FINALTERM EXAMINATION
Spring 2010
ECO401- Economics (Session - 4)
Time: 90 min
M a r k s: 69
Question No: 1 ( 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: 2 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the term that economists use to describe how consumers rank different goods and services?
► Satisfaction index.
► Goodness.
► Utility.
► None of the given options.
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
An individual with a constant marginal utility of income will be:
► Risk loving.
► Risk neutral.
► Risk averse.
► Insufficient information for a decision.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
Which of the following is a correct statement about the substitution effect?
► The substitution effect is always negative.
► The substitution effect is positive for an inferior good.
► The substitution effect measures how demand changes when income changes.
► The substitution effect is positive for a Giffen good.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
Producer surplus in a perfectly competitive industry is:
► The difference between profit at the profit-maximizing and profit-minimizing level of output.
► The difference between revenue and total cost.
► The difference between revenue and variable cost.
► The difference between revenue and fixed cost.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
Second-degree price discrimination is the practice of charging:
► The reservation price to each customer.
► Different prices for different blocks of the same good or service.
► Different groups of customers different prices for the same products.
► Each customer the maximum price that he or she is willing to pay.
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
The textbook for your class was not produced in a perfectly competitive industry because:
► There are so few firms in the industry that market shares are not small, and firm's decisions have an impact on market price.
► Upper-division microeconomics texts are not all alike.
► It is not costless to enter or exit the textbook industry.
► All of the given options.
Question No: 8 ( 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: 9 ( M a r k s: 1 ) http://vuzs.net
Welfare economics is the branch of economics which deals with:
► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
The aggregate demand will decrease if:
► Investment spending decreases.
► Government spending increases.
► Consumption spending increases.
► Imports decreases.
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
Unlike the classical economists, Keynes believed that the economy could get stuck in the short run for a significant period of time because of:
► Insufficient aggregate supply.
► Insufficient aggregate demand.
► Quick self correcting mechanism.
► Government purchases of too many goods and services.
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
Classical economics was replaced as the dominant theory of macroeconomic analysis by:
► Monetarism.
► Rational expectations.
► Keynesian economics.
► Neoclassical economics.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
Which of the following will result if there is a decrease in aggregate demand?
► Expansion; inflation.
► Recession; deflation.
► Expansion; deflation.
► Recession; inflation.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
Which of the following is NOT an account in the balance of payments?
► Capital account.
► Financial account.
► Current account.
► Future account.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
Endogenous growth theory was developed in:
► 1980.
► 1965.
► 1970.
► 1950.
Question No: 16 ( M a r k s: 1 ) http://vuzs.net
The money aggregate M1 does not include:
► Currency in the vaults of commercial banks.
► Currency in the hands of the public.
► Traveler's checks that have been issued.
► Demand deposits at commercial banks.
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
Gross domestic product (GDP) is the market value of:
► All transactions in an economy during one-year period.
► All goods and services exchanged in an economy during one-year period.
► All final goods and services exchanged in an economy during one-year period.
► All final goods and services produced in a domestic economy during one-year period.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
The accelerator is a related concept which formalizes the investment response to:
► Consumption.
► Interest rate.
► Output.
► None of the given options.
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
Which of the following statements best describes the difference between endogenous growth theory and the Solow growth theory?
► Endogenous growth theory is a monetary theory whereas the Solow theory is a real theory.
► Endogenous growth theory assumes diminishing returns to capital and the Solow theory assumes constant returns.
► In endogenous growth theory, economies with the same technology and saving rate need not converge to the same steady state as in the Solow model.
► All of the given options are correct.
Question No: 20 ( 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: 21 ( M a r k s: 1 ) http://vuzs.net
Public education creates:
► Asymmetric information.
► External costs.
► Internal costs.
► External benefits.
Question No: 22 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the best example of a public good?
► A cup of coffee.
► A monthly magazine.
► A haircut.
► An interstate highway.
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:
► The aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves.
► The short-run aggregate supply and the long-run aggregate supply curves.
► The aggregate demand and the short-run aggregate supply curves.
► The aggregate demand and the long-run aggregate supply curves.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
Total national investment consists of:
► Gross domestic fixed capital formation.
► Change in stocks.
► Export less imports.
► All of the given options.
Question No: 25 ( M a r k s: 1 ) http://vuzs.net
In the definition of labor force, economists include:
► Only people who are working full-time.
► People who are not working but are actively looking for a job and people who are working.
► People who are working.
► None of the given options.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
People who are only working part-time, but want to be working full-time, are classified officially as:
► Unemployed and in the labor force.
► Unemployed and out of the labor force.
► Employed and out of the labor force.
► Employed and in the labor force.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
The level of output produced when the labor market is in equilibrium is called:
► Target output.
► Product market equilibrium output.
► Full-employment output.
► Natural output.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
Which of the following would be expected to increase the natural rate of unemployment?
► 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.
► A reduction in the number of new entrants into the labor force.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
Which of the following avoids uncertainty and volatility and making international transactions easier?
► Fixed exchange rate.
► Flexible exchange rate.
► Fixed interest rate.
► Flexible interest rate.
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
The price of one unit of foreign good in terms of domestic good is known as:
► Inflation rate.
► Real exchange rate.
► Nominal exchange rate.
► Discount rate.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
Development is impossible without:
► Incentive to profit.
► Foreign aid.
► Domestic savings.
► Inflation.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
A tax in which people pay the same percentage of income in taxes regardless of their incomes is called:
► Value-added tax.
► Regressive tax.
► Proportional tax.
► Progressive tax.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
Which of the following shows the inverted-U shape when plotted on a graph?
► Consumption curve.
► Supply curve.
► Laffer curve.
► Investment curve.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
If the required reserve ratio is 20% then what will be the value of money multiplier?
► 1.
► 2.5.
► 5.
► 7.
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
Which of the following is (are) primary function (s) of a central bank?
I. Act as a regulator of banks.
II.Issue government bonds.
III. Set monetary policy.
► I only.
► I and III.
► I and II.
► I, II and III.
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
In a period of boom, credit creation is:
► Small.
► Heavy.
► Unchanged.
► Zero.
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
How the government increases paper currency component of the money supply?
► Households sell gold to the government in returns for currency.
► The government gives newly created currency to households.
► The government gives paper currency to the banks.
► The government exchange paper currency for government securities.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
LM curve shows the equilibrium in:
► Money Market.
► Goods Market.
► Labor Market.
► Financial Market.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the main reason of poverty in third world countries?
► Generation gap.
► Communication gap.
► Foreign exchange gap.
► None of the given options.
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
What is meant by freedom of enterprise in pure capitalism?
► It means that businesses are free to produce products that consumers want.
► It means that consumers are free to buy goods and services that they want.
► It means that resources are distributed freely to businesses.
► It means that government is free to direct the actions of businesses.
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
What might be the reason of a leftward shift in the demand curve for product X?
► A decrease in income if X is an inferior good.
► An increase in income if X is a normal good.
► An increase in the price of a product that is a close substitute for X.
► An increase in the price of a product that is complementary to X.
Question No: 42 ( M a r k s: 1 ) http://vuzs.net
Concentration ratio is used to assess:
► The level of competition in an industry.
► The degree of control over prices.
► The technological gaps between the firms.
► Marginal cost and marginal benefit analysis.
Question No: 43 ( M a r k s: 1 ) http://vuzs.net
Monopolists produce lower quantities at higher prices compared to perfectly competitive firms, because monopolists do not produce where
► Marginal cost = marginal revenue
► Average revenue = marginal cost
► Price = average variable cost
► Price = marginal cost
Question No: 44 ( M a r k s: 1 ) http://vuzs.net
Since bread and butter are complements. When the price of bread goes down, the demand curve for butter:
► Shifts to the left.
► Shifts to the right.
► Remains constant.
► Shifts to the right initially and then returns to its original position.
Question No: 45 ( M a r k s: 1 ) http://vuzs.net
As price increases total revenue decreases in case of
► Inelastic demand.
► Unit elastic demand.
► Zero elastic demand.
► Elastic demand.
Question No: 46 ( M a r k s: 1 ) http://vuzs.net
Suppose the consumption function is C = $10 + 0.75Y. If Y = 50 $, then the amount of consumption is:
► 37.50
► 85.00
► 47.50
► 10.75
Question No: 47 ( M a r k s: 1 ) http://vuzs.net
Balance of payments problems are also often a result of:
► High domestic deflation.
► Domestic unemployment.
► Domestic poverty.
► High domestic inflation.
Question No: 48 ( M a r k s: 1 ) http://vuzs.net
Current account deficit can be reduced by:
► Devaluation of currency.
► Revaluation of currency.
► Reduction in exports.
► Fiscal deficit.
Question No: 49 ( M a r k s: 3 )
Differentiate between inflation and deflation.
Question No: 50 ( M a r k s: 3 )
What are the reasons that poor countries remained poor?
Question No: 51 ( M a r k s: 5 )
Explain the difference between endogenous growth model and exogenous growth model.
Question No: 52 ( M a r k s: 5 )
Following table shows different stages of production of cloth. Calculate the value added at each stage of production. What is GDP by this approach?
Stage of production | Money value (Rs) | Value added at each stage (Rs) |
Raw cotton | 10.50 | ? |
Cotton yarn | 25.68 | ? |
Coarse cloth | 45.82 | ? |
Finished cloth | 55.66 | ? |
Question No: 53 ( M a r k s: 5 )
Discuss the equilibrium condition in money market. Explain this equilibrium condition with the help of diagram.
