ECO-401- Economics Solved Quizzes

A good for which income and quantity demanded are inversely related is known as:

Inferior good.

Complementary good.

Normal good.

None of the given options.

An increase in supply is shown by:

Shifting the supply curve to the left.

Shifting the supply curve to the right.

Upward movement along the supply curve.

Downward movement along the supply curve.

Lesson 04

Price floor results in:

All of the given options.

Excess supply.

Equilibrium.

Excess demand.

Ref:

A price floor results in a surplus being supplied at the higher price.

The price elasticity of demand measures the responsiveness of quantity demanded to:

Quantity demanded.

Quantity supplied.

Price.

Output.

Price elasticity of demand is the percentage change in quantity demanded with respect to the percentage change in price.

Assume that the total utilities for the fifth and sixth units of a good consumed are 83 and 97, respectively. The marginal utility for the sixth unit is:

-14.

14.

83.

97.

Lesson 09

Marginal utility (MU) is the additional utility derived from the consumption of one or more unit of the good.

83-97=-14

Indifference curves that are convex to the origin reflect:

An increasing marginal rate of substitution.

A decreasing marginal rate of substitution.

A constant marginal rate of substitution.

A marginal rate of substitution that first decreases, then increases.

They are bowed inward and have a decreasing marginal rate of substitution.

To find the profit maximizing level of output, a firm finds the output level where:

Price equals marginal cost.

Marginal revenue and average total cost.

Price equals marginal revenue.

None of the given options.

As compared to existing firms, a new firm entering in monopolist market has:

High costs.

Low costs.

Equal costs.

None of the given options.

Lesson 20

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.

Lesson 21

2ND DEGREE PD:In this type, different prices charged to customers who purchase different quantities.

McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their student ID cards, they would be given 50 cents off any special meal. This practice is an example of:

Collusion.

Price discrimination.

Two-part tariff.

Bundling.

Price discrimination is a practice of selling goods or services at different prices to different buyers, even though sales costs are the same for all the transactions. Buyers may be discriminated against on the basis of income, ethnicity, age, or geographic location.

The price elasticity of demand for any good must be less than or equal to zero unless:

The good is a necessity.

The good is a luxury.

The good is a Giffen good.

None of the given options.

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.

Welfare economics is the branch of economics which deals with:

Positive issues.

Normative issues.

Micro issues.

Macro issues.

Lesson 23

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.

Which of the following market situation is much like a pure monopoly except that its member firms tend to cheat on agreed upon price and output strategies?

Duopoly.

Cartel.

Market sharing monopoly.

Natural monopoly.

Ref by Rey:

The Oligopoly/cartels is the one having qualities of monopoly and perfect Competition. So this is much like a pure monopoly except it has members who make a group to control and price and output. The group of people acts as monopoly. It is possible that the members of firm tend to cheat on agreed price and output strategies.

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.

Lesson 27

Which of the following events could cause the aggregate demand curve to shift to the right?

An increase in the rate of inflation.

A decrease in government expenditures.

A decrease in investment spending.

A decrease in income tax rates.

Lesson 26

The Great Depression of 1930s opened the door to the __________ revolution in macroeconomic theory.

Keynesian.

New classical.

Old classical.

New Keynesian.

Lesson 25

Keynesian economics was the predominant economic theory:

Prior to the late 1700s.

From the late 1700s to the early 1900s.

From 1930s to 1970s.

Since 1970s.

Classical economics was replaced as the dominant theory of macroeconomic analysis by:

Monetarism.

Rational expectations.

Keynesian economics.

Neoclassical economics.

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause:

Both prices and output to rise.

Prices to fall and output to remain unchanged.

Both prices and output to fall.

Prices to rise and output to remain unchanged.

Intermediate goods are meant for:

Direct use by the consumers.

Further processing.

The term do not exist.

None of the given options.

Lesson 28

Final goods are meant for:

Direct use by the consumers.

Further processing.

The term do not exist.

None of the given options.

Which of the following is a flow variable?

The value of the house in which you live.

The balance in your savings account.

Your monthly consumption on food items.

The number of carrots in your refrigerator at the beginning of the month.

Flow variable is a variable whose value depends on a period of time rather than an instant. Flow variable is a quantity which is measured during some time period.

Which of the following is NOT a stock variable?

Government debt.

Capital.

The amount of money held by the public.

Inventory investment.

The stock variables are those variables which do not have any time restriction.

All other things remain the same, Gross Domestic Product (GDP) will rise if:

Imports rises.

Exports falls.

Durable goods consumption rises.

Military spending falls.

If disposable income increases from $5 trillion to $6 trillion and as a result, consumption expenditure increases from $7 trillion to $7.8 trillion, the Marginal Propensity to Consume is:

1.0.

0.8.

5/7 = 0.71.

6/7.8 = 0.77.

Marginal propensity to consume (MPC) is the extra amount that people consume when they receive an extra dollar of disposable income.

The slope of the consumption function (or line) is the:

Average propensity to save.

Average propensity to consume.

Marginal propensity to save.

Marginal propensity to consume.

The slope of the consumption function is the marginal propensity to consume, defined as the change in consumption associated with a change in disposable income.

Suppose that your income increases from $100,000 to $150,000 and your consumption increases from $80,000 to $120,000. Your Marginal Propensity to Save (MPS) is:

0.2.

0.4.

0.6.

0.8.

Marginal propensity to save:

MPS = ΔS / ΔYd

=40,000/50,000=0.8

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.

The unemployment rate is defined as the ratio of the no. of unemployed people divided by the sum of the employed and unemployed people.

The traditional Phillips Curve shows the:

Inverse relationship between the rate of inflation and unemployment rate.

Inverse relationship between the nominal and real wage.

Direct relationship between unemployment and demand-pull inflation.

Tradeoff between the short run and long run.

Deflation is:

An increase in the overall level of economic activity.

An increase in the overall price level.

A decrease in the overall level of economic activity.

A decrease in the overall price level.

Deflation is the opposite of inflation and occurs when the general level of prices falls.

Is Grosss 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.

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.

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the exogenous model predicts that output will grow and the new steady state will approach:

A higher output level than before.

The same output level as before.

A lower output level than before.

The Golden Rule output level.

Lesson 39

The Exogenous growth model, also known as the Neo-classical growth model or Solow growth model states that as a fixed stock of labor, the impact on output of the last unit of capital accumulated will always be less than the one before.

A currency appreciation:

Reduces aggregate demand and increases aggregate supply.

Reduces both aggregate demand and aggregate supply.

Increases aggregate demand and reduces aggregate supply.

Increases both aggregate demand and aggregate supply.

Currency Appreciation means that the given currency has become more valuable with respect to another currency. A currency appreciation reduces aggregate demand and raises aggregate supply.

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.

Lesson 41

M1: is M0 (currency notes and coins that are in circulation in the economy) + all current (or checking) deposits held with commercial banks. Checking deposits are accounts from which the holders can withdraw money at any time.

Personal income:

Is income received by individuals during a given year.

Is the income individuals have available for spending during a given year.

Equals national income minus indirect taxes.

Is the sum of wages plus interest received by individuals during a given year.

Lesson 29

Personal income of an individual is the total amount of income s/he receives form deploying all the different factors of production s/he owns.

Real Gross National Product (GNP) is best defined as:

The pound value of all final goods and services produced in the economy during a particular time period and measured in current prices.

The pound value of all goods produced for final consumption by households in a particular year and measured in constant prices.

The current pound value of all new and used goods produced and sold in the economy during a particular time period.

The market value of all final goods and services produced by the economy during a given time period, with prices held constant relative to some base period.

Which of the following statements describes the difference between nominal and real Gross Domestic Product (GDP)?

Real GDP includes only goods; nominal GDP includes goods and services.

Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.

Real GDP is equal to nominal GDP less the depreciation of the capital stock.

Real GDP is equal to nominal GDP multiplied by the CPI.

Lesson 29

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.

Lesson 29

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.

Gross domestic product (GDP) is the total market value of all final goods and services produced within the political boundaries of an economy during a given period of time, usually a year.

Which of the following shows the Fisher equation of exchange?

MT=PV.

VT=PM.

MV=PQ

MY=VP.

Fisher's equation of exchange states MV = PT. M is the money supply; V is the velocity of circulation; P is average prices and T is the number of transactions.

An exchange rate that varies according to the supply and demand for the currency in the foreign exchange market is called:

Overvalued exchange rate.

Undervalued exchange rate.

Fixed exchange rate.

Flexible exchange rate.

It is same as floating exchange rate, it is an exchange rate between two currencies that is allowed to fluctuate with the market forces of supply and demand.

In the equation MV = PQ, according to the crude quantity theory of money:

M has no effect on the price level.

V is the number of times each dollar is spent per year.

Q is the real price level.

P rises as V falls, other things constant.

In the Keynesian cross model, the 45-degree line has a slope of:

45.

Infinity.

In Keynesian cross model the 45-degree line has a slope of one; it indicates that the induced slope of the consumption line is less than one.

In Keynesian economics, equilibrium can occur:

Only at full employment level.

Only at levels less than full employment.

Only at levels greater than full employment.

At any level of aggregate output which is equal to aggregate expenditures.

Equilibrium will be attained where output equals the spending level.

After a decrease in the wage, the substitution effect implies that:

Only the amount demanded of capital decreases.

Only the amount demanded of labor decreases.

Only the amount demanded of capital increases.

The amount demanded of all inputs increases.

The demand curve facing a perfectly competitive firm is:

The same as its average revenue curve but not the same as its marginal revenue curve.

The same as its average revenue curve and its marginal revenue curve.

The same as its marginal revenue curve but not its average revenue curve.

Not the same as either its marginal revenue curve or its average revenue curve.

1) Which of the following is NOT an application of supply and demand analysis?

A)Understanding changing world economic conditions and their effects on prices

B)Evaluating the effects of government price controls on the agricultural industry

C)Detenrrining how taxes affect aggregate consumption spending patterns

D)all of the above

E) none of the above

Answer: E

2) A supply curve reveals:

A)the quantity of output consumers are willing to purchase at each possible market price.

B)the difference between quantity demanded and quantity supplied at each price.

C)the maximum level of output an industry can produce, regardless of price.

D)the quantity of output that producers are willing to produce and sell at each possible market price.

Answer: D

3) Plastic and steel are substitutes in the production of body panels for certain automobiles. If the

price of plastic increases, with other things remaining the same, we would expect:

A)the price of steel to fall.

B)the demand curve for steel to shift to the right.

C)the demand curve for plastic to shift to the left.

D)nothing to happen to steel because it is only a substitute for plastic.

E) the demand curve for steel to shift to the left.

Answer: B Diffil Section: 2.1

4) Coffee and cream:

A)are both luxury goods.

B)are complements.

C)are both more inelastic in demand in the long run than in the short run.

D)have a positive cross price elasticity of demand.

Answer: B

5) Which of the following would shift the demand curve for new textbooks to the right?

A)A fall in the price of paper used in publishing texts

B)A fall in the price of equivalent used textbooks

C)An increase in the number of students attending college

D)A fall in the price of new textbooks.

Answer: C Diffil Section: 2.1

6) When an industry's raw material costs increase, other things remaining the same,

A)the supply curve shifts to the left.

B)the supply curve shifts to the right.

C)output increases regardless of the market price and the supply curve shifts upward.

D)output decreases and the market price also decreases.

Answer: A Diffil Section: 2.1

7) Sugar can be refined from sugar beets. When the price of those beets falls,

A)the demand curve for sugar would shift right.

B)the demand curve for sugar would shift left.

C)the supply curve for sugar would shift right.

D)the supply curve for sugar would shift left.

Answer: C Diffil Section: 2.1

8) Assume that steak and potatoes are complements. When the price of steak goes up, the

demand curve for potatoes:

A)shifts to the left.

B)shifts to the right.

C)remains constant.

D)shifts to the right initially and then returns to its original position.

Answer: A Diff:l Section: 2.1

9) Which of the following events will cause a leftward shift in the supply curve of gasoline?

A)A decrease in the price of gasoline

B)An increase in the wage rate of refinery workers

C)Decrease in the price of crude oil

D)An improvement in oil refining technology

E) all of the above

Answer: B

Chapter 3 Consumer Behavior

1) Gary Franklin is a movie critic. He invented the Franklin Scale with which he rates movies from 1 to 10 (10 being best). When asked about his scale, Mr. Franklin explained "that it is a subjective measure of movie quality. A movie with a ranking of 10 is not necessarily 10 times better than a movie with a ranking of 1, but it is better. A movie with a ranking of 5 is better than a movie with a ranking of 1, but is not as good a movie with a ranking of 10. That's all it really tells you." Based on Mr. Franklin's description, his scale is:

A) ordinal but not cardinal.

B) cardinal but not ordinal.

C) an objective standard to judge movies.

D) neither cardinal nor ordinal.

Answer: A Diff: 1 Section: 3.1

2) Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?

A)Preferences are complete.

B)Preferences are transitive.

C)Consumers prefer more of a good to less.

D)All of the above are basic assumptions about consumer preferences.

Answer: D

3) The theory of consumer behavior is based on certain assumptions. The set of four basic assumptions includes:

A)completeness.

B)transitivity.

C)intransitivity.

D)Both A and B are correct.

E) Both A and C are correct.

Answer: D

4) The assumption of transitive preferences implies that indifference curves must:

A)not cross one another.

B)have a positive slope.

C)be L-shaped.

D)be convex to the origin.

E) all of the above

Answer: A

Chapter 4 Individual and Market Demand

1) As we move downward along a demand curve for apples,

A)consumer well-being decreases.

B)the marginal utility of apples decreases.

C)the marginal utility of apples increases.

D)Both A and B are true.

E) Both A and C are true.

Answer: B Diffil Section: 4.1

2)The change in the price of one good has no effect on the quantity demanded of another good.

These goods are:

A)complements.

B)substitutes.

C)both inferior.

D)both Giffen goods.

E) none of the above

Answer: E Diffil Section: 4.1

3) The price of good A goes up. As a result the demand for good B shifts to the left. From this

we can infer that:

A)good A is a normal good.

B)good B is an inferior good.

C)goods A and B are substitutes.

D)goods A and B are complements.

E) none of the above

Answer: D Diffi 1 Section: 4.1

4) An individual demand curve can be derived from the_________________ curve.

A)price-consumption

B)price-income

C)income-substitution

D)income-consumption

E) Engel

Answer: A Diffil Section: 4.1

5) Which of the following claims is true at each point along a price-consumption curve?

A)Utility is maximized but income is not all spent.

B)All income is spent, but utility is not maximized.

C)Utility is maximized, and all income is spent.

D)The level of utility is constant.

Answer: C Diff:l Section: 4.1

6) Which of the following is true regarding income along a price-consumption curve?

A)Income is increasing.

B)Income is decreasing.

C)Income is constant.

D)The level of income depends on the level of utility.

Answer: C Diff:2 Section: 4.1

7)Which of the following is true regarding utility along a price-consumption curve?

A) ft is constant.B) It changes from point to point.

C) It changes only if income changes.D) It changes only for normal goods.

Answer: B

Diff:2 Section: 4.1

8) The income-consumption curve

A)illustrates the combinations of incomes needed with various levels of consumption of a good.

B)is another name for income-demand curve.

C)illustrates the utility-maximizing combinations of goods associated with every income level.

D)shows the utility-maximizing quantity of some good (on the horizontal axis) as a function of income (on the vertical axis).

Answer: C Diffil Section: 4.1

9) Which of the following pairs of goods are NOT complements?

A)Hockey sticks and hockey pucks

B)Computer CPUs and computer monitors

C)On-campus student housing and off-campus rental apartments

D)all of the above

E) none of the above

Answer: C

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 # 2 of 15
In the long run, profits will equal zero in a competitive market because of:
The availability of information.
Identical products being produced by all firms.
Constant returns to scale.
Free entry and exit

Question # 3 of 15
While drawing a given market demand curve,-------------- is not considered constant.
Income.
The price of the good in question.
The prices of related goods.
Preferences.

Question # 4 of 15
If diminishing marginal utility holds and a person consumes less of a good, then all else being equal:
Select correct option:
The price of the good will rise.
Marginal utility will rise.
Expenditure on the good will increase.
Marginal utility will decline.

Question # 5 of 15
Our economy is characterized by:
Select correct option:
Unlimited wants and needs.
Unlimited material resources.
No energy resources.
Abundant productive labor.

Question # 6 of 15
If consumer incomes increase, the demand for product Y:
Will necessarily remain unchanged.
Will shift to the right if Y is a complementary good.
Will shift to the right if Y is a normal good.
Will shift to the right if Y is an inferior good.

Question # 7 of 15
The law of diminishing returns assumes:
There are no fixed factors of production.
There are no variable factors of production.
Utility is maximised when marginal product falls.
Some factors of production are fixed.

Question # 8 of 15
A price taker is:
A firm that accepts different prices from different customers.
A monopolistically competitive firm.
A firm that cannot influence the market price.
An oligopolistic firm.

Question # 9 of 15
The correlation between an asset's real rate of return and its risk (as measured by its standard deviation) is usually:
Positive.
Strictly linear.
Flat.
Negative.

Question # 10 of 15
The percentage change in quantity demanded of a given good, with respect to the percentage change in the price of “another” good is called:
Price elasticity of demand.
Income elasticity of demand.
Cross price elasticity of demand
Supply price elasticity.

Question # 11 of 15
Moving from left to right, the typical production possibilities curve:
Is horizontal.
Has a constant positive slope.
Illustrates increasing opportunity costs.
Illustrates decreasing opportunity costs.

Question # 12 of 15
Which of the following does NOT refer to macroeconomics?
The study of the aggregate level of economic activity.
The study of the economic behavior of individual decision-making units such as consumers, resource owners, and business firms.
The study of the cause of unemployment.
The study of the cause of inflation.

Question # 13 of 15
In pure capitalism, freedom of enterprise means that:
Businesses are free to produce products that consumers want.
Consumers are free to buy goods and services that they want.
Resources are distributed freely to businesses that want them.
Government is free to direct the actions of businesses.

Question # 14 of 15
At any given point on an indifference curve, the the slope is equal to:
Unity.
The marginal rate of substitution.
The consumer’s marginal utility.
None of the given options.

Question # 15 of 15
The concept of a risk premium applies to a person that is:
Risk averse
Risk neutral
Risk loving
All of the given options

Which of the following can be thought of as a barrier to entry?
Scale economies.
Patents.
Strategic actions by incumbent firms.
All of the given options are true.

A new technology which reduces costs for firms’:
Shifts the supply curve to the right
Shifts the supply curve to the left
Reduces the equilibrium quantity
Raises the equilibrium price

The point at which AC intersects MC is where:
AC is decreasing.
MC is at its minimum.
AC is at its minimum.
AC is at its maximum.

A normative economic statement:
Is a statement of fact
Is a hypothesis used to test economic theory.
Is a statement of what ought to be, not what is.
Is a statement of what will occur if certain assumptions are true.

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.

And another question that derives from above is If the income elasticity of demand is 2, the good is:
A luxury
A normal good(but not a luxury)
An inferior good.
A Giffen good.

A new technology which reduces costs for firms’:
Shifts the supply curve to the right
Shifts the supply curve to the left
Reduces the equilibrium quantity
Raises the equilibrium price

Aslam decides to stay at home and study for his exam rather than going out with his friends to a movie. His dilemma is an example of:

The economic perspective.

Marginal analysis.

Allocative efficiency.

Opportunity cost.

1 A study of how increases in the minimum wage rate will affect the national unemployment rate is an example of

A. descriptive economics.

B. normative economics.

C. macroeconomics.

D. microeconomics.

2 Aggregate supply is the total amount

A. of goods and services produced in an economy.

B. produced by the government.

C. of products produced by a given industry.

D. of labour supplied by all households.

3 The total demand for goods and services in an economy is known as

A. aggregate demand.

B. national demand.

C. gross national product.

D. economy-wide demand.

4 Deflation is

A. an increase in the overall level of economic activity.

B. an increase in the overall price level.

C. a decrease in the overall level of economic activity.

D. a decrease in the overall price level.

5 A recession is

A. a period of declining prices.

B. a period during which aggregate output declines.

C. a period of declining unemployment.

D. a period of falling trade volumes.

6 Involuntary unemployment means that

A. people are not willing to work at the going wage rate.

B. at the going wage rate, there are people who want to work but cannot find work.

C. there are some people who will not work at the going wage rate.

D. there is excess demand in the labour market.

7 A cut in the income tax rate designed to encourage household consumption is an example of

A. expansionary demand-side policy.

B. contractionary demand-side policy.

C. expansionary supply-side policy.

D. contractionary supply-side policy.

8 A cut in the tax rate designed to reduce the cost of capital and hence encourage business investment is an example of

A. expansionary demand-side policy.

B. contractionary demand-side policy.

C. expansionary supply-side policy.

D. contractionary supply-side policy.

9 Macroeconomics is the branch of economics that deals with

A. the economy as a whole.

B. imperfectly competitive markets.

C. only the long run adjustments to equilibrium in the economy.

D. the functioning of individual industries and the behaviour of individual decision-making units - business firms and households.

10 A group of modern economists who believe that price and wage rigidities do not provide the only rationale for macroeconomic policy activism are called:

A. New-Keynesians.

B. Keynesians.

C. Monetarists.

D. The Classical school.

11 Macroeconomic theory that emphasised the theories of Keynes and de-emphasised the Classical theory developed as the result of the failure of

A. economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s.

B. fine tuning during the 1960s.

C. the economy to grow at a rapid rate during the 1950s.

D. the Classical model to explain the prolonged existence of high unemployment during the Great Depression.

12 Keynes believed falling wages were not a solution to persistent unemployment because

A. falling wages demoralised workers.

B. this would reduce the purchasing power of labourers as consumers. This in turn would bleaken firms’ prospects of selling more goods, hence inducing them to cut their investment (and hence labour) demand.

C. the unemployment was caused by frictional and structural factors.

D. wages would fall more than required to clear the labour market.

13 The practice of using fiscal and monetary policy to stabilise the economy is known as

A. fine tuning of demand

B. monetarism

C. laissez faire economics

D. supply side economics

14 According to Classical models, the level of employment is determined primarily by

A. interest rates.

B. the level of prices.

C. the level of aggregate supply in the economy

D. the level of aggregate demand for goods and services.

15 According to Keynes, the level of employment is determined by

A. interest rates.

B. the level of prices.

C. the level of aggregate supply in the economy

D. the level of aggregate demand for goods and services.

16 According to the Classical model, unemployment

A. could not persist because wages would fall to eliminate the excess supply of labour.

B. could persist for long periods of time because wages are not flexible.

C. could be eliminated only through government intervention.

D. could never exist.

17 To get the economy out of a slump, Keynes believed that the government should

A. increase both taxes and government spending.

B. increase taxes and/or decrease government spending.

C. cut both taxes and government spending.

D. decrease taxes and/or increase government spending.

18 Aggregate demand refers to the total demand for all domestically produced goods and services in an economy generated from

A. the household and government sectors.

B. the household sector.

C. all sectors except the rest of the world.

D. all sectors including the rest of the world.

19 Government policies that focus on increasing production rather than demand are called:

A. fiscal policies.

B. monetary policies.

C. incomes policies.

D. supply-side policies.

20 Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are

A. market prices.

B. sticky prices.

C. fixed prices.

D. regulatory prices.

21 The economists who emphasised wage-flexibility as a solution for unemployment were

A. Monetarists.

B. New-Keynesians.

C. Classical economists.

D. Keynesians.

22 According to the Classical economists, the economy

A. requires fine tuning to reach full employment.

B. should not be left to market forces.

C. will never be at full employment.

D. is self correcting.

23 Monetarism became popular because it was able to, unlike Classical or Keynesian economics, explain

A. stagflation in the late 1970s.

B. demand-pull inflation in the 1960s.

C. low growth rates in the 1950s.

D. the prolonged existence of high unemployment during the Great Depression.

24 Keynes’ explanation for low firm investment during the Great Depression was

A. low savings, which placed a constraint on investment

B. high real borrowing rates, which discouraged firm borrowing

C. high savings, which left consumers with less money to spend on goods and serviced produced by firms

D. A permanent change in Europe’s corporate ownership structures.

25 Rapid increases in the price level during periods of recession or high unemployment are known as

A. slump.

B. stagnation.

C. stagflation.

D. inflation.

26 The hypothesis that people know the 'true model' of the economy and that they use this model and all available information to form their expectations of the future is the

A. rational-expectations hypothesis.

B. active-expectations hypothesis.

C. static-expectations hypothesis.

D. adaptive-expectations hypothesis.

27 Neo-Classical theories were an attempt to explain

A. how unemployment could have persisted for so long during the Great Depression.

B. the stagflation of the 1970s.

C. why policy changes that are perceived as permanent have more of an impact on a person's behaviour than policy changes that are viewed as temporary.

D. the increase in the growth rate of real output in the 1950s.

28 A group of modern economists who believe that markets clear very rapidly and that expanding the money supply will always increase prices rather than employment are the

A. New-Keynesians.

B. Keynesians.

C. Monetarists.

D. The Classical school.

29 Say’s law states that:

A. Supply creates its own demand.

B. Demand creates its own supply.

C. There is no such things as a free lunch

D. Macroeconomic policy activism is essential to ensure full-employment.

30 The aggregate supply (AS) curve and aggregate demand (AD) curve in a realistic Keynesian world are:

A. AS: fully horizontal; AD: downward sloping

B. AS: horizontal only till the full capacity level; AD: downward sloping

C. AS: vertical; AD: upward sloping

D. AS: horizontal; AD: vertical

MACROECONOMIC DATA AND VARIABLES, NATIONAL INCOME ACCOUNTING AND EQUILIBRIUM IN A KEYNESIAN ECONOMY

Questions 1-3 are based on the following information about an economy:

Consumer price index (2002) = 132

Consumer price index (2001) = 110

Nominal GDP (2002) = $60bn

Nominal GDP (2001) = $50bn

Population (2002) = 7mn

Population (2001) = 6mn

Net factor income from abroad (2002) = +$3bn

Net factor income from abroad (2001) = -$2bn

1. By how much has real GDP grown from 2001 to 2002?

A. -10%

B. 12.5%

C. 20%

D. 0%

2. By how much has per capita nominal GNP changed from 2001 to 2002?

A. -10%

B. 12.5%

C. 20%

D. 0%

3. Based on the above information, we can say that:

A. Poverty has fallen in the country

B. Per capita real GDP is falling

C. Income inequality has worsened

D. Real growth in the informal sector is 0%

4. In the circular flow of income, Keynesian equilibrium obtains when

A. All the individual sectors are in equilibrium: S=I, T=G, M=X

B. The aggregate injections equal aggregate withdrawals S+T+M = I+G+X

C. There is no inflation or unemployment

D. The interest rate and exchange rate are at their market clearing levels

5. Under conditions of Keynesian equilibrium:

A. aggregate demand equals aggregate supply

B. aggregate demand equals national income

C. both A and B

D. none of the above

6. Which of the following is a determinant of consumption

A. expectations about future prices

B. level of indebtedness of consumers

C. the price level

D. all of the above

7. Which is the most volatile component of aggregate demand

A. Net exports

B. consumption

C. investment

D. government spending

8. Which of the following is not an obvious or direct determinant of a country’s imports

A. real exchange rate

B. income

C. tariff rates

D. interest rate

9. When consumption is 650, income is 750; when consumption is 620, income is 700. Assuming there is no government, I=100, net exports are 10, what is the level of equilibrium income?

A. 500

B. 625

C. 775

D. 850

10. Which of the following is not true?

A. Starting from no growth, a positive output growth rate would be associated with even higher rates of investment (the accelerator effect)

B. Higher investment causes a multiplied increase in income

C. Such increases in income would continue to induce higher investment, which in turn would continue to cause multiplied increases in output.

D. All of the above.

11. In the equation C = a + bY, which describes the aggregate consumption function, 'a' stands for

A. the amount of consumption when income is zero.

B. the marginal propensity to consume.

C. the amount of consumption when income is Maximum.

D. the average consumption level.

12. Total consumption divided by total income gives us:

A. the average propensity to consume.

B. the marginal propensity to save.

C. the marginal propensity of expenditure.

D. the marginal propensity to consume.

13 Disposable income is the part of households' income left after the deduction of

A. pension contributions.

B. income tax and social security payments.

C. income tax.

D. savings.

14. As the MPS increases, the multiplier will

A. increase.

B. either increase or decrease depending on the size of the change in investment.

C. remain constant.

D. decrease.

15. In macroeconomics, equilibrium is defined as that point at which

A. planned aggregate expenditure equals aggregate output.

B. planned aggregate expenditure equals consumption.

C. aggregate output equals consumption minus investment.

D. saving equals consumption.

16. The ratio of the change in the equilibrium level of output to a change in some autonomous component of aggregate demand is the

A. elasticity coefficient.

B. multiplier.

C. marginal propensity of the autonomous variable.

D. automatic stabiliser.

17. Assuming there are no taxes (and no foreign sector), if the MPC is .8, the multiplier is

A. 2.5.

B. 8.

C. 5.

D. 2.

18. Assuming the net income tax rate is 25% (and there is no foreign sector), if the MPC is 0.8, the multiplier is

A. 2.5.

B. 8.

C. 5.

D. 2.

19. Assuming there is no foreign sector, if the multiplier is 3, and the net income tax rate is 20%, the MPC is

A. 3/4

B. 4/5

C. 5/6

D. 6/7

20. Assume there is no government or foreign sector. If the MPC is .75, a Rs.20 billion decrease in planned investment will cause aggregate output to decrease by

A. Rs. 80 billion.

B. Rs. 20 billion.

C. Rs. 26.67 billion.

D. Rs. 15 billion.

21. According to the 'paradox of thrift,' increased efforts to save will cause

A. an increase in income and an increase in overall saving.

B. a decrease in income and an overall decrease in saving.

C. a decrease in income but an increase in saving.

D. an increase in income but no overall change in saving.

22. If injections are less than withdrawals at the full-employment level of national income, there is

A. an inflationary gap.

B. equilibrium.

C. a deflationary gap.

D. hyperinflation.

23. The accelerator theory of investment says that induced investment is determined by

A. the rate of change of national income.

B. expectations.

C. the level of national income.

D. the level of aggregate demand.

24. The diagram that shows the money received and paid out by each sector of the economy is the

A. income-price diagram.

B. income-expenditures diagram.

C. circular flow diagram.

D. aggregate demand-aggregate supply diagram.

THE BIG FOUR: UNEMPLOYMENT, INFLATION, BALANCE OF PAYMENTS AND GROWTH

UNEMPLOYMENT

1. If both the no. of unemployed people and the size of the labour force increase by 10,000, then

A. the unemployment rate will remain the same.

B. the unemployment rate will increase.

C. the unemployment rate will decrease.

D. we cannot tell.

2. Which of the following could be a reason for the problem of “lack of jobs” being overestimated:

A. the existence of disguised unemployment

B. people are underemployment

C. people holding only one job (as opposed to multiple jobs)

D. the existence of child labour

3. Which of the following is not a cost of voluntary unemployment?

potential output of the economy is greater than actual output
government loses tax revenue
firms lose (potential) revenues due to operating below capacity
mental stress undergone by the unemployed persons

4. “Because higher wages are less likely to induce people who are structurally or physically unable to participate on the labour force. On the other hand people already on the labour force are more likely to respond to higher wages by accepting jobs.”

The above statement is an answer to which question?

Why is the AJ curve more elastic than the LF curve
Why is the LF curve not totally vertical
Why is the AJ curve not completely vertical
Why is it difficult to completely remove the horizontal distance between the AJ and LF curves

5. Which of the following would constitute sound government policy if you subscribed to the Monetarist view on unemployment?

increase aggregate demand through monetary or fiscal policy
reduce the obstacles to downward wage rigidity (like unions, unemployment benefits, minimum wage legislations etc.)
Reduce the marginal income tax rate (to increase the incentive to work)
All of the the above

6. The persistence of a phenomenon, such as unemployment, even when its causes have been removed is called

The paradox of thrift.
hysteresis.
structural unemployment.
ceteris paribus.

7. Cyclical unemployment is the

A. portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.

B. unemployment that results when people become discouraged about their chances of finding a job so they stop looking for work.

C. portion of unemployment that is due to seasonal factors.

D. unemployment that occurs during recessions and depressions.

8. The natural rate of unemployment is generally thought of as the

A. ratio of the frictional unemployment rate to the cyclical unemployment rate.

B. sum of frictional unemployment and cyclical unemployment.

C. sum of frictional unemployment and structural unemployment.

D. sum of structural unemployment and cyclical unemployment.

9. One of the tenets of the Classical view of the labour market is that the wage adjustments that are necessary to clear the labour market occur

slowly.
instantly.
very infrequently.
very quickly.

10. According to Keynesian economists, those who are not working

have given up looking for a job, but would accept a job at the current wage if one were offered to them.
are too productive to be hired at the current wage.
have chosen not to work at the market wage.
are unable to find a job at the current wage rate.

INFLATION

11. The index used most often to measure inflation is the

consumer price index.
wholesale price index.
student price index.
producer price index.

12. If you were the owner of a cycle manufacturing firm, would you be particularly worried if wage inflation were higher than price inflation?

No. Because you would still be able to sell your goods at the higher price.
Yes. Because the cost of your input is growing faster than the revenue obtained from your output
Yes. Because both price and wage inflation are bad.
No. Because any loss to the firm will be offset by the gain to the workers.

13. Which of the following is not a major cost of inflation:

Resource wastage: as people spend time and money to guard against the “purchasing power erosion” effects of inflation, while firms suffer menu costs (i.e. the costs of frequently issuing “revised” price lists).
Uncertainty: firms defer investment when inflation is high and volatile as the latter complicates predicting future cashflows.
Worsened income inequality: inflation is a regressive tax on the people that does not take into account the taxpayers’ “ability to pay”. As such, there is a redistribution of wealth from the poor to the rich.
Money printing costs: inflation requires more currency notes to be printed and this raises the government’s printing costs.

14. In the long run, the Phillips curve will be vertical at the natural rate of unemployment if

the long-run supply curve is horizontal at the natural rate of inflation.
the long-run aggregate demand curve is vertical at potential GDP.
the long-run aggregate demand curve is horizontal at the natural rate of inflation.
the long-run aggregate supply curve is vertical at potential GDP.

15. According to the monetarists, the measured unemployment rate can

be reduced below the natural rate only in the short run, and not without inflation.
be reduced below the natural rate only in the long run, and only if the price level is constant.
be reduced below the natural rate only in the short run, and only if the price level is constant.
be reduced below the natural rate only in the long run, and not without inflation.

16. If the prices of all inputs seem to be rising, can you be absolutely sure that it is cost-push inflation?

No, because cost-push inflation is caused by an increase in the cost of only one input.
Yes, because that is exactly the definition of cost-push inflation.
No, because such a situation can also be caused by particular demand pressures in the economy.
Yes, because this is exactly what happens in stagflation.

17. The quantity theory of money implies that, provided velocity of money is constant, a given percentage change in the money supply will cause

an equal percentage change in nominal GDP.
a larger percentage change in nominal GDP.
an equal percentage change in real GDP.
a smaller percentage change in nominal GDP.

18. If input prices adjusted very slowly to output prices, the Phillips curve would be

downward sloping.
vertical or nearly vertical.
upward sloping.
horizontal or nearly horizontal.

19. If inflationary expectations increase, the short-run Phillips curve will

become vertical.
become upwarding sloping.
shift to the right.
shift to the left.

BALANCE OF PAYMENTS

20. The record of a country's transactions in goods, services, and assets with the rest of the world is its _____________; while the difference between a country's merchandise exports and its merchandise imports is the ____________.

current account; trade balance.
capital account; balance of payments.
balance of trade; capital account.
balance of payments; balance of trade.

21. Assuming there is no government intervention in the foreign exchange market, which of the following statements must clearly be FALSE, given that?

If the capital account is in surplus, then the current account is likely to be in deficit.
If the current account is in deficit, then the capital account is likely to be in surplus.
If the current account is in balance, the capital account is also likely to be in balance.
None of the above.

22. Which of the following statements is necessarily TRUE?

A country runs a current account deficit if it imports more goods and services than it exports.
The sum of the current and capital accounts must be zero.
If both the current and capital accounts are in surplus, the exchange rate must appreciate.
None of the above.

23. All currencies other than the domestic currency of a given country are referred to as

A. reserve currencies.

B. near monies.

C. foreign exchange.

D. hard currency.

24. Exchange rates that are determined by the unregulated forces of supply and demand are

floating exchange rates.
pegged exchange rates.
fixed exchange rates.
managed exchange rates.

25. If the State Bank of Pakistan reduces the money supply, a floating exchange rate will help in reducing inflation because

as the money supply is decreased, the interest rate will increase, and the price of both Pakistani exports and Pakistani imports will rise.
as the money supply is decreased, the interest rate will increase, and the price of Pakistani exports will rise and the price of Pakistani imports will fall.
as the money supply is decreased, the interest rate will increase, and the price of Pakistani exports will fall and the price of Pakistani imports will rise.
as the money supply is decreased, the interest rate will increase, and the price of Pakistani exports and Pakistani imports will fall.

26. The fall (rise) in value of one currency relative to another is

a floating (fixing) of the currency.
an appreciation (depreciation) of a currency.
a depreciation (appreciation) of a currency.
a strengthening (weakening) of a currency.

27. If purchasing power parity prevails absolutely in a two country world, the real exchange rate between the two countries should be:

A. 1.

B. constantly changing.

C. relatively stable, but not constant

D. none of the above

28. The interest parity equation implies that there is a general tendency for:

exchange rates to be insensitive to the differential rates of interest between countries.
the currencies of relatively low-interest countries to appreciate.
the currencies of relatively high-interest countries to appreciate.
the currencies of relatively low-interest countries to depreciate.

Note that currencies with low rates of interest also typically have low inflation rates. This follows from the Fischer equation which maintains that the nominal interest rate = real interest rate + expected inflation.

29. Which of the following is (are) correct statement(s) about the current account deficit?

A. A current account deficit is bad, if it is being caused by excessive consumer spending

B. A current account deficit is bad, if it is fuelled by high fiscal deficits

C. A current account deficit is good, if it is caused by the excess of productive domestic investment over domestic savings

D. All of the above

30. The J-curve effect refers to the observation that

GDP usually decreases before it increases after a currency depreciation.
GDP usually decreases before it increases after a currency appreciation.
the trade balance usually gets worse before it improves after a currency appreciation.
the trade balance usually gets worse before it improves after a currency depreciation.

31. If Japan exports more direct investment capital abroad than expected, then the yen will tend to

appreciate.
fluctuate more than if exports were lower.
depreciate.
not be affected.

32. Today is Tuesday morning. If currency dealers expect the value of the dollar to fall by 10% on Wednesday, then, ceteris paribus, what will happen by the end of today to the Rs./dollar exchange rate? It will:

Rise by more than 10%.
Rise by exactly 10%.
Fall by less than 10%.
Remain constant.

Hint: Use your common sense. Think of “yourself” as a currency trader and then answer the question, based on your future expectation and the incentive it creates.

GROWTH

33. According to traditional thinking on the subject, which of the following would not generate economic growth in an economy?

A. an increase in the size of the labour force.

B. an increase in the productivity of capital.

C. a move to more capital intensive production methods

D. discovery of a major mineral resource in the country

34. When referring to economic growth, we normally refer to:

A. growth in actual real per capita output

B. growth in potential real per capita output

C. growth in actual nominal per capita output

D. growth in potential real per capita output

35. A variable whose value is determined by the model of which it is a part is termed ___________.

A. endogenous

B. exogenous

C. independent

D. constant

36. An example of capital deepening, given an increasing L, would be:

A. K increases so as to maintain a constant K/L

B. K increases so much that K/L increases

C. K remains constant so that L/K increases

D. K falls, so as to reduce K/L

37. The neo-classical growth model says that:

poor countries should catch-up (or converge to) with richer countries
higher savings (or rates of capital accumulation) cannot raise a country’s steady state growth rate
the steady state growth rate of real output depends on the sum of the (exogenous) growth rates in population and technical progress.
All of the above.

RELATIONSHIPS BETWEEN THE BIG FOUR

38. The length of a business cycle would be measured from

peak to trough.
trough to peak.
peak to peak.
the slump to the expansion.

39. If the economy is in the expansionary phase of the business cycle, aggregate demand is likely to be ______ , unemployment is likely to be ______ , inflation is likely to be ______ , and the current account of the balance of payments is likely to be moving towards ______.

rising; falling; rising; deficit
static; low; rising; deficit
falling; falling; falling; surplus
falling; rising; falling; surplus

40. If the economy is at the peak of the business cycle, aggregate demand is likely to be ______ , unemployment is likely to be ______ , inflation is likely to be ______ , and the current account of the balance of payments is likely to be moving towards ______.

rising; falling; rising; deficit
static; low; rising; deficit
falling; falling; falling; surplus
falling; rising; falling; surplus

41. If the economy is approaching the trough phase of the business cycle, aggregate demand is likely to be ______ , unemployment is likely to be ______ , inflation is likely to be ______, and the current account of the balance of payments is likely to be moving towards ______.

rising; falling; rising; deficit
static; low; rising; deficit
falling; falling; falling; surplus
falling; rising; falling; surplus

42. Which of the following is not true regarding the effects of growth on the balance of payments and vice versa?

A. Generally, growth raises incomes which will translate into higher consumption and higher imports, causing the current account of the BOPs to deteriorate.

B. If growth is “export-led”, it will boost the current account surplus of the BOPs.

C. If the current account deficit reflects an underlying private sector resource deficit, it is likely to be bad for future growth.

D. If the current account reflects rising imports of military equipment by the government, it might not be beneficial for economic growth.

43. A country has high inflation and is running a current account deficit. What should it do in the context of the Salter-Swan diagram?

A. Reduce government spending and revalue the exchange rate

B. Increase government spending and devalue the exchange rate

C. Reduce the money supply and devalue the exchange rate

D. Increase government spending and revalue the exchange rate

FISCAL POLICY AND TAXATION, MONEY AND MONETARY POLICY, IS-LM APPROACH

1. A government’s attempt to reduce its defence expenditure is an example of (i) , while a government effort to raise interest rates is an example of (ii) .

(i) (ii)

monetary policy.

fiscal policy.

incomes policy.

supply-side policy.

fiscal policy.

monetary policy.

incomes policy.

supply-side policy.

2. According to the Laffer curve, as tax rates increase, tax revenues

decrease continuously.
initially decrease and then increase.
rise continuously.
initially increase and then decrease.

3. The government imposes a new income tax legislation under which every male taxpayer must pay 15% of his income as taxes, while every female taxpayer must pay 20% of her income as taxes. Such tax legislation violates which equity principle?

Both horizontal equity and vertical equity
Vertical equity only
Horizontal equity only
Neither

4. A 15% VAT is a(n):

Proportional income tax.
Fixed excise duty.
Ad valorem indirect tax.
None of the above.

5. Tax incidence is the

ultimate distribution of a tax's burden.
measure of the impact the tax has on employment and output.
behaviour of shifting the tax to another party.
structure of the tax.

6. You know that all taxes are distortionary. Under what conditions will this knowledge lead you to oppose the imposition of every single tax in the economy?

If you live in a 1^st best world
If you live in a 2^nd best world
If the tax rates on some of the items are prohibitively high
Either of the above

7. The automatic stabilisation function of fiscal policy ensures that government expenditures ______(i)______ and government revenues _____(ii)_____ during recessions.

(i) (ii)

A. decrease decrease

B. decrease increase

C. increase decrease

D. increase increase

8. Let us say assume the Pakistani government is facing a fiscal deficit. Which of the following would not constitute a possible method of financing this deficit?

printing rupees (borrowing from the central bank)
selling dollars in the foreign exchange market
imposing new taxes or raising existing tax rates
borrowing from an international financial institution

9. Which of the following is not a correct argument against a fiscal policy expansion – say a tax cut – aimed at lifting aggregate demand?

A. The expansion might become pro-cyclical ex-post, given the lag time required to change fiscal policy.

B. Fiscal policy works with a lag, thus a tax cut introduced today would not have an expansionary effect on aggregate demand till many months later.

C. The fiscal expansion would increase distortion in the economy.

D. Lower taxes would increase the government’s borrowing requirement, which in turn would cause interest rates to rise, which in turn would i) cause the exchange rate to appreciate, which in turn would cause the current account to move into deficit, and ii) crowd out private investment.

10. The increase in base money divided by the corresponding induced increase in commercial bank deposits is the

A. bank's line of credit.

B. reserve ratio.

C. current ratio.

D. money multiplier.

11. If the State Bank of Pakistan wished to pursue a 'tight' monetary policy, it would

A. lower the required reserve ratio and the statutory liquidity ratio.

B. lower interest rates.

C. buy government securities on the open market.

D. sell government securities on the open market.

12. An item designated as money that is intrinsically worthless could be

A. a currency note.

B. a silver coin.

C. a barter item.

D. any tradeable commodity.

13. A checking deposit (or current account) held at a commercial bank is considered __________ of that bank.

A. an asset.

B. net worth.

C. a liability.

D. capital.

14. Which of the following activities is one of the responsibilities of the State Bank of Pakistan?

A. Monitoring the financial health of banks and non-bank financial insitutions.

B. Auditing the various agencies and departments of the government.

C. Issuing bonds on international capital markets to finance the fiscal deficit.

D. Loaning money to other countries that are friendly to Pakistan.

15. A bank has excess liquidity reserves to lend but is unable to find a willing borrower. This will __________ the size of the money multiplier.

A. reduce

B. increase

C. have no effect on

D. double

16. The quantity of money demanded increases with income. Thus if income increases, the opportunity cost of holding money must go up in order to reduce money demand and re-establish equilibrium in the money market. This relation is captured by:

A. an upward sloping LM curve.

B. a downward sloping L curve.

C. a downward sloping IS curve.

D. the circular flow of money in the economy.

17. When economists speak of the 'demand for money,' which of the following questions are they asking?

A. How much cash do you wish you could have?

B. How much wealth would you like?

C. How much income would you like to earn?

D. What proportion of your financial assets do you want to hold in non-interest bearing forms?

18. Which of the following will not cause money supply to expand, given a fully floating exchange rate regime and a fixed supply of dollars in the market

The central bank buying foreign currency in the foreign exchange market
redemption of central bank liquidity paper
build-up of commercial banks’ deposits held with the central bank
decrease in the central bank discount rate

19. Which of the following events will lead to a decrease in the demand for money?

An increase in the level of aggregate output.
A decrease in the supply of money.
A decrease in the interest rate.
A decrease in the price level.

20. Which of the following is neither a determinant of the slope of the IS curve nor a determinant of the slope of the LM curve?

the sensitivity of interest rates to investment
the sensitivity of money demand to income
the sensitivity of money demand to interest rates
the sensitivity of income to investment

21. Given a Keynesian world, a cut in taxes coupled with a lower reserve ratio for banks would have what effect on equilibrium income and interest rate?

Both income and the interest rate will remain unchanged
income will come down, but the interest rate will go up
income will go up, but the effect on the interest rate cannot be predicted
interest rates will go down, but the effect on income cannot be predicted

22. If the government increases its spending, but this causes prices to rise, what will “eventually” happen to the equilibrium income and interest rate?

A. Both income and the interest rate will remain unchanged

B. income will come down, but the interest rate will go up

C. income will go up, but the effect on the interest rate cannot be predicted

D. interest rates will go down, but the effect on income cannot be predicted

23. If the income elasticity of money demand and the Keynesian multiplier, both increase in an economy (ceteris paribus), how will the relative effectiveness of monetary and fiscal policy change?

Fiscal policy will become relatively more effective than monetary policy
Fiscal policy will become relatively less effective than monetary policy
The relative effectiveness of fiscal and monetary policy will remain unchanged
Both fiscal and monetary policy will become more effective.

24. The intersection of the IS and LM curves captures:

A. the equilibrium of the demand and supply sides of the economy

B. the equivalence of monetary and fiscal policy

C. joint equilibrium in the goods and money markets

D. all of the above

1. Disposable Income is obtained by subtracting _____________taxes from personal income:

Indirect Taxes
Direct Taxes
Subsidies
None

2. Per capita income is obtained by dividing National Income by:

Total labor Force in the Country
Unemployed Youth in the Country
Total population of that country.
None

3. The investment demand curve shows the relationship between the levels of:

A. Investment and Consumption

B. Consumption and Interest Rate

C. Investment and Interest Rate

D. None

4. The situation in which the imports are greater than exports is termed as:

Trade Surplus
Trade Deficit
Budget Surplus
None

5. Fiscal policy is the government programme with respect to it’s:

Steel Mill Privatization
Unemployment Reduction
Expenditure and Tax revenue
None

6. Imports for any economy are considered as:

A. Injections

B. Leakages

C. Brain Drain

D. None

7. The accelerator is a related concept which formalizes the investment response to:

Consumption
Interest rate
Output
None

8. According to Keynes macroeconomic equilibrium is attained when:

A. Prime Minister is PhD in Macroeconomics

B. Aggregate Demand Equals Aggregate Supply

C. Inflation Exists in Economy.

D. None

9. There are __________________methods of measuring GDP:

Four
Three
Five
None

10. Intermediate goods are meant for:

Direct use by the consumers
further processing
The term do not exist
None

1. Fiscal policy refers to:

The actions of the central bank in controlling the money supply.
The spending and taxing policies used by the government to influence the economy.
The government's regulation of financial intermediaries.
None of the given options.

2. Disposable income is:

Total income plus transfer payments
Total income minus saving.
Total income plus net taxes.
Total income minus net taxes.

3. The deficit tends to decrease when:

GDP decreases slightly.
GDP decreases rapidly.
GDP increases.
GDP remains unchanged.

4. Money or paper currency serves at least ______________ functions:

Four
Three
Five
Seven

5. The economic logic behind granting central banks independence from government in the conduct of monetary policy is:

To eliminate seignior age.
To allow open market operations.
To enhance the credibility of monetary policy.
None of the above.

6. An expansionary fiscal policy can:

Raise the national debt.
Decrease the national debt.
Have no effect on national debt.
None of above.

7. Which is high powered money?

M1
M2
Mo
None

8. There are _________major instruments of monetary policy:

Three
Four
Five
None

9. The rate at which central bank lends to commercial banks is known as:

Reserve rate.
Discount rate.
Open market operation.
None.

10. Identify the three motives of money demand:

Accumulative, speculative, precautionary
Speculative, transaction, precautionary
Precautionary special, transaction
None

1. If, in a fully employed, closed economy, the supply of money and the velocity of circulation of money both increase, then in the short-run.

Unemployment of factors will result
Real national output will expand
The volume of transactions will increase
The average level of prices will rise

2. An increase in the rate of inflation which is not accompanied by any change in the volume of consumer goods sold will automatically increase the:

Revenue from Value Added Tax
Level of company profits
Level of unemployment
Average level of wages

3. The increase in the Public Sector Borrowing Requirement (PSBR) to almost £50 billion this year will automatically lead to:

A higher rate of inflation
A fall in the rate of unemployment
An increase in the National Debt
A deterioration in the Balance of Payments

4. The investment demand curve shows the relationship between the levels of:

Investment and Consumption
Consumption and Interest Rate
Investment and Interest Rate
None

5. According to Classical models, the level of employment is determined primarily by:

a. The level of aggregate demand for goods and services.

b. Prices and wages.

c. Government taxation.

d. Government spending.

6. Which of the following is not an important variable in growth accounting calculations?

Productivity growth
Money supply growth
Labor growth
Capital growth

7. The per-worker production function relates:

Output per worker to capital per worker.
Output per worker to production per worker.
Output per worker to factors of production per worker.
Production per worker to the size of the work force.

8. In a steady-state economy:

Net investment equals depreciation rate.
Per capita capital stock grows at the rate of labour growth.
Per capita capital stock remains constant.
Net investment equals the consumption.

9. The war in Iraq sent oil prices spiraling upwards, resulting in an increase in the overall price level. This is an example of which type of inflation?

Cost-pull
Cost-push
Demand-pull
Demand-push

10. The IMF is an agency charged with providing:

a. Technical assistance to stock market and financial market problems.

b. Loans for post-World War II reconstruction.

c. Short‑term credit for international balance of payments deficits.

d. Bonds denominated in U.S. dollars as a loan to LDCs.

11. In a portfolio investment:

a. Investors are directly involved in managing the operations.

b. As in direct investment, investors export goods and services abroad.

c. Investors transfer the technology to local investors.

d. Investors have no control over operations.

12.Inflation:

Reduces both the purchasing power of the dollar and one's real income
reduces the purchasing power of the dollar and increases one's real income
Reduces the purchasing power of the dollar but may have no impact on one's real income
Increases the purchasing power of the dollar and reduces one's real income

13.One of the tenets of the classical view of the labour market is that the wage adjustments that are necessary to clear the labour market occur:

Slowly.
Quickly.
Very infrequently.
Instantly.

14.Those that 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.
Both monetary and fiscal policy will have an effect on output and employment.
Fiscal, but not monetary policy will have an effect on output and employment.
Neither monetary nor fiscal policy will have an effect on output and employment.

15.Potential GDP is the level of aggregate output:

That can be produced if structural unemployment is zero.
That can be produced at a zero unemployment rate.
That can be sustained in the long run, if the inflation rate is zero.
That can be sustained in the long run without inflation.

16.Which school of economic thought suggested that one possible cause of inflation was a 'push' from the cost side?

New classical economists.
Monetarists.
Marxists.
Keynesians.

17.An unspoken agreement between workers and firms that the firm will not cut wages is known as:

An explicit contract.
An implicit or social contract.
Employment-at-will.
A relative-wage contract.

18.To offset the downswing in the business cycle, the government announces a major increase in public expenditure.

Technological Unemployment
Demand Deficient Unemployment
Real Wage Unemployment
Regional Unemployment

19.The government puts pressure on trade unions to make pay claims which are below the increase in productivity over the past year.

Frictional Unemployment
Technological Unemployment
Structural Unemployment
Real Wage Unemployment

20. In which case is total expenditure in an economy not equal to total income?

a. If total saving is larger than total investment

b. If net exports are not zero

c. If inventory investment is negative

d. None of the above--they are always equal

Question # 1 of 15 ( Start time: 02:34:04 AM ) Total Marks: 1
Which of the following is NOT regarded as a source of inefficiency in monopolistic competition?
Select correct option:

Product diversity.
Excess capacity.
The fact that price exceeds marginal cost.
The fact that long-run average cost is not minimized.

Question # 2 of 15 ( Start time: 02:34:25 AM ) Total Marks: 1
An important difference between the approaches of the classical and Keynesian economists use to achieve a macroeconomic equilibrium is that:
Select correct option:

Keynesian economists actively promote the use of fiscal policy; the classical economists do not
Keynesian economists actively promote the use of monetary policy to improve aggregate economic performance; classical economists do not
classical economists believe that monetary policy will certainly affect the level of output; Keynesians believe that money growth affects only prices
classical economists believe that fiscal policy is an effective tool for achieving economic stability; Keynesians do not

Question # 3 of 15 ( Start time: 02:34:43 AM ) Total Marks: 1
If one firm increases its price, in the kinked demand curve model then:
Select correct option:

Other firms will also reduce their price.
Other firms will compete on a non-price basis.
Other firms will not increase their price.
Other firms will not change their price.

Question # 4 of 15 ( Start time: 02:36:09 AM ) Total Marks: 1
The price elasticity of demand measures the responsiveness of quantity demanded to:
Select correct option:

Quantity demanded.
Quantity supplied.
Price.
Output.

Question # 5 of 15 ( Start time: 02:36:30 AM ) Total Marks: 1
What is the reason of leftward shift in the demand curve for product A?
Select correct option:

A decrease in income if A is an inferior good.
An increase in income if A is a normal good.
An increase in the price of a product that is a close substitute for A.
An increase in the price of a product that is complementary to A.

Question # 6 of 15 ( Start time: 02:36:50 AM ) Total Marks: 1
The law of diminishing marginal utility:
Select correct option:

Refers to the decrease in total satisfaction as more units of the good are consumed.
Refers to the fall in additional satisfaction created by consumption of more and more.
Refers to the units of a good.
Refers to the idea that total utility is negative.

Question # 7 of 15 ( Start time: 02:37:04 AM ) Total Marks: 1
Which of the following is TRUE about L-shaped isoquant?
Select correct option:

It is impossible.
It indicates that the firm could switch from one output to another costlessly.
It indicates that the firm could not switch from one output to another.
It indicates that capital and labor cannot be substituted for each other in production.

Question # 8 of 15 ( Start time: 02:37:31 AM ) Total Marks: 1
A nation's production possibilities curve is "bowed out" from the origin because:
Select correct option:

Resources are not perfectly shiftable between productions of the two goods.
Capital goods and consumer goods utilize the same production technology.
Resources are scarce relative to human wants.
Opportunity costs are decreasing.

Question # 9 of 15 ( Start time: 02:37:51 AM ) Total Marks: 1
Which of the following might be considered to be a characteristic of a planned economy?
Select correct option:

All income is completely evenly distributed.
Price is relatively unimportant as a means of allocating resources.
Goods and services produced reflect consumer sovereignty.
There is no incentive for people to work hard.

Question # 10 of 15 ( Start time: 02:38:11 AM ) Total Marks: 1
Which of the following statements describes the presence of diminishing returns.
Select correct option:

The marginal product of a factor is positive and rising.
The marginal product of a factor is positive but falling.
The marginal product of a factor is falling and negative.
The marginal product of a factor is constant.

Question # 11 of 15 ( Start time: 02:38:39 AM ) Total Marks: 1
The opportunity cost of an action:
Select correct option:

Will be the same for everyone.
Is the value of the next best alternative.
Measures the undesirable aspects of that action.
Is the average amount of unhappiness experienced by everyone involved.

Question # 12 of 15 ( Start time: 02:38:59 AM ) Total Marks: 1
When oligopolists collude, they are able to:
Select correct option:

Raise price, but not restrict output
Raise price and restrict output, but not attain the monopoly profit
Raise price and restrict output, and therefore attain the monopoly profit
Restrict output, but not raise price

Question # 13 of 15 ( Start time: 02:39:23 AM ) Total Marks: 1
The study of economics basically focuses on:
Select correct option:

For whom resources are allocated to increase efficiency.
How society spends the income of individuals.
How scarce resources are allocated to fulfill society's goals.
What scarce resources are used to produce goods and services.

Question # 14 of 15 ( Start time: 02:39:36 AM ) Total Marks: 1
A demand schedule is best described as:
Select correct option:

A numerical tabulation of the quantity demanded of a good at different prices, ceteris paribus.
A graphical representation of the law of demand.
A systematic listing of all the variables that might conceivably bring about a change in demand.
A symbolic representation of the law of demand: P, Q and P, Q.

Question # 15 of 15 ( Start time: 02:39:50 AM ) Total Marks: 1
At any given point on an indifference curve, the the slope is equal to:
Select correct option:

Unity.
The marginal rate of substitution.
The consumer's marginal utility.
None of the given options.

................

Question # 1 of 15 ( Start time: 04:33:03 AM ) Total Marks: 1
In the classical model, given an initial aggregate equilibrium at full employment, the long run effect of an increase in government spending is;
Select correct option:

An increase in the price level
An upward shift of the aggregate demand curve
A constant level of output
All of the above

Question # 2 of 15 ( Start time: 04:33:19 AM ) Total Marks: 1
Graphically, marginal revenue is defined as:
Select correct option:

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 # 3 of 15 ( Start time: 04:33:45 AM ) Total Marks: 1
Which of the following shows the condition for consumer's equilibrium?
Select correct option:

It can be expressed as marginal utility per dollar spent on each good being equalized across all goods.
It can be expressed as the ratio of (marginal utility per unit of the good)/(price per unit of the good) being equalized across all goods.
It can be expressed as the ratio of marginal utilities being equated to the ratio of prices for all possible pairs of goods.
All of the given options.

Question # 4 of 15 ( Start time: 04:34:09 AM ) Total Marks: 1
The demand curve facing a perfectly competitive firm is:
Select correct option:

The same as its average revenue curve but not the same as its marginal revenue curve.
The same as its average revenue curve and its marginal revenue curve.
The same as its marginal revenue curve but not its average revenue curve.
Not the same as either its marginal revenue curve or its average revenue curve.

Question # 5 of 15 ( Start time: 04:34:36 AM ) Total Marks: 1
According to Classical Economists, Economy always remains:
Select correct option:

At full employment level.
Below full employment level.
Above full employment level.
None of the given options.

Question # 6 of 15 ( Start time: 04:35:58 AM ) Total Marks: 1
A market with few entry barriers and with many firms that sell differentiated products is known as:
Select correct option:

Purely competitive
A monopoly
Monopolistically competitive
Oligopolistic

Question # 7 of 15 ( Start time: 04:36:11 AM ) Total Marks: 1
A market is said to be in equilibrium when:
Select correct option:

Supply equals Price.
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 # 8 of 15 ( Start time: 04:36:28 AM ) Total Marks: 1
Oligopoly differs from monopolistic competition in that an oligopoly includes:
Select correct option:

Product differentiation.
No barriers to entry.
Barriers to entry.
Downward sloping demand curves facing the firm.

Question # 9 of 15 ( Start time: 04:36:49 AM ) Total Marks: 1
Assume that the current market price is below the market clearing level. We would expect:
Select correct option:

A surplus to accumulate.
Downward pressure on the current market price.
Upward pressure on the current market price.
Lower production during the next time period.

Question # 10 of 15 ( Start time: 04:37:04 AM ) Total Marks: 1
Demand is elastic when the elasticity of demand is:
Select correct option:

Greater than 0.
Greater than 1.
Less than 1.
Less than 0.

Question # 11 of 15 ( Start time: 04:37:16 AM ) Total Marks: 1
Business-cycle instability is best corrected through government policies is a primary implication of:
Select correct option:

Classical Economists.
Monetarist.
J.M. Keynes.
New Classical Economists.

Question # 12 of 15 ( Start time: 04:38:41 AM ) Total Marks: 1
The numerical measurement of a consumer's preference is called:
Select correct option:

Satisfaction.
Use.
Pleasure.
Utility.

Question # 13 of 15 ( Start time: 04:38:57 AM ) Total Marks: 1
If Competitive markets do not achieve equitable outcomes, then it is called:
Select correct option:

Imperfect market structure.
Market failure.
Not rational consumers.
None of the given options.

Question # 14 of 15 ( Start time: 04:40:13 AM ) Total Marks: 1
Aggregate demand curve slopes downward for both Keynes and classicals.
Select correct option:

True.
False.

Question # 15 of 15 ( Start time: 04:41:38 AM ) Total Marks: 1
The law of diminishing returns assumes:
Select correct option:

There are no fixed factors of production.
There are no variable factors of production.
Utility is maximised when marginal product falls.
Some factors of production are fixed.

..................

Question # 1 of 15 ( Start time: 04:49:33 AM ) Total Marks: 1
Revenue is equal to:
Select correct option:

Price times quantity.
Price times quantity minus total cost.
Price times quantity minus average cost.
Price times quantity minus marginal cost.

Question # 2 of 15 ( Start time: 04:39:40 AM ) Total Marks: 1
Which of the following is TRUE about L-shaped isoquant?
Select correct option:

It is impossible.
It indicates that the firm could switch from one output to another costlessly.
It indicates that the firm could not switch from one output to another.
It indicates that capital and labor cannot be substituted for each other in production.

Question # 3 of 15 ( Start time: 04:50:04 AM ) Total Marks: 1
The correlation between an asset's real rate of return and its risk (as measured by its standard deviation) is usually:
Select correct option:

Positive.
Strictly linear.
Flat.
Negative.

Question # 4 of 15 ( Start time: 04:50:32 AM ) Total Marks: 1
When the demand curve is downward sloping, marginal revenue is:
Select correct option:

Equal to price.
Equal to average cost.
Less than price.
More than price.

Question # 5 of 15 ( Start time: 04:50:45 AM ) Total Marks: 1
The classical economists thought that the economy would quickly overcome any short run instability because:
Select correct option:

Price level and quantity were flexible
Prices would get stuck at a low level
The long run aggregate supply would shift to the left
Prices and wages were flexible

Question # 6 of 15 ( Start time: 04:51:01 AM ) Total Marks: 1
Suppose we find that the cross-price elasticity of demand for two products is a negative number. We know that:
Select correct option:

The two goods are normal goods.
The two goods are inferior goods.
The two goods are substitutes.
The two goods are complements.

Question # 7 of 15 ( Start time: 04:51:19 AM ) Total Marks: 1
In the long run, profits will equal zero in a competitive market because of:
Select correct option:

The availability of information.
Identical products being produced by all firms.
Constant returns to scale.
Free entry and exit

Question # 8 of 15 ( Start time: 04:51:36 AM ) Total Marks: 1
Which of the following is a correct statement about the substitution effect?
Select correct option:

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 # 9 of 15 ( Start time: 04:51:54 AM ) Total Marks: 1
A price taker is:
Select correct option:

A firm that accepts different prices from different customers.
A monopolistically competitive firm.
A firm that cannot influence the market price.
An oligopolistic firm.

Question # 10 of 15 ( Start time: 04:52:17 AM ) Total Marks: 1
If the demand curve for a good is downward sloping, then the good:
Select correct option:

Must be normal.
Must be inferior.
Must be Giffen.
Can be normal or inferior.

Question # 11 of 15 ( Start time: 04:52:33 AM ) Total Marks: 1
If the equilibrium price of bread is Rs. 3 and the government imposes Rs. 2 price ceiling on the price of bread then:
Select correct option:

More bread will be produced to meet the increased demand.
There will be a shortage of bread.
The demand for bread will decrease because suppliers will reduce their supply.
A surplus of bread will emerge.

Question # 12 of 15 ( Start time: 04:52:47 AM ) Total Marks: 1
At the equilibrium price:
Select correct option:

There will be a shortage.
There will be neither a shortage nor a surplus.
There will be a surplus.
There are forces that cause the price to change.

Question # 13 of 15 ( Start time: 04:53:03 AM ) Total Marks: 1
The point at which AC intersects MC is where:
Select correct option:

AC is decreasing.
MC is at its minimum.
AC is at its minimum.
AC is at its maximum.

Question # 14 of 15 ( Start time: 04:53:19 AM ) Total Marks: 1
Microeconomics is the branch of economics that deals with which of the following topics?
Select correct option:

The behavior of individual consumers
Unemployment and interest rates
The behavior of individual firms and investors
The behavior of individual consumers and behavior of individual firms and investors.

Question # 15 of 15 ( Start time: 04:53:37 AM ) Total Marks: 1
Which one of the following is most likely to lead to an increase in aggregate demand? If there is increase in:
Select correct option:

Government tax revenues
Household savings
Business capital investment
Demand for imports

.............

Question # 1 of 15 ( Start time: 04:58:12 AM ) Total Marks: 1
If two goods were perfect complements, their indifference curves would be:
Select correct option:

Straight lines
L-shaped
Rectangular hyperbolas
Parabolic

Question # 2 of 15 ( Start time: 04:58:26 AM ) Total Marks: 1
A ***** of modern economists who believe that markets clear very rapidly and that expanding the money supply will always increase prices rather than employment are the:
Select correct option:

Keynesians
Monetarists
New Classical school
Post-Keynesians

Question # 3 of 15 ( Start time: 04:58:39 AM ) Total Marks: 1
The cross elasticity of demand of complements goods is:
Select correct option:

Less than 0.
Equal to 0.
Greater than 0.
Between 0 and 1.

Question # 4 of 15 ( Start time: 04:58:52 AM ) Total Marks: 1
In the complete classical model, a rightward shift of the labor supply curve will:
Select correct option:

Decrease the price level and increase the nominal wage
Decrease the nominal wage and increase the price leve
Decrease both the price level and the nominal wage
Increase both the price level and the nominal wage

Question # 5 of 15 ( Start time: 04:59:19 AM ) Total Marks: 1
In economics, the "long run" is a time period in which:
Select correct option:

All inputs are variable.
All inputs are paid for.
All outputs are determined.
All loans are repaid.

Question # 6 of 15 ( Start time: 04:59:46 AM ) Total Marks: 1
If a firm operates in a perfectly competitive market, then it will most likely:
Select correct option:

Advertise its product on television.
Have difficult time obtaining information about the market price.
Settle for whatever price is offered.
Have an easy time keeping other firms out of the market.

Question # 7 of 15 ( Start time: 05:00:04 AM ) Total Marks: 1
Which of the following is considered to be a variable cost in the long run?
Select correct option:

Expenditures for wages.
Expenditures for research and development.
Expenditures for raw materials.
All of the given Costs.

Question # 8 of 15 ( Start time: 05:00:21 AM ) Total Marks: 1
The law of diminishing returns assumes:
Select correct option:

There are no fixed factors of production.
There are no variable factors of production.
Utility is maximised when marginal product falls.
Some factors of production are fixed.

Question # 9 of 15 ( Start time: 05:00:29 AM ) Total Marks: 1
According to the law of diminishing marginal utility, as the consumption of particular good increases:
Select correct option:

Total utility increases.
Marginal utility increases.
Total utility decreases.
Marginal utility decreases.

Question # 10 of 15 ( Start time: 05:00:45 AM ) Total Marks: 1
If the equilibrium price of bread is Rs. 3 and the government imposes Rs. 2 price ceiling on the price of bread then:
Select correct option:

More bread will be produced to meet the increased demand.
There will be a shortage of bread.
The demand for bread will decrease because suppliers will reduce their supply.
A surplus of bread will emerge.

Question # 11 of 15 ( Start time: 05:00:52 AM ) Total Marks: 1
If there is a price ceiling, there will be:
Select correct option:

Shortages.
Surpluses.
Equilibrium.
None of the given options.

Question # 12 of 15 ( Start time: 05:01:05 AM ) Total Marks: 1
The demand curve faced by an individual firm in a competitive market is:
Select correct option:

Upward sloping.
Downward sloping.
Horizontal.
Vertical.

Question # 13 of 15 ( Start time: 05:01:25 AM ) Total Marks: 1
The market structure in which there is interdependence among firms is:
Select correct option:

Monopolistic competition.
Oligopoly.
Perfect competition.
Monopoly.

Question # 14 of 15 ( Start time: 05:01:41 AM ) Total Marks: 1
A rational person does not act unless:
Select correct option:

The action is ethical.
The action produces marginal costs that exceeds marginal benefits.
The action produces marginal benefits that exceeds marginal costs.
The action makes money for the person.

Question # 15 of 15 ( Start time: 05:02:06 AM ) Total Marks: 1
The percentage change in quantity demanded given a percentage change in consumer's income is known as:
Select correct option:

Price elasticity of demand.
Income elasticity of demand.
Supply price elasticity.
Cross price elasticity.

...................

Question # 1 of 15 ( Start time: 05:07:44 AM ) Total Marks: 1
What is the reason of leftward shift in the demand curve for product A?
Select correct option:

A decrease in income if A is an inferior good.
An increase in income if A is a normal good.
An increase in the price of a product that is a close substitute for A.
An increase in the price of a product that is complementary to A.

Question # 2 of 15 ( Start time: 05:07:59 AM ) Total Marks: 1
If utility remains the same for original and new combination of goods consumed, the effect of a change in the price of a good on the quantities consumed will be called as:
Select correct option:

Substitution effect.
Real income effect.
Income effect.
Budget effect.

Question # 3 of 15 ( Start time: 05:08:13 AM ) Total Marks: 1
The aggregate supply curve is the relationship between the:
Select correct option:

Price level and the real domestic output purchased
Price level and the real domestic output produced
Price level which producers are willing to accept and the price level purchasers are willing to pay
Real domestic output purchased and the real domestic output produced

Question # 4 of 15 ( Start time: 05:08:28 AM ) Total Marks: 1
A Natural Monopoly is most likely to exist when:
Select correct option:

There are large barriers to entry.
There are long term patents.
There are large economies of scale.
There is government regulation of the industry.

Question # 5 of 15 ( Start time: 05:08:44 AM ) Total Marks: 1
This market situation is much like a pure monopoly except that its member firms tend to cheat on agreed price and output strategies. What is it?
Select correct option:

Duopoly.
Cartel.
Market sharing monopoly.
Natural monopoly

Question # 6 of 15 ( Start time: 05:09:03 AM ) Total Marks: 1
The price elasticity of demand measures the responsiveness of quantity demanded to:
Select correct option:

Quantity demanded.
Quantity supplied.
Price.
Output.

Question # 7 of 15 ( Start time: 05:09:17 AM ) Total Marks: 1
If there is a price ceiling, there will be:
Select correct option:

Shortages.
Surpluses.
Equilibrium.
None of the given options.

Question # 8 of 15 ( Start time: 05:09:29 AM ) Total Marks: 1
Which of the following is TRUE about L-shaped isoquant?
Select correct option:

It is impossible.
It indicates that the firm could switch from one output to another costlessly.
It indicates that the firm could not switch from one output to another.
It indicates that capital and labor cannot be substituted for each other in production.

Question # 9 of 15 ( Start time: 05:09:36 AM ) Total Marks: 1
When government sets the price of a good and that price is below the equilibrium price, the result will be:
Select correct option:

A surplus of the good.
A shortage of the good.
An increase in the demand for the good.
A decrease in the supply of the good.

Question # 10 of 15 ( Start time: 05:10:07 AM ) Total Marks: 1
Which of the following would cause the short run aggregate supply curve to shift to the left, but have no effect over the long run aggregate supply?
Select correct option:

The amount of factors of production (such as labor and capital) increase
The amount of factors of production (such as labor and capital) decrease
Prices of inputs (such as wages or oil prices) increase
Prices of inputs (such as wages or oil prices) decrease

Question # 11 of 15 ( Start time: 05:10:37 AM ) Total Marks: 1
The long run aggregate supply will shift to the right whenever:
Select correct option:

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 # 12 of 15 ( Start time: 05:10:52 AM ) Total Marks: 1
unlike the classical economists, Keynes believed that the economy could get stuck in the short run for a significant period of time because:
Select correct option:

There was insufficient aggregate supply
There was insufficient aggregate demand
The self correcting mechanisms worked too quickly
The government purchased too many goods and services

Question # 13 of 15 ( Start time: 05:11:43 AM ) Total Marks: 1
The principle economic difference between a competitive and a non-competitive market is:
Select correct option:

The number of firms in the market.
The extent to which any firm can influence the price of the product.
The size of the firms in the market.
The annual sales made by the largest firms in the market.

Question # 14 of 15 ( Start time: 05:11:58 AM ) Total Marks: 1
The law of diminishing marginal utility indicates that the demand curve is:
Select correct option:

Vertical.
U shaped.
Upward sloping.
Downward sloping.

Question # 15 of 15 ( Start time: 05:12:12 AM ) Total Marks: 1
The total utility curve for a risk neutral person will be:
Select correct option:

Straight line.
Convex.
Concave.
None of the given options.

1 A study of how increases in the minimum wage rate will affect the national unemployment rate is an example of

A. descriptive economics.

B. normative economics.

C.     macroeconomics.

D.     microeconomics.

2   Aggregate supply is the total amount

A.     of goods and services produced in an economy.

B.     produced by the government.

C.     of products produced by a given industry.

D.     of labour supplied by all households.

3   The total demand for goods and services in an economy is known as

A.     aggregate demand.

B.     national demand.

C.     gross national product.

D.     economy-wide demand.

4   Deflation is

A.     an increase in the overall level of economic activity.

B.     an increase in the overall price level.

C.     a decrease in the overall level of economic activity.

D.    a decrease in the overall price level.

5   A recession is

A.     a period of declining prices.

B.     a period during which aggregate output declines.

C.     a period of declining unemployment.

D.     a period of falling trade volumes.

6   Involuntary unemployment means that

A.     people are not willing to work at the going wage rate.

B.     at the going wage rate, there are people who want to work but cannot find work.

C.     there are some people who will not work at the going wage rate.

D.     there is excess demand in the labour market.

7   A cut in the income tax rate designed to encourage household consumption is an example of

A.     expansionary demand-side policy.

B.     contractionary demand-side policy.

C.     expansionary supply-side policy.

D.     contractionary supply-side policy.

8   A cut in the tax rate designed to reduce the cost of capital and hence encourage business investment is an example of

A.     expansionary demand-side policy.

B.     contractionary demand-side policy.

C.     expansionary supply-side policy.

D.     contractionary supply-side policy.

9   Macroeconomics is the branch of economics that deals with

A.     the economy as a whole.

B.     imperfectly competitive markets.

C.     only the long run adjustments to equilibrium in the economy.

D.     the functioning of individual industries and the behaviour of individual decision-making units - business firms and households.

10   A group of modern economists who believe that price and wage rigidities do not provide the only rationale for macroeconomic policy activism are called:

A.     New-Keynesians.

B.     Keynesians.

C.     Monetarists.

D.     The Classical school.

11   Macroeconomic theory that emphasised the theories of Keynes and de-emphasised the Classical theory developed as the result of the failure of

A.     economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s.

B.     fine tuning during the 1960s.

C.     the economy to grow at a rapid rate during the 1950s.

D.     the Classical model to explain the prolonged existence of high unemployment during the Great Depression.

12   Keynes believed falling wages were not a solution to persistent unemployment because

A.     falling wages demoralised workers.

B.     this would reduce the purchasing power of labourers as consumers. This in turn would bleaken firms’ prospects of selling more goods, hence inducing them to cut their investment (and hence labour) demand.

C.     the unemployment was caused by frictional and structural factors.

D.     wages would fall more than required to clear the labour market.

13   The practice of using fiscal and monetary policy to stabilise the economy is known as

A.     fine tuning of demand

B.     monetarism

C.     laissez faire economics

D.     supply side economics

14   According to Classical models, the level of employment is determined primarily by

A.     interest rates.

B.     the level of prices.

C.     the level of aggregate supply in the economy

D.     the level of aggregate demand for goods and services.

15   According to Keynes, the level of employment is determined by

A.     interest rates.

B.     the level of prices.

C.     the level of aggregate supply in the economy

D.    the level of aggregate demand for goods and services.

16   According to the Classical model, unemployment

A.     could not persist because wages would fall to eliminate the excess supply of labour.

B.     could persist for long periods of time because wages are not flexible.

C.     could be eliminated only through government intervention.

D.     could never exist.

17   To get the economy out of a slump, Keynes believed that the government should

A.     increase both taxes and government spending.

B.     increase taxes and/or decrease government spending.

C.     cut both taxes and government spending.

D.     decrease taxes and/or increase government spending.

18   Aggregate demand refers to the total demand for all domestically produced goods and services in an economy generated from

A.     the household and government sectors.

B.     the household sector.

C.     all sectors except the rest of the world.

D.    all sectors including the rest of the world.

19   Government policies that focus on increasing production rather than demand are called:

A.     fiscal policies.

B.     monetary policies.

C.     incomes policies.

D.    supply-side policies.

20   Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are

A.     market prices.

B.     sticky prices.

C.     fixed prices.

D.     regulatory prices.

21   The economists who emphasised wage-flexibility as a solution for unemployment were

A.     Monetarists.

B.     New-Keynesians.

C.     Classical economists.

D.     Keynesians.

22   According to the Classical economists, the economy

A.     requires fine tuning to reach full employment.

B.     should not be left to market forces.

C.     will never be at full employment.

D.    is self correcting.

23   Monetarism became popular because it was able to, unlike Classical or Keynesian economics, explain

A.     stagflation in the late 1970s.

B.     demand-pull inflation in the 1960s.

C.     low growth rates in the 1950s.

D.     the prolonged existence of high unemployment during the Great Depression.

24   Keynes’ explanation for low firm investment during the Great Depression was

A.     low savings, which placed a constraint on investment

B.     high real borrowing rates, which discouraged firm borrowing

C.     high savings, which left consumers with less money to spend on goods and serviced produced by firms

D.     A permanent change in Europe’s corporate ownership structures.

25   Rapid increases in the price level during periods of recession or high unemployment are known as

A.     slump.

B.     stagnation.

C.     stagflation.

D.     inflation.

Question No: 1 ( Marks: 1 ) - Please choose one

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    ( Marks: 1 )    - Please choose one

The concave shape of the production possibilities curve for two goods X and Y illustrates:

       ► Increasing opportunity cost for both goods.
       ► Increasing opportunity cost for good X but not for good Y.
       ► Increasing opportunity cost for good Y but not for good X.
       ► Constant opportunity cost for both goods.

Question No: 3    ( Marks: 1 )    - Please choose one

If the quantity demanded of a product is greater than the quantity supplied of a product, then:

       ► There is a shortage of the product.
       ► There is a surplus of the product.
       ► The product is a normal good.
       ► The product is an inferior good.

Question No: 4    ( Marks: 1 )    - Please choose one
The supply curve is upward-sloping because:

       ► As the price increases, consumers demand less.
       ► As the price increases, suppliers can earn higher levels of profit or justify higher marginal costs to produce more.
       ► None of the given options.
       ► As the price increases, so do costs.

Question No: 5    ( Marks: 1 )    - Please choose one
When an industry's raw material costs increase, other things remaining the same:
       ► The supply curve shifts to the right.
       ► Output increases regardless of the market price and the supply curve shifts upward.
       ► Output decreases and the market price also decrease.
       ► The supply curve shifts to the left.

Question No: 6    ( Marks: 1 )    - Please choose one
When the price of petrol rises by 12%, the quantity of petrol purchased falls by 8%. This shows that the demand for petrol is:

solution= Ped= % change in Q demand /% change in Q Price= 10%/12%= 0.5 where e>1 elastic

e<1 inelastic

       ► Perfectly elastic.
       ► Unit elastic.
       ► Elastic.
       ► Inelastic.

Question No: 7    ( Marks: 1 )    - Please choose one
Suppose price rises from $15 to $17 and quantity demanded decreases by 20%. We can conclude:

       ► Demand is unitary elastic.
       ► Demand is elastic.
       ► The elasticity of demand is 2.
       ► Total revenue will decrease.

Question No: 8    ( Marks: 1 )    - Please choose one
"Utility" is most closely related to the term:

       ► Useless.
       ► Require.
       ► Necessary.
       ► Satisfaction.

Question No: 9    ( Marks: 1 )    - Please choose one
When the marginal utility of a good is zero, this implies that:

       ► The consumer would not spend any additional income to buy more of that good.

       ► Consumption of additional units would have positive marginal utility.
       ► Total utility is minimized.
       ► Total utility is also zero.

Question No: 10    ( Marks: 1 )    - Please choose one
When the substitution effect of a lowered price is counteracted by the income effect, the good in question is:

       ► An inferior good.

       ► A substitute good.

       ► An independent good.

       ► A normal good.

Question No: 11    ( Marks: 1 )    - Please choose one
Diminishing marginal returns implies:

       ► Decreasing marginal costs.

       ► Increasing marginal costs.

       ► Decreasing average variable costs.

       ► Decreasing average fixed costs.

Question No: 12    ( Marks: 1 )    - Please choose one
A graph showing all the combinations of capital and labour available for a given total cost is the:
       ► Budget constraint.
       ► Expenditure set.
       ► Isoquant.
       ► Isocost.

Question No: 13    ( Marks: 1 )    - Please choose one
When an isocost line is just tangent to an isoquant, we know that:
       ► Output is being produced at minimum cost.

       ► Output is not being produced at minimum cost.

       ► The two products are being produced at the medium input cost to the firm.

       ► The two products are being produced at the highest input cost to the firm.

Question No: 14    ( Marks: 1 )    - Please choose one
In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive but can be resold and are therefore an example of: mid question
       ► A fixed cost.
       ► A variable cost.
       ► An implicit cost.
       ► An opportunity cost.

Question No: 15    ( Marks: 1 )    - Please choose one
The good produced by a monopoly:

       ► Has perfect substitutes.
       ► Has no substitutes at all.
       ► Has no close substitutes.
       ► Can be easily duplicated.

Question No: 16    ( Marks: 1 )    - Please choose one
Welfare economics is the branch of economics which deals with:

       ► Positive issues.
       ► Normative issues.
       ► Micro issues.
       ► Macro issues.

Question No: 17    ( Marks: 1 )    - Please choose one
The oligopoly model which predicts that oligopoly prices will tend to be very rigid is the:

       ► Cournot model.
       ► Cobweb model.
       ► Dominant firm model.
       ► Kinked demand model.

Question No: 18    ( Marks: 1 )    - Please choose one
The kinked demand curve model is based on which of the following assumptions?
       ► Each firm considers its rival's output to be fixed.
       ► Each firm considers its rival's price to be fixed.
       ► Each firm believes rival will match all price changes.
       ► None of the given options.

Question No: 19    ( Marks: 1 )    - Please choose one
Which of the following is NOT conducive to the successful operation of a cartel?

       ► Market demand for the good is relatively inelastic.
       ► The cartel supplies all of the world's output of the good.
       ► Cartel members have substantial cost advantages over non-member producers.
       ► The supply of non-cartel members is very price elastic.

Question No: 20    ( Marks: 1 )    - Please choose one
Cartels are:
       ► Organizations of independent firms, producing similar products, that work together to raise prices and restrict output.
       ► Organizations of interdependent firms, producing similar products, that work together to raise prices and restrict output.
       ► Organizations of independent firms, producing different products, that work together to raise prices and restrict output.
       ► Considered as part of monopolistic competition.

Question No: 21    ( Marks: 1 )    - Please choose one
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: 22    ( Marks: 1 )    - Please choose one
A reason why some economists basically ignore the short run is because they believe that the economy:

       ► Has self-correcting mechanisms.       (no sure)

       ► Can only be graphed with a horizontal curve.

       ► Never needs correction.
      ► None of the given options.

Question No: 23    ( Marks: 1 )    - Please choose one
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: 24    ( Marks: 1 )    - Please choose one
A primary implication of Keynesian economics is:

       ► The best government is the least government.
       ► Flexible wages and prices ensure full employment.
       ► Monetary policy is far superior to fiscal policy.
       ► Business-cycle instability is best corrected through government policies.

Question No: 25    ( Marks: 1 )    - Please choose one
The economic analysis most closely related to Say's Law is:

       ► Short-run aggregate market.

       ► Production possibilities.

       ► Imperfect competition.

       ► Circular flow.

Question No: 26    ( Marks: 1 )    - Please choose one
Which of the following is NOT a reason of downward slope of aggregate demand curve?

       ► The exchange-rate effect.
       ► The wealth effect.
      ► The classical dichotomy / monetary neutrality effects.
       ► The interest-rate effect.

Question No: 27    ( Marks: 1 )    - Please choose one
The upward-sloping aggregate supply curve indicates that:

       ► As firms increase their level of output, the cost of producing an extra unit increases.

       ► An increase in aggregate demand causes little, if any increase in real output the economy is operating in the long run.

       ► Any increase in aggregate demand causes the output of producers to fall because the general price level rises.
       ► None of the given options.

Question No: 28    ( Marks: 1 )    - Please choose one
An important difference between the Classical and Keynesian approaches to achieve a macroeconomic equilibrium is that:

       ► Keynesian economists actively promote the use of fiscal policy while the classical economists do not.
       ► Keynesian economists actively promote the use of monetary policy to improve aggregate economic performance while the classical economists do not.
       ► Classical economists believe that monetary policy will certainly affect the level of output while the Keynesians believe that money growth affects only prices.
       ► Classical economists believe that fiscal policy is an effective tool for achieving economic stability while the Keynesians do not.

Question No: 29    ( Marks: 1 )    - Please choose one
According to classical economists, the:

       ► Aggregate demand curve is downward sloping and the aggregate supply curve is vertical.
       ► Aggregate demand curve is downward sloping and the aggregate supply curve is upward sloping.
       ► Aggregate demand curve is vertical and the aggregate supply curve is upward sloping.
       ► Aggregate demand curve is vertical and the aggregate supply curve is horizontal.

Question No: 30    ( Marks: 1 )    - Please choose one
How many methods are there to measure Gross Domestic Product?
       ► Three.
       ► Four.

       ► Five.
       ► Six.

Question No: 31    ( Marks: 1 )    - Please choose one
Which of the following is a flow variable?
       ► The value of the house in which you live.
       ► The balance in your savings account.
       ► Your monthly consumption on food items.
       ► The number of carrots in your refrigerator at the beginning of the month.

Question No: 32    ( Marks: 1 )    - Please choose one
Which of the following is NOT a stock variable?

       ► Government debt.
       ► Capital.
       ► The amount of money held by the public.
       ► Inventory investment.

Question No: 33    ( Marks: 1 )    - Please choose one
Suppose that your income increases from $100,000 to $150,000 and your consumption increases from $80,000 to $120,000. Your Marginal Propensity to Save (MPS) is:

delta consumtion/ delta income =40/50=.8

       ► 0.2.
       ► 0.4.
       ► 0.6.
       ► 0.8.

Question No: 34    ( Marks: 1 )    - Please choose one
Which of the following plays the key balancing role in making sure that the economy reaches and stays at equilibrium at the potential output level?

       ► Real exchange rate.
       ► The production function.
       ► Real price level.
       ► Real interest rate.

Question No: 35    ( Marks: 1 )    - Please choose one
If injections are less than withdrawals at the full-employment level of income then there arises:

       ► A deflationary gap.
       ► Hysteresis.
       ► Hyperinflation.
       ► An inflationary gap.

Question No: 36    ( Marks: 1 )    - Please choose one
The labour force is made up of:

       ► The number of people employed minus the number of people unemployed.
       ► The number of people employed plus the number of people unemployed.
       ► Just the number of people employed.
       ► The whole population.

Question No: 37    ( Marks: 1 )    - Please choose one
Deflation is:

       ► An increase in the overall level of economic activity.
       ► An increase in the overall price level.
       ► A decrease in the overall level of economic activity.
       ► A decrease in the overall price level.

Question No: 38    ( Marks: 1 )    - Please choose one
Which of the following will result if there is a decrease in aggregate demand?
       ► Expansion; inflation.
       ► Recession; deflation.
       ► Expansion; deflation.

       ► Recession; inflation.

Question No: 39    ( Marks: 1 )    - Please choose one
A decrease in the natural rate of unemployment will:
       ► Shift the Phillips curve to the left.

       ► Result in a decrease in the inflation rate along the Phillips curve.

       ► Shift the Phillips curve to the right.

       ► Result in an increase in the inflation rate along the Phillips curve.

Question No: 40    ( Marks: 1 )    - Please choose one
The Phillips curve will shift to the right:

       ► If there is a decrease in the expected inflation rate.

       ► If there is an increase in the expected inflation rate.

       ► If there is a decrease in the natural rate of unemployment.

       ► If there is a favorable supply shock.

Question No: 41    ( Marks: 1 )    - Please choose one
If a country has flexible exchange rate and has more rapid inflation rate than other countries, its currency will:

       ► Appreciate.
       ► Depreciate.
       ► Not effect.
       ► All of the given are possible.

Question No: 42    ( Marks: 1 )    - Please choose one
The nominal exchange rate is defined as the:

       ► Market on which currencies of various nations are traded for one another.
       ► Price of one unit of foriegn good in terms of domestic good.
       ► Price of one unit of foriegn currency in terms of domestic currency.
       ► All of the given options.

Question No: 43    ( Marks: 1 )    - Please choose one
Current account deficit is equal to:

       ► Private sector resource deficit.
       ► Government budget deficit.
       ► Private sector resource deficit + Government budget deficit.
       ► None of the given options.

Question No: 44    ( Marks: 1 )    - Please choose one
In the exogenous growth model, if investment exceeds depreciation, the capital stock will ----------- and output will-------------- until the steady state is attained.
       ► Increase; increase.
       ► Increase; decrease.
       ► Decrease; decrease.
       ► Decrease; increase.

Question No: 45    ( Marks: 1 )    - Please choose one
Endogenous growth theory differs in what essential aspect from the Solow theory of economic growth?

       ► 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: 46    ( Marks: 1 )    - Please choose one
A currency appreciation should:

       ► Reduce net exports and therefore increase aggregate demand.
       ► Raise net exports and therefore decrease aggregate demand.
       ► Reduce net exports and therefore decrease aggregate demand.
       ► Raise net exports and therefore increase aggregate demand.

Question No: 47    ( Marks: 1 )    - Please choose one
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: 48    ( Marks: 1 )    - Please choose one
Commercial banks in Pakistan are supervised by:

       ► State bank.
       ► National bank.
       ► Finance minister.
       ► World bank.

Question No: 49    ( Marks: 1 )    - Please choose one
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: 50    ( Marks: 1 )    - Please choose one
An example of hysteresis having a negative effect on a country's economy would be:

       ► Hyperinflation caused by excessive demand.

       ► Nervous investors selling all their shares, causing the stockmarket to crash.

       ► Unemployed workers not taking available jobs.

       ► Women being kept out of jobs traditionally held by men.

Question # 1 of 10 ( Start time: 10:35:25 AM )    Total Marks: 1
The function overloading requires__________________.
Select correct option:
   no arguments
   the argument list to be the same
   the arguments of integer type only
    the argument list to be different.

If the income elasticity of demand is 1/2, the good is:
Select correct option:

A luxury.
A normal good (but not a luxury).

An inferior good.

A Giffen good.

The cross elasticity of demand of complements goods is:
Select correct option:

Less than 0.

Equal to 0.
Greater than 0.
Between 0 and 1.

The point at which AC intersects MC is where:
Select correct option:

AC is decreasing.
MC is at its minimum.
AC is at its minimum.
AC is at its maximum.

Which of the following can be thought of as a barrier to entry?
Select correct option:

Scale economies.
Patents.
Strategic actions by incumbent firms.
All of the given options are true.

When oligopolists collude, they are able to:
Select correct option:

Raise price, but not restrict output
Raise price and restrict output, but not attain the monopoly profit
Raise price and restrict output, and therefore attain the monopoly profitRestrict output, but not raise price

If marginal product is equal to average product:
Select correct option:

The total product will fall
The average product will not changeAverage variable costs will fall
Total revenue will fall

If marginal product is above the average product:

Select correct option:

The total product will fall
The average product will riseAverage variable costs will fall
Total revenue will fallThe marginal product is the extra output per factor (e.g. employee); the average product is the output per factor (e.g. per employee). If marginal product is below average product, the average product will fall

In a production process, all inputs are increased by 10%; but output increases more than 10%. This means that the firm experiences:
Select correct option:

Decreasing returns to scale.Constant returns to scale.
Increasing returns to scale.
Negative returns to scale.

a) If the marginal cost is greater than the average cost the average cost falls

b) If the marginal cost is greater than the average cost the average cost increases

c) If the marginal cost is positive total costs are maximised

d) If the marginal cost is negative total costs increase at a decreasing rate if output increases

The marginal cost measures the extra cost of producing another unit; the average cost measures the cost per unit. If the marginal cost is greater than the average cost the average cost increases.

According the law of diminishing returns:

a) The marginal product falls as more units of a variable factor are added to a fixed factor

b) Marginal utility falls as more units of a product are consumed

c) The total product falls as more units of a variable factor are added to a fixed factor

d) The marginal product increases as more units of a variable factor are added to a fixed factor

This occurs when variable factors are added to fixed factors. According to the law of diminishing returns the marginal product falls as more units of a variable factor are added to a fixed factor.

The law of diminishing returns assumes:

a) There are no fixed factors of production

b) There are no variable factors of production

c) Utility is maximised when marginal product falls

d) Some factors of production are fixed

This occurs when variable factors are added to fixed factors. It assumes some factors of production are fixed

When internal economies of scale occur:

a) Total costs fall

b) Marginal costs increase

c) Average costs fall

d) Revenue falls

These occur when the unit cost (average costs) falls as the scale of production increases.

The first level of output at which the long run average costs are minimised is called:

a) The Minimum Efficient Scale

b) The Minimum External Scale

c) The Maximum External Scale

d) The Maximum Effective Scale

This is the variable cost per unit; when added to the fixed cost per unit this leads to the total cost per unit. As output increases the average fixed cost falls so the average variable cost and average cost converge.

The average variable cost curve:

a) Is derived from the average fixed costs

b) Converges with the average cost as output increases

c) Equals the total costs divided by the output

d) Equals revenue minus profits

This is the variable cost per unit; when added to the fixed cost per unit this leads to the total cost per unit. As output increases the average fixed cost falls so the average variable cost and average cost converge.

If marginal cost is positive and falling:

a) Total cost is falling

b) Total cost is increasing at a falling rate

c) Total cost is falling at a falling rate

d) Total cost is increasing at an increasing rate

This means the extra cost of a unit is falling; total cost will increase at a decreasing rate.

If marginal product is below average product:

a) The total product will fall

b) The average product will fall

c) Average variable costs will fall

d) Total revenue will fall

1.Suppose Saqib spends all his income on magazines. To get maximum level of satisfaction, the marginal utility of last dollar of income spent on magazines must be:

Positive

Negative

Equal to the total income

Equal to the price of the magazines

2. If there is increase in resource prices then supply curve will:

Increase

Decrease

Remain same

Remain undertermined

3. If the economy is operating at a point inside the production possible then_________ output could be produced with available resources.

More

Less

Equal

Aggregate

4. If Nestle Company has elastic demand for Nestle juices, then, increase in price of Nestle juices will:

Increase total reveue

Decrease total revenue

Bring no change in total revenue

Decrease marginal revenue

5. Since more substitutes of Pepsi are available in the market like Coca Cola, Sprite etc., the demand for Pepsi is said to be __________ in response to change in price

More elastic

More inelastic

Unit elastic

Perfectly inelastic

6. If government imposes a price ceiling on wheat, which of the following will occur in the market for wheat?

There will be excess demand for wheat

There will be excess supply for wheat

The demand curve for wheat will shift leftward

The supply curve for wheat will shift rightward

7. Which of the following is a characteristic of a mixed economy?

Resources are governed by both government and individuals

It utilizes the characteristics of both market economy and planned economy

People are free to market their decisions and government controls the demand

All of the given options are true

8. The minimum price that a Government sets to support a desired commodity or service in a society is known as:

Price ceiling

Price rationaling

Price floor

Price control

10. . suppose a teacher organizes a study group by reserving a meeting room, compiling study materials and attracting students. The meeting room would most likely be which of the following factors of production?

Labour

Money

Capital

Entrepreneurship

11. Suppose second hand television is inferior good for consumers, then due to fall in consumer’s income, the demand for second hand television will:

Decrease

Increase

Remain same

Remain undertermined

12. If the cross price elasticity of demand between two products is -3.5, then:

One of the product is expensive and one is relatively unexpensive

One product is normal good and the other is an inferior good

The two products are complement

The two products are substitutes

13. If the supply of a product decreases and supply curve shifts leftward, and the demand for that product simultaneously increases and demand curve shifts rightward, then equilibrium:

Price must rise

Price must fall

Quantity must rise

Quantity must fall

14. Asifa while addressing the young parliamentarians said that rising inflation in Pakistan was due to the high interest rates. Which category her statement falls in?

Normative

Positive

Negative

None of the given options

15. Suppose AKJ Company is manufacturing leather goods and has inelastic demand for leather products. In this situation, more of the tax burden would fall on:

Producers

Consumers

Government

Both producers and consumers

16. If a 40% increase in the price of a product causes a 20% fall in the quantity demanded, the price elasticity of demand will be

-0.5

-0.1

+0.5

-0.89

17. If we measure consumer preferences numerically then it is commonly k nown as:

Satisfaction

Usage

Pleasure

Utility

18. The demand for apples is expressed as: Qd = 80 - P The supply of apples is expressed as: Qs = 3P Refer to the above scenario, if the equilibrium price of apples is Rs. 20, the equilibrium quantity of apples is:

55

60

80

100

19.A market is said to be in equilibrium when

Supply equals price

There is upward pressure in price

There is downward pressure in price

Quantity demanded is equal to Quantity supplies

20. Suppose that the total utilities for the third and fourth units of a good consumed are 69 and 83, respectively. The marginal utility for the fourth unit is:

-14

14

69

83

Question No: 1    ( Marks: 1 )    - Please choose one

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    ( Marks: 1 )    - Please choose one

The concave shape of the production possibilities curve for two goods X and Y illustrates:

       ► Increasing opportunity cost for both goods.
       ► Increasing opportunity cost for good X but not for good Y.
       ► Increasing opportunity cost for good Y but not for good X.
       ► Constant opportunity cost for both goods.

Question No: 3    ( Marks: 1 )    - Please choose one

If the quantity demanded of a product is greater than the quantity supplied of a product, then:
       ► There is a shortage of the product.
       ► There is a surplus of the product.
       ► The product is a normal good.
       ► The product is an inferior good.

Question No: 4    ( Marks: 1 )    - Please choose one
The supply curve is upward-sloping because:

       ► As the price increases, consumers demand less.
       ► As the price increases, suppliers can earn higher levels of profit or justify higher marginal costs to produce more.
       ► None of the given options.
       ► As the price increases, so do costs.

Question No: 5    ( Marks: 1 )    - Please choose one

When an industry's raw material costs increase, other things remaining the same:
       ► The supply curve shifts to the right.
       ► Output increases regardless of the market price and the supply curve shifts upward.
       ► Output decreases and the market price also decrease.
       ► The supply curve shifts to the left.

Question No: 6    ( Marks: 1 )    - Please choose one

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

solution= Ped= % change in Q demand /% change in Q Price= 10%/12%= 0.5 where e>1 elastic

e<1 inelastic

       ► Perfectly elastic.
       ► Unit elastic.
       ► Elastic.
       ► Inelastic.

Question No: 7    ( Marks: 1 )    - Please choose one

Suppose price rises from $15 to $17 and quantity demanded decreases by 20%. We can conclude:

       ► Demand is unitary elastic.
       ► Demand is elastic.
       ► The elasticity of demand is 2.
       ► Total revenue will decrease.

Question No: 8    ( Marks: 1 )    - Please choose one
"Utility" is most closely related to the term:

       ► Useless.
       ► Require.
       ► Necessary.
       ► Satisfaction.

Question No: 9    ( Marks: 1 )    - Please choose one

When the marginal utility of a good is zero, this implies that:

       ► The consumer would not spend any additional income to buy more of that good.

       ► Consumption of additional units would have positive marginal utility.
       ► Total utility is minimized.
       ► Total utility is also zero.

Question No: 10    ( Marks: 1 )    - Please choose one

When the substitution effect of a lowered price is counteracted by the income effect, the good in question is:

       ► An inferior good.

       ► A substitute good.

       ► An independent good.

       ► A normal good.

Question No: 11    ( Marks: 1 )    - Please choose one

Diminishing marginal returns implies:

       ► Decreasing marginal costs.

       ► Increasing marginal costs.

       ► Decreasing average variable costs.

       ► Decreasing average fixed costs.

Question No: 12    ( Marks: 1 )    - Please choose one

A graph showing all the combinations of capital and labour available for a given total cost is the:
       ► Budget constraint.
       ► Expenditure set.
       ► Isoquant.
       ► Isocost.

Question No: 13    ( Marks: 1 )    - Please choose one
When an isocost line is just tangent to an isoquant, we know that:

       ► Output is being produced at minimum cost.

       ► Output is not being produced at minimum cost.

       ► The two products are being produced at the medium input cost to the firm.

       ► The two products are being produced at the highest input cost to the firm.

Question No: 14    ( Marks: 1 )    - Please choose one

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive but can be resold and are therefore an example of: mid question
       ► A fixed cost.
       ► A variable cost.
       ► An implicit cost.
       ► An opportunity cost.

Question No: 15    ( Marks: 1 )    - Please choose one
The good produced by a monopoly:

       ► Has perfect substitutes.
       ► Has no substitutes at all.
       ► Has no close substitutes.
       ► Can be easily duplicated.

Question No: 16    ( Marks: 1 )    - Please choose one
Welfare economics is the branch of economics which deals with:

       ► Positive issues.
       ► Normative issues.
       ► Micro issues.
       ► Macro issues.

Question No: 17    ( Marks: 1 )    - Please choose one
The oligopoly model which predicts that oligopoly prices will tend to be very rigid is the:

       ► Cournot model.
       ► Cobweb model.
       ► Dominant firm model.
       ► Kinked demand model.

Question No: 18    ( Marks: 1 )    - Please choose one
The kinked demand curve model is based on which of the following assumptions?
       ► Each firm considers its rival's output to be fixed.
       ► Each firm considers its rival's price to be fixed.
       ► Each firm believes rival will match all price changes.
       ► None of the given options.

Question No: 19    ( Marks: 1 )    - Please choose one

Which of the following is NOT conducive to the successful operation of a cartel?

       ► Market demand for the good is relatively inelastic.
       ► The cartel supplies all of the world's output of the good.
       ► Cartel members have substantial cost advantages over non-member producers.
       ► The supply of non-cartel members is very price elastic.

Question No: 20    ( Marks: 1 )    - Please choose one
Cartels are:
       ► Organizations of independent firms, producing similar products, that work together to raise prices and restrict output.
       ► Organizations of interdependent firms, producing similar products, that work together to raise prices and restrict output.
       ► Organizations of independent firms, producing different products, that work together to raise prices and restrict output.
       ► Considered as part of monopolistic competition.

Question No: 21    ( Marks: 1 )    - Please choose one
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: 22    ( Marks: 1 )    - Please choose one

A reason why some economists basically ignore the short run is because they believe that the economy:

       ► Has self-correcting mechanisms.       (no sure)

       ► Can only be graphed with a horizontal curve.

       ► Never needs correction.
      ► None of the given options.

Question No: 23    ( Marks: 1 )    - Please choose one

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: 24    ( Marks: 1 )    - Please choose one
A primary implication of Keynesian economics is:

       ► The best government is the least government.
       ► Flexible wages and prices ensure full employment.
       ► Monetary policy is far superior to fiscal policy.
       ► Business-cycle instability is best corrected through government policies.

Question No: 25    ( Marks: 1 )    - Please choose one

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

       ► Short-run aggregate market.

       ► Production possibilities.

       ► Imperfect competition.

       ► Circular flow.

Question No: 26    ( Marks: 1 )    - Please choose one
Which of the following is NOT a reason of downward slope of aggregate demand curve?

       ► The exchange-rate effect.
       ► The wealth effect.
      ► The classical dichotomy / monetary neutrality effects.
       ► The interest-rate effect.

Question No: 27    ( Marks: 1 )    - Please choose one
The upward-sloping aggregate supply curve indicates that:

       ► As firms increase their level of output, the cost of producing an extra unit increases.

       ► An increase in aggregate demand causes little, if any increase in real output the economy is operating in the long run.

       ► Any increase in aggregate demand causes the output of producers to fall because the general price level rises.
       ► None of the given options.

Question No: 28    ( Marks: 1 )    - Please choose one

An important difference between the Classical and Keynesian approaches to achieve a macroeconomic equilibrium is that:

       ► Keynesian economists actively promote the use of fiscal policy while the classical economists do not.
       ► Keynesian economists actively promote the use of monetary policy to improve aggregate economic performance while the classical economists do not.
       ► Classical economists believe that monetary policy will certainly affect the level of output while the Keynesians believe that money growth affects only prices.
       ► Classical economists believe that fiscal policy is an effective tool for achieving economic stability while the Keynesians do not.

Question No: 29    ( Marks: 1 )    - Please choose one
According to classical economists, the:

       ► Aggregate demand curve is downward sloping and the aggregate supply curve is vertical.
       ► Aggregate demand curve is downward sloping and the aggregate supply curve is upward sloping.
       ► Aggregate demand curve is vertical and the aggregate supply curve is upward sloping.
       ► Aggregate demand curve is vertical and the aggregate supply curve is horizontal.

Question No: 30    ( Marks: 1 )    - Please choose one

How many methods are there to measure Gross Domestic Product?
       ► Three.

       ► Four.

       ► Five.
       ► Six.

Question No: 31    ( Marks: 1 )    - Please choose one
Which of the following is a flow variable?
       ► The value of the house in which you live.
       ► The balance in your savings account.
       ► Your monthly consumption on food items.
       ► The number of carrots in your refrigerator at the beginning of the month.

Question No: 32    ( Marks: 1 )    - Please choose one
Which of the following is NOT a stock variable?

       ► Government debt.
       ► Capital.
       ► The amount of money held by the public.
       ► Inventory investment.

Question No: 33    ( Marks: 1 )    - Please choose one

Suppose that your income increases from $100,000 to $150,000 and your consumption increases from $80,000 to $120,000. Your Marginal Propensity to Save (MPS) is:

delta consumtion/ delta income =40/50=.8

       ► 0.2.
       ► 0.4.
       ► 0.6.
       ► 0.8.

Question No: 34    ( Marks: 1 )    - Please choose one

Which of the following plays the key balancing role in making sure that the economy reaches and stays at equilibrium at the potential output level?

       ► Real exchange rate.
       ► The production function.
       ► Real price level.
       ► Real interest rate.

Question No: 35    ( Marks: 1 )    - Please choose one

If injections are less than withdrawals at the full-employment level of income then there arises:

       ► A deflationary gap.
       ► Hysteresis.
       ► Hyperinflation.
       ► An inflationary gap.

Question No: 36    ( Marks: 1 )    - Please choose one
The labour force is made up of:

       ► The number of people employed minus the number of people unemployed.
       ► The number of people employed plus the number of people unemployed.
       ► Just the number of people employed.
       ► The whole population.

Question No: 37    ( Marks: 1 )    - Please choose one
Deflation is:

       ► An increase in the overall level of economic activity.
       ► An increase in the overall price level.
       ► A decrease in the overall level of economic activity.
       ► A decrease in the overall price level.

Question No: 38    ( Marks: 1 )    - Please choose one
Which of the following will result if there is a decrease in aggregate demand?
       ► Expansion; inflation.
       ► Recession; deflation.

       ► Expansion; deflation.

       ► Recession; inflation.

Question No: 39    ( Marks: 1 )    - Please choose one
A decrease in the natural rate of unemployment will:

       ► Shift the Phillips curve to the left.

       ► Result in a decrease in the inflation rate along the Phillips curve.

       ► Shift the Phillips curve to the right.

       ► Result in an increase in the inflation rate along the Phillips curve.

Question No: 40    ( Marks: 1 )    - Please choose one

The Phillips curve will shift to the right:

       ► If there is a decrease in the expected inflation rate.

       ► If there is an increase in the expected inflation rate.

       ► If there is a decrease in the natural rate of unemployment.

       ► If there is a favorable supply shock.

Question No: 41    ( Marks: 1 )    - Please choose one

If a country has flexible exchange rate and has more rapid inflation rate than other countries, its currency will:

       ► Appreciate.
       ► Depreciate.
       ► Not effect.
       ► All of the given are possible.

Question No: 42    ( Marks: 1 )    - Please choose one
The nominal exchange rate is defined as the:

       ► Market on which currencies of various nations are traded for one another.
       ► Price of one unit of foriegn good in terms of domestic good.
       ► Price of one unit of foriegn currency in terms of domestic currency.
       ► All of the given options.

Question No: 43    ( Marks: 1 )    - Please choose one
Current account deficit is equal to:

       ► Private sector resource deficit.
       ► Government budget deficit.
       ► Private sector resource deficit + Government budget deficit.
       ► None of the given options.

Question No: 44    ( Marks: 1 )    - Please choose one

In the exogenous growth model, if investment exceeds depreciation, the capital stock will ----------- and output will-------------- until the steady state is attained.
       ► Increase; increase.
       ► Increase; decrease.
       ► Decrease; decrease.
       ► Decrease; increase.

Question No: 45    ( Marks: 1 )    - Please choose one

Endogenous growth theory differs in what essential aspect from the Solow theory of economic growth?

       ► 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: 46    ( Marks: 1 )    - Please choose one
A currency appreciation should:

       ► Reduce net exports and therefore increase aggregate demand.
       ► Raise net exports and therefore decrease aggregate demand.
       ► Reduce net exports and therefore decrease aggregate demand.
       ► Raise net exports and therefore increase aggregate demand.

Question No: 47    ( Marks: 1 )    - Please choose one

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: 48    ( Marks: 1 )    - Please choose one
Commercial banks in Pakistan are supervised by:

       ► State bank.
       ► National bank.
       ► Finance minister.
       ► World bank.

Question No: 49    ( Marks: 1 )    - Please choose one

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: 50    ( Marks: 1 )    - Please choose one

An example of hysteresis having a negative effect on a country's economy would be:

       ► Hyperinflation caused by excessive demand.

       ► Nervous investors selling all their shares, causing the stockmarket to crash.

       ► Unemployed workers not taking available jobs.

       ► Women being kept out of jobs traditionally held by men.

Virtual University Of Pakistan

Friday 4 July 2014

ECO-401- Economics Solved Quizzes

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