FINALTERM EXAMINATION
Fall 2009
ECO401- Economics (Session - 3)
Time: 120 min
M a r k s: 85
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
Microeconomics is the branch of economics that deals with which of the following topics?
► The behavior of individual consumers.
► Unemployment and interest rates.
► The behavior of individual firms and investors.
► The behavior of individual consumers and behavior of individual firms and investors.
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
In a free-market economy, the allocation of resources is determined by:
► Votes taken by consumers.
► A central planning authority.
► Consumer preferences.
► The level of profits of firms.
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
Ceteris paribus means:
► Equal access to public transportation.
► Other things being equal.
► Other things not being equal.
► All things considered.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
A new technology which reduces costs for firms:
► Shifts the supply curve to the right.
► Shifts the supply curve to the left.
► Reduces the equilibrium quantity.
► Raises the equilibrium price.
Lesson 04
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
If a 12% price reduction causes quantity demanded to rise by 12% then:
► Demand is inelastic.
► Demand is elastic.
► Demand is perfectly elastic.
► Total revenue will remain constant.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
A risk-averse individual has:
► A diminishing marginal utility of income.
► An increasing marginal utility of risk.
► An increasing marginal utility of income.
► A diminishing marginal utility of risk.
Lesson 10
The degree of risk aversion increases as your income level falls, due to diminishing marginal
utility of income.
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
The break-even point occurs when:
► Price < Average Variable Cost.
► Price < Average Total Cost.
► Price = Average Total Cost.
► Price > Average Variable Cost.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
Discrimination based upon the quantity consumed is referred to as:
► Second degree price discrimination.
► Third-degree price discrimination.
► First-degree price discrimination.
► All of the given options.
2ND DEGREE PD
In this type, different prices charged to customers who purchase different quantities.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
Which of the following can be thought of as a barrier to entry?
► Scale economies.
► Patents.
► Strategic actions by incumbent firms.
► All of the given options.
Question No: 10 ( 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: 11 ( M a r k s: 1 ) http://vuzs.net
In monopoly, which of the following is NOT true?
► Products are differentiated.
► There is freedom of entry and exit into the industry in the long run.
► The firm is a price maker.
► There is one main seller.
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
Keynesian economics was largely developed to address the economic problems of the:
► Bank panic of 1907.
► Stagflation of 1970s.
► Great Depression of 1930s.
► English industrial revolution of the late 1700s.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
Keynesian economics was the predominant economic theory:
► Prior to the late 1700s.
► From the late 1700s to the early 1900s.
► From 1930s to 1970s.
► Since 1970s.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
According to classical economics, the economy will always tend toward full employment due to:
► Minimum wages.
► Flexible wages and prices.
► Extended periods of unemployment.
► Inequality between saving and investment.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
The labour force is made up of:
► The number of people employed minus the number of people unemployed.
► The number of people employed plus the number of people unemployed.
► Just the number of people employed.
► The whole population.
Question No: 16 ( M a r k s: 1 ) http://vuzs.net
The record of a country's transactions in goods, services and assets with the rest of the world is its:
► Current account.
► Balance of trade.
► Capital account.
► Balance of payments.
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
Real Gross National Product (GNP) is best defined as:
► The pound value of all final goods and services produced in the economy during a particular time period and measured in current prices.
► The pound value of all goods produced for final consumption by households in a particular year and measured in constant prices.
► The current pound value of all new and used goods produced and sold in the economy during a particular time period.
► The market value of all final goods and services produced by the economy during a given time period, with prices held constant relative to some base period.
Lesson 29
Gross national product (GNP) is the value, at current market prices, of all final goods and services produced during a year by the factors owned by the citizens of a country.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
Which of the following is deducted from Gross National Product to get Net National Product?
► Indirect taxes.
► Depreciation.
► Direct taxes.
► Transfer payments.
NNP = GNP – Depreciation allowance
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
In Keynesian economics, if aggregate expenditures are less than aggregate output then:
► The price level rises.
► Inventories decrease.
► Employment decreases.
► Aggregate output increases.
Lesson 32
As the aggregate expenditures increases, AD also increases and output will also increase.
Question No: 20 ( M a r k s: 1 ) http://vuzs.net
According to Keynesian economics, aggregate expenditures are the sum of desired or planned spending undertaken by:
► All four sectors only when the economy is at full employment.
► All four sectors at a specific aggregate production level.
► The household sector after taxes.
► The business and government sectors.
Keynesian Aggregate Expenditures are the sum of: C+I+G+ (X-M) as these planned spending relate to income.
Question No: 21 ( M a r k s: 1 ) http://vuzs.net
All of the following conditions lead to the successful operation of a cartel EXCEPT:
► Market demand for the good is relatively inelastic.
► The cartel supplies all of the world's output of the good.
► Cartel members have substantial cost advantages over non-member producers.
► The supply of non-cartel members is very price elastic.
Question No: 22 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE about the principle of multiplier?
► Any increase in aggregate spending that causes the aggregate demand curve to shift will result in a larger increase in national income.
► In the long run, the aggregate demand curve becomes relatively flat as the economy approaches full employment.
► Any increase in national income will result in a larger increase in aggregate spending.
► For any given increase in income, there will be a less than proportional increase in consumer spending.
An increase in AD caused by an injection into the circular flow, e.g. higher government spending on wages paid to government employees, would lead to higher money wages held by government servants. Higher wages would translate into higher consumption expenditure on goods and services in the economy, leading to higher money incomes of sellers of goods and services. When firms see consumers more prosperous, they are incentivized to produce more, thus their demand for labour goes up. This triggers a second rise of income increases in the hands of workers (who are also consumers) leading to a further multiplied effect on consumption, production and hiring. And so on.
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
Suppose in a macroeconomic model, there is no foreign trade or government spending. In this case, aggregate demand is the sum of:
► Personal saving and private investment.
► Personal saving and personal consumption.
► Personal consumption and personal income.
► Personal consumption and private investment.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
Which of the following best describes the deflation?
► It is an increase in the overall level of economic activity.
► It is an increase in the overall price level.
► It is a decrease in the overall level of economic activity.
► It is a decrease in the overall price level.
Inflation (deflation) is an increase (decrease) in the overall price level.
Question No: 25 ( M a r k s: 1 ) http://vuzs.net
All of the following are the problems in the calculation of national income EXCEPT:
► Double counting.
► Improper records.
► Differences in the incomes of the individuals.
► Problem of exclusion and inclusion.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
This year, if national product at factor cost is Rs. 500 billion, indirect taxes 150 billion and subsidies Rs. 50 billion, then national product at market prices will be:
► Rs. 700 billion.
► Rs. 650 billion.
► Rs. 600 billion.
► Rs. 300 billion.
The GNP does include allowances for depreciation and indirect business taxes such as those on sales and property.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
Which of the following best describes the “savings”?
► It is that part of income which is not consumed.
► It is that part of income which is not spent.
► It is that part of income which is paid out to others.
► It is that part of income which is hoarded.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
According to Keynesians, macroeconomic equilibrium will occur in an economy if:
► Aggregate demand = Aggregate supply.
► Aggregate expenditures = Aggregate output.
► Withdrawals = Injections.
► All of the given conditions hold.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
The demand for factors of production is derived from:
► Money market.
► Goods market.
► Stock market.
► Financial market.
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
The relationship between hours provided by labor and wage rate is:
► Positive.
► Negative.
► Ambiguous.
► Very strong.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
The demand curve for labour can be derived from the intersection of:
► Horizontal wage rate lines and the marginal revenue product of labour.
► Vertical wage rate lines and the marginal revenue product of labour.
► Vertical wage rate lines and the marginal revenue product of capital.
► Horizontal wage rate lines and the marginal revenue product of capital.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
The rate at which the future incomes are discounted is known as:
► Interest rate.
► Inflation rate.
► Discount rate.
► Reserve requirement rate.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
National defense is a good example of:
► Public good.
► Inferior good.
► Giffen good.
► Private good.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
Suppose net exports decreases by $100 million due to a slump in foreign economies. If the value of multiplier is 2, what will happen to the domestic aggregate demand curve?
► Since less will be produced, the aggregate demand does not shift. The aggregate supply curve shifts to the left by $100 million at each price level.
► It shifts to the left by $50 million at each price level.
► It shifts to the left by $100 million at each price level.
► It shifts to the left by $200 million at each price level.
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE?
► Accelerator coefficient = Marginal capital / output ratio.
► Accelerator coefficient > Marginal capital / output ratio.
► Accelerator coefficient < Marginal capital / output ratio.
► None of the given options.
Accelerator coefficient = Investment / change in Income
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the best measure of the economic cost of higher unemployment?
► The loss of potential exports for the economy.
► The loss of tax revenue.
► The increase in social security benefits paid by the government.
► The output of goods and services the unemployed workers could have produced.
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
Which of the following would be expected to increase the natural rate of unemployment?
► A reduction in the number of new entrants into the labor force.
► An increase in the growth rate of the capital stock.
► A reduction in the corporate profits tax.
► An increase in the level of unemployment compensation paid to unemployed workers.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
Evidence suggests that all countries with very high _______ also have very high _______.
► Inflation rates; money growth rates.
► Unemployment rates; GDP growth rates.
► GDP growth rates; government budget deficits.
► Government budget deficits; inflation rates.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
In the equation of exchange, if velocity is stable in the long run then:
► %∆V = 0.
► %∆V = 1.
► %∆V is a positive constant value > 0.
► %∆V = infinity.
Lesson 35
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
Disposable Personal Income $ | Consumption $ |
100 | 140 |
200 | 220 |
300 | 300 |
400 | 380 |
500 | 460 |
Refer to the above table, when disposable personal income is $400, what is the amount of personal saving?
► −$40.
► −$20.
► $0.
► $20.
Lesson 30
Saving (S = Yd – C`) =400-380=20
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
The act of increasing the price of one country’s currency in terms of other currencies by the government is known as:
► Revaluation.
► Devaluation.
► Appreciation.
► Depreciation.
Lesson 36
REVALUATION
This is the act of increasing the price (exchange rate) of one nation's currency in terms of other currencies.
Question No: 42 ( M a r k s: 1 ) http://vuzs.net
If net exports are negative, this implies that the country has a:
► Trade surplus.
► Trade deficit.
► Government budget surplus.
► Government budget deficit.
Lesson 31
A negative trade balance is called a trade deficit. Because the determinants of a country’s exports and imports change with time, it is reasonable to expect a country’s trade balance to change over time.
Question No: 43 ( M a r k s: 1 ) http://vuzs.net
If net exports are positive, this implies that the country has:
► Trade surplus.
► Trade deficit.
► Government budget surplus.
► Government budget deficit.
Question No: 44 ( M a r k s: 1 ) http://vuzs.net
A change from $1.00 = Rs. 82.00 to $1.00 = Rs. 80.00 represents:
► An appreciation of the dollar.
► An appreciation of the rupee.
► Depreciation of the rupee.
► None of the given options.
Question No: 45 ( M a r k s: 1 ) http://vuzs.net
Which of the following determines a country’s rate of growth?
► The average propensity to save.
► The interaction of supply and demand.
► The law of comparative costs.
► The rate of capital accumulation.
Capital accumulation is often suggested as a means for developing countries to increase their long term growth rates.
Question No: 46 ( M a r k s: 1 ) http://vuzs.net
Permanent growth rate depends on the saving rate and technological progress in which of the following models?
► Endogenous growth model.
► Exogenous growth model.
► Rostow’s growth model.
► None of the given options.
Question No: 47 ( M a r k s: 1 ) http://vuzs.net
Which of the following is a largest component of M1?
► Checking deposits.
► Credit card balances.
► Debit card balances.
► Savings deposits.
Lesson 41
Question No: 48 ( M a r k s: 1 ) http://vuzs.net
In which of the following conditions, a current account deficit exists?
► When net exports are positive.
► When financial flows out of a country for goods and services are less than financial flows into the country for its goods and services.
► When a country has a trade deficit.
► When an economy buys less from foreigners than it sells to them.
Question No: 49 ( M a r k s: 1 ) http://vuzs.net
What is TRUE about economic growth in general?
► Economic growth has a greater impact on people’s welfare in high income countries than in low income countries.
► In low income countries, economic growth makes rich people richer and poor people poorer.
► Economic growth makes most people, including most poor people, better off.
► Economic growth worsens income inequality in the short-run but is successful in the long run.
Question No: 50 ( M a r k s: 1 ) http://vuzs.net
Suppose the price of rail tickets decreases, what will happen to the demand for airline travel?
► The demand curve for airline travel shifts left.
► The supply curve of airline travel shifts left.
► The demand curve for airline travel shifts right.
► The supply curve of airline travel shifts right.
Question No: 51 ( M a r k s: 1 ) http://vuzs.net
What will happen if there is an increase in the raw material costs, other things remaining the same?
► The supply curve will shift to the left.
► The supply curve will shift to the right.
► Output will increase regardless of the market price and the supply curve will shift upward.
► Output will decrease and the market price will also decrease.
When quantity supplied at a given price decreases, the whole curve shifts to the left as there is a decrease in supply. This is generally caused by an increase in the cost of production or decrease in the number of sellers. An increase in wages, cost of raw materials, cost of capital, ceteris paribus, will decrease supply.
Question No: 52 ( M a r k s: 1 ) http://vuzs.net
What will be the impact of a ban on foreign firms from selling in the domestic market?
► It will cause domestic producers competing with the imports to face huge losses.
► It will cause the supply curve to shift to the left.
► It will cause the supply curve to shift to the right.
► It will have no effect on the domestic market.
Question No: 53 ( M a r k s: 1 ) http://vuzs.net
Suppose there are two goods A and B. What will happen to the budget line if prices of both goods increase by the same percentage?
► It will shift parallel to the left.
► It will shift parallel to the right.
► It will pivot about the x axis.
► It will pivot about the y axis.
Question No: 54 ( M a r k s: 1 ) http://vuzs.net
The total cost (TC) function is given as: TC = 200 + 5Q. What is the average total cost?
► 5Q.
► 5.
► 5 + (200/Q).
► None of the given options.
ATC = TC/Q
Question No: 55 ( M a r k s: 3 )
It is said that growth is an important macroeconomic issue. Why? Discuss.
Question No: 56 ( M a r k s: 5 )
Mention the situations in which imposing a tax is better than not imposing it.
Question No: 57 ( M a r k s: 5 )
Consider the following table. Find out the GNP and NNP from this information.
Items | Amount (billion rupees) |
Personal consumption expenditures | 458 |
Gross domestic private investment | 169 |
Government expenditure on goods and services | 78 |
Gross domestic public investment | 27 |
Exports surplus | 15 |
Net foreign investment | 17 |
Depreciation cost | 28 |
Question No: 58 ( M a r k s: 10 )
Discuss the causes of low per capita income in Pakistan. How can the standard of living of the people of Pakistan be raised? Suggest suitable measures in this context.
Question No: 59 ( M a r k s: 10 )
(A) Mention the factors which could cause a downward shift of the LM curve
(B) Discuss the joint equilibrium in goods and money market with the help of graph.
