Spring 2010
ECO401- Economics (Session - 3)
Time: 90 min M a r k s: 69
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
A market is said to be in equilibrium when:
► Demand equals output.
► There is downward pressure on price.
► The amount consumers wish to buy at the current price equals the amount producers wish to sell at that price.
► All buyers are able to find sellers willing to sell to them at the current price.
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
Which of the following is regarded as a general determinant of price elasticity of demand?
► Nature of the good (luxury versus necessity).
► Availability of close substitutes.
► Share of consumer's budget and passage of time.
► All of the given options.
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
Consumers will maximize satisfaction when:
► The price of each good is exactly equal to the price of every other good consumed.
► The price of each good is exactly equal to the total utility derived from the consumption of every other good.
► The marginal utility of the last dollar spent on each good is exactly equal to the marginal utility of the last dollar spent on any other good.
► Marginal utility is equal to average utility.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
If a consumer’s marginal rate of substitution equals 2 eggs for 1 hamburger then:
► The consumer’s indifference curve must be positively sloped.
► The consumer’s indifference curve must be convex with respect to the origin of the graph.
► The ratio of the consumer’s marginal utility of 1 egg to that of 1 hamburger must equal ½.
► All of the given options.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
The optimal point of production for any individual firm is where:
► Marginal Revenue = Marginal Cost.
► Marginal Revenue > Marginal Cost.
► Marginal Revenue < Marginal Cost.
► None of the given options.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
Under the kinked demand curve model, an increase in marginal cost will lead to:
► An increase in output level and a decrease in price.
► A decrease in output level and an increase in price.
► A decrease in output level and no change in price.
► Neither a change in output level nor a change in price.
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
The marginal revenue product is:
► Upward sloping due to the law of demand.
► Upward sloping due to the law of marginal utility.
► Downward sloping due to the law of diminishing returns.
► Downward sloping due to the law of supply.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
The unemployment rate is equal to:
► Number of employed / labour force x 100.
► Number of unemployed / labour force.
► (Number of unemployed / labour force) x 100.
► None of the given options.
Ref by Sehar Khan:
The unemployment rate is defined as the ratio of the no. of unemployed people divided by the sum of the employed and unemployed people
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
M1 component of money supply consists of:
► Paper currency and coins.
► Paper currency, coins and check writing deposits.
► Paper currency, coins, check writing deposits and savings deposits.
► Paper currency, coins, check writing deposits, savings deposits and certificates of deposits.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
An increase in the money supply will cause interest rates to:
► Rise.
► Fall.
► Remain unchanged.
► None of the given options.
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
Disposable Income is obtained by subtracting ---------------- from personal income.
► Indirect Taxes.
► Direct Taxes.
► Both direct and indirect taxes.
► Subsidies.
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
Which of the following statements is TRUE about cartels?
► These are organizations of independent firms, producing similar products, that work together to raise prices and restrict output.
► These areorganizations of interdependent firms, producing similar products, that work together to raise prices and restrict output.
► These areorganizations of independent firms, producing different products, that work together to raise prices and restrict output.
► These areconsidered as part of monopolistic competition.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
If disposable income increases from $7 trillion to $8 trillion and as a result, consumption expenditure increases from $9 trillion to $9.8 trillion, the Marginal Propensity to Consume is:
► 1.0.
► 0.80.
► 0.875.
► 0.91.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
Which of the following is required to make the equation of exchange in the quantity theory of money?
► V and Q are assumed to be constant.
► The money supply is assumed to be produced by the banking system and not exclusively in currency.
► The quantity of money is assumed to determine the amount of Real GDP.
► M and P are considered constant.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
Which of the following specifies the maximum amount of a good that may be imported in a given period of time?
► Trade restriction.
► Quota.
► Import restriction.
► Legislative restriction.
Question No: 16 ( 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: 17 ( M a r k s: 1 ) http://vuzs.net
GNP is a good indicator of:
► The total payment of factor owners.
► The amount of consumption and investment.
► The conditions of production and employment.
► The amount of incomes available for spending.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
Expenditure of defense is an item of:
► Public investment.
► Private consumption.
► Public consumption.
► Private investment.
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
The information economics is a branch of:
► Microeconomics.
► Macroeconomics.
► Monetary economics.
► Development economics.
Question No: 20 ( M a r k s: 1 ) http://vuzs.net
Refer to the above figure, the potential output in this economy is:
► $7,000 billion at a price level of 1.16.
► $7,000 billion at a price level of 1.12.
► $7,000 billion at a price level of 1.08.
► All of the given options.
Question No: 21 ( M a r k s: 1 ) http://vuzs.net
The short run in macroeconomic analysis is a period: ► In which wages and some other prices do not respond to changes in economic conditions.
► In which full wage and price flexibility and market adjustment have been achieved.
► Of less than 12 months.
► In which all macroeconomic variables are fixed.
Question No: 22 ( M a r k s: 1 ) http://vuzs.net
If a $1million rise in national income led to induced investment of $2million then the accelerator coefficient will be equal to:
► 0.
► 1.
► 2.
► 3.
Question No: 23 ( 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: 24 ( M a r k s: 1 ) http://vuzs.net
Most nations of the world are:
► Closed economies.
► Open economies.
► Self sufficient.
► Non trading nations.
Reference:
Question No: 25 ( M a r k s: 1 ) http://vuzs.net Which of the following will happen by a reduction in net exports all other things being equal?
► It will result in a movement up along the aggregate demand curve.
► It will reduce aggregate supply.
► It will reduce aggregate demand.
► It will not change aggregate demand or aggregate supply in the domestic economy.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
A trade deficit occurs when:
► 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's firms open more stores abroad than foreign firms open in the country.
► A country purchases more from abroad than other countries purchase from it.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
The real exchange rate is defined as the:
► Market exchange rate adjusted for prices.
► Market exchange rate adjusted for interest rates.
► Market exchange rate.
► Exchange rate determined by the government.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
Which of the following best describes the economic growth?
► Continuous outward shift of aggregate demand.
► A long term expansion of a country's potential GDP.
► The avoidance of a negative output gap.
► An increase in aggregate demand which causes a movement along the short-run aggregate supply curve.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
Suppose there is a steady state condition in an economy with no population growth. In which condition, the steady-state level of capital per worker will increase?
► When the amount of investment per worker decreases.
► When the depreciation rate increases.
► When the saving rate increases.
► In all of the given options.
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE for banks?
► They deal with money only.
► They deal with shares and assets.
► They not only deal with money but also create money.
► They deal with money but do not create money.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
Which of the following got benefit from deflation?
I. Salary earners.
II.Equity holders.
III. Pensioners.
IV. Debtors.
► I only.
► II only.
► I and III.
► I and IV.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
Which of the following is a characteristic of a developing country or a third-world country?
► Low per capita income.
► Low population growth rate.
► High investment rate.
► High saving rate.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
One of the main reasons of poverty in third world countries is:
► Generation gap.
► Communication gap.
► Savings gap.
► Inflation gap.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
A person with a diminishing marginal utility of income is said to be:
► Risk averse person.
► Risk neutral person.
► Risk loving person.
► None of the given options.
Question No: 35 ( 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: 36 ( M a r k s: 1 ) http://vuzs.net
Assume that pen and ink are complements. When the price of pen goes up, the demand curve for ink:
► Shifts to the left.
► Shifts to the right.
► Remains constant.
► Shifts to the right initially and then returns to its original position.
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
Which of the following will happen if two indifference curves cross each other?
► The assumption of a diminishing marginal rate of substitution will be violated.
► The assumption of transitivity will be violated.
► The assumption of completeness will be violated.
► Consumers will minimize their satisfaction.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the basic difference between oligopoly and monopolistic competition?
► Products are differentiated in oligopoly.
► There are no barriers to entry in oligopoly.
► There are barriers to entry in oligopoly.
► An oligopoly includes downward sloping demand curves facing the firm.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
As long as all prices remain constant, a decrease in money income results in:
► An increase in the slope of the budget line
► A decrease in the slope of the budget line
► An increase in the intercept of the budget line
► A decrease in the intercept of the budget line
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
If marginal cost is Rs.15,000/- and marginal revenue is Rs.20,000/-. The firm should:
► Reduce output until marginal revenue equals marginal cost.
► Do nothing without information about your fixed costs.
► Expand output until marginal revenue equals marginal cost.
► None of the given options.
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
An increase in quantity demand is shown by:
► Shifting the demand curve to the left.
► Shifting the demand curve to the right.
► Upward movement along the demand curve.
► Downward movement along the demand curve.
Question No: 42 ( 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: 43 ( M a r k s: 1 ) http://vuzs.net
When the marginal revenue product of labor is less than the marginal input cost of labor then the profit maximizing firm will:
► Hire more labor.
► Hire less labor.
► Maintain the same employment level.
► Decrease output.
Question No: 44 ( M a r k s: 1 ) http://vuzs.net
In Keynesian economics, if aggregate expenditures are more than aggregate output then:
► The price level rises.
► Inventories decrease.
► Aggregate output increases.
► Employment increases.
Question No: 45 ( M a r k s: 1 ) http://vuzs.net
The record of a country's transactions in goods and services with the rest of the world is its:
► Current account.
► Balance of payments.
► Balance of trade.
► Capital account.
Question No: 46 ( M a r k s: 1 ) http://vuzs.net
Revaluation of the currency encourages:
► Imports.
► Exports.
► Poverty.
► Inflation.
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
If the exchange rate is fixed, expansionary fiscal policy would not have any: ► Investment multiplier effect.
► Crowding out effects.
► Government spending effect .
► None of the given options.
Question No: 49 ( M a r k s: 3 )
What is meant by exchange rate? Also give example of exchange rate.
Question No: 50 ( M a r k s: 3 )
What is the reason of poverty in developing countries according to Prebisch-Singer hypothesis?
Question No: 51 ( M a r k s: 5 )
According to the values given in the following table, calculate the injections at each level of output.
Output (Y) | Saving (S) | Gross Imports (M) | Gross investment (I) | Gross exports (X) | Govt. Expenditures (G) | Taxes (T) |
650 | 80 | 80 | 104 | 97 | 116 | 10 |
700 | 90 | 80 | 119 | 97 | 116 | 10 |
750 | 100 | 80 | 130 | 97 | 116 | 10 |
800 | 110 | 80 | 139 | 97 | 116 | 10 |
900 | 120 | 80 | 146 | 97 | 116 | 10 |
(M a r k s: 1 for each)
Question No: 52 ( M a r k s: 5 )
What are the major weaknesses of exogenous growth theory? Which theory was developed in against of exogenous growth theory?
Question No: 53 ( M a r k s: 5 )
Discuss the components on the assets and liabilities side of the balance sheet of a central bank.
