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Thread: ECO401 Economics Spring 2009 Final Term

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    28 ECO401 Economics Spring 2009 Final Term

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    FINALTERM EXAMINATION
    Spring 2009
    ECO401- Economics


    Question No: 1 ( Marks: 1 ) - Please choose one
    In a free-market economy, the allocation of resources is determined by:


    ► Votes taken by consumers.
    ► A central planning authority.
    ► Consumer preferences.
    ► The level of profits of firms.

    Question No: 2 ( Marks: 1 ) - Please choose one
    The concave shape of the production possibilities curve for two goods X and Y illustrates:


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

    Question No: 3 ( Marks: 1 ) - Please choose one
    If the quantity demanded of a product is greater than the quantity supplied of a product, then:

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

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


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

    Question No: 5 ( Marks: 1 ) - Please choose one
    When an industry's raw material costs increase, other things remaining the same:

    ► The supply curve shifts to the right.
    ► Output increases regardless of the market price and the supply curve shifts upward.
    ► Output decreases and the market price also decrease.
    ► The supply curve shifts to the left.

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


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

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


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

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


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

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


    ► The consumer would not spend any additional income to buy more of that good.
    ► Consumption of additional units would have positive marginal utility.
    ► Total utility is minimized.
    ► Total utility is also zero.

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


    ► An inferior good.
    ► A substitute good.
    ► An independent good.
    ► A normal good.

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


    ► Decreasing marginal costs.
    ► Increasing marginal costs.
    ► Decreasing average variable costs.
    ► Decreasing average fixed costs.

    Question No: 12 ( Marks: 1 ) - Please choose one
    A graph showing all the combinations of capital and labour available for a given total cost is the:

    ► Budget constraint.
    ► Expenditure set.
    ► Isoquant.
    ► Isocost.

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

    ► Output is being produced at minimum cost.
    ► Output is not being produced at minimum cost.
    ► The two products are being produced at the medium input cost to the firm.
    ► The two products are being produced at the highest input cost to the firm.

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

    ► A fixed cost.
    ► A variable cost.
    ► An implicit cost.
    ► An opportunity cost.

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


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

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


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

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


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

    Question No: 18 ( Marks: 1 ) - Please choose one
    The kinked demand curve model is based on which of the following assumptions?

    ► Each firm considers its rival's output to be fixed.
    ► Each firm considers its rival's price to be fixed.
    ► Each firm believes rivals will match all price changes.
    ► None of the given options.

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


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

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

    ► Organizations of independent firms, producing similar products, that work together to raise prices and restrict output.
    ► Organizations of interdependent firms, producing similar products, that work together to raise prices and restrict output.
    ► Organizations of independent firms, producing different products, that work together to raise prices and restrict output.
    ► Considered as part of monopolistic competition.

    Question No: 21 ( Marks: 1 ) - Please choose one
    The marginal revenue product is:


    ► Upward sloping due to the law of demand.
    ► Upward sloping due to the law of marginal utility.
    ► Downward sloping due to the law of diminishing returns.
    ► Downward sloping due to the law of supply.

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


    ► Has self-correcting mechanisms.
    ► Can only be graphed with a horizontal curve.
    ► Never needs correction.
    ► None of the given options.

    Question No: 23 ( Marks: 1 ) - Please choose one
    The long run aggregate supply curve will shift to the right if:


    ► The price level increases.
    ► Factors of production (such as labor and capital) increase.
    ► Expenditures (such as consumption and net exports) increase.
    ► The prices of inputs used to produce goods and services (such as wages and the price of oil) decrease.

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


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

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


    ► Short-run aggregate market.
    ► Production possibilities.
    ► Imperfect competition.
    ► Circular flow.

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



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

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


    ► As firms increase their level of output, the cost of producing an extra unit increases.
    ► An increase in aggregate demand causes little, if any increase in real output the economy is operating in the long run.
    ► Any increase in aggregate demand causes the output of producers to fall because the general price level rises.
    ► None of the given options.

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


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

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



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

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

    ► Three.
    ► Four.
    ► Five.
    ► Six.

    Question No: 31 ( Marks: 1 ) - Please choose one
    Which of the following is a flow variable?

    ► The value of the house in which you live.
    ► The balance in your savings account.
    ► Your monthly consumption on food items.
    ► The number of carrots in your refrigerator at the beginning of the month.

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


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

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


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

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


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

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

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

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


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

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


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

    Question No: 38 ( Marks: 1 ) - Please choose one
    Which of the following will result if there is a decrease in aggregate demand?

    ► Expansion; inflation.
    ► Recession; deflation.
    ► Expansion; deflation.
    ► Recession; inflation.

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

    ► Shift the Phillips curve to the left.
    ► Result in a decrease in the inflation rate along the Phillips curve.
    ► Shift the Phillips curve to the right.
    ► Result in an increase in the inflation rate along the Phillips curve.

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


    ► If there is a decrease in the expected inflation rate.
    ► If there is an increase in the expected inflation rate.
    ► If there is a decrease in the natural rate of unemployment.
    ► If there is a favorable supply shock.

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


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

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


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

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


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

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

    ► Increase; increase.
    ► Increase; decrease.
    ► Decrease; decrease.
    ► Decrease; increase.

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


    ► Endogenous growth theory is a monetary theory whereas the Solow theory is a real theory.
    ► Endogenous growth theory assumes diminishing returns to capital and the Solow theory assumes constant returns.
    ► In endogenous growth theory, economies with the same technology and saving rate need not converge to the same steady state as in the Solow model.
    ► All of the given options are correct.

    Question No: 46 ( Marks: 1 ) - Please choose one
    A currency appreciation should:


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

    Question No: 47 ( Marks: 1 ) - Please choose one
    M1 component of money supply consists of:



    ► Paper currency and coins.
    ► Paper currency, coins and check writing deposits.
    ► Paper currency, coins, check writing deposits and savings deposits.
    ► Paper currency, coins, check writing deposits, savings deposits and certificates of deposits.

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


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

    Question No: 49 ( Marks: 1 ) - Please choose one
    What would result from a depreciation of the pound on the foreign exchange market?

    ► An increase in the price of imported computers.
    ► A fall in the purchasing power of US tourists in London.
    ► A fall in the price of imported computers.
    ► An increase in the purchasing power of UK tourists overseas.

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


    ► Hyperinflation caused by excessive demand.
    ► Nervous investors selling all their shares, causing the stockmarket to crash.
    ► Unemployed workers not taking available jobs.
    ► Women being kept out of jobs traditionally held by men.

    Question No: 51 ( Marks: 5 )
    Briefly discuss the concept of comparative advantage with the help of example.

    Question No: 52 ( Marks: 10 )
    A. Differentiate between Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS).
    B. Suppose a household has the consumption function (C) presented in the figure given below:
    a. Find consumption when disposable income is $8,000 and $10,000.
    b. Find consumption when disposable income is $ 6,000. How can a household consume more than its disposable income?
    c. What is true for every point on the 450 line?

    (Marks: 4+6)

    Question No: 53 ( Marks: 10 )
    Define M0 and M1. Briefly discuss the three broad motives of holding money.

    (Marks:4+6)

    Question No: 54 ( Marks: 10 )
    Recall the Equation of Quantity theory of money and calculate the missing figure in each of the following cases:
    a) Money supply (M) =100, Price (P) = 3 and real output (Q) = 200. Calculate the missing figure.
    b) Velocity of money (V) = 4, Price (P) = 5 and output (Q) =100. Calculate the missing figure.
    c) Money supply (M) = 200, velocity of money (V) = 7 and output (Q) = 700. Calculate the missing figure.
    d) Money supply (M) =150, velocity of money (V) = 8, Price level (P) = 3. Calculate the missing value.

    (Marks: 2.5 each)
    Last edited by viki; 07-16-2010 at 10:22 PM.
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    28 Here are some more Unsolved Final Term Paper of ECO401

    Unsolved Final Term Paper of ECO401
    Attached Files Attached Files
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