policies.
► Producers’ expectations about future prices.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
A trade surplus occurs when:
► A country's firms open more stores abroad than foreign firms open in the country.
► A country sells more abroad than it purchases from abroad.
► Foreign firms open more stores in a country than the country opens in foreign countries.
► A country purchases more from abroad than other countries purchase from it.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
A change from $1.00 = Rs. 80.00 to $1.00 = Rs. 85.00 represents:
► Depreciation of the dollar.
► An appreciation of the dollar.
► An appreciation of the rupee.
► None of the given options.
It will be called depreciation of rupee.
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
There is an increase in the economy’s potential output when there is:
► An increase in government spending.
► A decrease in government spending.
► An increase in the economy’s capital stock.
► An increase in the economy’s depreciation rate.
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
One of the implications of Solow growth model is that all other things remaining the same, countries with rapidly growing population will tend to:
► Be poorer than countries with lower population growth.
► Grow slower than countries with lower population growth.
► Grow higher than countries with lower population growth.
► Have lower marginal products of capital than countries with lower population growth.
Question No: 42 ( M a r k s: 1 ) http://vuzs.net
The rapid population growth in today’s developing nations is due to the:
► High birth rates only.
► Low death rates only.
► High birth rate and low death rate.
► Higher standard of living.
Question No: 43 ( M a r k s: 1 ) http://vuzs.net
The principle of taxation which emphasizes on fairness or just sacrifice is known as:
► Efficiency.
► Equity.
► Progressive tax.
► Regressive tax.
Equity represents that principle of taxation which emphasizes fairness or just sacrifice, i.e. everyone should pay tax according to his/her ability.
Question No: 44 ( M a r k s: 1 ) http://vuzs.net
The relationship between tax rates and total tax collections by government is known as:
► Laffer curve.
► Demand curve.
► Supply curve.
► Investment curve.
The graphical inverted-U relation between tax rates and total tax collections by government is known as Laffer curve.
Question No: 45 ( M a r k s: 1 ) http://vuzs.net
The optimum tax rate in which government revenue is maximized lies somewhere between:
► 0% and 1%.
► 0% and 50%.
► 50% and 100%.
► 0% and 100%.
The optimum tax rate, in which government revenue is maximized, lies somewhere between 0% and 100%.
Question No: 46 ( M a r k s: 1 ) http://vuzs.net
Money is defined as an item that:
► Serves as a medium of exchange for goods and services.
► Can be converted into silver with relatively little loss in value.
► Can be converted into gold with relatively little loss in value.
► Facilitates a connecting link between credit instruments and debt instruments.
Question No: 47 ( M a r k s: 1 ) http://vuzs.net
A tax imposed by a country on an imported good or service is called a:
► Quota.
► Tariff.
► Non-tariff barrier.
► Trade embargo.
Question No: 48 ( M a r k s: 1 ) http://vuzs.net
Poor countries remained poor because of:
► Higher per capita income.
► Vicious circle of poverty.
► High level of investment.
► High rates of savings.
Question No: 49 ( M a r k s: 1 ) http://vuzs.net
If other things remaining the same, expected income can be used as a direct measure of well-being in which of the following situations?
► It can be used if and only if individuals are not risk-loving.
► It can be used if and only if individuals are risk averse.
► It can be used if and only if individuals are risk neutral.
► It can be used no matter what a person's preference to risk.
Question No: 50 ( M a r k s: 1 ) http://vuzs.net
What questions are related with explanation? What questions are related with what ought to be?
► Positive, negative.
► Negative, normative.
► Normative, positive.
► Positive, normative.
Question No: 51 ( M a r k s: 1 ) http://vuzs.net
What will happen to the demand for product X, if there is an increase in consumer’s income?
► It will necessarily remain unchanged.
► It will shift to the right if X is a complementary good.
► It will shift to the right if X is a normal good.
► It will shift to the right if X is an inferior good.
Question No: 52 ( M a r k s: 1 ) http://vuzs.net
Which of the following occur when an isocost line is just tangent to an isoquant?
► Output is being produced at minimum cost.
► Output is not being produced at minimum cost.
► The two products are being produced at the medium input cost to the firm.
► The two products are being produced at the highest input cost to the firm.
Question No: 53 ( M a r k s: 1 ) http://vuzs.net
Suppose all inputs are increased by 20% but output increases by less than 20% in a production process. This means that the firm experiences:
► Decreasing returns to scale.
► Constant returns to scale.
► Increasing returns to scale.
► None of the given options.
Question No: 54 ( M a r k s: 1 ) http://vuzs.net
In which of the following conditions, a firm will never operate?
► At the minimum of its average total cost curve.
► At the minimum of its average variable cost curve.
► On the downward-sloping portion of its average total cost curve.
► On the downward-sloping portion of its average variable cost curve.
Question No: 55 ( M a r k s: 3 )
How the central bank plays its role in order to control the activities of commercial banks?
Question No: 56 ( M a r k s: 5 )
Briefly discuss different types of taxes which a government can impose.
Question No: 57 ( M a r k s: 5 )
A. Differentiate between final goods and intermediate goods with the help of examples.
B. See the following table:
Year | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 |
Real GDP Growth Rate | 1.2% | -5.5% | 1.8% | 3.9% | 4.5% | 5.3% | 2.6% | 1.9% |
a) Calculate the average growth rate from 1982 and 1985.
b) Calculate the average growth rate from 1979 and 1986.
(M a r k s: 3+2)
Question No: 58 ( M a r k s: 10 )
From the information given in the following table, calculate the number of unemployed persons and unemployment rate.
| Size of Labor Force | Number of persons Employed |
1984 | 113544 | 105005 |
1985 | 115461 | 107150 |
1986 | 117834 | 109597 |
1987 | 119865 | 112440 |
1988 | 121669 | 114968 |
(M a r k s: 5+5)
Question No: 59 ( M a r k s: 10 )
Answer the following questions.
a) What is interest parity condition?
b) When does this condition hold?
This condition holds if there are no incentives to move the capital from one country to another country.
c) What is the equation of this condition?
iD ≈ iF + ΔEe
Domestic interest rate = Foreign interest rate + Expected depreciation
d) What will happen if the equality of the condition does not hold?
Then the whole thing will collapse and people will stop borrowing and transferring money to higher interest countries.
(M a r k s: 2+2+2+4)
