FINALTERM EXAMINATION
Spring 2010
ECO401- Economics
M a r k s: 58
Time: 90 min
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
In pure capitalism, the role of government is best described as:
► Significant.
► Extensive.
► Nonexistent.
► Limited.
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
If both supply and demand increase simultaneously, the equilibrium:
► Price must rise and the equilibrium quantity must fall.
► Price must rise and the equilibrium quantity may either rise or fall.
► Quantity must rise and the equilibrium price may either rise or fall.
► Price must fall and the equilibrium quantity may either rise or fall.
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
If the quantity supplied of oranges exceeds the quantity demanded then: ► There is a shortage of oranges.
► Market forces will cause the price to fall.
► Market forces will cause the price to rise.
► The market is in equilibrium.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
Aslam spends all of his money on racquetballs and food. What would happen to Aslam’s budget line if his income increased by 10 percent holding prices constant?
► It would shift inward. ► It would rotate about the axis for food.
► It would rotate about the axis for racquetballs.
► It would shift outward.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
Graphically, marginal revenue is defined as:
► The slope of a line from the origin to a point on the total revenue curve.
► The slope of a line from the origin to the end of the total revenue curve.
► The slope of the total revenue curve at a given point.
► The vertical intercept of a line tangent to the total revenue curve at a given point.
Question No: 6 ( 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.
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
Which of the following is true in long run equilibrium for a firm in a monopolistic competitive industry?
► The demand curve is tangent to marginal cost curve.
► The demand curve is tangent to average cost curve.
► The marginal cost curve is tangent to average cost curve.
► The demand curve is tangent to marginal revenue curve.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
A firm in monopolistic competition does not achieve minimum efficient scale because:
► It is not a monopoly.
► It is in competition with other firms.
► It is operating on the downward-sloping part of the average cost curve.
► It produces at the minimum average cost.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
If the income elasticity of demand is 1/2, the good is:
► A luxury.
► A normal good (but not a luxury).
► An inferior good.
► A Giffen good.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
In the complete classical model, a rightward shift of the labor supply curve will:
► Decrease the price level and increase the nominal wage.
► Decrease the nominal wage and increase the price level.
► Decrease both the price level and the nominal wage.
► Increase both the price level and the nominal wage.
Question No: 11 ( 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: 12 ( M a r k s: 1 ) http://vuzs.net
Which of the following is NOT a stock variable?
► Government debt.
► Capital.
► The amount of money held by the public.
► Inventory investment.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
Real Gross Domestic Product (GDP):
► Is nominal GDP adjusted for changes in the price level.
► Is also called nominal GDP.
► Measures GDP minus depreciation of capital.
► Will always change when prices change.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the narrowest and most traditional definition of money?
► M1. ► M2.
► M3.
► M4.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
Gross National Product (GNP) is:
► Net National Product (NNP) plus depreciation.
► National income discounted by the GDP deflator.
► Income from foreign investments.
► Gross Domestic Product (GDP) minus depreciation.
Question No: 16 ( M a r k s: 1 ) http://vuzs.net
All of the following are the reasons of downward sloping curve of aggregate demand EXCEPT:
► The exchange-rate effect.
► The wealth effect.
► The classical dichotomy / monetary neutrality effects.
► The interest-rate effect.
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
Those who hold the classical view of the labour market are likely to believe that:
► Monetary but not fiscal policy will have an effect on output and employment.
► Fiscal but not monetary policy will have an effect on output and employment.
► Both monetary and fiscal policy will have an effect on output and employment.
► Neither monetary nor fiscal policy will have an effect on output and employment.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
National income is equal to which of the following?
► Income of the Government.
► Budget of the Government.
► Sum total of factor incomes.
► Profits of the public undertakings.
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
Which of the following is NOT included in National income?
► Profits and rents.
► Wages and salaries.
► Interest on capital.
► Transfer incomes.
Question No: 20 ( M a r k s: 1 ) http://vuzs.net
Which of the following is a transfer payment?
► Payment made to housewife.
► Pocket allowance to children.
► Maintenance allowance to old parents.
► All of the given options.
Question No: 21 ( 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: 22 ( M a r k s: 1 ) http://vuzs.net
A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is known as:
► Aggregate demand curve.
► Average price level.
► Circular flow model.
► GDP curve.
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
All other things being equal, an increase in government spending will:
► Shift the aggregate demand curve to the right.
► Shift the aggregate demand curve to the left.
► Make the aggregate demand curve flatter.
► Make the aggregate demand curve steeper.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
Suppose investment rises by $50 billion at each price level. If the value of the multiplier is 1.5, what is the amount of change in real GDP demanded at each price level?
► $50 billion.
► $75 billion.
► $125 billion.
► $150 billion.
Question No: 25 ( 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.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
Which of the following will influence a country's exports?
► All of the given options.
► Consumer tastes for domestic and foreign goods.
► Prices of goods at home and abroad.
► Costs of transporting goods from country to country.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
Free trade is favoured because:
► Countries have less work to do.
► It leads to greater world efficiency i.e. resources are better utilized.
► Wealthier countries gain an advantage over underdeveloped countries.
► All countries gain from tariff imposition.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
The interest rate parity is the basic identity that relates which of the following?
► Interest rates and exchange rates.
► Interest rates and inflation rate.
► Exchange rates and inflation rate.
► Discount rate and inflation rate.
Question No: 29 ( 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: 30 ( 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: 31 ( M a r k s: 1 ) http://vuzs.net
Suppose that a country is in a steady state condition. It implements policies to increase the saving rate of its economy. What will be TRUE at the new steady state level?
► Output per worker will grow more rapidly than before.
► The level of output per worker will be higher than before.
► The amount of capital per worker will be the same as before.
► All of the given options.
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 got benefit from inflation?
I. Salary earners.
II.Equity holders.
III. Pensioners.
IV. Debtors.
► I only.
► II only.
► I and III.
► II and IV.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
Nominal money supply in Pakistan is directly or indirectly controlled by:
► National Bank.
► Habib Bank.
► State Bank.
► Bank Alfalah.
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
If money supply is fixed by the central bank then in interest rate-money supply space, money supply curve will be:
► Horizontal.
► Vertical.
► Negatively sloped.
► Positively sloped.
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
Suppose the total utilities for the first four units of a good consumed are 13, 23, 33, and 43 respectively. What is the marginal utility of the third unit?
► 10.
► 13.
► 20.
► 33.
Question No: 37 ( 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: 38 ( M a r k s: 1 ) http://vuzs.net
In which of the following conditions, a welfare loss occurs in monopoly?
► Where the price is greater than the marginal cost.
► Where the price is greater than the marginal benefit.
► Where the price is greater than the average revenue.
► Where the price is greater than the marginal revenue.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
If average physical product (APP) is decreasing then which of the following must be true?
► Marginal physical product is more than the average physical product.
► Marginal physical product is less than the average physical product.
► Marginal physical product is decreasing.
► Marginal physical product is increasing.
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
Average total costs are the sum of:
► Fixed costs and marginal costs
► Average variable costs and marginal costs
► Average fixed costs and average variable costs
► Average marginal costs and average variable costs
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
Economy always remains at full employment level was the idea of
► Classical Economists.
► Monetarist.
► New Classical Economists.
► Keynes.
Question No: 42 ( 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: 43 ( M a r k s: 1 ) http://vuzs.net
If market exchange rate is adjusted for prices then it will be called:
► Hypothetical interest rate.
► Nominal interest rate.
► Real interest rate.
► None of the given options.
Question No: 44 ( M a r k s: 1 ) http://vuzs.net
There will be decrease in potential output of a country when there is:
► A decrease in government spending.
► An increase in government spending.
► A decrease in the economy’s depreciation rate.
► A decrease in the economy’s capital stock.
Question No: 45 ( M a r k s: 1 ) http://vuzs.net
If the required reserve ratio is 10% then what will be the value of money multiplier?
► 10
► 2
► 5
► 20
Question No: 46 ( M a r k s: 1 ) http://vuzs.net
Which of the following will happen if suddenly people wish to hold less money at same interest rate?
► The LM curve will shift downward (to the right).
► The money demand curve will shift to the right.
► The IS curve will shift to right.
► None of the given options.
Question No: 47 ( M a r k s: 1 ) http://vuzs.net
The share of world trade happens between high income countries is:
► 55%
► 40%
► 50%
► 60%
Question No: 48 ( M a r k s: 1 ) http://vuzs.net
The common characteristics of a developing country is:
► High growth rate.
► High literacy rate.
► Skilled labor.
► High unemployment rate.
Question No: 49 ( M a r k s: 3 )
Mention the components of current account in the balance of payment.
1. Goods
2. Services
3. Income & Transfer payments
Question No: 50 ( M a r k s: 3 )
If MPC = 0.84 and tax rate = 0.27 then find out the value of multiplier.
If MPC = 0.84 and tax rate = 0.27 then find out the value of multiplier.
K = 1/ 1 – MPC ( 1 – t)
K = 1/ 1 – 0.84 ( 1 – 0.27)
2.5853
Question No: 51 ( M a r k s: 5 )
Mention the situations in which imposing a tax is better than not imposing it.
Question No: 52 ( M a r k s: 5 )
What is meant by Philips Curve? Explain the shape of this curve with the help of diagram.
Question No: 53 ( M a r k s: 5 )
If the value of multiplier is 1.20 then calculate the value of marginal propensity to consume (MPC).
K = 1 / 1 – MPC
1.20 = 1 / 1 – MPC
(1 – MPC) 1.20= 1
1 – MPC = 1 / 1.20
- MPC = 0.8333 – 1
MPC = 0.1667
