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# ECO401 Final Term Mega Collection (MCQs & Subjective)

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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 centers 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 firmC. 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 ∆Ydis 0.95.

►C / Ydis 0.95.

► ∆Ydto ∆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 researching 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.

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.

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

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.

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.

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

Price floor results in:

►All of the given options.

►Excess supply.

►Equilibrium.

► Excess demand.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

Under the kinked demand curve model, an increase in marginal cost will lead to:

►An increase in output level and a decrease in price.

►A decrease in output level and an increase in price.

► A decrease in output level and no change in price.

►Neither a change in output level nor a change in price.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

Is Gross 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.

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.

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: 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: solution=Ped= % change in Q demand /% change in Q Price= 10%/12%= 0.5 where

e>1 elastic

e<1 inelastic

►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: mid question

►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 rival 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?

► 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 thatmoney 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:delta consumtion/ delta income =40/50=.8

►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 foreign good in terms of domestic good.

►Price of one unit of foreign 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 aspectfrom 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 stock market to crash.

► Unemployed workers not taking available jobs.

►Women being kept out of jobs traditionally held by men.

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