My Mid Term Paper 2010-05-27
ECO 401
A market with few entry barriers and with many
firms that sell differentiated products is:
·
Purely competitive.
·
A monopoly.
·
Monopolistically competitive.
·
Oligopolistic. (correct)
The total cost (TC) of producing computer software diskettes
(Q) is given as: TC = 200 + 5Q. What is the total fixed cost?
·
5Q.
·
5.
·
5 + (200/Q).
None of the given options (correct)
Costs determine all of the
following EXCEPT:
·
Demand for a
product. -(correct)
·
Firm's behaviour.
·
How firms should expand?
·
Firm's profitability.
A market with few entry barriers and with many
firms that sell differentiated products is:
► Purely competitive.
► A monopoly.
► Monopolistically competitive.
► Oligopolistic. (correct)
Marginal profit is equal to:
► Marginal revenue
minus marginal cost. (correct)
► Marginal revenue plus marginal cost.
► Marginal cost minus marginal revenue.
► Marginal revenue times marginal cost.
If current output is less than the profit-maximizing output
then which of the following must be TRUE?
► Total revenue is less than total cost.
► Average revenue is less than average
cost.
► Marginal revenue is less than marginal
cost.
► Marginal revenue is
greater than marginal cost. (correct)
If a simultaneous and equal percentage decrease in
the use of all physical inputs leads to a larger percentage decrease in
physical output, a firm’s production function is said to exhibit:
► Decreasing
returns to scale. (correct)
►
Constant returns to scale.
►
Increasing returns to scale.
► Diseconomies
of scale
--------------------------
Question No: 1 ( 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: 2 ( Marks: 1 ) - Please choose one
At the equilibrium price:
► There will be a shortage.
► There will be neither a shortage nor a surplus.
► There will be a surplus.
► There are forces that cause the price to change.
Question No: 3 ( 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: 4 ( Marks: 1 ) - Please choose one
The supply curve for a competitive firm is:
► Its entire marginal cost curve.
► The upward-sloping portion of its marginal cost
curve.
► Its marginal cost
curve above the minimum point of the average variable cost curve.
► Its marginal
cost curve above the minimum point of the average total cost curve.
Question No: 5 ( Marks: 1 ) - Please choose one
A perfectly competitive firm maximizes profit
by finding the level of production at which:
► Price = Marginal Cost.
► Price = Average Total Cost.
► Average Total Cost = Marginal Cost.
► Price < Marginal
Cost.
Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following is true in long run
equilibrium for a firm in a monopolistic competitive industry?
► The demand curve is tangent to marginal cost curve.
► The demand curve is tangent to average cost curve.
► The marginal cost curve is tangent to average cost
curve.
► The demand curve is tangent to marginal revenue
curve.
Question No: 7 ( Marks: 1 ) - Please choose one
Value of Marginal Product of Labor (VMPL)
is equal to:
► MPPL/ Pi.
► MPPL.
► Pi.
► MPPL x Pi.
Question No: 8 ( 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: 9 ( 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: 10 ( Marks: 1 ) -
Please choose one
An assumption of classical economics is:
► Investment and saving are seldom equal.
► Self-correction takes a long time.
► Demand creates its own supply.
► Prices and wages
are flexible.
Question No: 11 ( Marks: 1 ) - Please choose one
Gross Domestic Product is:
► A stock variable.
► A flow variable.
► Both a stock and a flow variable.
► Neither a stock nor a flow variable.
Question No: 12 ( 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: 13 ( Marks: 1 ) - Please choose one
A government wishing to reduce a deficit on
the current account of their balance of payments through the use of fiscal
policy would be most likely to:
► Raise direct taxation.
► Introduce an import quota.
► Raise interest rates.
► Reduce the rate of
value added tax on all goods and services.
Question No: 14 ( Marks: 1 ) - Please choose one
If imports = exports, then we have:
► Current account balance.
► Capital account balance.
► Statistical discrepancy.
► Balanced Budget.
Question No: 15 ( Marks: 1 ) - Please choose one
The principle economic difference between a
competitive and a non-competitive market is:
► The number of firms in the market.
► The extent to which
any firm can influence the price of the product.
► The size of the firms in the market.
► The annual sales made by the largest firms in the
market.
Question No: 16 ( Marks: 1 ) - Please choose one
Disposable Income is obtained by
subtracting ---------------- from personal income.
► Indirect Taxes.
► Direct Taxes.
► Both direct and indirect taxes.
► Subsidies.
Question No: 17 ( Marks: 1 ) - Please choose one
Under monopoly, when the demand curve is
downward sloping, marginal revenue is:
► Equal to price.
► Equal to average cost.
► Less than price.
► More than price.
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following statements is TRUE
about the Classical and Keynesian approaches to achieve a macroeconomic
equilibrium in an economy?
► 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: 19 ( Marks: 1 ) - Please choose one
Suppose an economy is at full employment
equilibrium in the classical model. What
will be the long run effect of an increase in government spending in this
economy?
► Price level will increase.
► The aggregate demand curve will shift upward.
► Output level will remain constant.
► All of the given
options.
Question No: 20 ( Marks: 1 ) - Please choose one
This year, if national product at factor cost
is Rs. 500 billion, indirect taxes 150 billion and subsidies Rs. 50 billion,
then national product at market prices will be:
► Rs. 700 billion.
► Rs. 650 billion.
► Rs. 600 billion.
► Rs. 300 billion.
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following is an example of an
injection?
► Taxes.
► Saving.
► Imports.
► Investment.
Question No: 22 ( Marks: 1 ) - Please choose one
Refer
to the above figure, the potential output in this economy is:
► $7,000 billion at a price level of 1.16.
► $7,000 billion at a price level of 1.12.
► $7,000 billion at a price level of 1.08.
► All of the given
options.
Question No: 23 ( Marks: 1 ) - Please choose one
Refer to the above
figure, if the real GDP is $7,000 billion and the implicit price deflator is
1.16, what is the value of nominal GDP?
► $6,034 billion.
► $8,120 billion.
► $9,120 billion.
► Cannot be
determined from the given information.
Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following is TRUE?
► Accelerator coefficient = Marginal capital / output
ratio.
► Accelerator coefficient > Marginal capital /
output ratio.
► Accelerator coefficient < Marginal capital /
output ratio.
► None of the given
options.
Question No: 25 ( Marks: 1 ) - Please choose one
Which of the following predictions can be made
using the growth rates associated with the equation of exchange, given that
velocity is stable and that the economy moves to its potential output (YP) in the long run?
► If the money supply grows at a faster rate than growth in YP, there will be inflation.
► If the money supply grows at the same rate as growth
in YP, the
price level will fall and there will be deflation.
► If the money supply grows at the same rate as growth
in YP, the
price level will also increase at the same rate as growth in YP,.
► None of the given options.
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following will influence a
country's exports?
► All of the
given options.
► Consumer tastes for
domestic and foreign goods.
► Prices of goods at home and abroad.
► Costs of transporting goods from country to country.
Question No: 27 ( Marks: 1 ) - Please choose one
| Disposable Personal Income
$
|
Consumption
$
|
100
|
140
|
200
|
220
|
300
|
300
|
400
|
380
|
500
|
460
|
Refer to the above table,
when disposable personal income is $100, what is the amount of personal saving?
► −$40.
► −$20
► $0.
► $20.
Question No: 28 ( Marks: 1 ) - Please choose one
| Disposable Personal Income
$
|
Consumption
$
|
100
|
140
|
200
|
220
|
300
|
300
|
400
|
380
|
500
|
460
|
Refer to the above table,
when disposable personal income is $400, what is the amount of personal saving?
► −$40.
► −$20.
► $0.
► $20.
Question No: 29 ( Marks: 1 ) - Please choose one
The price of one unit of foreign good in terms of
domestic good is known as:
► Inflation rate.
► Real exchange rate.
► Nominal exchange rate.
► Discount rate.
Question No: 30 ( Marks: 1 ) - Please choose one
Development is impossible without:
► Incentive to profit.
► Foreign aid.
► Domestic savings.
► Inflation.
Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following is not likely to be a
cause of economic growth?
► Improved rate of capital formation.
► Increase in money
supply.
► Increase in investment in education and training.
► Rapid technical progress.
Question No: 32 ( Marks: 1 ) - Please choose one
The money multiplier is the reverse of:
► Legal
reserves.
► Excess
reserves.
► Checkable
deposits.
► The reserve ratio.
Question No: 33 ( Marks: 1 ) - Please choose one
A primary function of a central bank is to:
► Regulate
dividend payments by corporations.
► Control the
bond market.
► Set monetary policy.
► Publish
statistics on banking and related financial matters.
Question No: 34 ( Marks: 1 ) - Please choose one
What will be the impact of an increase in
taxes?
► It will shift the IS curve to the left and decrease
both the interest rate and the level of income.
► It will shift the IS curve to the right and increase
both the interest rate and the level of income.
► It will shift the IS curve to the right and increase
the level of income but decrease the interest rate.
► It will shift the
LM curve downward (to the right) and increase the level of income but decrease
the interest rate.
Question No: 35 ( Marks: 1 ) - Please choose one
IS curve shows the equilibrium in:
► Money Market.
► Goods Market.
► Labor Market.
► Financial Market.
Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following is TRUE for investment
function and the IS curve slope?
► It is upward because higher interest rates induce
more investment.
► It is upward because higher interest rates induce
less investment.
► It is downward because higher interest rates induce
more investment.
► It is downward because higher interest rates induce less
investment.
Question No: 37 ( Marks: 1 ) - Please choose one
Suppose the price of rail tickets decreases,
what will happen to the demand for airline travel?
► The demand curve
for airline travel shifts left.
► The demand curve for airline travel shifts right.
► The supply curve of airline travel shifts left.
► The supply curve of airline travel shifts right.
Question No: 38 ( 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: 39 ( Marks: 1 ) - Please choose one
What will happen if current output is less
than the profit-maximizing output?
► The next unit produced
will decrease profit.
► The next unit produced will increase cost more than
it increases revenue.
► The next unit produced will increase revenue more
than it increases cost.
► The next unit produced will increase revenue without
increasing cost.
Question No: 40 ( Marks: 1 ) - Please choose one
In which of the following situations, a
monopoly occurs?
► When each firm produces a product that is slightly different
from the other firms.
► When one firm sells
a good that has no close substitutes and a barrier blocks entry for other
firms.
► When there are many firms producing the same product.
► In all of the given situations.
Question No: 41 ( Marks: 1 ) - Please choose one
Concentration ratio is used to assess:
► The level of
competition in an industry.
► The degree of control over prices.
► The technological gaps between the firms.
► Marginal cost and marginal benefit analysis.
Question No: 42 ( Marks: 1 ) - Please choose one
If an increase in price increases the total
revenue then:
► Demand is elastic.
► Demand is inelastic.
► Supply is elastic.
► Supply is inelastic.
Question No: 43 ( Marks: 1 ) - Please choose one
Revaluation of the currency encourages:
► Imports.
► Exports.
► Poverty.
► Inflation.
Question No: 44 ( Marks: 1 ) - Please choose one
Growth rate of total output is equal to:
► Growth rate of
per capita income - Growth rate of population.
► Growth rate of population / Growth rate of per capita
income.
► Growth rate of
population + Growth rate of per capita income.
► Growth rate of population - Growth rate of per capita
income.
Question No: 45 ( Marks: 1 ) - Please choose one
Government can borrow from domestic banking
system or general public by selling:
► Shares of any of its institute.
► Stocks.
► Treasury bills.
► Debentures.
Question No: 46 ( Marks: 1 ) - Please choose one
Which of the following is an equilibrium
condition in goods market?
► Investment = Saving.
► Money supply = Money demand.
► Aggregate demand = C + I + G + NX.
► Aggregate
demand = Aggregate supply.
Question No: 47 ( Marks: 1 ) - Please choose one
If the exchange rate is fixed, expansionary
fiscal policy would not have any:
► Investment multiplier effect.
► Crowding out effects.
► Government spending
effect .
► None of the given options.
Question No: 48 ( Marks: 1 ) - Please choose one
The common characteristics of a developing
country is:
► High growth rate.
► High literacy rate.
► Skilled labor.
► High unemployment rate.
Question No: 49 ( Marks: 3 )
Define balance of payment (BOP). How the
BOP can be determined?
Answer:
A BOP is a sheet in other words an
account sheet which is an accounting record of all monetary transactions between a
country and the rest of the world.
These transactions include
à Payments for the
country's exports and imports of goods, services,
and financial capital, as well as financial transfers.
The BOP summarizes international
transactions for a specific period, usually a year, and is prepared in a single
currency, typically the domestic currency for the country concerned.
Surplus items:
Sources of funds for a nation, such as
exports or the receipts of loans and investments, are recorded as positive/surplus items.
Deficit items:
Uses of funds, such as for imports or to
invest in foreign countries, are recorded as a negative or deficit item.
It can be determined if we see the things
in both prespective.In other words it is a non-complicated way, lets assume that we have two countries Pakistan and united states and
things are viewed from Pakistan point of view.
For this purpose we must now the market
for foreign exchange. Foreign exchange in a Pakistani context means US $ and in a US point of view it is Pak rupees.
Question No: 50 ( Marks: 3 )
Explain the shape of money demand curve with the help of
diagram.
Answer:
Money demand Md increases with income
levels.
Money demand Md falls with interest
rates.
In this concept we are talking about real
income and real interest rate not the nominal income and nominal interest rate.
So this implies to the demand of real
money.
Whether nominal and real money supply is equal
or not depends much on the assumption regarding prices. If prices are assumed
fixed, then the two are equal, otherwise not.
As you can see from the diagram where money demand in on the x-axis
and income is on the y-axis, and there are various level showns like L1,L2,L3.
Question No: 51 ( Marks: 5 )
How can a current account, which is in
deficit, be restored to balance under fixed exchange rate regimes?
Answer:
There is solution for how can a current account which is in deficit
be restored to balance under fixed exchange rate regimes. The answer is “Economic Deflation”
Economic Deflation says When a country’s
national income rises, it spends more; part of that spending falls on imported
goods; higher imports cause the current account to worsen.
The reverse is also true for this lower income must reduce import spending and therefore improve the
current account spending.
However, economic contraction is not a good idea to restore current
account equilibrium the other alternative solution presented by economist is to
devaluate or “devaluation”.
Devaluation is the phenomena related to exchange rate where
exchange rate faces depreciation but in the context of fixed exchange rates. The complement of devaluation is revaluation.
A concept of devaluation is to bring the exchange rate in line with its long-run equilibrium
level, i.e. a level consistent with international competitiveness.
Competitiveness is simply defined as the real exchange rate RER, where RER = (Pf/Pd)*NER. Where
NER à Nominal Exchange rate
Pf à is the price level
prevailing in the foreign country (US)
Pdà is the price level
prevailing in the home country (Pakistan).
The formula implies that, for a fixed NET if inflation is higher in Pakistan (relative to
the US), Pakistani exports will become less attractive in the
international market. As a result, our exports will fall, and current account
will go into deficit.
To fix this problem, the NER can be devalued so as to make our goods cheaper and competitive and it is
to bring
competitiveness back to its original higher level. However, there are many
provisos attached to the devaluation policy prescription.
Devaluation only works if the country’s exports and imports are
elastic, otherwise the price effect of the devaluation will dominate the volume
effect and the current account will worsen. Secondly, the country must have
excess productive capacity in order to meet the higher demand for exports that
is created as a result of the devaluation. Thirdly, the country should not have
a very high foreign debt whose burden increases so much as a result of the devaluation that
the negative effects associated therewith overwhelm any positive
competitiveness effects.
Capital account (+ or -)
+ à Incoming FDI, FPI or
other private capital
- àOutgoing FDI, FPI or
other private capital
+ à Borrowing, aid
inflows
- àPayments of debt
principal, aid outflows
Question No: 52 ( Marks: 5 )
Identify which of the following are stock variables and
which are flow variables?
a)
UnemploymentàStock
b) Redundancies (job lay-offs)àFlow
c)
ProfitsàFlow
d) A firm’s stock market valuation
(share price)àStock
e)
The value of property after a period of inflationàStock
(Marks: 1 for each)
Question No: 53 ( Marks: 5 )
World Bank suggests some structural reform
policies for the poor countries to grow. Discuss those policies briefly.
Ans:
World Bank has
suggested following policies for the poor countries to grow,
1.
Governance and
administrative reforms: To reduce over employment in public sector, reduce wastes and to
improve the quality and reliability of public services. To strengthen the
administration of taxes, to eliminate the corruption. To decentralize the
control of fiscal policy making. To enrich the legal and regulator framework.
2.
Privatization of
state-owned enterprises: Abbreviated as SOEs. These are influenced by political interference
and it is one of the reasons SOEs are considered inefficient. SOEs are also
suffering form lack of competition, cost awareness and fear of bankruptcy.
3.
Financial
liberalization: It involves ending of
financial repression policies including artificially low interest rates, credit
rationing, restrictions on banking competition and government involvement in
investment allocation
4.
Liberalization of prices, removal of
subsidies
5.
Deregulation involving dismantling of
licensing systems and red-tape
6. Trade liberalization: including
tariffication of non-tariff-barriers, harmonization of tariffs and an eventual
reduction thereof
7. FDI liberalization: To create a transparent, predictable environment for foreign
investors to operate in.
8. Capital account
liberalization: To remove controls on
capital flows
These policies are suggested by world bank and the successful
implementation of these policies depend on the political and economic system of
poor countries. In general these policies are expected to provide the poor
nation with better understanding and help them to raise their growth.
My Mid Term Paper 2010-05-27
ECO 401
A market with few entry barriers and with many
firms that sell differentiated products is:
·
Purely competitive.
·
A monopoly.
·
Monopolistically competitive.
·
Oligopolistic. (correct)
The total cost (TC) of producing computer software diskettes
(Q) is given as: TC = 200 + 5Q. What is the total fixed cost?
·
5Q.
·
5.
·
5 + (200/Q).
None of the given options (correct)
Costs determine all of the
following EXCEPT:
·
Demand for a
product. -(correct)
·
Firm's behaviour.
·
How firms should expand?
·
Firm's profitability.
A market with few entry barriers and with many
firms that sell differentiated products is:
► Purely competitive.
► A monopoly.
► Monopolistically competitive.
► Oligopolistic. (correct)
Marginal profit is equal to:
► Marginal revenue
minus marginal cost. (correct)
► Marginal revenue plus marginal cost.
► Marginal cost minus marginal revenue.
► Marginal revenue times marginal cost.
If current output is less than the profit-maximizing output
then which of the following must be TRUE?
► Total revenue is less than total cost.
► Average revenue is less than average
cost.
► Marginal revenue is less than marginal
cost.
► Marginal revenue is
greater than marginal cost. (correct)
If a simultaneous and equal percentage decrease in
the use of all physical inputs leads to a larger percentage decrease in
physical output, a firm’s production function is said to exhibit:
► Decreasing
returns to scale. (correct)
►
Constant returns to scale.
►
Increasing returns to scale.
► Diseconomies
of scale
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