FINALTERM EXAMINATION
Fall 2009
ECO401- Economics (Session - 4)
Time: 120 min
Marks: 87
Question No: 1 ( 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: 2 ( Marks: 1 ) - Please choose one
The cross price elasticity of demand for complementary goods is: ► Less than 0.
► Equal to 0.
► Greater than 0.
► Between 0 and 1.
Question No: 3 ( Marks: 1 ) - Please choose one
Assume leisure is a normal good. If income effect equals substitution effect then a wage rate increase will lead a person to: ► Increase hours of work.
► Decrease hours of work.
► Not change hours of work.
► None of the given options.
Question No: 4 ( Marks: 1 ) - Please choose one
_______________ arises when an increase in all inputs leads to a more-than-proportional increase in the level of output. _____________ means that as inputs are added to the production process, output increases proportionally. ► Economies of scale; constant returns to scale.
► Constant returns to scale; decreasing returns to scale.
► Decreasing returns to scale; economies of scale.
► Economies of scale; decreasing returns to scale.
Question No: 5 ( Marks: 1 ) - Please choose one
An isoquant curve shows: ► All the alternative combinations of two inputs that yield the same maximum total product.
► All the alternative combinations of two products that can be produced by using a given set of inputs fully and in the best possible way.
► All the alternative combinations of two products among which a producer is indifferent because they yield the same profit.
► None of the given options.
Question No: 6 ( Marks: 1 ) - Please choose one
Total costs are the sum of: ► Marginal costs and variable costs.
► Fixed costs and variable costs.
► Fixed costs and marginal costs.
► Average variable costs and marginal costs.
Question No: 7 ( 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.
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following best expresses the law of demand? ► A higher price reduces demand.
► A lower price reduces demand.
► A higher price reduces quantity demanded.
► A lower price shifts the demand curve to the right.
Question No: 9 ( 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: 10 ( 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: 11 ( Marks: 1 ) - Please choose one
The classical economists thought that the economy would quickly overcome any short run instability because: ► Price level and quantity are flexible.
► Prices would get stuck at a low level.
► The long run aggregate supply would shift to the left.
► Prices and wages are flexible.
Question No: 12 ( 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.
Question No: 13 ( Marks: 1 ) - Please choose one
The average propensity to consume is the ratio of: ► A change in consumption to a change in disposable income.
► A change in consumption to total disposable income at a specific income level.
► Total consumption to total disposable income at a specific income level.
► Total consumption to a change in disposable income.
Question No: 14 ( Marks: 1 ) - Please choose one
The slope of the saving function (or line) is the: ► Average propensity to save.
► Average propensity to consume.
► Marginal propensity to save.
► Marginal propensity to consume.
Question No: 15 ( Marks: 1 ) - Please choose one
The government increases the number of job centres and uses more advanced computers to improve the information database. This creates: ► Structural Unemployment.
► Regional Unemployment.
► Frictional Unemployment.
► Demand Deficient Unemployment.
Question No: 16 ( Marks: 1 ) - Please choose one
Which one of the following can lead to a rise in inflation? ► An increase in costs of production.
► An increase in productive capacity.
► An increase in the level of direct taxation.
► An increase in the exchange rate.
Question No: 17 ( Marks: 1 ) - Please choose one
What does the term "balance of payment deficit" refer to? ► An increase in official international reserves.
► A positive statistical discrepancy.
► A negative statistical discrepancy.
► A decline in official international reserves.
Question No: 18 ( Marks: 1 ) - Please choose one
How should fiscal policy be used during inflation? ► Increase Government expenditure and decrease taxes to decrease aggregate demand.
► Increase Government expenditure and decrease taxes to increase aggregate demand.
► Decrease Government expenditure and increase taxes to increase aggregate demand.
► Decrease Government expenditure and increase taxes to decrease aggregate demand.
Question No: 19 ( Marks: 1 ) - Please choose one
If the demand curve for a good is downward sloping, then the good: ► Must be inferior.
► Must be giffen.
► Can be normal or inferior.
► Must be normal.
Question No: 20 ( Marks: 1 ) - Please choose one
Keeping in view 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.
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following is TRUE according to classical economists? ► 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: 22 ( Marks: 1 ) - Please choose one
Why calculations of Gross Domestic Product (GDP) count only final goods and services? ► Because it is difficult to measure the prices of intermediate goods produced.
► Because these are the only goods and services that are purchased in an economy.
► Because counting all goods and services would lead to double-counting of many activities.
► Because one cannot calculate the quantities of intermediate goods produced.
Question No: 23 ( Marks: 1 ) - Please choose one
------------------ plays an important 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: 24 ( Marks: 1 ) - Please choose one
Why a $1 increase in government spending will have a larger impact upon national income than a $1 tax cut? ► Because the government prints the currency it spends.
► Because not all of the tax cut is spent.
► Because when taxes are cut, government spending is also cut.
► Because taxes are an injection into the system.
Question No: 25 ( Marks: 1 ) - Please choose one
Commercial banks in Pakistan are supervised by: ► State bank of Pakistan.
► National bank of Pakistan.
► Finance minister of Pakistan.
► World bank.
Question No: 26 ( 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: 27 ( Marks: 1 ) - Please choose one
Firm A produces cotton worth Rs. 1000 and sells it to firm B. From this, firm B makes yarn worth Rs. 1500 and sells to firm C. Firm C manufactures cloth worth Rs. 2500 and sells to consumers. The value added is: ► 1000+1500+2500 = Rs. 5000
► 1000+500+2500 = Rs. 4000
► 1000+500+1000 = Rs. 2500
► 1000+1500+1000 =Rs. 3500
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following best defines “subsidies”? ► Payment by Government for purchase of goods and services.
► Payment by business enterprises to factors of production.
► Payment by companies to share holders.
► Payment by Government to business enterprises without buying any goods and services.
Question No: 29 ( Marks: 1 ) - Please choose one
National product at market prices incorporate: ► Prices which buyers actually pay.
► Payments made to the factor owners.
► Costs incurred in producing goods and services.
► Costs minus subsidies.
Question No: 30 ( Marks: 1 ) - Please choose one
A marginal propensity to consume (MPC) of 0.95 indicates that: ► ∆C to ∆Yd is 0.95.
► C / Yd is 0.95.
► ∆Yd to ∆C is 0.95.
► Yd / C is 0.95.
Question No: 31 ( Marks: 1 ) - Please choose one
When MPC is 0.80 and APC is 0.95 then MPS is: ► 0.20 and APS is 0.05.
► 0.05 and APS is 0.20.
► 0.20 and APS is 0.20.
► 0.05 and APS is 0.05.
Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following are leakages from the circular flow? ► Consumption and saving.
► Saving and imports.
► Imports and exports.
► Exports and savings.
Question No: 33 ( Marks: 1 ) - Please choose one
The time that a laborer uses for relaxation and all activities other than work or necessary sleep is known as: ► Free time.
► Leisure.
► Time not used for earning.
► All of the given options.
Question No: 34 ( Marks: 1 ) - Please choose one
Labor supply curve is backward bending because: ► The income effect of higher income dominates the substitution effect of higher wages.
► The substitution effect of higher income dominates the income effect of higher wages.
► The income effect of higher income dominates the price effect of higher wages.
► None of the given options.
Question No: 35 ( Marks: 1 ) - Please choose one
The government supports research in basic science because: ► It is a public good.
► External costs are created.
► Internal benefits are created.
► Free markets would do so otherwise.
Question No: 36 ( Marks: 1 ) - Please choose one
In classical theory, excess supply of a product would be associated with: ► Rising interest rates.
► Falling interest rates.
► Rising price for the product.
► Falling price for the product.
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following is NOT a determinant of net exports? ► Domestic and foreign incomes.
► Relative price levels.
► Domestic and foreign trade policies.
► Producers’ expectations about future prices.
Question No: 38 ( Marks: 1 ) - Please choose one
A trade surplus occurs when: ► A country's firms open more stores abroad than foreign firms open in the country.
► A country sells more abroad than it purchases from abroad.
► Foreign firms open more stores in a country than the country opens in foreign countries.
► A country purchases more from abroad than other countries purchase from it.
Question No: 39 ( Marks: 1 ) - Please choose one
A change from $1.00 = Rs. 80.00 to $1.00 = Rs. 85.00 represents: ► Depreciation of the dollar.
► An appreciation of the dollar.
► An appreciation of the rupee.
► None of the given options.
Question No: 40 ( Marks: 1 ) - Please choose one
There is an increase in the economy’s potential output when there is: ► An increase in government spending.
► A decrease in government spending.
► An increase in the economy’s capital stock.
► An increase in the economy’s depreciation rate.
Question No: 41 ( Marks: 1 ) - Please choose one
One of the implications of Solow growth model is that all other things remaining the same, countries with rapidly growing population will tend to: ► Be poorer than countries with lower population growth.
► Grow slower than countries with lower population growth.
► Grow higher than countries with lower population growth.
► Have lower marginal products of capital than countries with lower population growth.
Question No: 42 ( Marks: 1 ) - Please choose one
The rapid population growth in today’s developing nations is due to the: ► High birth rates only.
► Low death rates only.
► High birth rate and low death rate.
► Higher standard of living.
Question No: 43 ( 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: 44 ( Marks: 1 ) - Please choose one
The relationship between tax rates and total tax collections by government is known as: ► Laffer curve.
► Demand curve.
► Supply curve.
► Investment curve.
Question No: 45 ( Marks: 1 ) - Please choose one
The optimum tax rate in which government revenue is maximized lies somewhere between: ► 0% and 1%.
► 0% and 50%.
► 50% and 100%.
► 0% and 100%.
Question No: 46 ( Marks: 1 ) - Please choose one
Money is defined as an item that: ► Serves as a medium of exchange for goods and services.
► Can be converted into silver with relatively little loss in value.
► Can be converted into gold with relatively little loss in value.
► Facilitates a connecting link between credit instruments and debt instruments.
Question No: 47 ( Marks: 1 ) - Please choose one
A tax imposed by a country on an imported good or service is called a: ► Quota.
► Tariff.
► Non-tariff barrier.
► Trade embargo.
Question No: 48 ( Marks: 1 ) - Please choose one
Poor countries remained poor because of: ► Higher per capita income.
► Vicious circle of poverty.
► High level of investment.
► High rates of savings.
Question No: 49 ( Marks: 1 ) - Please choose one
If other things remaining the same, expected income can be used as a direct measure of well-being in which of the following situations? ► It can be used if and only if individuals are not risk-loving.
► It can be used if and only if individuals are risk averse.
► It can be used if and only if individuals are risk neutral.
► It can be used no matter what a person's preference to risk.
Question No: 50 ( Marks: 1 ) - Please choose one
What questions are related with explanation? What questions are related with what ought to be? ► Positive, negative.
► Negative, normative.
► Normative, positive.
► Positive, normative.
Question No: 51 ( Marks: 1 ) - Please choose one
What will happen to the demand for product X, if there is an increase in consumer’s income? ► It will necessarily remain unchanged.
► It will shift to the right if X is a complementary good.
► It will shift to the right if X is a normal good.
► It will shift to the right if X is an inferior good.
Question No: 52 ( 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: 53 ( Marks: 1 ) - Please choose one
Suppose all inputs are increased by 20% but output increases by less than 20% in a production process. This means that the firm experiences: ► Decreasing returns to scale.
► Constant returns to scale.
► Increasing returns to scale.
► None of the given options.
Question No: 54 ( Marks: 1 ) - Please choose one
In which of the following conditions, a firm will never operate? ► At the minimum of its average total cost curve.
► At the minimum of its average variable cost curve.
► On the downward-sloping portion of its average total cost curve.
► On the downward-sloping portion of its average variable cost curve.
Question No: 55 ( Marks: 3 )
How the central bank plays its role in order to control the activities of commercial banks?Question No: 56 ( Marks: 5 )
Briefly discuss different types of taxes which a government can impose.Question No: 57 ( Marks: 5 )
A. Differentiate between final goods and intermediate goods with the help of examples.
Differentiate between final goods and intermediate goods with the help of examples.B. See the following table:
| Year | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 |
| Real GDP Growth Rate | 1.2% | -5.5% | 1.8% | 3.9% | 4.5% | 5.3% | 2.6% | 1.9% |
a) Calculate the average growth rate from 1982 and 1985.
b) Calculate the average growth rate from 1979 and 1986.
(Marks: 3+2)
Question No: 58 ( Marks: 10 )
From the information given in the following table, calculate the number of unemployed persons and unemployment rate.| Size of Labor Force | Number of persons Employed | |
| 1984 | 113544 | 105005 |
| 1985 | 115461 | 107150 |
| 1986 | 117834 | 109597 |
| 1987 | 119865 | 112440 |
| 1988 | 121669 | 114968 |
(Marks: 5+5)
Question No: 59 ( Marks: 10 )
Answer the following questions.a) What is interest parity condition?
b) When does this condition hold?
c) What is the equation of this condition?
d) What will happen if the equality of the condition does not hold?
(Marks: 2+2+2+4)
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