FINALTERM EXAMINATION
ECO401- Economics (Session - 2)
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.
Refrence: the opportunity cost of a decision is based upon what must be given up (the next best alternative) as a result of decision.
Any decision that involves a choice between two or more options has an opportunity cost.
Page#4 of handouts
Chapter # 2
The opportunity cost of a particular choice is the satisfaction that would have been derived from the next best alternative foregone; in other words, it is what must be given up or sacrificed in making a certain choice or decision
Question No: 2 ( Marks: 1 ) - Please choose one
A good for which income and quantity demanded are inversely related is known as: ► Inferior good.
► Complementary good.
► Normal good.
► None of the given options.
Refrence:
Inferior good are goods whose quantity demanded goes down as consumer increases
Page#10 of handouts
Chapter # 3
Question No: 3 ( Marks: 1 ) - Please choose one
An increase in supply is shown by: ► Shifting the supply curve to the left.
► Shifting the supply curve to the right.
► Upward movement along the supply curve.
► Downward movement along the supply curve.
Refrence:
page#14 of handouts
Chapter#4
Effect on supply | Direction of shift in supply curve | Effect on equilibrium price | Effect on equilibrium quantity |
increase | Rightward | decrease | increase |
Question No: 4 ( Marks: 1 ) - Please choose one
Price floor results in: ► All of the given options.
► Excess supply.
► Equilibrium.
► Excess demand
Refrence:
Page #17
Chapter #5
See the graph
Question No: 5 ( Marks: 1 ) - Please choose one
The price elasticity of demand measures the responsiveness of quantity demanded to: ► Quantity demanded.
► Quantity supplied.
► Price.
► Output.
Refrence:
Price elasticity of demand is the percentage change in quantity demanded with respect to the percentage change in price
Notes page26
Notes page26
(del) Admin Binish Awais - 15-12-20:41 -- elasticity of demand, which measures the responsiveness of the quantity demanded of a good to a change in the price of another good.
Question No: 6 ( Marks: 1 ) - Please choose one
Assume that the total utilities for the fifth and sixth units of a good consumed are 83 and 97, respectively. The marginal utility for the sixth unit is: ► -14.
► 14.
► 83.
► 97.
Refrence ;
Margianl Utitlity is Diff of two consective utilities
so 97 - 83 = 14
page# 40 of handouts
Question No: 7 ( Marks: 1 ) - Please choose one
Indifference curves that are convex to the origin reflect: ► An increasing marginal rate of substitution.
► A decreasing marginal rate of substitution.
► A constant marginal rate of substitution.
► A marginal rate of substitution that first decreases, then increases.
Refrence:
see page 44
convex to the origin >>> a diminishing marginal rate of substitution
concave to the origin <<< an increasing marginal rate of substitution
Question No: 8 ( Marks: 1 ) - Please choose one
To find the profit maximizing level of output, a firm finds the output level where: ► Price equals marginal cost.
► Marginal revenue and average total cost.
► Price equals marginal revenue.
► None of the given options.
Refrence:
Page#65 of handouts too
In economics, profit maximization is the (short run) process by which a firm determines the price and output level that returns the greatestprofit. There are several approaches to this problem. The total revenue–total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue–marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost.
P=MC
Question No: 9 ( Marks: 1 ) - Please choose one
As compared to existing firms, a new firm entering in monopolist market has: ► High costs.
► Low costs.
► Equal costs.
► None of the given options.
Refrence:
Chapter 20 - Page 76 - Market Structure
line no 2
new entrant firm in the market has to face high costs
Question No: 10 ( Marks: 1 ) - Please choose one
A firm is charging a different price for each unit purchased by a consumer. This is called: ► First-degree price discrimination.
► Second-degree price discrimination.
► Third-degree price discrimination.
► None of the given options.
Refrence:
Page - 78 - 2nd Degree - In retail stores, second-degree price discrimination also exists. A reduced price may be offered if you buy two t-shirts instead of just one. This form helps to get rid of merchandise and generate more revenue for a company
Question No: 11 ( Marks: 1 ) - Please choose one
McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their student ID cards, they would be given 50 cents off any special meal. This practice is an example of: ► Collusion.
► Price discrimination.
► Two-part tariff.
► Bundling.
Refrence:
Let’s assume that the bookstore owner hears about two-part tariffs and would like to implement this pricing strategy. Students are asked to pay a cover charge, just to enter the store, and may then buy all the textbooks they want at some pre-determined price.
Question No: 12 ( 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.
Refrence:
Question No: 13 ( Marks: 1 ) - Please choose one
Figure
In figure given above, the marginal utility of income is:
► Increasing as income increases.
► Constant for all levels of income.
► Diminishes as income increases.
► None of the given options.
Question No: 14 ( 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.
Refrence:
Page 74 - HOW CAN A MONOPOLIST RETAIN ITS MONOPOLY?
Question No: 15 ( Marks: 1 ) - Please choose one
Welfare economics is the branch of economics which deals with: ► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
Refrence:
Normative Eco says "what should be" (Page 01 )nd Welfare Eco says "what should be" (Page 90)
A branch of economics that focuses on the optimal allocation of resources and goods and how this affects social welfare
Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following market situation is much like a pure monopoly except that its member firms tend to cheat on agreed upon price and output strategies? ► Duopoly.
► Cartel.
► Market sharing monopoly.
► Natural monopoly.
page#81
chapter#22
Question No: 18 ( Marks: 1 ) - Please choose one
In the complete classical model, a rightward shift of the labor supply curve will: ► Decrease the price level and increase the nominal wage.
► Decrease the nominal wage and increase the price level.
► Decrease both the price level and the nominal wage.
► Increase both the price level and the nominal wage.
Page#93
Chapter #24
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following events could cause the aggregate demand curve to shift to the right? ► An increase in the rate of inflation.
► A decrease in government expenditures.
► A decrease in investment spending.
► A decrease in income tax rates.
Refrence :
An event that makes consumers spends more at a given price level (a tax cut or a stock market boom could cause the aggregate demand curve to shift to the right .
Principle of macroeconomics
Page#448
Question No: 20 ( Marks: 1 ) - Please choose one
The Great Depression of 1930s opened the door to the __________ revolution in macroeconomic theory. ► Keynesian.
► New classical.
► Old classical.
► New Keynesian.
Refrence:
in the same way the the Great depression in the large paved the way for a kynesian revolution in the macroeconomics
page#30
conversation with leading economists; interpreting modern economics
Question No: 21 ( Marks: 1 ) - Please choose one
Keynesian economics was the predominant economic theory: ► Prior to the late 1700s.
► From the late 1700s to the early 1900s.
► From 1930s to 1970s.
► Since 1970s.
refrence >> page#30 conversation with leading economists; interpreting modern economics
Question No: 22 ( Marks: 1 ) - Please choose one
Classical economics was replaced as the dominant theory of macroeconomic analysis by: ► Monetarism.
► Rational expectations.
► Keynesian economics.
► Neoclassical economics.
Refrence :
Question No: 23 ( Marks: 1 ) - Please choose one
According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause: ► Both prices and output to rise.
► Prices to fall and output to remain unchanged.
► Both prices and output to fall.
► Prices to rise and output to remain unchanged.
Refrence :
4th options - Price to increase & Output unchanged
and logically jab money supply baray ki aur output nahi baray gi to price rise hogi due to inflation
is diagram se evident hai
and logically jab money supply baray ki aur output nahi baray gi to price rise hogi due to inflation
is diagram se evident hai
Question No: 24 ( Marks: 1 ) - Please choose one
Intermediate goods are meant for: ► Direct use by the consumers.
► Further processing.
► The term do not exist.
► None of the given options.
Refrence :
Page 119
Question No: 25 ( Marks: 1 ) - Please choose one
Final goods are meant for: ► Direct use by the consumers.
► Further processing.
► The term do not exist.
► None of the given options.
Refrence :
Page 119
Question No: 26 ( 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.
Refrence:
Page#118
A flow variable is measured over an interval of time. Therefore a flow would be measured per unit of time (say a year). Flow is roughly analogous to rate or speed in this sense.
Question No: 27 ( 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.
Refrence:
Page#118
Stock:
A variable or measurement that is defined for a instant in time
Population capital business and inventories etc
Question No: 28 ( Marks: 1 ) - Please choose one
All other things remain the same, Gross Domestic Product (GDP) will rise if: ► Imports rises.
► Exports falls.
► Durable goods consumption rises.
► Military spending falls.
Refrence:
Page 118
Question No: 29 ( Marks: 1 ) - Please choose one
If disposable income increases from $5 trillion to $6 trillion and as a result, consumption expenditure increases from $7 trillion to $7.8 trillion, the Marginal Propensity to Consume is: ► 1.0.
► 0.8.
► 5/7 = 0.71.
► 6/7.8 = 0.77.
Refrence:
Increase in disposable income / in crease in consumption expenditure
=0.77
After round abt it ll be
0.8
TheMarginalPropensitytoConsume(MPC) is a calculation used by economists to express the amount of additional income that consumers are actually spending and funneling back into the general economy. It is the inverse of theMarginalPropensityto Save.
Question No: 30 ( Marks: 1 ) - Please choose one
The slope of the consumption function (or line) is the: ► Average propensity to save.
► Average propensity to consume.
► Marginal propensity to save.
► Marginal propensity to consume.
Refrence:
Page#126
Question No: 31 ( 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.
Refrence:
Page#126
delta consumtion/ delta income =40/50=.8
Question No: 32 ( Marks: 1 ) - Please choose one
The unemployment rate is equal to: ► Number of employed / labour force x 100.
► Number of unemployed / labour force.
► (Number of unemployed / labour force) x 100.
► None of the given options.
Refrence; page#142
The unemployment rate, which is reported each month, is equal to the number unemployed divided by the labor force.
Question No: 33 ( Marks: 1 ) - Please choose one
The traditional Phillips Curve shows the: ► Inverse relationship between the rate of inflation and unemployment rate.
► Inverse relationship between the nominal and real wage.
► Direct relationship between unemployment and demand-pull inflation.
► Tradeoff between the short run and long run.
Refrence:
Page#150
Question No: 34 ( 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.
Refrence:
In economics, deflation is a decrease in the general price level of goods and services.[1] Deflationoccurs when the annual inflation rate falls below 0% (a negative inflation rate).
Question No: 35 ( Marks: 1 ) - Please choose one
Is Grosss Domestic Product (GDP) an accurate measure of a country’s well being? ► Yes, it is the best measure of national well being.
► Yes, provided we use real GDP and not nominal GDP.
► Uncertain, depending on whether GDP is rising or falling.
► No, it is not.
Refrence:
Page#127
Question No: 36 ( Marks: 1 ) - Please choose one
Real Gross Domestic Product (GDP): ► Is nominal GDP adjusted for changes in the price level.
► Is also called nominal GDP.
► Measures GDP minus depreciation of capital.
► Will always change when prices change.
Refrence:
An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as "constant-price", "inflation-corrected" GDP or "constant dollar GDP".
Unlike nominal GDP, real GDP can account for changes in the price level, and provide a more accurate figure.
Page#162
Real GDP=Nominal GDP-inflation
Question No: 37 ( Marks: 1 ) - Please choose one
If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the exogenous model predicts that output will grow and the new steady state will approach: ► 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: 38 ( Marks: 1 ) - Please choose one
A currency appreciation: ► Reduces aggregate demand and increases aggregate supply.
► Reduces both aggregate demand and aggregate supply.
► Increases aggregate demand and reduces aggregate supply.
► Increases both aggregate demand and aggregate supply.
Question No: 39 ( 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: 40 ( Marks: 1 ) - Please choose one
Personal income: ► Is income received by individuals during a given year.
► Is the income individuals have available for spending during a given year.
► Equals national income minus indirect taxes.
► Is the sum of wages plus interest received by individuals during a given year.
Question No: 41 ( Marks: 1 ) - Please choose one
Real Gross National Product (GNP) is best defined as: ► The pound value of all final goods and services produced in the economy during a particular time period and measured in current prices.
► The pound value of all goods produced for final consumption by households in a particular year and measured in constant prices.
► The current pound value of all new and used goods produced and sold in the economy during a particular time period.
► The market value of all final goods and services produced by the economy during a given time period, with prices held constant relative to some base period.
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following statements describes the difference between nominal and real Gross Domestic Product (GDP)? ► Real GDP includes only goods; nominal GDP includes goods and services.
► Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.
► Real GDP is equal to nominal GDP less the depreciation of the capital stock.
► Real GDP is equal to nominal GDP multiplied by the CPI.
Question No: 43 ( 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: 44 ( Marks: 1 ) - Please choose one
Gross domestic product (GDP) is the market value of: ► All transactions in an economy during one-year period.
► All goods and services exchanged in an economy during one-year period.
► All final goods and services exchanged in an economy during one-year period.
► All final goods and services produced in a domestic economy during one-year period.
Question No: 45 ( Marks: 1 ) - Please choose one
Which of the following shows the Fisher equation of exchange? ► MT=PV.
► VT=PM.
► MV=PQ.
► MY=VP.
Question No: 46 ( Marks: 1 ) - Please choose one
An exchange rate that varies according to the supply and demand for the currency in the foreign exchange market is called: ► Overvalued exchange rate.
► Undervalued exchange rate.
► Fixed exchange rate.
► Flexible exchange rate.
Question No: 47 ( Marks: 1 ) - Please choose one
In the equation MV = PQ, according to the crude quantity theory of money: ► M has no effect on the price level.
► V is the number of times each dollar is spent per year.
► Q is the real price level.
► P rises as V falls, other things constant.
Question No: 48 ( Marks: 1 ) - Please choose one
In the Keynesian cross model, the 45-degree line has a slope of: ► 45.
► Infinity.
► 1.
► 0.
Question No: 49 ( Marks: 1 ) - Please choose one
In Keynesian economics, equilibrium can occur: ► Only at full employment level.
► Only at levels less than full employment.
► Only at levels greater than full employment.
► At any level of aggregate output which is equal to aggregate expenditures.
Question No: 50 ( Marks: 1 ) - Please choose one
After a decrease in the wage, the substitution effect implies that: ► Only the amount demanded of capital decreases.
► Only the amount demanded of labor decreases.
► Only the amount demanded of capital increases.
► The amount demanded of all inputs increases.
Question No: 51 ( Marks: 5 )
Briefly discuss the private cost of advertising. How we can calculate the marginal social cost?ANSWER: Private Cost Of Advertising: The private cost of advertising is the cost incurred by firm in making the advertisement i.e newspaper adds, tv commercials etc. The firms do not take into account the nuisance faced by people due to these advertisements otherwise the firms would do less advertisement.
Marginal Social Cost: Marginal social cost is not a monetary based cost. It is the cost borne by the society as a whole. It is the cost of consumption of one next unit.
Question No: 52 ( Marks: 10 )
A. What conclusions are derived from exogenous growth theory?
What conclusions are derived from exogenous growth theory?ANSWER: Exogenous Growth Theory: The major conclusions derived from the exogenous growth are as follows:
· The steady growth rate of real GDP depends on exogenous rates of growth of population (n) and technology (t). There are no policies for government for how to affect the steady growth rate of a country. Higher savings can only have a little effect on income it cannot cause long term growth because savings cause diminishing returns to investment and capital accumulation.
· If one country started with lower income and capital than another country, the poorer country will grow faster to catch up the richer country and then both the countries will grow together.
B. What is meant by convergence theory? Explain the convergence theory in the given graph.
(Marks: 4+6)
Question No: 53 ( Marks: 10 )
Define fiscal policy. Differentiate between contractionary and expansionary fiscal policy. In which situations, budget deficit and budget surplus exist? Answer: Fiscal Policy: Fiscal policy is the government’s about the
- expenditure in form of purchases, subsidies and interest payments on debt etc.
- revenue in form of taxes etc.
Difference between Contractionary and Expansionary Fiscal Policy:
Contactionary Fiscal Policy | Expansionary Fiscal Policy |
In conactionary fiscal policy government decreases its expenditure. | In expansionary fiscal policy government increases its expenditure. |
Budget Deficit and Budget Surplus: Budget deficit exists if government expenditure increases the revenue earned. In this case government needs to finance its expenditure through borrowing.
Budget surplus exists when revenue exceeds the government expenditure. In this condition government can easily pay off its debt borrowings.
(Marks: 2+4+4)
Question No: 54 ( Marks: 10 )
Discuss the basic theories regarding IMF’s stabilization program. Are these theories successful? If not, give reasons.Answer: IMF’s Stabilization Theories:
· Tight Fiscal Policy: It works through higher revenues and reduced government expenditure.
· Devaluation: Switching from imports to home produced goods. It increases competitiveness, exports and increase investors confidence in local currency.
· Tight Monetary Policy: Higher interest rates resulting in reduced private sector consumption and investment demand. It reduces inflation and increases savings. High interest rates also results in higher capital inflow.
Theses theories are generally not successful in lower income countries (LICs). Because they caused the problems of:
- Devaluation: It raises the price of imports and also increased the inflation while the real wage rate could not increase.
- Stabilization hurts poor: decrease in expenditure always badly effects the poor which can then cause political instability.
This comment has been removed by a blog administrator.
ReplyDelete