final term paper ECO401- Economics current spring july 2011

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

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





► The economic perspective.

► Marginal analysis.

► Allocative efficiency.

► Opportunity cost.



Question No: 2 ( Marks: 1 ) - Please choose one

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.



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

As long as all prices remain constant, an increase in money income results in:



► An increase in the slope of the budget line.

► A decrease in the slope of the budget line.

► An increase in the intercept of the budget line.

► A decrease in the intercept of the budget line.



Question No: 4 ( Marks: 1 ) - Please choose one

Ali initially leased one-room space and started a small day care centre with only 4 children and one staff member. But he found that the cost per child is very high. He wants to expand the centre. Which of the following will happen when Ali expand the centre?



► Economies of scale.

► Diseconomies of scale.

► Decreasing returns to the labor inputs.

► Increasing returns to the labor inputs.



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

Marginal profit is equal to:

► Marginal revenue minus marginal cost.

► Marginal revenue plus marginal cost.

► Marginal cost minus marginal revenue.

► Marginal revenue times marginal cost.



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

Revenue is equal to:

► Price times quantity.

► Price times quantity minus total cost.

► Price times quantity minus average cost.

► Price times quantity minus marginal cost.



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

If at the profit-maximizing quantity, profits are positive,then:



► Price < Average Total Cost.

► Price > Average Total Cost.

► Price < Average Variable Cost.



► Price = Marginal Cost.



Question No: 8 ( Marks: 1 ) - Please choose one

If a sales tax on beer leads to reduced tax revenue, this means:



► Elasticity of demand is < 1.

► Elasticity of demand is > 1.

► Demand is upward-sloping.

► Demand is perfectly inelastic.



Question No: 9 ( 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: 10 ( Marks: 1 ) - Please choose one

The oligopoly model which predicts that oligopoly prices will tend to be very rigid is the:



► Cournot model.

► Cobweb model.

► Dominant firm model.

► Kinked demand model.



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

Unlike the classical economists, Keynes believed that the economy could get stuck in the short run for a significant period of time because of:



► Insufficient aggregate supply.

► Insufficient aggregate demand.

► Quick self correcting mechanism.

► Government purchases of too many goods and services.



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

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



► Monetarism.

► Rational expectations.

► Keynesian economics.

► Neoclassical economics.



Question No: 13 ( Marks: 1 ) - Please choose one

Classical economics is most closely associated with the modern analysis of:





► Short-run aggregate market.

► Long-run aggregate market.

► Keynesian economics.

► Imperfect competition.



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

Unemployment benefits may increase the unemployment rate because:



► Unemployment benefits reduce the cost of job search.

► Unemployment benefits encourage people to quit their jobs.

► Unemployment benefits reduce the benefits of additional job searching.

► Unemployment benefits enable people to quit searching for work.



Question No: 15 ( Marks: 1 ) - Please choose one

A current account deficit implies that:



► Imports are greater than exports.

► Income exceeds spending.

► Exports are greater than imports.

► None of the given options.




Question No: 16 ( Marks: 1 ) - Please choose one

If the prices of all goods and services rise during the year:



► Real GDP may fall.

► Nominal GDP must fall.

► Nominal GDP may increase.

► Real GDP must rise.



Question No: 17 ( Marks: 1 ) - Please choose one

An increase in the money supply will cause interest rates to:



► Rise.

► Fall.

► Remain unchanged.

► None of the given options.



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

The principle economic difference between a competitive and a non-competitive market is:



► The number of firms in the market.

► The extent to which any firm can influence the price of the product.

► The size of the firms in the market.

► The annual sales made by the largest firms in the market.



Question No: 20 ( Marks: 1 ) - Please choose one

If the total product of labor per day is as shown in the table below and the price of the product is $20/unit. What is the value of the marginal product of labor (VMPL) of the 5th worker?

Labor


Total output

1


8

2


23

3


33

4


38

5


41



► 100.

► 10.

► 40.

► 60.



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

If production remains the same and all prices double, then which of the following will happen?

► Real GDP and nominal GDP will both remain constant.

► Real GDP will remain constant and nominal GDP will reduce by half.

► Real GDP will remain constant and nominal GDP will double.

► Real GDP will double and nominal GDP will remain constant.



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

Suppose that your income increases from $80,000 to $100,000 and your consumption increases from $80,000 to $95,000. Your Marginal Propensity to Save (MPS) is:

► 0.20.

► 0.25.

► 0.30.

► 0.35.



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

Trade can be beneficial in which of the following situations?

► Two countries produce the same goods at the same costs.

► Two countries produce different goods at different costs.

► Two countries are isolated.

► Two countries have the same markets.



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

The short run in macroeconomic analysis is a period:

► In which wages and some other prices do not respond to changes in economic conditions.

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

► Of less than 12 months.

► In which all macroeconomic variables are fixed.



Question No: 26 ( Marks: 1 ) - Please choose one

The Keynesian revolution in macroeconomics was that:

► Capitalist economies were self-correcting.

► A gold standard was not necessary to control inflation.

► Unemployment can be viewed as being voluntary.

► Government has a role in maintaining full employment.



Question No: 27 ( Marks: 1 ) - Please choose one

Frictional unemployment occurs because people:

► Change jobs.

► Take a while to find an appropriate job once they enter the labor force.

► Move around the country.

► All of the given options.



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

The price of one unit of foreign good in terms of domestic good is known as:

► Inflation rate.

► Real exchange rate.

► Nominal exchange rate.

► Discount rate.



Question No: 29 ( Marks: 1 ) - Please choose one

Which of the following best describes the economic growth?

► Continuous outward shift of aggregate demand.

► A long term expansion of a country's potential GDP.

► The avoidance of a negative output gap.

► An increase in aggregate demand which causes a movement along the short-run aggregate supply curve.



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

What is TRUE for a poor country?

► The supply of capital is low.

► The demand for capital is low.

► Both the supply of and demand for capital are low.

► None of the given options.




Question No: 31 ( Marks: 1 ) - Please choose one

What happens in a steady state condition with no population growth?

► The amount of capital per worker remains constant over time.

► Investment per worker equals depreciation per worker.

► Saving per worker equals depreciation per worker.

► All of the given options.



Question No: 32 ( Marks: 1 ) - Please choose one

The government has a balanced budget if:

► Its total revenues are equal to its total expenditures.

► Its total revenues are less than its total expenditures.

► Its total revenues are greater than its total expenditures.

► The money supply is less than total expenditures.



Question No: 33 ( 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: 34 ( Marks: 1 ) - Please choose one

In a period of recession, credit creation is:

► Small.

► Heavy.

► Unchanged.

► Zero.



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

A tariff is defined as:

► A restriction on exports.

► A tax placed on an imported product.

► A limit on the amount of a good or service that can be exported.

► A limit on the amount of a good or service that can be imported.



Question No: 36 ( Marks: 1 ) - Please choose one

The price elasticity of supply for most products differs due to capacity constraints. Which of the following is TRUE in this context?

► It is same in the long run and the short run.

► It is greater in the long run than in the short run.

► It is greater in the short run than in the long run.

► It is too uncertain to be estimated.



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

Which of the following will happen if two indifference curves cross each other?

► The assumption of a diminishing marginal rate of substitution will be violated.

► The assumption of transitivity will be violated.

► The assumption of completeness will be violated.

► Consumers will minimize their satisfaction.



Question No: 38 ( Marks: 1 ) - Please choose one

Which of the following is TRUE about the marginal product of labour in any production process?

► It is total output divided by total labour inputs.

► It is total output minus the total capital stock.

► It is the change in total output resulting from a 'small' change on the labour input.

► It is total output produced by labour inputs.



Question No: 39 ( Marks: 1 ) - Please choose one

The government can regulate monopolies to ensure that they set a price where the AR curve intersects the

► Marginal revenue curve.

► Average variable cost.

► Marginal cost curve.

► None of the given options.



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

Monopolistic competition is also characterized by a large number of buyers and sellers and absence of

► Competition.

► Entry barriers.

► Price discrimination.

► All of the given options.




Question No: 41 ( 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: 42 ( Marks: 1 ) - Please choose one

In Keynesian economics, a deflationary gap results if:

► Aggregate expenditures are greater than aggregate production.

► Aggregate expenditures are equal to aggregate production.

► There are no changes in inventories.

► Aggregate expenditures are less than aggregate production.



Question No: 43 ( Marks: 1 ) - Please choose one

Balance of payments problems are also often a result of:

► High domestic deflation.

► Domestic unemployment.

► Domestic poverty.

► High domestic inflation.



Question No: 44 ( Marks: 1 ) - Please choose one

If there is an excess demand for dollars in the market then it will:

► Pushes the exchange rate up.

► Pushes the exchange rate down.

► Not affect the exchange rate.

► Increase poverty.



Question No: 45 ( Marks: 1 ) - Please choose one

Growth rate of total output is equal to:

► Growth rate of per capita income - Growth rate of population.

► Growth rate of population / Growth rate of per capita income.

► Growth rate of population + Growth rate of per capita income.

► Growth rate of population - Growth rate of per capita income.



Question No: 46 ( Marks: 1 ) - Please choose one

If aggregate demand grows faster then the gap between actual and potential output:



► Narrows.

► Widens.

► Remains same.

► Is unitary.



Question No: 47 ( Marks: 1 ) - Please choose one

A higher discount rate causes banks’ voluntary reserve ratio to:

► Increase.

► Decrease.

► remain unaffected.

► None of the given options.



Question No: 48 ( Marks: 1 ) - Please choose one

Which of the following will happen if suddenly people wish to hold less money at same interest rate?

► The LM curve will shift downward (to the right).

► The money demand curve will shift to the right.

► The IS curve will shift to right.

► None of the given options.



Question No: 49 ( Marks: 3 )

Differentiate between real exchange rate and nominal exchange rate.



Question No: 50 ( Marks: 3 )

If MPC = 0.84 and tax rate = 0.27 then find out the value of multiplier.



Question No: 51 ( Marks: 5 )

A. What is the importance of current account? How we can calculate current account deficit?

B. How we can reduce current account deficit?






Question No: 52 ( Marks: 5 )

Briefly discuss different types of taxes which a government can impose.





Question No: 53 ( Marks: 5 )

If the government increase it’s spending e.g. increases the wages of the government servant, how it will affect on consumption, production and hiring of new employees?