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ECO401

Question No: 5 ( M - 1 ) .
FINALTERM EXAMINATION Graphically, marginal revenue is defined as:
Spring 2010 ► The slope of a line from the origin to a
ECO401- Economics point on the total revenue curve.
Solved & Shared by vuZs Team ► The slope of a line from the origin to the
Mehreen , zubair hussain end of the total revenue curve.
http://www.vuzs.info/ ► The slope of the total revenue curve at a
given point.
Solution is provided by vuZs Solution Team. ► The vertical intercept of a line tangent to
You are free to distribute and use it. In case you the total revenue curve at a given point.
wanted to host or re-distribute it. Please don’t
remove the links of group and website. Question No: 6 ( M - 1 ) .
A firm is charging a different price for each
M - 58 unit purchased by a consumer. This is
Time: 90 min called:
► First-degree price discrimination.
Question No: 1 ( M - 1 ) . ► Second-degree price discrimination.
In pure capitalism, the role of government is ► Third-degree price discrimination.
best described as: ► None of the given options.
► Significant.
► Extensive. Question No: 7 ( M - 1 ) .
► Nonexistent. Which of the following is true in long run
► Limited. equilibrium for a firm in a monopolistic
competitive industry?
Question No: 2 ( M - 1 ) . ► The demand curve is tangent to marginal
If both supply and demand increase cost curve.
simultaneously, the equilibrium: ► The demand curve is tangent to average
► Price must rise and the equilibrium cost curve.
quantity must fall. ► The marginal cost curve is tangent to
► Price must rise and the equilibrium average cost curve.
quantity may either rise or fall. ► The demand curve is tangent to marginal
► Quantity must rise and the equilibrium revenue curve.
price may either rise or fall.
► Price must fall and the equilibrium Question No: 8 ( M - 1 ) .
quantity may either rise or fall. A firm in monopolistic competition does not
achieve minimum efficient scale because:
Question No: 3 ( M - 1 ) . http://www.vuzs.info/
If the quantity supplied of oranges exceeds ► It is not a monopoly.
the quantity demanded then: ► It is in competition with other firms.
► There is a shortage of oranges. ► It is operating on the downward-sloping
► Market forces will cause the price to fall. part of the average cost curve.
► Market forces will cause the price to rise. ► It produces at the minimum average cost.
► The market is in equilibrium.
http://www.vuzs.info/ Question No: 9 ( M - 1 ) .
Question No: 4 ( M - 1 ) . If the income elasticity of demand is 1/2, the
Aslam spends all of his money on good is:
racquetballs and food. What would happen
to Aslam’s budget line if his income ► A luxury.
increased by 10 percent holding prices ► A normal good (but not a luxury).
constant? ► An inferior good.
► It would shift inward. ► A Giffen good.
► It would rotate about the axis for food.
► It would rotate about the axis for Question No: 10 ( M - 1 ) .
racquetballs. In the complete classical model, a rightward
► It would shift outward. shift of the labor supply curve will:
All of the following are the reasons of
► Decrease the price level and increase downward sloping curve of aggregate
the nominal wage. demand EXCEPT:
► Decrease the nominal wage and ► The exchange-rate effect.
increase the price level. ► The wealth effect.
► Decrease both the price level and the ► The classical dichotomy / monetary
nominal wage. neutrality effects.
► Increase both the price level and the ► The interest-rate effect.
nominal wage. http://www.vuzs.info/
Question No: 17 ( M - 1 ) .
Question No: 11 ( M - 1 ) . Those who hold the classical view of the
The aggregate demand will decrease if: labour market are likely to believe that:
► Investment spending decreases. ► Monetary but not fiscal policy will have
► Government spending increases. an effect on output and employment.
► Consumption spending increases. ► Fiscal but not monetary policy will have
► Imports decreases. an effect on output and employment.
http://www.vuzs.info/ ► Both monetary and fiscal policy will have
Question No: 12 ( M - 1 ) . an effect on output and employment.
Which of the following is NOT a stock ► Neither monetary nor fiscal policy will
variable? have an effect on output and employment.

► Government debt. Question No: 18 ( M - 1 ) .


► Capital. National income is equal to which of the
► The amount of money held by the public. following?
► Inventory investment. ► Income of the Government.
► Budget of the Government.
Question No: 13 ( M - 1 ) . ► Sum total of factor incomes.
Real Gross Domestic Product (GDP): ► Profits of the public undertakings.
► Is nominal GDP adjusted for changes in
the price level. Question No: 19 ( M - 1 ) .
► Is also called nominal GDP. Which of the following is NOT included in
► Measures GDP minus depreciation of National income?
capital. ► Profits and rents.
► Will always change when prices change. ► Wages and salaries.
► Interest on capital.
Question No: 14 ( M - 1 ) . ► Transfer incomes.
Which of the following is the narrowest and
most traditional definition of money? Question No: 20 ( M - 1 ) .
Which of the following is a transfer
► M1. payment?
► M2. ► Payment made to housewife.
► M3. ► Pocket allowance to children.
► M4. ► Maintenance allowance to old parents.
► All of the given options.
Question No: 15 ( M - 1 ) .
Gross National Product (GNP) is: Question No: 21 ( M - 1 ) .
► Net National Product (NNP) plus The demand curve for labour can be derived
depreciation. from the intersection of:
► National income discounted by the GDP ► Horizontal wage rate lines and the
deflator. marginal revenue product of labour.
► Income from foreign investments. ► Vertical wage rate lines and the marginal
► Gross Domestic Product (GDP) minus revenue product of labour.
depreciation. ► Vertical wage rate lines and the marginal
revenue product of capital.
Question No: 16 (M-1) . ► Horizontal wage rate lines and the
marginal revenue product of capital.
► It leads to greater world efficiency i.e.
Question No: 22 ( M - 1 ) . resources are better utilized.
A graph that depicts the relationship ► Wealthier countries gain an advantage
between the total quantity of goods and over underdeveloped countries.
services demanded and the price level is ► All countries gain from tariff imposition.
known as:
► Aggregate demand curve. Question No: 28 ( M - 1 ) .
► Average price level. The interest rate parity is the basic identity
► Circular flow model. that relates which of the following?
► GDP curve. ► Interest rates and exchange rates.
► Interest rates and inflation rate.
Question No: 23 ( M - 1 ) . ► Exchange rates and inflation rate.
All other things being equal, an increase in ► Discount rate and inflation rate.
government spending will:
► Shift the aggregate demand curve to the Question No: 29 ( M - 1 ) .
right. A change from $1.00 = Rs. 82.00 to $1.00 =
► Shift the aggregate demand curve to the Rs. 80.00 represents:
left. ► An appreciation of the dollar.
► Make the aggregate demand curve ► An appreciation of the rupee.
flatter. ► Depreciation of the rupee.
► Make the aggregate demand curve ► None of the given options.
steeper.
Question No: 30 ( M - 1 ) .
Question No: 24 ( M - 1 ) . There is an increase in the economy’s
Suppose investment rises by $50 billion at potential output when there is:
each price level. If the value of the multiplier ► An increase in government spending.
is 1.5, what is the amount of change in real ► A decrease in government spending.
GDP demanded at each price level? ► An increase in the economy’s capital
► $50 billion. stock.
► $75 billion. ► An increase in the economy’s
► $125 billion. depreciation rate.
► $150 billion.
Question No: 31 ( M - 1 ) .
Question No: 25 ( M - 1 ) . Suppose that a country is in a steady state
Which of the following is TRUE? condition. It implements policies to increase
► Accelerator coefficient = Marginal capital the saving rate of its economy. What will be
/ output ratio. TRUE at the new steady state level?
► Accelerator coefficient > Marginal capital ► Output per worker will grow more rapidly
/ output ratio. than before.
► Accelerator coefficient < Marginal capital ► The level of output per worker will be
/ output ratio. higher than before.
► None of the given options. ► The amount of capital per worker will be
the same as before.
Question No: 26 ( M - 1 ) . ► All of the given options.
Which of the following will influence a
country's exports? Question No: 32 ( M - 1 ) .
► All of the given options. A tax in which people pay the same
► Consumer tastes for domestic and percentage of income in taxes regardless of
foreign goods. their incomes is called:
► Prices of goods at home and abroad. ► Value-added tax.
► Costs of transporting goods from country ► Regressive tax.
to country. ► Proportional tax.
http://www.vuzs.info/ ► Progressive tax.
Question No: 27 ( M - 1 ) .
Free trade is favoured because: Question No: 33 (M-1) .
► Countries have less work to do.
Which of the following got benefit from ► Where the price is greater than the
inflation? average revenue.
I. Salary earners. ► Where the price is greater than the
II.Equity holders. marginal revenue.
III. Pensioners.
IV. Debtors. Question No: 39 ( M - 1 ) .
► I only. If average physical product (APP) is
► II only. decreasing then which of the following must
► I and III. be true?
► II and IV. ► Marginal physical product is more than
the average physical product.
Question No: 34 ( M - 1 ) . ► Marginal physical product is less than the
Nominal money supply in Pakistan is average physical product.
directly or indirectly controlled by: ► Marginal physical product is decreasing.
► National Bank. ► Marginal physical product is increasing.
► Habib Bank.
► State Bank. Question No: 40 ( M - 1 ) .
► Bank Alfalah. Average total costs are the sum of:
► Fixed costs and marginal costs
Question No: 35 ( M - 1 ) . ► Average variable costs and marginal
If money supply is fixed by the central bank costs
then in interest rate-money supply space, ► Average fixed costs and average variable
money supply curve will be: costs
► Horizontal. ► Average marginal costs and average
► Vertical. variable costs
► Negatively sloped.
► Positively sloped. Question No: 41 ( M - 1 ) .
Economy always remains at full employment
Question No: 36 ( M - 1 ) . level was the idea of
Suppose the total utilities for the first four ► Classical Economists.
units of a good consumed are 13, 23, 33, and ► Monetarist.
43 respectively. What is the marginal utility ► New Classical Economists.
of the third unit? ► Keynes.
► 10.
► 13. Question No: 42 ( M - 1 ) .
► 20. Suppose the consumption function is C =
► 33. $10 + 0.75Y. If Y = 50 $, then the amount of
consumption is:
Question No: 37 ( M - 1 ) . ► 37.50
Suppose there are two goods A and B. What ► 85.00
will happen to the budget line if prices of ► 47.50
both goods increase by the same ► 10.75
percentage?
► It will shift parallel to the left. Question No: 43 ( M - 1 ) .
► It will shift parallel to the right. If market exchange rate is adjusted for
► It will pivot about the x axis. prices then it will be called:
► It will pivot about the y axis. ► Hypothetical interest rate.
► Nominal interest rate.
Question No: 38 ( M - 1 ) . ► Real interest rate.
In which of the following conditions, a ► None of the given options.
welfare loss occurs in monopoly?
► Where the price is greater than the Question No: 44 ( M - 1 ) .
marginal cost. There will be decrease in potential output of
► Where the price is greater than the a country when there is:
marginal benefit. ► A decrease in government spending.
► An increase in government spending.
► A decrease in the economy’s 2.5853
depreciation rate.
► A decrease in the economy’s capital Question No: 51 ( M - 5 )
stock. Mention the situations in which imposing a
tax is better than not imposing it.
Question No: 45 ( M - 1 ) .
If the required reserve ratio is 10% then what
will be the value of money multiplier?
► 10 Question No: 52 (M-5)
►2
►5 What is meant by Philips Curve? Explain the
► 20 shape of this curve with the help of diagram.

Question No: 46 ( M - 1 ) . Question No: 53 ( M - 5 )


Which of the following will happen if If the value of multiplier is 1.20 then
suddenly people wish to hold less money at calculate the value of marginal propensity to
same interest rate? consume (MPC).
► The LM curve will shift downward (to the
right). K = 1 / 1 – MPC
► The money demand curve will shift to the 1.20 = 1 / 1 – MPC
right. (1 – MPC) 1.20= 1
► The IS curve will shift to right. 1 – MPC = 1 / 1.20
► None of the given options. - MPC = 0.8333 – 1
MPC = 0.1667
Question No: 47 ( M - 1 ) .
The share of world trade happens between
Spring 2010
high income countries is:
► 55% ECO401- Economics (Session - 1)
► 40% Shared by Devil Jin , Courtesy ~SaKuRa~
► 50% Solved by Hafiz Salman Majeed
► 60% www.vuzs.net
Time: 90 min
Question No: 48 ( M - 1 ) . M - 69
The common characteristics of a developing Question No: 1 ( M - 1 ) .
country is: The budget line is the boundary between:
► High growth rate. ► Preferred and non preferred consumption
► High literacy rate. combinations.
► Skilled labor. ► Affordable and unaffordable consumption
► High unemployment rate. combinations.
► Income and expenditure.
Question No: 49 ( M - 3 ) ► One point on a budget line.
Mention the components of current account
in the balance of payment. Question No: 2 ( M - 1 ) .
1. Goods The supply curve for a competitive firm is:
2. Services ► Its entire marginal cost curve.
3. Income & Transfer payments ► The upward-sloping portion of its
marginal cost curve.
Question No: 50 ( M - 3 ) ► Its marginal cost curve above the
If MPC = 0.84 and tax rate = 0.27 then find minimum point of the average variable cost
out the value of multiplier. curve.
http://www.vuzs.info/ ► Its marginal cost curve above the
If MPC = 0.84 and tax rate = 0.27 then find out minimum point of the average total cost curve.
the value of multiplier.
Question No: 3 ( M - 1 ) .
K = 1/ 1 – MPC ( 1 – t) A price taker is:
K = 1/ 1 – 0.84 ( 1 – 0.27)
► A firm that accepts different prices from ► Insufficient aggregate demand.
different customers. ► Quick self correcting mechanism.
► A monopolistically competitive firm. ► Government purchases of too many
► A firm that cannot influence the market goods and services.
price.
► An oligopolistic firm. Question No: 9 ( M - 1 ) .
www.vuzs.net Keynesian economics rejected the classical
http://groups.google.com/group/vuzs assumption that:
Question No: 4 ( M - 1 ) . ► Supply creates its own demand.
The good produced by a monopoly: ► Prices and wages are inflexible.
► Has perfect substitutes. ► Self-correction takes a long time.
► Has no substitutes at all. ► Consumption expenditures depend on
► Has no close substitutes. disposable income.
► Can be easily duplicated.
Question No: 10 ( M - 1 ) .
Question No: 5 ( M - 1 ) . The Phillips curve will shift to the right:
A schedule which shows the various ► If there is a decrease in the expected
amounts of a product consumers are willing inflation rate.
and able to purchase at each price in a series ► If there is an increase in the expected
of possible prices during a specified period inflation rate.
of time is called: ► If there is a decrease in the natural rate
► Supply schedule. of unemployment.
► Demand schedule. ► If there is a favorable supply shock.
► Quantity supplied schedule. www.vuzs.net
► Quantity demanded schedule. http://groups.google.com/group/vuzs
Question No: 11 ( M - 1 ) .
Question No: 6 ( M - 1 ) . If a Japanese radio priced at 2,000 yen can
The textbook for your class was not be purchased for $10, the exchange rate is:
produced in a perfectly competitive industry ► 200 yen per dollar.
because: ► 20 yen per dollar.
► There are so few firms in the industry ► 20 dollars per yen.
that market shares are not small, and firm's ► None of the given options.
decisions have an impact on market price.
► Upper-division microeconomics texts are Question No: 12 ( M - 1 ) .
not all alike. If the prices of all goods and services rise
► It is not costless to enter or exit the during the year:
textbook industry. ► Real GDP may fall.
► All of the given options. ► Nominal GDP must fall.
www.vuzs.net ► Nominal GDP may increase.
http://groups.google.com/group/vuzs ► Real GDP must rise.
Question No: 7 ( M - 1 ) .
A reason why some economists basically Question No: 13 ( M - 1 ) .
ignore the short run is because they believe Gross domestic product (GDP) is the market
that the economy: value of:
► Has self-correcting mechanisms. ► All transactions in an economy during
► Can only be graphed with a horizontal one-year period.
curve. ► All goods and services exchanged in an
► Never needs correction. economy during one-year period.
► None of the given options. ► All final goods and services exchanged in
an economy during one-year period.
Question No: 8 ( M - 1 ) . ► All final goods and services produced in
Unlike the classical economists, Keynes a domestic economy during one-year period.
believed that the economy could get stuck in www.vuzs.net
the short run for a significant period of time http://groups.google.com/group/vuzs
because of: Question No: 14 ( M - 1 ) .
► Insufficient aggregate supply.
Which of the following does NOT refer to ► Reduce the interest rates.
macroeconomics? ► Restrict the consumer spending.
► The study of the aggregate level of ► Restrict the imports.
economic activity.
► The study of the economic behavior of Question No: 19 ( M - 1 ) .
individual decision-making units such as Suppose there are two producers and two
consumers, resource owners, and business products. Which of the following is not TRUE
firms. in this situation?
► The study of the cause of unemployment. ► A producer has an absolute advantage
► The study of the cause of inflation. on one product.
► A producer has the comparative
Question No: 15 ( M - 1 ) . advantage on both products.
The Marginal Propensity to Save (MPS) is: ► A producer has the comparative
► One Minus Marginal Propensity to advantage on one product.
Consume (MPC). ► A producer has an absolute advantage
► Saving divided by consumption. on both products.
► The slope of the consumption function
(or line). Question No: 20 ( M - 1 ) .
► The proportion of disposable income Trade can be beneficial in which of the
used for consumption. following situations?
► Two countries produce the same goods
Question No: 16 ( M - 1 ) . at the same costs.
Which of the following statements is TRUE ► Two countries produce different goods at
about cartels? different costs.
► These are organizations of independent ► Two countries are isolated.
firms, producing similar products, that work ► Two countries have the same markets.
together to raise prices and restrict output.
► These areorganizations of Question No: 21 ( M - 1 ) .
interdependent firms, producing similar GNP is a good indicator of:
products, that work together to raise prices and ► The total payment of factor owners.
restrict output. ► The amount of consumption and
► These areorganizations of independent investment.
firms, producing different products, that work ► The conditions of production and
together to raise prices and restrict output. employment.
► These areconsidered as part of ► The amount of incomes available for
monopolistic competition. spending.
www.vuzs.net
http://groups.google.com/group/vuzs Question No: 22 ( M - 1 ) .
Question No: 17 ( M - 1 ) . For a study of the long term growth of the
Those who hold the classical view of the economy, we use:
labour market are likely to believe that: ► Real GNP.
► Monetary but not fiscal policy will have ► Nominal GNP.
an effect on output and employment. ► Personal income.
► Fiscal but not monetary policy will have ► Disposable personal income.
an effect on output and employment. www.vuzs.net
► Both monetary and fiscal polic0y will http://groups.google.com/group/vuzs
have an effect on output and employment. Question No: 23 ( M - 1 ) .
► Neither monetary nor fiscal policy will Total national consumption consists of:
have an effect on output and employment. ► Private consumption.
► Public consumption.
Question No: 18 ( M - 1 ) . ► Exports.
Suppose the balance of payment is in deficit ► Private and public consumption.
in an economy. The government of that
economy will take all of the following actions Question No: 24 (M-1) .
EXCEPT:
► Devalue the currency.
If there is an increase in consumer’s ► A one-time increase in money growth.
confidence, ceteris paribus, then which of ► A continuous increase in the money
the following will happen? growth rate.
► Consumption function will shift ► A continuous increase in aggregate
downward. demand.
► Consumption function will shift upward. ► The rising price of oil.
► Saving function will shift upward.
► Consumption function will remain the Question No: 31 ( M - 1 ) .
same. The decrease in the price of one country’s
currency in terms of other currencies due to
Question No: 25 ( M - 1 ) . the market forces of demand and supply is
Information products are also known as: known as:
► Inferior products. ► Revaluation.
► Superior products. ► Devaluation.
► Internet products. ► Appreciation.
► Expensive products. ► Depreciation.

Question No: 26 ( M - 1 ) . Question No: 32 ( M - 1 ) .


Public education creates: Which of the following will happen by a
► Asymmetric information. reduction in net exports all other things
► External costs. being equal?
► Internal costs. ► It will result in a movement up along the
► External benefits. aggregate demand curve.
► It will reduce aggregate supply.
Question No: 27 ( M - 1 ) . ► It will reduce aggregate demand.
In the long run, the price level is determined ► It will not change aggregate demand or
by: aggregate supply in the domestic economy.
► Aggregate demand. www.vuzs.net
► Aggregate supply. http://groups.google.com/group/vuzs
► The government. Question No: 33 ( M - 1 ) .
► Money supply. Endogenous growth model is also known
www.vuzs.net as:
http://groups.google.com/group/vuzs ► AK Model.
Question No: 28 ( M - 1 ) . ► Exogenous growth model.
In the definition of labor force, economists ► Best growth model.
include: ► All of the given options.
► Only people who are working full-time.
► People who are not working but are Question No: 34 ( M - 1 ) .
actively looking for a job and people who are Contractionary fiscal policy includes:
working. ► Increasing taxes and increasing
► People who are working. government purchases.
► None of the given options. ► Raising interest rates, increasing taxes,
and decreasing transfer payments.
Question No: 29 ( M - 1 ) . ► Increasing taxes and decreasing
Rising inflation means: government expenditures.
► That the price level is increasing by a ► Raising interest rates, decreasing taxes,
given percentage rate. and decreasing government spending.
► That the prices of all goods and services
increase from year to year. Question No: 35 ( M - 1 ) .
► That the price level is rising at an Which of the following shows the inverted-U
increasing rate. shape when plotted on a graph?
► That the price level is rising at a variable ► Consumption curve.
rate. ► Supply curve.
► Laffer curve.
Question No: 30 ( M - 1 ) . ► Investment curve.
In the long run, sustained inflation is due to:
Question No: 36 ( M - 1 ) . ► There will be a surplus to accumulate.
A tax on individual’s income is known as: ► There will be downward pressure on the
► Sales tax. current market price.
► Excise tax. ► There will be upward pressure on the
► Corporate income tax. current market price.
► Personal income tax. ► There will be lower production during the
next time period.
Question No: 37 ( M - 1 ) .
The price of Nokia 3110 cell phone is Rs. Question No: 42 ( M - 1 ) .
8000. What is the function of money in this What is TRUE about the relationship
context? between average product (AP) and marginal
► A medium of exchange. product (MP)?
► A means of payment. ► If AP exceeds MP, then AP is falling.
► A unit of account. ► If AP is at a maximum, then MP is also at
► A measure of quality. maximum.
► If AP = MP, then total product is at a
Question No: 38 ( M - 1 ) . maximum.
What will be the impact of an increase in ► If Total Product is declining, then AP is
taxes? negative.
► It will shift the IS curve to the left and
decrease both the interest rate and the level of Question No: 43 ( M - 1 ) .
income. Suppose all inputs are increased by 20% but
► It will shift the IS curve to the right and output increases by less than 20% in a
increase both the interest rate and the level of production process. This means that the
income. firm experiences:
► It will shift the IS curve to the right and ► Decreasing returns to scale.
increase the level of income but decrease the ► Constant returns to scale.
interest rate. ► Increasing returns to scale.
► It will shift the LM curve downward (to the ► None of the given options.
right) and increase the level of income but
decrease the interest rate. Question No: 44 ( M - 1 ) .
www.vuzs.net If firms are not of equal size in oligopoly,
http://groups.google.com/group/vuzs then quotas can be allocated according to
Question No: 39 ( M - 1 ) . the of each firm.
If money supply is fixed by the central bank ► Marginal revenue
then in interest rate-money supply space, ► Marginal cost
money supply curve will be: ► Average variable cost
► Horizontal. ► Average cost
► Vertical. www.vuzs.net
► Negatively sloped. http://groups.google.com/group/vuzs
► Positively sloped. Question No: 45 ( M - 1 ) .
Optimal mix of resources is decided by
Question No: 40 ( M - 1 ) . ► The price mechanism.
Assume that pen and ink are ► Producers.
complements. When the price of pen goes ► Consumers.
up, the demand curve for ink: ► Government.
► Shifts to the left.
► Shifts to the right. Question No: 46 ( M - 1 ) .
► Remains constant. When the slope of a demand curve is
► Shifts to the right initially and then returns infinity, elasticity of demand is
to its original position. ► Zero elastic.
► Unit elastic.
Question No: 41 ( M - 1 ) . ► Less elastic.
Which of the following will happen if the ► More elastic.
current market price is set below the market
clearing level? Question No: 47 (M-1) .
Assume that there is no government or to output, consumption and investment level
foreign sector, if the marginal propensity to if people start saving more suddenly.
save (MPS) is 0.2, then the value of saving
multiplier will be equal to: Question No: 52 ( M - 5 )
► 0.80 Differentiate between fixed exchange rate
► 1.20 and floating exchange rate.
► 0.50 www.vuzs.net
► 1.25 http://groups.google.com/group/vuzs
Reference: Question No: 53 ( M - 5 )
http://www.s- Some economists suggest “growth through
cool.co.uk/alevel/economics/aggregate-demand- trade strategy” to tackle the problem of
and-aggregate-supply/the-45-degree- poverty of under developed countries.
diagram.html a) What is the basic theme of this
strategy?
Question No: 48 ( M - 1 ) . b) Why this strategy is not so much
If prices are held constant, an increase in successful?
money supply will cause MS/P to: c) What is the proposed solution
► Shift to the right. presented to tackle the drawback of this
► Shift to the left. strategy?
► Stay as it is. (M - 2+1.5+1.5)
► None of the given options.
www.vuzs.net
http://groups.google.com/group/vuzs
Question No: 49 ( M - 3 )
It is said that growth is an important FINALTERM EXAMINATION
macroeconomic issue. Why? Discuss. Spring 2010
ECO401- Economics (Session - 4)
Question No: 50 ( M - 3 )
What are the different borrowing options www.vuzs.info
available to the government for reducing the
fiscal deficit? Time: 90 min
M - 69
Question No: 51 (M-5) Question No: 1 ( M - 1 ) .
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 ( M - 1 ) .
Which of the following is the term that
economists use to describe how consumers
rank different goods and services?

► Satisfaction index.
► Goodness.
► Utility.
► None of the given options.
What actually the Keynesian paradox of thrift
states? In the above figure, economy is in Question No: 3 ( M - 1 ) .
equilibrium at point E where withdrawls are An individual with a constant marginal utility
equal to leakages. Keeping Keynes’s paradox of income will be:
of thrift arguments in mind, what will happen
► Risk loving.
► Risk neutral. www.vuzs.info
► Risk averse.
► Insufficient information for a decision. Question No: 8 ( M - 1 ) .
www.vuzs.info In monopoly, which of the following is NOT
true?
Question No: 4 ( M - 1 ) .
Which of the following is a correct statement ► Products are differentiated.
about the substitution effect? ► There is freedom of entry and exit into
the industry in the long run.
► The substitution effect is always ► The firm is a price maker.
negative. ► There is one main seller.
► The substitution effect is positive for an
inferior good. Question No: 9 ( M - 1 ) .
► The substitution effect measures how Welfare economics is the branch of
demand changes when income changes. economics which deals with:
► The substitution effect is positive for a
Giffen good. ► Positive issues.
► Normative issues.
Question No: 5 ( M - 1 ) . ► Micro issues.
Producer surplus in a perfectly competitive ► Macro issues.
industry is: www.vuzs.info
► The difference between profit at the
profit-maximizing and profit-minimizing level of Question No: 10 ( M - 1 ) .
output. The aggregate demand will decrease if:
► The difference between revenue and
total cost. ► Investment spending decreases.
► The difference between revenue and ► Government spending increases.
variable cost. ► Consumption spending increases.
► The difference between revenue and ► Imports decreases.
fixed cost.
www.vuzs.info Question No: 11 ( M - 1 ) .
Unlike the classical economists, Keynes
Question No: 6 ( M - 1 ) . believed that the economy could get stuck in
Second-degree price discrimination is the the short run for a significant period of time
practice of charging: because of:

► The reservation price to each customer. ► Insufficient aggregate supply.


► Different prices for different blocks of the ► Insufficient aggregate demand.
same good or service. ► Quick self correcting mechanism.
► Different groups of customers different ► Government purchases of too many
prices for the same products. goods and services.
► Each customer the maximum price that www.vuzs.info
he or she is willing to pay.
Question No: 12 ( M - 1 ) .
Question No: 7 ( M - 1 ) . Classical economics was replaced as the
The textbook for your class was not dominant theory of macroeconomic analysis
produced in a perfectly competitive industry by:
because:
► There are so few firms in the industry ► Monetarism.
that market shares are not small, and firm's ► Rational expectations.
decisions have an impact on market price. ► Keynesian economics.
► Upper-division microeconomics texts are ► Neoclassical economics.
not all alike.
► It is not costless to enter or exit the Question No: 13 ( M - 1 ) .
textbook industry. Which of the following will result if there is a
► All of the given options. decrease in aggregate demand?
► Expansion; inflation.
► Recession; deflation. Question No: 19 ( M - 1 ) .
► Expansion; deflation. Which of the following statements best
► Recession; inflation. describes the difference between
www.vuzs.info endogenous growth theory and the Solow
growth theory?
Question No: 14 ( M - 1 ) . ► Endogenous growth theory is a monetary
Which of the following is NOT an account in theory whereas the Solow theory is a real
the balance of payments? theory.
► Endogenous growth theory assumes
► Capital account. diminishing returns to capital and the Solow
► Financial account. theory assumes constant returns.
► Current account. ► In endogenous growth theory, economies
► Future account. with the same technology and saving rate need
not converge to the same steady state as in the
Question No: 15 ( M - 1 ) . Solow model.
Endogenous growth theory was developed ► All of the given options are correct.
in: www.vuzs.info

► 1980. Question No: 20 ( M - 1 ) .


► 1965. The demand curve for labour can be derived
► 1970. from the intersection of:
► 1950. ► Horizontal wage rate lines and the
www.vuzs.info marginal revenue product of labour.
► Vertical wage rate lines and the marginal
Question No: 16 ( M - 1 ) . revenue product of labour.
The money aggregate M1 does not include: ► Vertical wage rate lines and the marginal
revenue product of capital.
► Currency in the vaults of commercial ► Horizontal wage rate lines and the
banks. marginal revenue product of capital.
► Currency in the hands of the public.
► Traveler's checks that have been issued. Question No: 21 ( M - 1 ) .
► Demand deposits at commercial banks. Public education creates:
► Asymmetric information.
Question No: 17 ( M - 1 ) . ► External costs.
Gross domestic product (GDP) is the market ► Internal costs.
value of: ► External benefits.

► All transactions in an economy during Question No: 22 ( M - 1 ) .


one-year period. Which of the following is the best example of
► All goods and services exchanged in an a public good?
economy during one-year period. ► A cup of coffee.
► All final goods and services exchanged in ► A monthly magazine.
an economy during one-year period. ► A haircut.
► All final goods and services produced in ► An interstate highway.
a domestic economy during one-year period. www.vuzs.info
www.vuzs.info
Question No: 23 ( M - 1 ) .
Question No: 18 ( M - 1 ) . In the short run, the equilibrium price level
The accelerator is a related concept which and the equilibrium level of total output are
formalizes the investment response to: determined by the intersection of:
► The aggregate demand, the short-run
► Consumption. aggregate supply and the long-run aggregate
► Interest rate. supply curves.
► Output. ► The short-run aggregate supply and the
► None of the given options. long-run aggregate supply curves.
► The aggregate demand and the short-run ► Fixed exchange rate.
aggregate supply curves. ► Flexible exchange rate.
► The aggregate demand and the long-run ► Fixed interest rate.
aggregate supply curves. ► Flexible interest rate.
www.vuzs.info
Question No: 24 ( M - 1 ) .
Total national investment consists of: Question No: 30 ( M - 1 ) .
► Gross domestic fixed capital formation. The price of one unit of foreign good in
► Change in stocks. terms of domestic good is known as:
► Export less imports. ► Inflation rate.
► All of the given options. ► Real exchange rate.
www.vuzs.info ► Nominal exchange rate.
► Discount rate.
Question No: 25 ( M - 1 ) .
In the definition of labor force, economists Question No: 31 ( M - 1 ) .
include: Development is impossible without:
► Only people who are working full-time. ► Incentive to profit.
► People who are not working but are ► Foreign aid.
actively looking for a job and people who are ► Domestic savings.
working. ► Inflation.
► People who are working.
► None of the given options. Question No: 32 ( M - 1 ) .
A tax in which people pay the same
Question No: 26 ( M - 1 ) . percentage of income in taxes regardless of
People who are only working part-time, but their incomes is called:
want to be working full-time, are classified ► Value-added tax.
officially as: ► Regressive tax.
► Unemployed and in the labor force. ► Proportional tax.
► Unemployed and out of the labor force. ► Progressive tax.
► Employed and out of the labor force. www.vuzs.info
► Employed and in the labor force.
www.vuzs.info Question No: 33 ( M - 1 ) .
Which of the following shows the inverted-U
Question No: 27 ( M - 1 ) . shape when plotted on a graph?
The level of output produced when the labor ► Consumption curve.
market is in equilibrium is called: ► Supply curve.
► Target output. ► Laffer curve.
► Product market equilibrium output. ► Investment curve.
► Full-employment output.
► Natural output. Question No: 34 ( M - 1 ) .
If the required reserve ratio is 20% then what
Question No: 28 ( M - 1 ) . will be the value of money multiplier?
Which of the following would be expected to ► 1.
increase the natural rate of unemployment? ► 2.5.
► An increase in the growth rate of the ► 5.
capital stock. ► 7.
► A reduction in the corporate profits tax.
► An increase in the level of unemployment Question No: 35 ( M - 1 ) .
compensation paid to unemployed workers. Which of the following is (are) primary
► A reduction in the number of new function (s) of a central bank?
entrants into the labor force. I. Act as a regulator of banks.
II.Issue government bonds.
Question No: 29 ( M - 1 ) . III. Set monetary policy.
Which of the following avoids uncertainty ► I only.
and volatility and making international ► I and III.
transactions easier? ► I and II.
► I, II and III. ► An increase in income if X is a normal
www.vuzs.info good.
► An increase in the price of a product that
Question No: 36 ( M - 1 ) . is a close substitute for X.
In a period of boom, credit creation is: ► An increase in the price of a product that
► Small. is complementary to X.
► Heavy.
► Unchanged. Question No: 42 ( M - 1 ) .
► Zero. Concentration ratio is used to assess:
► The level of competition in an industry.
Question No: 37 ( M - 1 ) . ► The degree of control over prices.
How the government increases paper ► The technological gaps between the
currency component of the money supply? firms.
► Households sell gold to the government ► Marginal cost and marginal benefit
in returns for currency. analysis.
► The government gives newly created www.vuzs.info
currency to households.
► The government gives paper currency to Question No: 43 ( M - 1 ) .
the banks. Monopolists produce lower quantities at
► The government exchange paper higher prices compared to perfectly
currency for government securities. competitive firms, because monopolists do
not produce where
Question No: 38 ( M - 1 ) . ► Marginal cost = marginal revenue
LM curve shows the equilibrium in: ► Average revenue = marginal cost
► Money Market. ► Price = average variable cost
► Goods Market. ► Price = marginal cost
► Labor Market.
► Financial Market. Question No: 44 ( M - 1 ) .
www.vuzs.info Since bread and butter are complements.
When the price of bread goes down, the
Question No: 39 ( M - 1 ) . demand curve for butter:
Which of the following is the main reason of ► Shifts to the left.
poverty in third world countries? ► Shifts to the right.
► Generation gap. ► Remains constant.
► Communication gap. ► Shifts to the right initially and then returns
► Foreign exchange gap. to its original position.
► None of the given options. www.vuzs.info

Question No: 40 ( M - 1 ) . Question No: 45 ( M - 1 ) .


What is meant by freedom of enterprise in As price increases total revenue decreases
pure capitalism? in case of
► It means that businesses are free to
produce products that consumers want. ► Inelastic demand.
► It means that consumers are free to buy ► Unit elastic demand.
goods and services that they want. ► Zero elastic demand.
► It means that resources are distributed ► Elastic demand.
freely to businesses.
► It means that government is free to direct Question No: 46 ( M - 1 ) .
the actions of businesses. Suppose the consumption function is C =
$10 + 0.75Y. If Y = 50 $, then the amount of
Question No: 41 ( M - 1 ) . consumption is:
What might be the reason of a leftward shift ► 37.50
in the demand curve for product X? ► 85.00
► A decrease in income if X is an inferior ► 47.50
good. ► 10.75
www.vuzs.info
by Hafiz Salman Majeed
Question No: 47 ( M - 1 ) .
Balance of payments problems are also often www.vuzs.info
a result of:
► High domestic deflation. Time: 90 min
► Domestic unemployment. M - 69
► Domestic poverty. Question No: 1 ( M - 1 ) .
► High domestic inflation. Land is best described as:
► Produced factors of production.
Question No: 48 ( M - 1 ) . ► "Organizational" resources.
Current account deficit can be reduced by: ► Physical and mental abilities of people.
► Devaluation of currency. ► "Naturally" occurring resources.
► Revaluation of currency.
► Reduction in exports. Question No: 2 ( M - 1 ) .
► Fiscal deficit. The price elasticity of demand measures the
responsiveness of quantity demanded to:
Question No: 49 ( M - 3 ) ► Quantity demanded.
Differentiate between inflation and deflation. ► Quantity supplied.
► Price.
Question No: 50 ( M - 3 ) ► Output.
What are the reasons that poor countries
remained poor? Question No: 3 ( M - 1 ) .
Suppose your local public golf course
Question No: 51 ( M - 5 ) increases the greens fees for using the
Explain the difference between endogenous course. If the demand for golf is relatively
growth model and exogenous growth model. inelastic, you would expect:
www.vuzs.info ► A decrease in total revenue received by
the course.
Question No: 52 ( M - 5 ) ► An increase in total revenue received
Following table shows different stages of by the course.
production of cloth. Calculate the value ► No change in total revenue received by
added at each stage of production. What is the course.
GDP by this approach? ► An increase in the amount of golf played
Stage of Money Value on the course.
production value (Rs) added at
each stage Question No: 4 ( M - 1 ) .
(Rs) As more of a good is consumed, then total
Raw cotton 10.50 ? utility typically:
Cotton yarn 25.68 ? ► Increases at a decreasing rate.
Coarse cloth 45.82 ? ► Decreases as long as marginal utility is
? negative.
Finished cloth 55.66
► Decreases as long as marginal utility is
positive.
► Is negative as long as marginal utility is
Question No: 53 ( M - 5 )
decreasing.
Discuss the equilibrium condition in money
www.vuzs.info
market. Explain this equilibrium condition
with the help of diagram.

FINALTERM EXAMINATION

Spring 2010 Question No: 5 (M-1) - Please choose


ECO401- Economics (Session - 3) vu zs one
At any given point on an indifference curve, ► Free entry and exit from the industry.
the absolute value of the slope equals: ► Strategic behavior.
► Unity--otherwise there would be no ► Standardized products.
indifference. ► Advertising.
► The marginal rate of substitution. www.vuzs.info
► The consumer’s marginal utility.
► None of the given options.

Question No: 6 ( M - 1 ) .
Fixed costs are fixed with respect to
changes in:
► Output.
► Capital expenditures.
► Wages. Question No: 11 ( M - 1 ) .
► Time. Value of Marginal Product of Labor (VMPL) is
equal to:
Question No: 7 ( M - 1 ) . ► MPPL/ Pi.
If a firm experiences economies of scale, ► MPPL.
then the: ► Pi.
► Long-run average total cost curve is ► MPPL x Pi.
equal to the economies of scope.
► Long-run average total cost curve is Question No: 12 ( M - 1 ) .
positively sloped. According to classical economics, the
► Long-run average total cost curve is economy was unlikely to experience:
horizontal. ► Full employment.
► Long-run average total cost curve is ► Flexible wages and prices.
negatively sloped. ► Equality between saving and investment.
► High rates of unemployment.
Question No: 8 ( M - 1 ) .
When a firm charges each customer the Question No: 13 ( M - 1 ) .
maximum price that the customer is willing Say's Law is a proposition underlying
to pay, the firm: classical economics stating that:
► Engages in a discrete pricing strategy. ► Supply creates its own demand.
► Charges the average reservation price. ► Leakages are greater than injections.
► Engages in second-degree price ► Unemployment is a common condition.
discrimination. ► Consumption expenditures are a function
► Engages in first-degree price of disposable income.
discrimination.
Question No: 14 ( M - 1 ) .
Question No: 9 ( M - 1 ) . An assumption of classical economics is:
Which of the following is true in long run ► Prices and wages are inflexible.
equilibrium for a firm in a monopolistic ► Self-correction takes a long time.
competitive industry? ► Supply creates its own demand.
► The demand curve is tangent to marginal ► Investment and saving are seldom equal.
cost curve.
► The demand curve is tangent to Question No: 15 ( M - 1 ) .
average cost curve. Which of the following will result if there is a
► The marginal cost curve is tangent to decrease in aggregate demand?
average cost curve. ► Expansion; inflation.
► The demand curve is tangent to marginal ► Recession; deflation.
revenue curve. ► Expansion; deflation.
► Recession; inflation.
Question No: 10 ( M - 1 ) .
Which one of the following characteristics is Question No: 16 ( M - 1 ) .
common in monopolistic competition and Real Gross Domestic Product (GDP)
oligopoly? equals:
► Nominal GDP minus net exports.
► Nominal GDP divided by the GDP
deflator.
► Nominal GDP multiplied by the GDP
deflator.
► GDP minus depreciation. Question No: 22 ( M - 1 ) .
Which of the following best describes the
''Capital widening''?
Question No: 17 ( M - 1 ) . ► More capital per unit of labour.
Which of the following statements is TRUE? ► More capital and more labour but with
► Net National Product = Gross National the same amount of capital per
Product – Depreciation. unit of labour.
► Net National Product = National Income. ► Increasing the usage of existing capital.
► Net National Product = Disposable ► Importing capital from the developed
Personal Income. world.
► Net National Product = Personal
Income. Question No: 23 ( M - 1 ) .
Suppose there are two producers and two
Question No: 18 ( M - 1 ) . products. Which of the following is not TRUE
Which of the following shows the Fisher in this situation?
equation of exchange? ► A producer has an absolute advantage
► MT=PV. on one product.
► VT=PM. ► A producer has the comparative
► MV=PQ. advantage on both products.
► MY=VP. ► A producer has the comparative
advantage on one product.
Question No: 19 ( M - 1 ) . ► A producer has an absolute advantage
In the Keynesian cross model, the 45-degree on both products.
line has a slope of:
► 45. Question No: 24 ( M - 1 ) .
► Infinity. Public education creates:
► 1. ► Asymmetric information.
► 0. ► External costs.
► Internal costs.
Question No: 20 ( M - 1 ) . ► External benefits.
The principle economic difference between
a competitive and a non-competitive market Question No: 25 ( M - 1 ) .
is: A graph that depicts the relationship
► The number of firms in the market. between the total quantity of goods and
► The extent to which any firm can services demanded and the price level is
influence the price of the product. known as:
► The size of the firms in the market. ► Aggregate demand curve.
► The annual sales made by the largest ► Average price level.
firms in the market. ► Circular flow model.
► GDP curve.
Question No: 21 ( M - 1 ) .
An individual whose attitude towards risk is Question No: 26 (M-1) .
known as:
► Risk averse.
► Risk loving.
► Risk neutral.
► None of the given options.
www.vuzs.info
Which of the following can happen in a
boom period?
► Unemployment is likely to fall.
► Prices are likely to fall.
► Demand is likely to fall.
► Imports are likely to grow.

Question No: 31 ( M - 1 ) .
The taxes on alcohol, tobacco, and gasoline
are categorized as:
► Sales tax.
► Excise tax.
► Corporate income tax.
► Personal income tax.

Question No: 32 ( M - 1 ) .
The item which serves as a medium of
Refer to the above figure, if the real GDP is exchange is known as:
$7,000 billion and the implicit price deflator
► Gold.
is 1.16, what is the value of nominal GDP?
► Capital.
► $6,034 billion. ► Silver.
► $8,120 billion. ► Money.
► $9,120 billion.
► Cannot be determined from the given Question No: 33 ( M - 1 ) .
information. A country has a comparative advantage:
► If it can produce a good at a higher
Question No: 27 ( M - 1 ) . opportunity cost than other nations.
Let L equal the size of the labor force, E the ► If it can produce a good at a lower
number of employed workers, and U the opportunity cost than other nations.
number of unemployed workers. The
► If it can produce a good by using less
unemployment rate is equal to:
resources than other nations.
► (L + E)/L. ► If it can produce a good that lies outside
► U/L. its production possibilities curve.
► 1 + (E/L).
► All of the given options. Question No: 34 ( M - 1 ) .
A tariff is defined as:
Question No: 28 ( M - 1 ) .
► A restriction on exports.
The natural rate of unemployment is likely to ► A tax placed on an imported product.
fall if: ► A limit on the amount of a good or
► Unemployment benefits increase. service that can be exported.
► Income tax increases. ► A limit on the amount of a good or
► More training is available for the
service that can be imported.
unemployed.
► Geographical immobility increases. Question No: 35 ( M - 1 ) .
Countries that are not among the high
Question No: 29 ( M - 1 ) . income nations of the world are categorized
Which of the following is NOT a determinant as:
of net exports?
► Developed countries.
► Domestic and foreign incomes. ► Progressed countries.
► Relative price levels. ► Developing countries.
► Domestic and foreign trade policies. ► High income countries.
► Producers’ expectations about future
prices. Question No: 36 (M-1) .
Question No: 30 (M-1) .
Which of the following is (are) the The relationship between interest rate and
characteristic(s) of high income countries as consumption is:
compared to low income countries? ► Positive.
I. Lower rates of population growth. ► Negative.
II.Greater income inequality. ► Zero.
III. A large proportion of the labor ► Indeterminate.
force in agriculture.
IV. Higher rates of investment.
► I only. Question No: 42 ( M - 1 ) .
► I and II. The principle which states that a change in
► II and IV. income causes a magnified change in
► I and IV. investment is termed as the:
► None of the given.
► Paradox of thrift.
Question No: 37 ( M - 1 ) . ► Multiplier effect.
In which of the following conditions, a ► Accelerator effect.
welfare loss occurs in monopoly?
► Where the price is greater than the Question No: 43 ( M - 1 ) .
marginal cost. Hysteresis refers to the permanent effects of
► Where the price is greater than the a:
marginal benefit. ► Temporary change.
► Where the price is greater than the ► Structural change.
average revenue. ► Cyclical change.
► Where the price is greater than the ► Political change.
marginal revenue.
Question No: 44 ( M - 1 ) .
Question No: 38 ( M - 1 ) . Factor income from abroad like worker
If average physical product (APP) is remittances, dividends and interest has
decreasing then which of the following must positive impact on:
be true? ► Current account balance.
► Marginal physical product is more than ► Capital account balance.
the average physical product. ► Trade balance.
► Marginal physical product is less than ► Unemployment.
the average physical product.
► Marginal physical product is decreasing. Question No: 45 ( M - 1 ) .
► Marginal physical product is increasing. The growth rate of any country’s real GDP
can be:
Question No: 39 ( M - 1 ) . ► Negative or positive.
When different prices are charged to ► positive or zero.
customers who purchase different ► Negative or zero.
quantities, this is an example of ► Negative or positive or zero.
► Second-degree price discrimination.
► First-degree price discrimination. Question No: 46 ( M - 1 ) .
► Monopoly. Endogenous growth theory is also known
► Perfect competition. as:
► Neo-classical growth theory.
Question No: 40 ( M - 1 ) . ► New growth theory.
Which of the following may cause a ► Classical growth model.
decrease in national income? ► Keynesian growth model.
► Increase imports.
► Decrease unemployment. Question No: 47 ( M - 1 ) .
► Decreasing exports. Which of the following is not the World
► None of the given options. Bank’s structural reform policy?
► FDI liberalization.
Question No: 41 (M-1) . ► Trade liberalization.
► Financial liberalization.
► Same monetary policy for all not for good Y.
countries. Increasing opportunity cost for good Y but
not for good X.
Question No: 48 ( M - 1 ) . Constant opportunity cost for both goods.
The common characteristics of a developing
country is: ECO401 - Economics - Q.No. 3
► High growth rate. If the quantity demanded of a product is
► High literacy rate. greater than the quantity supplied of a
► Skilled labor. product, then:
► High unemployment rate. There is a shortage of the product.
There is a surplus of the product.
The product is a normal good.
Question No: 49 ( M - 3 ) The product is an inferior good.
At what point, the equilibrium occurs in the
foreign exchange market? ECO401 - Economics - Q.No. 4
The supply curve is upward-sloping
Question No: 50 ( M - 3 ) because:
What are the reasons that poor countries
remained poor? As the price increases, consumers demand
less.
Question No: 51 ( M - 5 ) As the price increases, suppliers can
If the government increase it’s spending e.g. earn higher levels of profit or justify higher
increases the wages of the government marginal costs to produce more.
servant, how it will affect on consumption, None of the given options.
production and hiring of new employees? As the price increases, so do costs.
www.vuzs.info
ECO401 - Economics - Q.No. 5
Question No: 52 ( M - 5 ) When an industry's raw material costs
Explain the difference between appreciation increase, other things remaining the same:
and depreciation of currency. The supply curve shifts to the right.
Output increases regardless of the market
Question No: 53 ( M - 5 ) price and the supply curve shifts upward.
Differentiate among M0, M1 and Output decreases and the market price
M2 components of money supply. also decrease.
The supply curve shifts to the left.

Spring 2009 - (Session - 2) ECO401 - Economics - Q.No. 6


www.vuzs.info When the price of petrol rises by 12%, the
quantity of petrol purchased falls by 8%. This
ECO401 - Economics - Q.No. 1 shows that the demand for petrol is:
In a free-market economy, the allocation of solution= Ped= % change in Q demand /%
resources is determined by: change in Q Price= 10%/12%= 0.5 where e>1
elastic
Votes taken by consumers. e
A central planning authority.
Consumer preferences.
The level of profits of firms. Perfectly elastic.
Unit elastic.
ECO401 - Economics - Q.No. 2 Elastic.
The concave shape of the production Inelastic.
possibilities curve for two goods X and Y
illustrates: http://groups.google.com/group/vuZs
www.vuzs.info
Increasing opportunity cost for both ECO401 - Economics - Q.No. 7
goods. Suppose price rises from $15 to $17 and
Increasing opportunity cost for good X but quantity demanded decreases by 20%. We
can conclude: Output is being produced at minimum cost.
Output is not being produced at minimum
Demand is unitary elastic. cost.
Demand is elastic. The two products are being produced at the
The elasticity of demand is 2. medium input cost to the firm.
Total revenue will decrease. The two products are being produced at the
highest input cost to the firm.
ECO401 - Economics - Q.No. 8
"Utility" is most closely related to the term: ECO401 - Economics - Q.No. 14
In order for a taxicab to be operated in New
Useless. York City, it must have a medallion on its
Require. hood. Medallions are expensive but can be
Necessary. resold and are therefore an example of:
Satisfaction. A fixed cost.
A variable cost.
ECO401 - Economics - Q.No. 9 An implicit cost.
When the marginal utility of a good is zero, An opportunity cost.
this implies that:
ECO401 - Economics - Q.No. 15
The consumer would not spend any The good produced by a monopoly:
additional income to buy more of that good. Has perfect substitutes.
Consumption of additional units would have Has no substitutes at all.
positive marginal utility. Has no close substitutes.
Total utility is minimized. Can be easily duplicated.
Total utility is also zero.
Ref. by sehar khan
ECO401 - Economics - Q.No. 10 In Monopoly, firm is price maker. A monopoly or
When the substitution effect of a lowered a firm within monopolistic competition that has
price is counteracted by the income effect, the power to influence the price it charges as the
the good in ECO401 Question is: good it produces does not have perfect
substitutes. A monopoly is a price maker as it
An inferior good. holds a large amount of power over the price it
A substitute good. charges.(same referance for b0th ECO401
An independent good. Questions)
A normal good.
ECO401 - Economics - Q.No. 16
ECO401 - Economics - Q.No. 11 Welfare economics is the branch of
Diminishing marginal returns implies: economics which deals with:

Decreasing marginal costs. Positive issues.


Increasing marginal costs. Normative issues.
Decreasing average variable costs. Micro issues.
Decreasing average fixed costs. Macro issues.

ECO401 - Economics - Q.No. 12 http://groups.google.com/group/vuZs


A graph showing all the combinations of
capital and labour available for a given total www.vuzs.info
cost is the: ECO401 - Economics - Q.No. 17
Budget constraint. The oligopoly model which predicts that
Expenditure set. oligopoly prices will tend to be very rigid is
Isoquant. the:
Isocost.
Cournot model.
ECO401 - Economics - Q.No. 13 Cobweb model.
When an isocost line is just tangent to an Dominant firm model.
isoquant, we know that: Kinked demand model.
ECO401 - Economics - Q.No. 18
The kinked demand curve model is based on Has self-correcting mechanisms.
which of the following assumptions?
Can only be graphed with a horizontal
Each firm considers its rival's output to be
fixed. curve.
Each firm considers its rival's price to be Never needs correction.
fixed. None of the given options.
Each firm believes rival will match all price
changes.
None of the given options. ECO401 - Economics - Q.No. 23
The long run aggregate supply curve will
ECO401 - Economics - Q.No. 19 shift to the right if:
Which of the following is NOT conducive to
the successful operation of a cartel?
The price level increases.
Market demand for the good is relatively Factors of production (such as labor and
inelastic. capital) increase.
The cartel supplies all of the world's output Expenditures (such as consumption and
of the good.
Cartel members have substantial cost net exports) increase.
advantages over non-member producers. The prices of inputs used to produce goods
The supply of non-cartel members is very and services (such as wages and the price of
price elastic. oil) decrease.
ECO401 - Economics - Q.No. 20
Cartels are: ECO401 - Economics - Q.No. 24
Organizations of independent firms, A primary implication of Keynesian
producing similar products, that work economics is:
together to raise prices and restrict output.
Organizations of interdependent firms,
producing similar products, that work together to The best government is the least
raise prices and restrict output. government.
Organizations of independent firms, Flexible wages and prices ensure full
producing different products, that work together
employment.
to raise prices and restrict output.
Considered as part of monopolistic Monetary policy is far superior to fiscal
competition. policy.
Business-cycle instability is best corrected
ECO401 - Economics - Q.No. 21 through government policies.
The marginal revenue product is:

Upward sloping due to the law of demand. ECO401 - Economics - Q.No. 25


Upward sloping due to the law of marginal The economic analysis most closely related
utility. to Say's Law is:
Downward sloping due to the law of
diminishing returns.
Downward sloping due to the law of supply. Short-run aggregate market.
Production possibilities.
Imperfect competition.
Circular flow.
ECO401 - Economics - Q.No. 22
A reason why some economists basically
ECO401 - Economics - Q.No. 26
ignore the short run is because they believe
that the economy: Which of the following is NOT a reason
of downward slope of aggregate demand http://groups.google.com/group/vuZs
www.vuzs.info
curve?
ECO401 - Economics - Q.No. 29
According to classical economists, the:
Aggregate demand curve is downward
The exchange-rate effect. sloping and the aggregate supply curve is
vertical.
The wealth effect.
Aggregate demand curve is downward
The classical dichotomy / monetary sloping and the aggregate supply curve is
neutrality effects. upward sloping.
The interest-rate effect. Aggregate demand curve is vertical and the
aggregate supply curve is upward sloping.
Aggregate demand curve is vertical and the
ECO401 - Economics - Q.No. 27 aggregate supply curve is horizontal.
The upward-sloping aggregate supply curve
indicates that: ECO401 - Economics - Q.No. 30
How many methods are there to measure
Gross Domestic Product?
As firms increase their level of output, the Three.
cost of producing an extra unit increases. Four.
An increase in aggregate demand causes Five.
little, if any increase in real output the economy Six.
is operating in the long run.
ECO401 - Economics - Q.No. 31
Any increase in aggregate demand causes Which of the following is a flow variable?
the output of producers to fall because the The value of the house in which you live.
general price level rises. The balance in your savings account.
Your monthly consumption on food
None of the given options.
items.
The number of carrots in your refrigerator
ECO401 - Economics - Q.No. 28 at the beginning of the month.
An important difference between the
ECO401 - Economics - Q.No. 32
Classical and Keynesian approaches to
Which of the following is NOT a stock
achieve a macroeconomic equilibrium is variable?
that:
Government debt.
Keynesian economists actively promote the Capital.
The amount of money held by the public.
use of fiscal policy while the classical Inventory investment.
economists do not.
Keynesian economists actively promote the ECO401 - Economics - Q.No. 33
use of monetary policy to improve aggregate Suppose that your income increases from
$100,000 to $150,000 and your consumption
economic performance while the classical increases from $80,000 to $120,000. Your
economists do not. Marginal Propensity to Save (MPS) is:
Classical economists believe that monetary delta consumtion/ delta income =40/50=.8
policy will certainly affect the level of output
0.2.
while the Keynesians believe that money growth 0.4.
affects only prices. 0.6.
Classical economists believe that fiscal 0.8.
policy is an effective tool for achieving economic
ECO401 - Economics - Q.No. 34
stability while the Keynesians do not.
Which of the following plays the key
balancing role in making sure that the
economy reaches and stays at equilibrium at ECO401 - Economics - Q.No. 40
the potential output level? The Phillips curve will shift to the right:

Real exchange rate. If there is a decrease in the expected


The production function. inflation rate.
Real price level. If there is an increase in the expected
Real interest rate. inflation rate.
If there is a decrease in the natural rate of
ECO401 - Economics - Q.No. 35 unemployment.
If injections are less than withdrawals at the If there is a favorable supply shock.
full-employment level of income then there If inflationary expectations increase, the
arises: Phillips curve will shift to the right. This worsens
the trade-off between inflation and
A deflationary gap. unemployment. (zh,vuzs)
Hysteresis. ECO401 - Economics - Q.No. 41
Hyperinflation. If a country has flexible exchange rate and
An inflationary gap. has more rapid inflation rate than other
countries, its currency will:
ECO401 - Economics - Q.No. 36
The labour force is made up of: Appreciate.
Depreciate.
The number of people employed minus the Not effect.
number of people unemployed. All of the given are possible.
The number of people employed plus the
number of people unemployed. http://groups.google.com/group/vuZs
Just the number of people employed. www.vuzs.info
The whole population. ECO401 - Economics - Q.No. 42
The nominal exchange rate is defined as the:
ECO401 - Economics - Q.No. 37 Market on which currencies of various
Deflation is: nations are traded for one another.
Price of one unit of foriegn good in terms of
An increase in the overall level of economic domestic good.
activity. Price of one unit of foriegn currency in terms
An increase in the overall price level. of domestic currency.
A decrease in the overall level of economic All of the given options.
activity.
A decrease in the overall price level. ECO401 - Economics - Q.No. 43
Current account deficit is equal to:
ECO401 - Economics - Q.No. 38
Which of the following will result if there is a Private sector resource deficit.
decrease in aggregate demand? Government budget deficit.
Expansion; inflation. Private sector resource deficit +
Recession; deflation. Government budget deficit.
Expansion; deflation. None of the given options.
Recession; inflation.
ECO401 - Economics - Q.No. 44
ECO401 - Economics - Q.No. 39 In the exogenous growth model, if
A decrease in the natural rate of investment exceeds depreciation, the capital
unemployment will: stock will ----------- and output will--------------
Shift the Phillips curve to the left. until the steady state is attained.
Result in a decrease in the inflation rate Increase; increase.
along the Phillips curve. Increase; decrease.
Shift the Phillips curve to the right. Decrease; decrease.
Result in an increase in the inflation rate Decrease; increase.
along the Phillips curve.
ECO401 - Economics - Q.No. 45
Endogenous growth theory differs in what tourists in London.
essential aspect from the Solow theory of A fall in the price of imported computers.
economic growth? An increase in the purchasing power of UK
tourists overseas.
Endogenous growth theory is a monetary vuzs.info
theory whereas the Solow theory is a ECO401 - Economics - Q.No. 50
real theory. An example of hysteresis having a negative
Endogenous growth theory assumes effect on a country's economy would be:
diminishing returns to capital and the Solow
theory assumes constant returns. Hyperinflation caused by excessive
In endogenous growth theory, economies demand.
with the same technology and saving rate need
Nervous investors selling all their shares,
not converge to the same steady state as in the
causing the stockmarket to crash.
Solow model.
All of the given options are correct. Unemployed workers not taking available
jobs.
ECO401 - Economics - Q.No. 46 Women being kept out of jobs traditionally
A currency appreciation should: held by men.

Reduce net exports and therefore increase ECO401 - Economics - Q.No. 51 ( M - 5 )


aggregate demand. Briefly discuss the concept of comparative
Raise net exports and therefore decrease advantage with the help of example.
aggregate demand.
Reduce net exports and therefore decrease ECO401 - Economics - Q.No. 52 ( M - 10 )
aggregate demand. A. Differentiate between Marginal
Raise net exports and therefore increase Propensity to Consume (MPC) and
aggregate demand. Marginal Propensity to Save (MPS).
B. Suppose a household has the
ECO401 - Economics - Q.No. 47 consumption function (C) presented in the
M1 component of money supply consists of: figure given below:
a. Find consumption when disposable
income is $8,000 and $10,000.
Paper currency and coins. b. Find consumption when disposable
Paper currency, coins and check writing income is $ 6,000. How can a household
deposits. consume more than its disposable income?
Paper currency, coins, check writing c. What is true for every point on the
deposits and savings deposits. 450 line?
Paper currency, coins, check writing
deposits, savings deposits and certificates of (M - 4+6)
deposits.

ECO401 - Economics - Q.No. 48


Commercial banks in Pakistan are ECO401 - Economics - Q.No. 53 ( M - 10 )
supervised by: Define M0 and M1. Briefly discuss the three
broad motives of holding money.
State bank.
National bank. (M -4+6)
Finance minister. http://groups.google.com/group/vuZs
World bank.
www.vuzs.info
ECO401 - Economics - Q.No. 49
What would result from a depreciation of the
pound on the foreign exchange market? ECO401 - Economics - Q.No. 54 ( M - 10 )
An increase in the price of imported Recall the Equation of Quantity theory of
computers. money and calculate the missing figure in
A fall in the purchasing power of US each of the following cases:
a) Money supply (M) =100, Price (P) = 3 and
real output (Q) = 200. Calculate the missing ECO401 - Economics - Q.No. 3 ( M - 1 ) .
figure. A normal good can be defined as one which
b) Velocity of money (V) = 4, Price (P) = 5 consumers purchase more of as:
and output (Q) =100. Calculate the missing
figure. ► Prices fall.
c) Money supply (M) = 200, velocity of money ► Prices rise.
(V) = 7 and output (Q) = 700. Calculate the ► Incomes fall.
missing figure.
d) Money supply (M) =150, velocity of money
► Incomes increase.
(V) = 8, Price level (P) = 3. Calculate the missing
value.
ECO401 - Economics - Q.No. 4 ( M - 1 )
(M - 2.5 each) Ali initially leased one-room space and
started a small day care centre with only 4
FINALTERM EXAMINATION children and one staff member. But he found
Fall 2009 that the cost per child is very high. He wants
ECO401- Economics (Session - 3) to expand the centre. Which of the following
will happen when Ali expand the centre?
by Tahir Qazi
www.vuzs.info ► Economies of scale.
► Diseconomies of scale.
► Decreasing returns to the labor inputs.
Time: 120 min ► Increasing returns to the labor inputs.
Marks = M = 87

ECO401 - Economics - Q.No. 1 ( M - 1 ) ECO401 - Economics - Q.No. 5 ( M - 1 )


Government authorities have managed to Incremental cost is the same concept as:
reduce the unemployment rate from 8% to ► Average cost.
4% in a hypothetical economy. As a result: ► Marginal cost.
► Fixed cost.
► The economy's production possibilities ► Variable cost.
curve will shift outward.
► The economy's production possibilities ECO401 - Economics - Q.No. 6 ( M - 1 ) .
curve will become steeper. Graphically, marginal revenue is defined as:
► The economy will move downward along ► The slope of a line from the origin to a
its production possibilities curve. point on the total revenue curve.
► The economy will move from a point ► The slope of a line from the origin to
inside to a point closer to its the end of the total revenue curve.
production possibilities curve. ► The slope of the total revenue curve at a
given point.
The construction of the production possibilities ► The vertical intercept of a line tangent to
curve assumes that all available resources are the total revenue curve at a given point.
fully employed. A reduction in unemployment
will bring the economy closer to this frontier. ECO401 - Economics - Q.No. 7 ( M - 1 )
The good produced by a monopoly:
ECO401 - Economics - Q.No. 2 ( M - 1 ) ► Has perfect substitutes.
If both supply and demand increase ► Has no substitutes at all.
simultaneously, the equilibrium: ► Has no close substitutes.
► Price must rise and the equilibrium ► Can be easily duplicated.
quantity must fall. Reference. by sehar khan
► Price must rise and the equilibrium In Monopoly, firm is price maker. A monopoly or
quantity may either rise or fall. a firm within monopolistic competition that has
► Quantity must rise and the equilibrium the power to influence the price it charges as the
price may either rise or fall. good it produces does not have perfect
► Price must fall and the equilibrium substitutes. A monopoly is a price maker as it
quantity may either rise or fall.
holds a large amount of power over the price it Which of the following would cause the
charges.(same referance for b0th questions) short run aggregate supply curve to shift to
the left but have no effect over the long run
ECO401 - Economics - Q.No. 8 ( M - 1 ) aggregate supply curve?
The maximum price that a consumer is
willing to pay for a good is called: ► The amount of factors of production
(such as labor and capital) increases.
► The reservation price.
► The market price. ► The amount of factors of production
► The first-degree price. (such as labor and capital) decreases.
► The block price. ► Prices of inputs (such as wages or oil
prices) increase.
ECO401 - Economics - Q.No. 9 ( M - 1 )
A market with few entry barriers and with ► Prices of inputs (such as wages or oil
many firms that sell differentiated products prices) decrease.
is:
ECO401 - Economics - Q.No. 14 ( M - 1 )
Which of the following is NOT a stock
► Purely competitive. variable?
► A monopoly.
► Monopolistically competitive. ► Government debt.
► Oligopolistic. ► Capital.
► The amount of money held by the public.
ECO401 - Economics - Q.No. 10 ( M - 1 ) ► Inventory investment.
Monopolistically competitive firms have
monopoly power because they: ECO401 - Economics - Q.No. 15 ( M - 1 )
The circular flow principle guarantees that in
► Are great in number equilibrium:
► Have freedom of entry.
► Are free to advertise. ► The level of investment spending will be
► Face downward sloping demand equal to the level of private savings.
curves. ► The level of exports will be equal to the
level of imports.
► The level of aggregate demand will be
ECO401 - Economics - Q.No. 11 ( M - 1 ) equal to real Gross Domestic Product.
The market structure in which there is ► The level of government spending will be
interdependence among firms is: equal to tax revenue.
► Monopolistic competition. ECO401 - Economics - Q.No. 16 ( M - 1 ) .
► Oligopoly. Unemployment benefits may increase the
► Perfect competition. unemployment rate because:
► Monopoly.
► Unemployment benefits reduce the cost
ECO401 - Economics - Q.No. 12 ( M - 1 ) of job search.
When the marginal revenue product of labor ► Unemployment benefits encourage
is greater than the marginal input cost of people to quit their jobs.
labor then the profit maximizing firm will: ► Unemployment benefits reduce the
benefits of additional job searching.
► Unemployment benefits enable people
► Hire more labor. to quit searching for work.
► Hire less labor.
► Maintain the same employment. ECO401 - Economics - Q.No. 17 ( M - 1 )
► Decrease output. The labour force is made up of:
ECO401 - Economics - Q.No. 13 (M-1) ► The number of people employed minus
the number of people unemployed.
► The number of people employed plus ► Depreciation, indirect business taxes and
the number of people unemployed. corporate profits.
► Just the number of people employed. ► Depreciation, indirect business taxes,
► The whole population. corporate profits and social insurance
contributions.
ECO401 - Economics - Q.No. 18 ( M - 1 )
The unemployment rate is equal to: ECO401 - Economics - Q.No. 22 ( M - 1 )
Fixed exchange rates may be preferred to
► Number of employed / labour force x floating exchange rates because with fixed
100. exchange rates:
► Number of unemployed / labour force.
► (Number of unemployed / labour ► There is greater stability of the
force) x 100. exchange rate which encourages trade and
► None of the given options. investment.
www.vuzs.info ► There is less likely to be a balance of
payment deficit.
► There is less need for a country to hold
ECO401 - Economics - Q.No. 19 ( M - 1 ) large reserves of foreign currency.
M1 component of money supply consists of: ► Interest rates can be used to meet
domestic policy objectives such as keeping
growth stable.
► Paper currency and coins.
► Paper currency, coins and check
writing deposits. ECO401 - Economics - Q.No. 23 ( M - 1 )
► Paper currency, coins, check writing If the simple Keynesian expenditure
deposits and savings deposits. multiplier is 4, the Marginal Propensity to
► Paper currency, coins, check writing Consume (MPC) is:
deposits, savings deposits and certificates of
deposits. ► 0.20.
► 0.25.
ECO401 - Economics - Q.No. 20 ( M - 1 ) ► 0.50.
Real Gross National Product (GNP) is best ► 0.75.
defined as:
ECO401 - Economics - Q.No. 24 ( M - 1 )
► The pound value of all final goods and Usually the shape of production possibilities
services produced in the economy during a curve is:
particular time period and measured in current
prices. ► Concave.
► The pound value of all goods produced ► Convex.
for final consumption by households in a ► Linear.
particular year and measured in constant prices. ► Positive.
► The current pound value of all new and
used goods produced and sold in the economy ECO401 - Economics - Q.No. 25 ( M - 1 )
during a particular time period. All of the following conditions lead to the
► The market value of all final goods successful operation of a cartel EXCEPT:
and services produced by the economy ► Market demand for the good is relatively
during a given time period, with prices held inelastic.
constant relative to some base period. ► The cartel supplies all of the world's
output of the good.
ECO401 - Economics - Q.No. 21 ( M - 1 ) ► Cartel members have substantial cost
To obtain the Net Domestic Product (NDP), advantages over non-member producers.
start with Gross Domestic Product and ► The supply of non-cartel members is very
subtract: price elastic.
► Depreciation. ECO401 - Economics - Q.No. 26 (M-1) .
► Depreciation and indirect business taxes.
“Decreases in aggregate demand decrease Suppose in an economy, a war destroys a
real output but leave the price level largely large portion of a country's capital stock but
unaffected”. This is the point of view of the saving rate is unchanged. In this
which of the following schools of thought? situation, the exogenous model predicts that
► Monetarist school of thought. output will grow and the new steady state
► New Classical school of thought. will approach towards:
► Real business cycle school of thought. ► A higher output level than before.
► Keynesian school of thought. ► The same output level as before.
► A lower output level than before.
ECO401 - Economics - Q.No. 27 ( M - 1 ) ► The Golden Rule output level.
Why calculations of Gross Domestic
Product (GDP) count only final goods and ECO401 - Economics - Q.No. 32 ( M - 1 )
services? Which of the following statements best
► Because it is difficult to measure the describes the difference between
prices of intermediate goods produced. endogenous growth theory and the Solow
► Because these are the only goods and growth theory?
services that are purchased in an economy. ► Endogenous growth theory is a monetary
► Because counting all goods and theory whereas the Solow theory is a real
services would lead to double-counting of theory.
many activities. ► Endogenous growth theory assumes
► Because one cannot calculate the diminishing returns to capital and the Solow
quantities of intermediate goods produced. theory assumes constant returns.
► In endogenous growth theory,
ECO401 - Economics - Q.No. 28 ( M - 1 ) economies with the same technology and
Suppose that your income increases from saving rate need not converge to the same
$80,000 to $100,000 and your consumption steady state as in the Solow model.
increases from $80,000 to $95,000. Your ► All of the given options are correct.
Marginal Propensity to Consume (MPC) is:
► 0.20. ECO401 - Economics - Q.No. 33 ( M - 1 )
► 0.45. Commercial banks in Pakistan are
► 0.75. supervised by:
► 0.80.
► State bank of Pakistan.
ECO401 - Economics - Q.No. 29 ( M - 1 ) . ► National bank of Pakistan.
Which of the following event will lead ► Finance minister of Pakistan.
towards cost-push inflation and therefore ► World bank.
stagflation?
► An increase in taxes on individuals. ECO401 - Economics - Q.No. 34 ( M - 1 )
► A decrease in real interest rates. What is the effect of double counting in
► A union settlement that increases wage national income calculations?
levels. ► Underestimation of national product.
► An increase in government purchases. ► Overestimation of national product.
► Distortions in national product.
ECO401 - Economics - Q.No. 30 ( M - 1 ) . ► Misleading conclusions about national
Suppose a country has flexible exchange product.
rate and has more rapid inflation rate than
other countries. What will happen to its ECO401 - Economics - Q.No. 35 ( M - 1 )
currency in this situation? Which of the following best defines
► Its currency will appreciate. “subsidies”?
► Its currency will depreciate. ► Payment by Government for purchase of
► There will be no effect on its currency. goods and services.
► All of the given options can be ► Payment by business enterprises to
possible. factors of production.
► Payment by companies to share holders.

ECO401 - Economics - Q.No. 31 (M-1)


► Payment by Government to business ► M is the money supply.
enterprises without buying any goods and ► V is the velocity.
services. ► Q is the real output level.
► All of the given options.
ECO401 - Economics - Q.No. 36 ( M - 1 )
The demand curve for labour can be derived ECO401 - Economics - Q.No. 42 ( M - 1 )
from the intersection of: The increase in the price of one country’s
► Horizontal wage rate lines and the currency in terms of other currencies due to
marginal revenue product of labour. the market forces of demand and supply is
► Vertical wage rate lines and the marginal known as:
revenue product of labour. ► Revaluation.
► Vertical wage rate lines and the marginal ► Devaluation.
revenue product of capital. ► Appreciation.
► Horizontal wage rate lines and the ► Depreciation.
marginal revenue product of capital.

ECO401 - Economics - Q.No. 37 ( M - 1 ) ECO401 - Economics - Q.No. 43 ( M - 1 )


A movement along the aggregate demand The decrease in the price of one country’s
curve is called a: currency in terms of other currencies due to
► Change in aggregate demand. the market forces of demand and supply is
► Change in the aggregate quantity of known as:
goods and services demanded. ► Revaluation.
► Determinant of aggregate demand. ► Devaluation.
► Revealed expenditure on aggregate ► Appreciation.
demand. ► Depreciation.

ECO401 - Economics - Q.No. 38 ( M - 1 ) ECO401 - Economics - Q.No. 44 ( M - 1 )


In the long run, the price level is determined As a definition of economic growth, an
by: increase in real capita income is preferable
► Aggregate demand. to an increase in simply real GNP, because:
► Aggregate supply. ► Total GNP measures overall progress
► The government. while per capita GNP measures improvement in
► Money supply. productivity.
► Total GNP measures goods and services
ECO401 - Economics - Q.No. 39 ( M - 1 ) . produced while per capita GNP shows
The simple Keynesian aggregate supply improvement in efficiency.
curve is: ► Total GNP figures estimate the value of a
► Upward sloping as real GDP increases. country’s total output while per capita GNP
► Horizontal at GDP levels below full accounts for population growth and shows the
employment. availability per person of goods and services.
► Based on the concept that all ► All of the given options.
unemployment is voluntary.
► Downward sloping as real GDP ECO401 - Economics - Q.No. 45 ( M - 1 )
increases. Suppose that a country is in a steady state
condition. It implements policies to increase
ECO401 - Economics - Q.No. 40 ( M - 1 ) the saving rate of its economy. What will be
In the equation of exchange, if velocity is TRUE at the new steady state level?
stable in the long run then: ► Output per worker will grow more rapidly
► %∆V = 0. than before.
► %∆V = 1. ► The level of output per worker will be
► %∆V is a positive constant value > 0. higher than before.
► %∆V = infinity. ► The amount of capital per worker will be
the same as before.
ECO401 - Economics - Q.No. 41 ( M - 1 ) ► All of the given options.
Which of the following is TRUE for the
equation MV = PQ? ECO401 - Economics - Q.No. 46 (M-1)
The government has a balanced budget if: The price elasticity of supply for most
► Its total revenues are equal to its total products differs due to capacity constraints.
expenditures. Which of the following is TRUE in this
► Its total revenues are less than its total context?
expenditures. ► It is same in the long run and the short
► Its total revenues are greater than its run.
total expenditures. ► It is greater in the long run than in the
► The money supply is less than total short run.
expenditures. ► It is greater in the short run than in the
long run.
ECO401 - Economics - Q.No. 47 ( M - 1 ) ► It is too uncertain to be estimated.
Tax on wages, rent, interest, and profit, is
known as: ECO401 - Economics - Q.No. 52 ( M - 1 )
► Direct tax. What will be the impact of a ban on foreign
► Indirect tax. firms from selling in the domestic market?
► Progressive tax. ► It will cause domestic producers
► Regressive tax. competing with the imports to face huge
losses.
ECO401 - Economics - Q.No. 48 ( M - 1 ) ► It will cause the supply curve to shift
A tax imposed by a country on an imported to the left.
good or service is called a: ► It will cause the supply curve to shift to
► Quota. the right.
► Tariff. ► It will have no effect on the domestic
► Non-tariff barrier. market.
► Trade embargo.
ECO401 - Economics - Q.No. 53 ( M - 1 )
ECO401 - Economics - Q.No. 49 ( M - 1 ) What is meant by the term utility?
Which of the following is an example of a ► Useless.
tariff? ► Require.
► A limit on the total number of Honda cars ► Necessary.
that can be imported from Japan. ► Satisfaction.
► A regulation specifying that each
imported Honda car must meet certain emission ECO401 - Economics - Q.No. 54 ( M - 1 ) .
exhaust guidelines. In which of the following conditions, a
► A tax of $500 on each Honda car welfare loss occurs in monopoly?
imported from Japan. ► Where the price is greater than the
► A tax of 10% of the value of each Honda marginal cost.
car purchased in Japan. ► Where the price is greater than the
marginal benefit.
ECO401 - Economics - Q.No. 50 ( M - 1 ) . ► Where the price is greater than the
Which of the following is (are) the average revenue.
characteristic(s) of high income countries as ► Where the price is greater than the
compared to low income countries? marginal revenue.
I. Lower rates of population growth.
II. Greater income ECO401 - Economics - Q.No. 55 ( M - 3 )
inequality. Briefly discuss the concept of Pareto
III. A large proportion of the Efficiency.
labor force in agriculture.
IV. Higher rates of ECO401 - Economics - Q.No. 56 ( M - 5 )
investment. According to the values given in the
► I only. following table, calculate the injections at
► I and II. each level of output.
► II and IV.
► I and IV.

ECO401 - Economics - Q.No. 51 (M-1)


Out Saving Gro Gros Gross Govt. Ta
put (S) ss s exports Expen xe
(Y) Imp inves (X) ditures s
orts tment (G) (T)
(M) (I)

650 80 80 104 97 116 10


700 90 80 119 97 116 10
750 100 80 130 97 116 10
800 110 80 139 97 116 10
900 120 80 146 97 116 10
(M - 1 for each)

ECO401 - Economics - Q.No. 57 ( M - 5 )


World Bank suggests some structural
reform policies for the poor countries to
grow. Discuss those policies briefly.

ECO401 - Economics - Q.No. 58 ( M - 10 )


What is meant by marginal disutility of
work? From the information given below,
calculate the marginal cost and average cost
at each level of output.
Online Economics Course
Marginal Average
Output Total Cost
Cost Cost
50 60,000 ? ?
100 60,000 ? ?
150 60,000 ? ?
200 60,000 ? ?
250 60,000 ? ?
300 60,000 ? ?
(M - 2+8)

ECO401 - Economics - Q.No. 59 ( M - 10 )


Show the impact of following policies on IS-
LM framework with the help of diagrams.
a) Expansionary monetary policy.
b) Expansionary fiscal policy.
(Note: Draw separate figure for both parts)