FINALTERM EXAMINATION
Spring 2010
ECO401- Economics (Session - 3)
Ref No: 1375582
Time: 90 min
Marks: 69
At the equilibrium price:
Law of diminishing marginal utility indicates that the slope of the marginal utility curve is:
An individual with a constant marginal utility of income will be:
Aslam spends all of his money on racquetballs and food. What would happen to Aslam’s budget line if his income increased by 10 percent holding prices constant?
A perfectly competitive firm maximizes profit by finding the level of production at which:
A schedule which shows the various amounts of a product consumers are willing and able to purchase at each price in a series of possible prices during a specified period of time is called:
If income elasticity is negative, the good is:
Welfare economics is the branch of economics which deals with:
Suppose to hire the next worker, the firm pays $50. This $50 is the:
A primary implication of Keynesian economics is:
An assumption of classical economics is:
How many methods are there to measure Gross Domestic Product? The trend of unemployment over the last forty years is:
Which of the following is a less important component of the balance of payments?
Growth rate of per capita income is equal to:
The similarity in the Perfect competition and monopolistic competition is that:
For price making firm, at the profit-maximizing level of output, what is TRUE of the total revenue (TR) and total cost (TC) curves? Which of the following best describes the total market value of all final goods and services produced within the boundary of a country in a year? Which of the following would occur if injections are less than withdrawals at the full-employment level of income? Suppose in an economy, a war destroys a large portion of a country's capital stock but the saving rate is unchanged. In this situation, the exogenous model predicts that output will grow and the new steady state will approach towards: GNP is a good indicator of: The demand curve for labour can be derived from the intersection of: 
Which of the following is equal to personal savings? In the definition of labor force, economists include: If a country devalues its currency, what will be its results? If net exports are positive, this implies that the country has: We can measure economic growth with the help of: Development is impossible without: Public investment expenditure for highways, schools, and national defense is included in which component of GDP? The principle of taxation which emphasizes on fairness or just sacrifice is known as: Suppose you keep Rs. 35 in your pocket to purchase a movie CD when it will come out next month in the market. What is the function of money in this context? Suppose the central bank’s primary goal is to stabilize the prices and it aims to keep the inflation rate at 6%. If the inflation rate rose above 6%, central bank should adopt which of the following policy? Countries that are not among the high income nations of the world are categorized as: Developing countries have ----------------------------- unemployment than the developed countries. Why agriculture sector has an important role to play in the development process? Which of the following will happen if the cost of computer components falls? In cartels, there are a small number of sellers and usually involve If different firms in the oligoplistic structures do not cooperate with each other is known as
Slope and elasticity of demand have
If you sum the marginal utilities obtained by consumption from one unit to five units of any commodity, you will get: Price war is often seen in which of the following markets: Assume that there is no government or foreign sector, if the marginal propensity to save (MPS) is 0.2, then the value of saving multiplier will be equal to: If domestic interest rate is greater than foreign interest rate + expected depreciation then: In endogenous growth model the permanent growth rate depends on the saving rate and: How an economy will be affected if money supply is increased in the country? In IS-LM model, a decrease in government spending should move the: Differentiate between inflation and deflation. Explain the shape of money supply curve with the help of diagram. What is meant by Philips Curve? Explain the shape of this curve with the help of diagram. 
How crowding out of investment demand occur due to expansionary fiscal policy?
Question No: 1 ( Marks: 1 ) - Please choose one
At the equilibrium price: ► There will be a shortage.
► There will be neither a shortage nor a surplus.
► There will be a surplus.
► There are forces that cause the price to change.
Question No: 2 ( Marks: 1 ) - Please choose one
Law of diminishing marginal utility indicates that the slope of the marginal utility curve is: ► Horizontal.
► Vertical.
► Negative.
► Positive.
Question No: 3 ( Marks: 1 ) - Please choose one
An individual with a constant marginal utility of income will be: ► Risk loving.
► Risk neutral.
► Risk averse.
► Insufficient information for a decision.
Question No: 4 ( Marks: 1 ) - Please choose one
Aslam spends all of his money on racquetballs and food. What would happen to Aslam’s budget line if his income increased by 10 percent holding prices constant? ► It would shift inward.
► It would rotate about the axis for food.
► It would rotate about the axis for racquetballs.
► It would shift outward.
Question No: 5 ( Marks: 1 ) - Please choose one
A perfectly competitive firm maximizes profit by finding the level of production at which: ► Price = Marginal Cost.
► Price = Average Total Cost.
► Average Total Cost = Marginal Cost.
► Price <>
Question No: 6 ( Marks: 1 ) - Please choose one
A schedule which shows the various amounts of a product consumers are willing and able to purchase at each price in a series of possible prices during a specified period of time is called: ► Supply schedule.
► Demand schedule.
► Quantity supplied schedule.
► Quantity demanded schedule.
Question No: 7 ( Marks: 1 ) - Please choose one
If income elasticity is negative, the good is: ► Normal good.
► A substitute good.
► A complementary good.
► Inferior good.
Question No: 8 ( Marks: 1 ) - Please choose one
Welfare economics is the branch of economics which deals with: ► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
Question No: 9 ( Marks: 1 ) - Please choose one
Suppose to hire the next worker, the firm pays $50. This $50 is the: ► Marginal input cost.
► Marginal cost.
► Marginal revenue product.
► Marginal revenue.
Question No: 10 ( Marks: 1 ) - Please choose one
A primary implication of Keynesian economics is: ► The best government is the least government.
► Flexible wages and prices ensure full employment.
► Monetary policy is far superior to fiscal policy.
► Business-cycle instability is best corrected through government policies.
Question No: 11 ( Marks: 1 ) - Please choose one
An assumption of classical economics is: ► Investment and saving are seldom equal.
► Self-correction takes a long time.
► Demand creates its own supply.
► Prices and wages are flexible.
Question No: 12 ( Marks: 1 ) - Please choose one
How many methods are there to measure Gross Domestic Product? ► Three.
► Four.
► Five.
► Six.
Question No: 13 ( Marks: 1 ) - Please choose one
The trend of unemployment over the last forty years is: ► A decrease in unemployment.
► It has remained largely unchanged.
► An increase in unemployment.
► It is too difficult to tell so don't bother.
Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following is a less important component of the balance of payments? ► The capital account.
► The current account.
► The financial account.
► All three components are equally important.
Question No: 15 ( Marks: 1 ) - Please choose one
Growth rate of per capita income is equal to: ► Growth rate of total output / Growth rate of population.
► Growth rate of population / Growth rate of total output.
► Growth rate of total output + Growth rate of population.
► Growth rate of total output - Growth rate of population.
Question No: 16 ( Marks: 1 ) - Please choose one
The similarity in the Perfect competition and monopolistic competition is that: ► Firms in both types of market structure will act as price takers.
► Firms in both types of market structure will produce a product that is exactly like one produced by other firms in the industry.
► Firms in both types of market structure will produce a level of output where price equals marginal cost.
► Firms in both types of market structure will earn zero profit in the long run.
Question No: 17 ( Marks: 1 ) - Please choose one
For price making firm, at the profit-maximizing level of output, what is TRUE of the total revenue (TR) and total cost (TC) curves? ► They must intersect with TC cutting TR from below.
► They must intersect with TC cutting TR from above.
► They must be tangent to each other.
► They must have the same slope.
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following best describes the total market value of all final goods and services produced within the boundary of a country in a year? ► Gross domestic product.
► Net national product.
► Net national income.
► Disposable personal income.
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following would occur if injections are less than withdrawals at the full-employment level of income? ► A deflationary gap.
► Hysteresis.
► Hyperinflation.
► An inflationary gap.
Question No: 20 ( Marks: 1 ) - Please choose one
Suppose in an economy, a war destroys a large portion of a country's capital stock but the saving rate is unchanged. In this situation, the exogenous model predicts that output will grow and the new steady state will approach towards: ► A higher output level than before.
► The same output level as before.
► A lower output level than before.
► The Golden Rule output level.
Question No: 21 ( Marks: 1 ) - Please choose one
GNP is a good indicator of: ► The total payment of factor owners.
► The amount of consumption and investment.
► The conditions of production and employment.
► The amount of incomes available for spending.
Question No: 22 ( Marks: 1 ) - Please choose one
The demand curve for labour can be derived from the intersection of: ► Horizontal wage rate lines and the marginal revenue product of labour.
► Vertical wage rate lines and the marginal revenue product of labour.
► Vertical wage rate lines and the marginal revenue product of capital.
► Horizontal wage rate lines and the marginal revenue product of capital.
Question No: 23 ( Marks: 1 ) - Please choose one
In the above figure, a movement from point A to point B:
► Is a change in aggregate demand resulting from a lower price level.
► Is change in aggregate quantity demanded resulting from a lower price level.
► Could be due to an increase in investment demand.
► Occurs because aggregate output supplied has increased.
Question No: 24 ( Marks: 1 ) - Please choose one
Refer to the above figure, what are the prevailing price level and the output level in the economy?
► Price level = P1; real GDP = Yp.
► Price level = P1; real GDP = Y1.
► Price level = P2; real GDP = Y2.
► Price level = P3; real GDP = Yp.
Question No: 25 ( Marks: 1 ) - Please choose one
Which of the following is equal to personal savings? ► Gross domestic income − consumption.
► Personal disposable income − consumption.
► Gross domestic product − consumption.
► Personal disposable income − taxes − consumption.
Question No: 26 ( Marks: 1 ) - Please choose one
In the definition of labor force, economists include: ► Only people who are working full-time.
► People who are not working but are actively looking for a job and people who are working.
► People who are working.
► None of the given options.
Question No: 27 ( Marks: 1 ) - Please choose one
If a country devalues its currency, what will be its results? ► Its imports will be cheaper for its citizens and its exports will be expensive from the point of view of foreigners.
► Both its imports and exports will be cheaper for the citizens and for foreigners.
► Its imports will seem more expensive for the citizens and export will seem cheaper to the foreigners.
► Both imports and exports will seem more expensive.
Question No: 28 ( Marks: 1 ) - Please choose one
If net exports are positive, this implies that the country has: ► Trade surplus.
► Trade deficit.
► Government budget surplus.
► Government budget deficit.
Question No: 29 ( Marks: 1 ) - Please choose one
We can measure economic growth with the help of: ► The Consumer Price Index.
► The Producer Price Index.
► Gross Domestic Product.
► Marginal Propensity to Consume.
Question No: 30 ( Marks: 1 ) - Please choose one
Development is impossible without: ► Incentive to profit.
► Foreign aid.
► Domestic savings.
► Inflation.
Question No: 31 ( Marks: 1 ) - Please choose one
Public investment expenditure for highways, schools, and national defense is included in which component of GDP? ► Consumption.
► Gross private investment.
► Government purchases.
► Public investment.
Question No: 32 ( Marks: 1 ) - Please choose one
The principle of taxation which emphasizes on fairness or just sacrifice is known as: ► Efficiency.
► Equity.
► Progressive tax.
► Regressive tax.
Question No: 33 ( Marks: 1 ) - Please choose one
Suppose you keep Rs. 35 in your pocket to purchase a movie CD when it will come out next month in the market. What is the function of money in this context? ► Medium of exchange.
► Unit of account.
► Standard of deferred payment.
► Store of value.
Question No: 34 ( Marks: 1 ) - Please choose one
Suppose the central bank’s primary goal is to stabilize the prices and it aims to keep the inflation rate at 6%. If the inflation rate rose above 6%, central bank should adopt which of the following policy? ► An expansionary monetary policy.
► A contractionary monetary policy.
► It should reduce the required reserve ratio.
► It should impose a temporary ceiling on the federal funds rate.
Question No: 35 ( Marks: 1 ) - Please choose one
Countries that are not among the high income nations of the world are categorized as: ► Developed countries.
► Progressed countries.
► Developing countries.
► High income countries.
Question No: 36 ( Marks: 1 ) - Please choose one
Developing countries have ----------------------------- unemployment than the developed countries. ► Higher.
► Lower.
► About the same.
► In some cases higher while in others lower.
Question No: 37 ( 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: 38 ( Marks: 1 ) - Please choose one
Which of the following will happen if the cost of computer components falls? ► The demand curve for computers shifts to the right.
► The demand curve for computers shifts to the left.
► The supply curve for computers shifts to the right.
► The supply curve for computers shifts to the left.
Question No: 39 ( Marks: 1 ) - Please choose one
In cartels, there are a small number of sellers and usually involve ► Heterogeneous products.
► Large competition.
► Homogeneous products.
► Less demand in market.
Question No: 40 ( Marks: 1 ) - Please choose one
If different firms in the oligoplistic structures do not cooperate with each other is known as ► Collusive oligopoly.
► Cartel.
► Price leadership.
► Non-collusive oligopoly.
Question No: 41 ( Marks: 1 ) - Please choose one
Slope and elasticity of demand have ► A direct relation.
► An inverse relationship.
► No relation between slope and elasticity.
► None of the given options.
Question No: 42 ( Marks: 1 ) - Please choose one
If you sum the marginal utilities obtained by consumption from one unit to five units of any commodity, you will get: ► The marginal utility for the consumption of the fifth unit.
► The marginal utility for the consumption of the sixth unit.
► The total utility for the consumption of the first five units.
► The average utility for the consumption of the first five units.
Question No: 43 ( Marks: 1 ) - Please choose one
Price war is often seen in which of the following markets: ► Perfect competition.
► Monopoly.
► Oligopoly.
► Duopoly.
Question No: 44 ( Marks: 1 ) - Please choose one
Assume that there is no government or foreign sector, if the marginal propensity to save (MPS) is 0.2, then the value of saving multiplier will be equal to: ► 0.80
► 1.20
► 0.50
► 1.25
Question No: 45 ( Marks: 1 ) - Please choose one
If domestic interest rate is greater than foreign interest rate + expected depreciation then: ► One should invest in domastic market.
► One should invest abroad.
► One should remain indifferent.
► Make half investment in domastic market and half investment in foreign market.
Question No: 46 ( Marks: 1 ) - Please choose one
In endogenous growth model the permanent growth rate depends on the saving rate and: ► Labor participation rate.
► Capital stock.
► Investment.
► Technological progress.
Question No: 47 ( Marks: 1 ) - Please choose one
How an economy will be affected if money supply is increased in the country? ► Interest rate increases, investment and GDP reduces.
► Interest rate increases, investment increases and GDP reduces.
► Interest rate reduces, investment and GDP increases.
► Interest rate reduces, investment and GDP reduces.
Question No: 48 ( Marks: 1 ) - Please choose one
In IS-LM model, a decrease in government spending should move the: ► IS curve leftward.
► IS curve rightward.
► LM curve rightward.
► LM curve leftward.
Question No: 49 ( Marks: 3 )
Differentiate between inflation and deflation.Question No: 50 ( Marks: 3 )
Explain the shape of money supply curve with the help of diagram.Question No: 51 ( Marks: 5 )
What is meant by Philips Curve? Explain the shape of this curve with the help of diagram.Question No: 52 ( Marks: 5 )
In the above figure, suppose the economy is on the horizontal portion of aggregate supply (AS) curve.
a) If government expenditures increase, what will happen to the aggregate expenditure line E, aggregate demand curve AD and output level Y.
b) Is there any multiplier effect? How it works in this case?
(Marks: 3+2)
Question No: 53 ( Marks: 5 )
How crowding out of investment demand occur due to expansionary fiscal policy?
