FINALTERM EXAMINATION
Spring 2010
ECO401- Economics (Session - 2)
Time: 90 min
M a r k s: 69
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price of bread:
► The demand for bread will decrease because suppliers will reduce their supply.
► A surplus of bread will emerge.
► More bread will be produced to meet the increased demand.
► There will be a shortage of bread.
Question No: 2 ( 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: 3 ( M a r k s: 1 ) http://vuzs.net
The following table shows a firm’s Total Product of labor. What is the Marginal Product of labor between 20 and 30 units of labor?
Table |
Quantity of Labor | Total Product |
0 | 0 |
10 | 100 |
20 | 230 |
30 | 340 |
40 | 410 |
50 | 460 |
► 340 units.
► 220 units.
► 11 units.
► 110 units.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
The long-run average total cost curve:
► Traces out the points on the lowest short-run average total cost curve for each level of production.
► Is inversely related to the depth of the short-run marginal cost curve.
► Traces out the midpoints on an average of several short-run average total cost curves.
► Is downward-sloping under decreasing returns to scale.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
A monopolistically competitive firm in the long run equilibrium:
► Will make negative profit.
► Will make zero profit.
► Will make positive profit.
► Any of the given are possible.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
The market structure in which strategic considerations are most important is:
► Monopolistic competition.
► Oligopoly.
► Pure competition.
► Pure monopoly.
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
The market structure in which there is interdependence among firms is:
► Monopolistic competition.
► Oligopoly.
► Perfect competition.
► Monopoly.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
Which one of the following characteristics is common in monopolistic competition and oligopoly?
► Free entry and exit from the industry.
► Strategic behavior.
► Standardized products.
► Advertising.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
The long run aggregate supply curve will shift to the right if:
► The price level increases.
► Factors of production (such as labor and capital) increase.
► Expenditures (such as consumption and net exports) increase.
► The prices of inputs used to produce goods and services (such as wages and the price of oil) decrease.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
An assumption of classical economics is:
► Prices and wages are inflexible.
► Self-correction takes a long time.
► Supply creates its own demand.
► Investment and saving are seldom equal.
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
Real GDP is equal to:
► Nominal GDP – Inflation.
► Nominal GDP + Inflation.
► Nominal GDP/ Inflation.
► Inflation/ Nominal GDP.
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
If we compare Gross Domestic Product (GDP) with Gross National Product (GNP) then:
► GNP = GDP – Net income from abroad.
► GNP = GDP + Net income from abroad.
► GNP = NNP – Net income from abroad.
► GNP = NNP + Net income from abroad.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
Suppose an economy is at full employment equilibrium in the classical model. What will be the long run effect of an increase in government spending in this economy?
► Price level will increase.
► The aggregate demand curve will shift upward.
► Output level will remain constant.
► All of the given options.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
Which of the following best describes the ''Capital widening''?
► More capital per unit of labour.
► More capital and more labour but with the same amount of capital per unit of labour.
► Increasing the usage of existing capital.
► Importing capital from the developed world.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
Double counting in national income refers to:
► Counting a product more than once.
► Counting a product at the final stage of output process.
► Counting both as product and as factor payment.
► Counting both as real goods and as money flow.
Question No: 16 ( 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: 17 ( M a r k s: 1 ) http://vuzs.net
The discounted value of the net returns that the asset generates over a period of time plus the discounted value of its disposal value at the end of the period minus the initial purchase cost is known as:
► Future value.
► Net present value.
► Discounted value.
► Disposal value.
Question No: 18 ( 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: 19 ( 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: 20 ( 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: 21 ( 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: 22 ( M a r k s: 1 ) http://vuzs.net
According to the classical school, unemployment was responsive to changes in:
► M/P.
► P.
► M.
► Money wages.
Question No: 23 ( 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: 24 ( M a r k s: 1 ) http://vuzs.net
The relationship between inflation and unemployment is usually that:
► Unemployment changes do not directly lead to changes in inflation, but inflation changes may cause changes in unemployment.
► As unemployment falls, nothing happens to inflation.
► As unemployment falls, inflation falls.
► As unemployment falls, inflation increases.
Question No: 25 ( M a r k s: 1 ) http://vuzs.net
Most nations of the world are:
► Closed economies.
► Open economies.
► Self sufficient.
► Non trading nations.
Question No: 26 ( 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.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
What will happen if exchange rate increases from $1 = Pak Rs. 80 to $1 = Pak Rs. 85?
► It will reduce exports of Pakistan.
► It will increase exports of Pakistan.
► It will increase imports of Pakistan.
► Its imports and exports will remain unchanged.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
Which of the following is the cause of fluctuations in economic activity?
► An increase in aggregate demand.
► A decrease in aggregate demand.
► A decrease in short run aggregate supply.
► All of the given options.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
In the endogenous growth model, the assumption of ------------------ is more plausible.
► Increasing returns to capital.
► Decreasing returns to capital.
► Constant returns to capital.
► All of the given options.
In both the exogenous and endogenous growth models, we assume constant returns to scale and, therefore, diminishing returns to capital at the level of the individual firm.
Question No: 30 ( 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%.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
The item which serves as a medium of exchange is known as:
► Gold.
► Capital.
► Silver.
► Money.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
Which of the following is included in M2 but not in M1?
► Currency.
► Demand deposits.
► Time deposits.
► Debit cards.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
Which of the following statements is correct?
► A single bank cannot multiply deposits.
► A single bank can multiply deposits.
► Some banks can multiply deposits and others cannot.
► The banking system as a whole can multiply deposits.
Question No: 34 ( 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: 35 ( M a r k s: 1 ) http://vuzs.net
What will happen to LM curve if the central bank increased the supply of real money balances?
► It would become steeper.
► It would become flatter.
► It would shift upward.
► It would shift downward.
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
Which of the following is (are) the characteristic(s) of low income countries as compared to high income countries?
I. Lower rates of population growth.
II.Greater income inequality.
III. A large proportion of the labor force in agriculture.
IV. Higher rates of unemployment.
► I only.
► I and II.
► II and IV.
► II, III and IV.
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
Which of the following statements is TRUE about the agriculture sector in low income countries?
► The agricultural sector has been decreasing in size because its productive workers prefer to migrate to urban areas.
► The agricultural sector is by far the largest producer and the most productive sector in low-income countries.
► Although the agricultural sector is the largest employer, labor’s productivity in this sector is very low.
► The agricultural sector has been increasing in size and in terms of labor productivity as rural farmers increasingly start to mechanize.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
Suppose a consumer buys two goods X and Y. The demand for X is elastic, then a rise in the price of X will cause:
► Total spending on good Y to rise.
► Total spending on good Y to fall.
► Total spending on good Y to remain unchanged.
► An indeterminate effect on total spending on good Y.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
For which of the following good, the substitution effect of a lowered price is counteracting by the income effect?
► For an inferior good.
► A substitute good.
► For an independent good.
► For a normal good.
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
Suppose that 90 units of output are produced by using 15 units of labor. Which of the following is TRUE in this context?
► The marginal product of labor is 6.
► The total product of labor is 1/6.
► The average product of labor is 6.
► None of the given options.
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
What will happen if current output is more than the profit-maximizing output?
► The next unit produced will increase profit.
► The next unit produced will decrease revenue more than it increases cost.
► The next unit produced will decrease cost more than it increases revenue.
► The next unit produced will increase revenue without increasing cost.
Question No: 42 ( M a r k s: 1 ) http://vuzs.net
Suppose the price of coke increases, what will happen to the demand for pepsi?
► The demand curve for pepsi shifts leftward.
► The demand curve for pepsi shifts rightward.
► The supply curve of pepsi shifts leftward.
► The supply curve of pepsi shifts rightward.
Question No: 43 ( M a r k s: 1 ) http://vuzs.net
Slope and elasticity of demand have
► A direct relation.
► An inverse relationship.
► No relation between slope and elasticity.
► None of the given options.
Question No: 44 ( M a r k s: 1 ) http://vuzs.net
When the slope of a demand curve is infinity, elasticity of demand is
► Zero elastic.
► Unit elastic.
► Less elastic.
► More elastic.
Question No: 45 ( M a r k s: 1 ) http://vuzs.net
The reduction in the value of a capital good due to the wear and tear caused during production is called as:
► Devaluation.
► Cost of capital.
► Depreciation.
► Return to capital.
Question No: 46 ( M a r k s: 1 ) http://vuzs.net
According to Keynes inflation and unemployment are:
► Opposite side of same coin.
► Positively related.
► Having no relation.
► None of the given options.
Question No: 47 ( M a r k s: 1 ) http://vuzs.net
Government budget deficit is equal to:
► Private sector resource deficit + Current account deficit.
► Current account deficit - Private sector resource deficit.
► Private sector resource deficit - Current account deficit.
► Current account deficit / Private sector resource deficit.
Question No: 48 ( M a r k s: 1 ) http://vuzs.net
Money demand decreases when interest rate:
► Increases.
► Decreases.
► Remains the same.
► All of the given options.
Question No: 49 ( M a r k s: 3 )
What are the assumptions of exogenous growth theory?
Question No: 50 ( M a r k s: 3 )
Differentiate between international trade and international finance.
Question No: 51 ( M a r k s: 5 )
A.What is the importance of current account? How we can calculate current account deficit?
B. How we can reduce current account deficit?
Question No: 52 ( 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: 53 ( M a r k s: 5 )
“People hold money for speculation purposes”. Discuss.
