ECO401 Finalterm Solved Paper 2010-9

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

 When the price of petrol rises by 12%, the quantity of petrol purchased falls by 8%. This shows that the demand for petrol is:

 

       ► Perfectly elastic.

       ► Unit elastic.

       ► Elastic.

► Inelastic.

   

Question No: 2    ( M a r k s: 1 )    http://vuzs.net

 Law of diminishing marginal utility indicates that the slope of the marginal utility curve is:

 

       ► Horizontal.

       ► Vertical.

       ► Negative.

       ► Positive.

 

Question No: 3    ( M a r k s: 1 )    http://vuzs.net

 Suppose that the price of a pizza is $10 and price of a jeans is $30. If ratio of marginal utility of pizza to marginal utility of jeans is 1/4 then to maximize total utility, a consumer should:

 

       ► Buy more pizzas and fewer jeans.

       ► Buy fewer pizzas and more jeans.

       ► Continue to buy the same quantities of pizza and jeans.

       ► Spend more time consuming pizza.

   

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

 Which of the following is TRUE about price-consumption curve for good X?

 

       ► Nominal income falls as the price of X falls.

       ► The absolute price of X falls, but the relative price between X and the composite good Y stays the same.

       ► It is always downward sloping for a normal good.

       ► It represents only those market baskets that are optimal for the given price ratio and preference pattern and therefore a demand curve can be plotted from it.

   

Question No: 6    ( 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: 7    ( 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: 8    ( M a r k s: 1 )    http://vuzs.net

 If income elasticity is negative, the good is:

 

       ► Normal good.

       ► A substitute good.

       ► A complementary good.

       ► Inferior good.

   

Question No: 9    ( 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: 10    ( 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: 11    ( M a r k s: 1 )    http://vuzs.net

 Which of the following will lead to an increase in aggregate demand?

 

       ► An increase in government tax revenues.

       ► An increase in household savings.

       ► An increase in business capital investment.

       ► An increase in demand for imports.

   

Question No: 12    ( M a r k s: 1 )    http://vuzs.net

 The economic analysis most closely related to Say's Law is:

 

       ► Short-run aggregate market.

       ► Production possibilities.

       ► Imperfect competition.

       ► Circular flow.

 

Question No: 13    ( M a r k s: 1 )    http://vuzs.net

 The trend of unemployment over the last forty years is:

 

       ► A decrease in unemployment.

       ► It has remained largely unchanged.

       ► An increase in unemployment.

       ► It is too difficult to tell so don't bother.

   

Question No: 14    ( M a r k s: 1 )    http://vuzs.net

 Naima has just finished her school job and is waiting to report to new job at the beginning of the month. Naima is considered to be:

 

       ► Cyclically unemployed.

       ► Employed.

       ► Structurally unemployed.

       ► Frictionally unemployed.

   

Question No: 15    ( M a r k s: 1 )    http://vuzs.net

 Which one of the following can lead to a rise in inflation?

 

       ► An increase in costs of production.

       ► An increase in productive capacity.

       ► An increase in the level of direct taxation.

       ► An increase in the exchange rate.

 

Question No: 16    ( M a r k s: 1 )    http://vuzs.net

 An exchange rate system in which central banks are always ready to buy and sell their currencies at predetermined prices is called:

 

       ► A flexible exchange rate system.

       ► A managed exchange rate system.

       ► A fixed exchange rate system.

       ► None of the given options.

   

Question No: 17    ( M a r k s: 1 )    http://vuzs.net

 How should fiscal policy be used during inflation?

 

       ► Increase Government expenditure and decrease taxes to decrease aggregate demand.

       ► Increase Government expenditure and decrease taxes to increase aggregate demand.

       ► Decrease Government expenditure and increase taxes to increase aggregate demand.

       ► Decrease Government expenditure and increase taxes to decrease aggregate demand.

  

Question No: 18    ( M a r k s: 1 )    http://vuzs.net

 Per capita income is obtained by dividing national income by:

 

       ► Total labor force in the country.

       ► Unemployed youth in the country.

       ► None of the given options.

       ► Total population of that country.

   

Question No: 19    ( M a r k s: 1 )    http://vuzs.net

 What would result from a depreciation of the pound on the foreign exchange market? 

       ► An increase in the price of imported computers.

       ► A fall in the purchasing power of US tourists in London.

       ► A fall in the price of imported computers.

       ► An increase in the purchasing power of UK tourists overseas.

 

Question No: 20    ( M a r k s: 1 )    http://vuzs.net

 Which of the following is NOT a factor of production?

 

       ► Labour.

       ► Land.

       ► Capital.

       ► Investment.

   

Question No: 21    ( M a r k s: 1 )    http://vuzs.net

 The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because:

       ► The market price is determined (through regulation) by the government.

       ► The firm supplies a different good than its rivals.

       ► The firm's output is a small fraction of the entire industry's output.

       ► The short run market price is determined solely by the firm's technology.

 

 

Question No: 22    ( 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: 23    ( M a r k s: 1 )    http://vuzs.net

 Is Gross Domestic Product (GDP) an accurate measure of a country’s well being?

       ► Yes, it is the best measure of national well being.

       ► Yes, provided we use real GDP and not nominal GDP.

       ► Uncertain, depending on whether GDP is rising or falling.

       ► No, it is not.

   

Question No: 24    ( 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: 25    ( 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: 26    ( M a r k s: 1 )    http://vuzs.net

 Which of the following is an example of a leakage?

       ► Saving.

       ► Investment.

       ► Exports.

       ► Government expenditures.

   

Question No: 27    ( M a r k s: 1 )    http://vuzs.net

 The demand curve for chicken is downward-sloping. Suddenly the price of chicken rises from Rs.130 per kg to Rs.140 per kg. This will cause:

 

       ► The demand curve for chicken to shift to the left.

       ► The demand curve for chicken to shift to the right.

       ► Quantity demanded of chicken to increase.

       ► Quantity demanded of chicken to decrease.

A shift in demand curve results from changes in all other factors that were held constant in constructing the demand curve. Such other factors include the change in price of other commodities, change in supply of the commodity in question

 

Question No: 28    ( M a r k s: 1 )    http://vuzs.net

 Which of the following best defines the aggregate demand?

       ► The demand for goods and services generated by all sectors in the economy, holding price level constant.

       ► The relationship between the total quantity of goods and services demanded and the price       level, all other determinants of spending unchanged.

       ► The relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged.

       ► The relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged.

   

Question No: 29    ( M a r k s: 1 )    http://vuzs.net

 

Refer to the above figure, what are the prevailing price level and the output level in the economy?

 

       ► Price level = P₁; real GDP = Y_p.

       ► Price level = P₁; real GDP = Y_1.

       ► Price level = P₂; real GDP = Y_2.

       ► Price level = P₃; real GDP = Y_p.

 

Question No: 30    ( M a r k s: 1 )    http://vuzs.net

 Changes in aggregate demand can be caused by changes in:

I. Wages.        

II.Raw materials costs.   

III.             Government spending.

IV.            Government regulations that increase the cost of doing business.

       ► I, II, III, and IV.

       ► I and III only.

       ► I, III, and IV.

       ► III only.

   

Question No: 31    ( M a r k s: 1 )    http://vuzs.net

 The long run in macroeconomic analysis is a period:

       ► In which wages and some other prices are sticky.

       ► In which full wage and price flexibility and market adjustment have been achieved.

       ► Greater than 12 months.

       ► In which the capital stock is held constant.

   

Question No: 32    ( M a r k s: 1 )    http://vuzs.net

 The Phillips curve shows that:

       ► High unemployment rates are associated with low inflation rates.

       ► High unemployment rates are associated with high inflation rates.

       ► High unemployment rates are associated with a large increase in the nominal wage.

       ► High inflation rates are associated with a small increase in the nominal wage.

   

Question No: 33    ( M a r k s: 1 )    http://vuzs.net

 Which of the following is TRUE for the equation MV = PQ?

       ► M is the money supply.

       ► V is the velocity.

       ► Q is the real output level.

       ► All of the given options.

   

Question No: 34    ( 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: 35    ( 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: 36    ( 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: 37    ( M a r k s: 1 )    http://vuzs.net

 A contractionary fiscal policy shifts:

       ► The aggregate demand curve o the left.

       ► The aggregate demand curve to the right.

       ► The aggregate supply curve to the right.

       ► The aggregate supply curve to the left.

  

Question No: 38    ( 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: 39    ( M a r k s: 1 )    http://vuzs.net

 Which of the following best describes a bank’s reserves?

       ► The minimum value of assets it must have.

       ► The amount of gold it is required to have as reserves against loans.

       ► The value of federal securities it is required to have as reserves against loans.

       ► Deposits that bank has accepted from customers but have not loaned out.

   

Question No: 40    ( M a r k s: 1 )    http://vuzs.net

 Which of the following has positive relationship with demand for money?

       ► Level of income.

       ► Price level.

       ► Rate of interest.

       ► Discount rate.

  

Question No: 41    ( M a r k s: 1 )    http://vuzs.net

 Which of the following will be TRUE if real income rose and the interest rate fell following an increase in government purchases?

       ► IS curve must be vertical.

       ► LM curve must be vertical.

       ► Central Bank must have increased the money supply at the same time.

       ► Central Bank must have decreased the money supply at the same time.

   

Question No: 42    ( M a r k s: 1 )    http://vuzs.net

 Suppose the total costs of first four units of an output produced are 20, 40, 60, and 80 respectively. What is the marginal cost of the second unit of output?

       ► 10.

       ► 20.

       ► 30.

       ► 40.

   

Question No: 43    ( M a r k s: 1 )    http://vuzs.net

 The demand curve for eggs is downward-sloping. Suddenly the price of eggs decreases from Rs.60/- per dozen to Rs.50/- per dozen. This will cause:

 

       ► The demand curve for eggs to shift leftward.

       ► Quantity demanded of eggs to decrease.

       ► The demand curve for eggs to shift rightward.

       ► Quantity demanded of eggs to increase.

   

Question No: 44    ( M a r k s: 1 )    http://vuzs.net

 The marginal propensity to consume is the ratio of:

       ► A change in consumption to a change in disposable income.

       ► A change in consumption to total disposable income at a specific income level.

       ► Total consumption to total disposable income at a specific income level.

       ► Total consumption to a change in disposable income.

   

Question No: 45    ( 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: 46    ( M a r k s: 1 )    http://vuzs.net

 Government can borrow from domestic banking system or general public by selling:

       ► Shares of any of its institute.

       ► Stocks.

       ► Treasury bills.

       ► Debentures.

   

Question No: 47    ( M a r k s: 1 )    http://vuzs.net

 A process by which money is created is called:

       ► Credit rationing.

       ► Credit expansion.

       ► Credit creation.

       ► None of the given options.

   

Question No: 48    ( 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: 49    ( M a r k s: 3 )

 “Devaluation is a sign of economic failure and will do little to help improve the balance of payments or economic performance.” Discuss..

   

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 )

 Discuss the components on the assets and liabilities side of the balance sheet of a central bank.

 

 

Question No: 52    ( M a r k s: 5 )

 

In the above figure, suppose the economy is on the horizontal portion of aggregate supply (AS) curve.

a)    If government expenditures increase, what will happen to the aggregate expenditure line E, aggregate demand curve AD and output level Y.

b)   Is there any multiplier effect? How it works in this case?(M a r k s: 3+2)

   

Question No: 53    ( M a r k s: 5 )

 If y = Y / L, where, Y = Total GDP, L = Population, y = Per capita GDP then prove that Growth rate of per capita income = Growth rate of total output - Growth rate of population