FINALTERM EXAMINATION
Fall 2009
ECO401- Economics (Session - 2)
Time: 120 min
Marks: 87
Question No: 1 ( Marks: 1 ) - Please choose one
If pen and ink are complements, then an increase in the price of pen will cause:
► An increase in the price of ink.
► Less ink to be demanded at each price.
► A decrease in the demand for pen.
► A rightward shift in the demand curve for ink.
Question No: 2 ( Marks: 1 ) - Please choose one
A market is said to be in equilibrium when:
► Demand equals output.
► There is downward pressure on price.
► The amount consumers wish to buy at the current price equals the amount producers wish to sell at that price.
► All buyers are able to find sellers willing to sell to them at the current price.
Question No: 3 ( Marks: 1 ) - Please choose one
As more of a good is consumed, then total utility typically:
► Increases at a decreasing rate.
► Decreases as long as marginal utility is negative.
► Decreases as long as marginal utility is positive.
► Is negative as long as marginal utility is decreasing.
Question No: 4 ( Marks: 1 ) - Please choose one
A monopolistically competitive firm in short run equilibrium:
► Will make negative profit (lose money).
► Will make zero profit (break-even).
► Will make positive profit.
► Any of the given are possible.
Question No: 5 ( Marks: 1 ) - Please choose one
A monopolistically competitive firm in the long run equilibrium:
► Will make negative profit.
► Will make zero profit.
► Will make positive profit.
► Any of the given are possible.
Question No: 6 ( Marks: 1 ) - Please choose one
The market structure in which strategic considerations are most important is:
► Monopolistic competition.
► Oligopoly.
► Pure competition.
► Pure monopoly.
Question No: 7 ( Marks: 1 ) - Please choose one
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.
Question No: 8 ( Marks: 1 ) - Please choose one
The textbook for your class was not produced in a perfectly competitive industry because:
► There are so few firms in the industry that market shares are not small, and firm's decisions have an impact on market price.
► Upper-division microeconomics texts are not all alike.
► It is not costless to enter or exit the textbook industry.
► All of the given options.
Question No: 9 ( Marks: 1 ) - Please choose one
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.
Question No: 10 ( Marks: 1 ) - Please choose one
Under the kinked demand curve model, an increase in marginal cost will lead to:
► An increase in output level and a decrease in price.
► A decrease in output level and an increase in price.
► A decrease in output level and no change in price.
► Neither a change in output level nor a change in price.
Question No: 11 ( Marks: 1 ) - Please choose one
For a firm buying labor competitively, the marginal input cost is equal to the:
► Wage.
► Interest rate.
► Price of output.
► Cost of raw materials.
Question No: 12 ( Marks: 1 ) - Please choose one
The aggregate supply curve is the relationship between:
► The price level and the real domestic output purchased.
► The price level and the real domestic output produced.
► The price level which producers are willing to accept and the price level purchasers are willing to pay.
► The real domestic output purchased and the real domestic output produced.
Question No: 13 ( 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: 14 ( Marks: 1 ) - Please choose one
Keynesian economics rejected the classical assumption that:
► Supply creates its own demand.
► Prices and wages are inflexible.
► Self-correction takes a long time.
► Consumption expenditures depend on disposable income.
Question No: 15 ( 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: 16 ( Marks: 1 ) - Please choose one
A nation's balance of payments can be affected by changes in:
► Foreign income.
► The differential between domestic and foreign interest rates.
► The real exchange rate.
► All of the given options.
Question No: 17 ( Marks: 1 ) - Please choose one
Real GDP is equal to:
► Nominal GDP – Inflation.
► Nominal GDP + Inflation.
► Nominal GDP/ Inflation.
► Inflation / Nominal GDP.
Question No: 18 ( Marks: 1 ) - Please choose one
If we compare Gross Domestic Product (GDP) with Gross National Product (GNP) then:
► GNP = GDP – Net income from abroad.
► GNP = GDP + Net income from abroad.
► GNP = NNP – Net income from abroad.
► GNP = NNP + Net income from abroad.
Question No: 19 ( Marks: 1 ) - Please choose one
In Keynesian economics, if aggregate expenditures are less than aggregate output then:
► The price level rises.
► Inventories decrease.
► Employment decreases.
► Aggregate output increases.
Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following is true about supply curve under monopoly?
► It is same as the competitive market supply curve.
► It is the portion of marginal cost curve where marginal costs exceed the minimum value of average variable costs.
► It is the result of market power and production costs.
► None of the given statements is true.
Question No: 21 ( Marks: 1 ) - Please choose one
After the collusion, oligopolists are able to:
► 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 No: 22 ( Marks: 1 ) - Please choose one
Which of the following event will lead towards cost-push inflation and therefore stagflation?
► An increase in taxes on individuals.
► A decrease in real interest rates.
► A union settlement that increases wage levels.
► An increase in government purchases.
Question No: 23 ( Marks: 1 ) - Please choose one
Double counting in national income refers to:
► Counting a product more than once.
► Counting a product at the final stage of output process.
► Counting both as product and as factor payment.
► Counting both as real goods and as money flow.
Question No: 24 ( Marks: 1 ) - Please choose one
For knowing the spending capacity of the household sector, we have to use the concept of:
► National income.
► Personal income.
► Private income.
► Personal disposable income.
Question No: 25 ( Marks: 1 ) - Please choose one
For a study of the long term growth of the economy, we use:
► Real GNP.
► Nominal GNP.
► Personal income.
► Disposable personal income.
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following is an example of a leakage?
► Saving.
► Investment.
► Exports.
► Government expenditures.
Question No: 27 ( Marks: 1 ) - Please choose one
Total product of labor per day is shown in the following table and the price of the product is $10/unit. What is the value of the marginal product of labor (VMPL) of the 3rd worker?
Labor
Total Product
1
10
2
25
3
35
4
40
5
41
► 5.
► 10.
► 50.
► 100.
Question No: 28 ( Marks: 1 ) - Please choose one
In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:
► The aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves.
► The short-run aggregate supply and the long-run aggregate supply curves.
► The aggregate demand and the short-run aggregate supply curves.
► The aggregate demand and the long-run aggregate supply curves.
Question No: 29 ( Marks: 1 ) - Please choose one
What is the interest rate effect that explains why the aggregate demand curve slopes downward?
► It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates.
► It refers to the effect of interest rates on borrowing which in turn affects consumption spending.
► It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded.
► It refers to the shifts in aggregate demand when interest rates change.
Question No: 30 ( Marks: 1 ) - Please choose one
In the classical world, you could always get a job if you:
► Had a good education.
► Worked in an industry that was recession proof.
► Had unemployment in the manufacturing sector.
► Would accept a lower wage.
Question No: 31 ( Marks: 1 ) - Please choose one
The level of output produced when the labor market is in equilibrium is called:
► Target output.
► Product market equilibrium output.
► Full-employment output.
► Natural output.
Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following economists came up with a theory regarding the tradeoff between unemployment and inflation?
► A.W. Phillips.
► John Maynard Keynes.
► Joseph Schumpeter.
► Milton Friedman.
Question No: 33 ( Marks: 1 ) - Please choose one
Refer to the above figure, moving from B to A shows a tradeoff of:
► More unemployment for less inflation.
► Less unemployment for more inflation.
► A fixed amount of unemployment for more inflation.
► Less unemployment for less inflation.
Question No: 34 ( Marks: 1 ) - Please choose one
Falling inflation means:
► That the price level is falling from one period to the next.
► That the price level is falling at a decreasing rate.
► That the price level is falling at an increasing rate.
► That the price level is increasing at a decreasing rate.
Question No: 35 ( Marks: 1 ) - Please choose one
Disposable Personal Income
$
Consumption
$
100
140
200
220
300
300
400
380
500
460
Refer to the above table, when disposable personal income is $300, what is the amount of personal saving?
► −$40.
► −$20.
► $0.
► $20.
Question No: 36 ( Marks: 1 ) - Please choose one
The real exchange rate is defined as the:
► Market exchange rate adjusted for prices.
► Market exchange rate adjusted for interest rates.
► Market exchange rate.
► Exchange rate determined by the government.
Question No: 37 ( Marks: 1 ) - Please choose one
The interest rate parity is the basic identity that relates which of the following?
► Interest rates and exchange rates.
► Interest rates and inflation rate.
► Exchange rates and inflation rate.
► Discount rate and inflation rate.
Question No: 38 ( Marks: 1 ) - Please choose one
Suppose there is a steady state condition in an economy with no population growth. In which condition, the steady-state level of capital per worker will increase?
► When the amount of investment per worker decreases.
► When the depreciation rate increases.
► When the saving rate increases.
► In all of the given options.
Question No: 39 ( Marks: 1 ) - Please choose one
“Government collects zero revenue if the tax rate is 0% and if the tax rate is 100%.” Which of the following best describes this statement?
► Consumption curve.
► Supply curve.
► Laffer curve.
► Investment curve.
Question No: 40 ( Marks: 1 ) - Please choose one
A tax on the accounting profits of corporations is known as:
► Sales tax.
► Excise tax.
► Corporate income tax.
► Personal income tax.
Question No: 41 ( Marks: 1 ) - Please choose one
Which of the following shows the functions of money?
► A conductor of economic activity, a medium of exchange, and a store of value.
► A medium of exchange, a store of value, and a factor of production.
► A store of value, a medium of exchange, and a determinant of investment.
► A store of value, a unit of account, and a medium of exchange.
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following best describes a bank’s reserves?
► The minimum value of assets it must have.
► The amount of gold it is required to have as reserves against loans.
► The value of federal securities it is required to have as reserves against loans.
► Deposits that bank has accepted from customers but have not loaned out.
Question No: 43 ( Marks: 1 ) - Please choose one
The special importance of banks among the financial institutions arises from:
► Their large and heavy transactions.
► Their position as suppliers of money.
► Their power to create money.
► Their influence on the economy.
Question No: 44 ( Marks: 1 ) - Please choose one
Which of the following will be TRUE if real income rose and the interest rate fell following an increase in government purchases?
► IS curve must be vertical.
► LM curve must be vertical.
► Central Bank must have increased the money supply at the same time.
► Central Bank must have decreased the money supply at the same time.
Question No: 45 ( Marks: 1 ) - Please choose one
If money supply is fixed by the central bank then in interest rate-money supply space, money supply curve will be:
► Horizontal.
► Vertical.
► Negatively sloped.
► Positively sloped.
Question No: 46 ( Marks: 1 ) - Please choose one
Why agriculture sector has an important role to play in the development process?
► Because a balanced approach to growth is necessary.
► Because the vast majority of an under developed country is engaged in agriculture.
► Because agriculture may be a major bottleneck in the process of development.
► Because of all of the given options.
Question No: 47 ( Marks: 1 ) - Please choose one
Refer to the above figure, the marginal propensity to consume is:
► 0.25.
► 0.50.
► 0.60.
► 0.67.
Question No: 48 ( Marks: 1 ) - Please choose one
Refer to the above figure, when disposable personal income is $2,000 billion:
► Personal saving is $1,200 billion.
► Consumption is $1,600 billion.
► Saving is $800 billion.
► Consumption is $800 billion.
Question No: 49 ( Marks: 1 ) - Please choose one
What is meant by the negative slope of a production possibilities curve?
► It means that some resources are always unemployed.
► It means that an economy can produce more of one thing only by producing less of something else.
► It means that opportunity costs are constant.
► It means that business can sell more when prices are low.
Question No: 50 ( Marks: 1 ) - Please choose one
Which of the following is TRUE for a Giffen good?
► Its marginal utility is zero.
► Its demand curve is perfectly elastic.
► Its substitution effect is positive.
► Its demand curve is positively sloped.
Question No: 51 ( Marks: 1 ) - Please choose one
Which of the following occur when an isocost line is just tangent to an isoquant?
► 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: 52 ( Marks: 1 ) - Please choose one
Which of the following is TRUE about L-shaped isoquant?
► 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.
► It is impossible.
Question No: 53 ( Marks: 1 ) - Please choose one
The total cost (TC) function is given as: TC = 200 + 5Q. What is the fixed cost?
► 5Q.
► 5.
► 5 + (200/Q).
► 200.
Question No: 54 ( Marks: 1 ) - Please choose one
The total cost (TC) function is given as: TC = 200 + 5Q. What is the average total cost?
► 5Q.
► 5.
► 5 + (200/Q).
► None of the given options.
Question No: 55 ( Marks: 3 )
Define consumption function. Write down the determinants of consumption.
Question No: 56 ( Marks: 5 )
The paradox of thrift is demonstrated algebraically by equating leakages and injections. Suppose the Saving function is specified as S = -$10 billion +0.2Y, Gross imports equal $70 billion, Investment is $100 billion and Gross exports equal $70 billion. Calculate the equilibrium level of output by using leakages-injections approach.
Question No: 57 ( Marks: 5 )
Country
Commodity
Amount that can be produced in 1 year
USA
Cotton
40 units
Food
60 units
UK
Cotton
30 units
Food
20 units
A. Consider there is no international trade. See the above table and answer which country has absolute advantage in which product?
B. Draw the production possibility frontiers for USA and UK.
(Marks: 2+3)
Question No: 58 ( Marks: 10 )
A. From the information given below, calculate the following:
a) Nominal GDP in year 1
b) Nominal GDP in year 2
c) Growth rate in nominal GDP
Year 1
Year 2
Apples produced
100
150
Chicken produced
100
140
Cost per apple (Rs.)
2
4
Cost per chicken (Rs.)
4
6
B. Suppose that in the economy of Pakistan, the Real Gross National Product in 1987 was 1483 billion. In 1988, Real Gross National Product was 1510 billion. Calculate the growth rate of real Gross National Product from this information.
(Marks: 6+4)
Question No: 59 ( Marks: 10 )
(A) Following table shows the income earned by different factors of production.
Serial #
Rewards
Amount (billion rupees)
1
Wages and salaries
150.52
2
Interest on bonds and loans
50.63
3
Rent of properties
100.12
4
Profit
125.84
5
Corporate profit tax
50.26
6
Undistributed corporate profit
30.32
7
Contributions for social security
20.20
Find out the national income from this information.
(B) Although GDP provide us a good estimate about the overall production of the economy, but still it has some flaws. Discuss those flaws.
(Marks: 4+6
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