ECONOMICS MCQs

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ECONOMICS MCQs

Collection of Economics MCQs


Positive statements are those which are:

  1. value judgments
  2. verifiable or testable
  3. statements in the affirmative
  4. good statements

The former Soviet Union was an example of:

  1. a planned economy
  2. free-market/capitalism
  3. dictatorship
  4. a mixed economy

Rational choice or rational decision-making involves comparing the net benefit of a choice with the total net benefit foregone of all the alternatives combined

  1. weighing up total costs and total benefits associated with a decision
  2. weighing up m arginal costs and marginal benefits associated with a decision
  3. all of the above.

The PPF can be used to illustrate:

  1. principle of opportunity costs and increasing opportunity costs
  2. the distinction between micro and macroeconomics
  3. efficient, infeasible and inefficient production combinations
  4. all of the above

The concept of “interdependence of markets” can refer to the interdependence between:

  1. two or more factor markets
  2. goods and factor markets
  3. goods markets
  4. all of the above

The ‘law of demand’ implies that

  1. as prices fall, quantity dem anded increases.
  2. when prices fall, demand increases.
  3. as prices rise, quantity demanded increases.
  4. when prices rise, demand decreases.

Demand curves in P-Q space are derived while holding constant

  1. consumer tastes and the prices of other goods.
  2. incomes, tastes, and the price of the good.
  3. The incomes and tastes.
  4. incomes, tastes, and the prices of other goods.

Suppose the demand for good Z goes up when the price of good Y goes down. We can say that goods Z and Y are

  1. perfect substitutes.
  2. unrelated goods.
  3. complements.
  4. substitutes.

If the demand for coffee decreases as income decreases, coffee is

  1. a normal good.
  2. a complementary good.
  3. an inferior good.
  4. a substitute good.

Collection Economics MCQs

Which of the following is consistent with the law of supply?

  1. When the price of calculators rises, the supply of calculators increases, ceteris paribus.
  2. As the price of calculators falls, the supply of calculators increases, ceteris paribus.
  3. When the price of calculators rises, the quantity supplied of calculators increases,ceteris paribus .
  4. As the price of calculators rises, the quantity supplied of calculators decreases, ceteris paribus.

The price of computer chips used in the manufacture of personal computers has fallen. This will lead to __________ personal computers.

  1. a decrease in the supply of
  2. a decrease in the quantity supplied of
  3. an increase in the supply of
  4. an increase in the quantity supplied of

When there is excess demand in an unregulated market, there is a tendency for

  1. quantity demanded to increase.
  2. quantity supplied to decrease.
  3. price to fall.
  4. price to rise.

Equilibrium in the market for good A obtains

  1. when there is no surplus or shortage prevailing in the market
  2. where the demand and supply curves for A intersect
  3. when all of what is produced of A is consumed
  4. all of the above

A shift in the demand curve (drawn in the traditional Price-Quantity space) to the left may be caused by

  1. a decrease in supply.
  2. a fall in income.
  3. The fall in the price of a complementary good.
  4. a fall in the number of substitute goods.

Collection Economics MCQs

which of the following is the process by which resources are transformed into useful forms is

  1. capitalization.
  2. consumption.
  3. allocation.
  4. production.

The concept of choice would become irrelevant if

  1. capital were eliminated.
  2. scarcity were eliminated.
  3. we were dealing with a very simple, one-person economy.
  4. poverty were eliminated.

Which of the following is not a resource as the term is used by economists?

  1. money.
  2. land.
  3. buildings.
  4. labour.

Capital, as economists use the term as

  1. is the money the fir m spends to hire resources.
  2. is money the firm raises from selling stock.
  3. The process of transforming resources into useful forms
  4. refers to things that have already been produced that are in turn used to produce other goods and services.

Opportunity cost, most broadly define as

  1. the additional cost of producing an additional unit of output.
  2. what we forgo, or give up, when we make a choice or a decision.
  3. an unavoidable cost, regardless of future.
  4. the additional cost of buying an additional unit of a product.

Which of the following graphs show all the combinations of goods and services that can be produced if all of society’s resources are used efficiently ?

  1. demand curve.
  2. supply curve
  3. production possibility frontier .
  4. circular-flow diagram.

Periods of “less than full employment” of resources correspond to

  1. points on the ppf.
  2. points outside the ppf.
  3. either points inside or outside the ppf.
  4. points inside the ppf.

What lies is at the heart of the allocation of goods and services in a free-market economy?

  1. Concerns of equity or equal distribution among individuals.
  2. The order or command of the ruling government or dictator.
  3. The wishes of consumers in the market.
  4. The price mechanism.

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Which of the following terms express the meaning of the phrase ‘ceteris paribus’ ?

  1. ‘all else equal.’
  2. ‘everything affects everything else.’
  3. ‘scarcity is a fact of life.’
  4. ‘there is no such thing as a free lunch.’

Laboratory (or controlled) experiments cannot be performed in economics because:

  1. of resource scarcity.
  2. economics is a natural science.
  3. of the difficulty of distinguishing between normative and positive statements.
  4. economics is a social science.

Which of the following causes a shift in the demand curve (drawn in Income-Quantity space) to the left ?

  1. The fall in the price of a complementary good.
  2. a fall in income.
  3. The change in tastes such that consumers prefer the good more.
  4. a rise in the number of substitute goods.

Which of the following causes a movement along the demand curve (drawn in Quantity-Price space) to the left ?

  1. an increase in supply.
  2. a rise in income.
  3. The rise in the price of a complementary good.
  4. a fall in the number of substitute goods

Which of the following will NOT cause a shift in the demand curve for compact discs?

  1. a change in the price of pre-recorded cassette tapes.
  2. The change in wealth.
  3. a change in income.
  4. a change in the price of compact discs.

Question 1

Resources in an economy:

a) Are always fixed

b) Can never decrease

c) Always increase over time

d) Are limited at any moment in time


Question 2

Human wants are:

a) Always fixed

b) Limited

c) Unlimited

d) Likely to decrease over time


Question 3

The sacrifice involved when you choose a particular course of action is called the:

a) Alternative

b) Opportunity cost

c) Consumer cost

d) Producer cost


Question 4

Which of the following is not one of the basic economic questions?

a) What to produce

b) Who to produce for

c) How to produce

d) How to maximise economic growth


Question 5

The basic economic problems will not be solved by:

a) Market forces

b) Government intervention

c) A mixture of government intervention and the free market

d) The creation of unlimited resources


Question 6

The free market involves:

a) The free provision of products

b) The subsidising of products by the government

c) Market forces of supply and demand

d) All trade via barter


Question 7

A mixed economy:

a) Has supply but not demand

b) Has demand but not supply

c) Has supply and demand

d) Has market forces and government intervention


Question 8

In a command (planned) economy:

a) The price mechanism acts as an incentive

b) Resources are allocated by market forces

c) Individual firms make decisions for themselves about what to produce and how to produce it

d) The The public sector is large


Question 9

The public sector includes:

a) Investors owning companies

b) Government ownership of assets

c) Market forces of supply and demand

d) All trade via barter


Question 10

Which of the following is a normative statement in economics?

a) More spending by the government reduces poverty

b) Higher taxes lead to less desire to work

c) The UK economy is growing fast relative to other European Union members

d) The government should concentrate on reducing unemployment


Question 1

If an economy is productively efficient:

a) Everyone is wealthy

b) Resources are unemployed

c) More of one product can only be produced if less of another product is produced

d) The distribution of income is equal


Question 2

Economic growth can be shown by:

a) An inward shift of the production possibility frontier

b) A movement down the production possibility frontier

c) An outward shift of the production possibility frontier

d) A movement up the production possibility frontier


Question 3

As resources are shifted from one industry to another this can be shown by:

a) An inward shift of the production possibility frontier

b) A movement along the production possibility frontier

c) An outward shift of the production possibility frontier

d) A outward shift in the demand curve for the products


Question 4

In a free market the combination of products produced will be determined by:

a) Market forces of supply and demand

b) The government

c) The law

d) The public sector


Question 5

If an economy moves from producing 10 units of A and 4 units of B to producing 7 As and 5Bs, the opportunity cost of the 5th B is:

a) 7As

b) 10As

c) 3As

d) 1A


Question 6

An economy may operate outside the Production Possibility Frontier if:

a) It is not utilising its resources fully

b) It is being productively efficient

c) It is a mixed economy

d) It is trading with other economies


Question 7

The resources in the economy do not include:

a) Demand

b) Land

c) Labour

d) Capital


Question 8

The resources in an economy are:

a) Constantly increasing

b) Fixed at any moment

c) Constantly decreasing

d) Able to be transferred easily between industries


Question 9

Any combination of products inside the production possibility frontier is:

a) Allocatively inefficient

b) X inefficient

c) Consumer inefficient

d) Productively inefficient


Question 10

An outward shift of the production possibility frontier may be caused by:

a) An increase in demand

b) More government spending

c) Better training of employees

d) Productive inefficiency


Question 1

Which best describes a demand curve?

a) The quantity consumers would like to buy in an ideal world

b) The quantity consumers are willing to sell

c) The quantity consumers are willing and able to buy at each and every income all other things unchanged

d) The quantity consumers are willing and able to buy at each and every price all other things

unchanged


Question 2

A fall in price:

a) Will cause an inward shift of demand

b) Will cause an outward shift of supply

c) May be caused by a fall in demand

d) Leads to a higher level of production


Question 3

Demand for a normal product may shift outwards if:

a) Price decreases

b) The price of a substitute falls

c) The price of a complement rises

d) Income falls


Question 4

According to the law of diminishing utility:

a) Utility is at a maximum with the first unit

b) Increasing units of consumption increase the marginal utility

c) Marginal product will fall as more units are consumed

d) Total utility will rise at a falling rate as more units are consumed


Question 5

If marginal utility is zero:

a) Total utility is zero

b) An additional unit of consumption will decrease total utility

c) An additional unit of consumption will increase total utility

d) Total utility is maximised


Question 6

A decrease in income should:

a) Shift demand for an inferior product outwards

b) Shift demand for an inferior product inwards

c) Shift supply for an inferior product outwards

d) Shift supply for an inferior product inwards


Question 7

An increase in the price of a complement for product A would:

a) Shift demand for product A outwards

b) Shift demand for product A inwards

c) Shift supply for product A outwards

d) Shift supply for product A inwards


Question 8

An increase in price all other things unchanged leads to:

a) Shift demand outwards

b) Shift demand inwards

c) A contraction of demand

d) An extension of demand


Question 9

If a product is a Veblen good:

a) Demand is inversely related to income

b) Demand is inversely related to price

c) Demand is directly related to price

d) Demand is inversely related to the price of substitutes


Question 10

If a product is an inferior good:

a) Demand is inversely related to income

b) Demand is inversely related to price

c) Demand is directly related to price

d) Demand is inversely related to the price of substitutes


Question 1

Average income increases from £20,000 p.a. to £22,000 p.a. Quantity demanded per year increases 5000 to 6000 units. Which of the following is correct?

a) Demand is price inelastic

b) The good is inferior

c) Income elasticity is -2

d) The product is normal


Question 2

The price decreases from £2,000 to £1,800. Quantity demanded per year increases 5000 to 6000 units. Which of the following is correct?

a) The price elasticity of demand is -2

b) The good is inferior

c) Income elasticity is + 0.5

d) Income elasticity is + 2


Question 3

If the price elasticity of demand is unit then a fall in price:

a) Reduces revenue

b) Leaves revenue unchanged

c) Increases revenue

d) Reduces costs


Question 4

If the cross elasticity of demand is -2:

a) The products are substitutes and demand is cross price elastic

b) The products are substitutes and demand is cross price inelastic

c) The products are complements and demand is cross price elastic

d) The products are complements and demand is cross price inelastic


Question 5

The income elasticity is +2 and income increases by 20%. Sales were 5000 units, what will they be now?

a) 3000

b) 7000

c) 5500

d) 4500

This means that a percentage increase in income will lead to an increase in quantity demanded that is twice as great; this means sales will increase by 40% to 7000 units.


Question 6

The price elasticity of demand is a negative number this means:

a) Demand is price elastic

b) Demand is price inelastic

c) The demand curve is downward sloping

d) An increase in income will reduce the quantity demanded


Question 7

Price increases from 10 to 12 pence and the price elasticity of demand is -0.5. The quantity demanded was 500 units. What will it be now?

a) 550 units

b) 500 units

c) 450 units

d) 490 units

This means that any given percentage fall in price leads to an increase in quantity demanded that is half as much; a 20% price increase will reduce the quantity demanded by 10%. This means the quantity demanded will be 450 units.


Question 8

If demand is price inelastic:

a) An increase in price must raise profits

b) An increase in price decreases revenue

c) An increase in price increases revenue

d) A decrease in price reduces sales


Question 9

For an inferior good:

a) The price elasticity of demand is negative; the income elasticity of demand is negative

b) The price elasticity of demand is positive; the income elasticity of demand is negative

c) The price elasticity of demand is negative; the income elasticity of demand is positive

d) The price elasticity of demand is positive; the income elasticity of demand is positive


Question 10

For a normal good:

a) The price elasticity of demand is negative; the income elasticity of demand is negative

b) The price elasticity of demand is positive; the income elasticity of demand is negative

c) The price elasticity of demand is negative; the income elasticity of demand is positive

d) The price elasticity of demand is positive; the income elasticity of demand is positive


Question 1

Which best describes a supply curve?

a) The quantity consumers would like to buy in an ideal world

b) The quantity producers are willing and able to sell at each and every price all other things unchanged

c) The quantity producers are willing and able to sell at each and every income all other things unchanged

d) The quantity producers are willing and able to sell at each and every point in time all other things unchanged


Question 2

If a 4% increase in price leads to a increase in the quantity supplied of 8%:

a) Supply is price elastic

b) Supply is income elastic

c) Price elasticity of demand is -2

d) Price elasticity of supply is -2


Question 3

Supply is likely to be more price elastic:

a) In the short run rather than the long run

b) If factors of production are relatively immobile between industries

c) If there are very few producers

d) If it is easy to expand output


Question 4

A supply curve that starts at the origin has:

a) A price elasticity of supply greater than one

b) A price elasticity of supply equal to one

c) A price elasticity of supply less than one

d) A positive price elasticity of supply


Question 5

A contraction in supply occurs when:

a) Demand shifts outwards

b) The supply curve shifts inwards

c) The quantity supplied falls when the price falls

d) The supply curve shifts outwards


Question 6

An increase in the costs of production will:

a) Shift demand outwards

b) Shift demand inwards

c) Shift supply outwards so more is supplied at each and every price, all other things unchanged

d) Shift supply inwards


Question 7

An increase in price all other things unchanged leads to:

a) A shift in supply outwards

b) A shift in supply inwards

c) A contraction of supply

d) An extension of supply


Question 8

An increase in productivity should:

a) Lead to a contraction of supply

b) Lead to an expansion of supply

c) Lead to a shift in supply outwards (i.e. more supplied at each and every price)

d) Lead to a higher equilibrium and lower equilibrium quantity


Question 9

An increase in price from 25 pence to 30 pence leads to an increase in the quantity supplied from 40 units to 44 units. The price elasticity of supply is:

a) + 2

b) + 0.5

c) – 2

d) – 0.5

Quantity supplied increases 10%; price increases 20%; this means the price elasticity of supply is +0.5.


Question 10

The price elasticity of supply is +4. The price increases by 15%. Sales were originally 200 units. What will they be now?

a) 80 units

b) 320 units

c) 60 units

d) 120 units

The change in quantity supplied will be 4*15%=60%; this means the quantity supplied increases

by 120 units.


Question 1

If demand increases in a market this will usually lead to:

a) A higher equilibrium price and output

b) A lower equilibrium price and higher output

c) A lower equilibrium price and output

d) A higher equilibrium price and lower output


Question 2

An increase in income will:

a) Lead to a movement along the demand curve

b) Shift the supply curve

c) Shift the demand curve

d) Lead to an extension of demand


Question 3

A reduction in the costs of production will:

a) Lead to a movement along the supply curve

b) Shift the demand curve

c) Shift the supply curve

d) Lead to an extension of supply


Question 4

A shift in supply will have a bigger effect on price than output if demand is:

a) Income elastic

b) Income inelastic

c) Price elastic

d) Price inelastic


Question 5

Assuming a downward sloping demand curve and upward sloping supply curve, a higher equilibrium price may be caused by:

a) An fall in demand

b) An increase in supply

c) Improvements in production technology

d) An increase in demand


Question 6

If the price was fixed below the equilibrium price there would be:

a) Excess supply

b) Excess demand

c) Equilibrium

d) Downward pressure on prices


Question 7

A movement along the demand curve may be caused by:

a) A change in income

b) A change in the number of buyers

c) A change in advertising

d) A shift in supply


Question 8

A subsidy paid to producers:

a) Shifts the supply curve

b) Shifts the demand curve

c) Leads to a contraction in supply

d) Leads to an extension of supply


Question 9

A movement along the supply curve may be caused by:

a) A change in technology

b) A change in the number of producers

c) A shift in demand

d) A change in costs


Question 10

The price mechanism cannot:

a) Act as a signal

b) Act as an incentive

c) Act as a rationing device

d) Shift the demand curve


Question 1

Which best describes consumer surplus?

a) The price consumers are willing to pay for a unit

b) The cost of providing a unit

c) The profits made by a firm

d) The difference the price a consumer pays for an item and the price he/she is willing to pay


Question 2

The price mechanism does not act as a:

a) Signal

b) Incentive

c) Rationing device

d) Indicator of income


Question 3

A shift in demand will have more effect on price than quantity if:

a) The price elasticity of supply is price inelastic

b) The price elasticity of supply is price elastic

c) The price elasticity of supply is perfectly elastic

d) The price elasticity of supply is infinity


Question 4

A shift in demand will have more effect on price than quantity if:

a) The price elasticity of supply is + 3

b) The price elasticity of supply is + 0.2

c) The price elasticity of supply is + 2

d) The price elasticity of supply is infinity

A shift in demand will have more effect on price than quantity if supply is price inelastic e.g. the price elasticity of supply is + 0.2.


Question 5

A shift in supply will have more effect on price than quantity if:

a) The price elasticity of demand is -3

b) The price elasticity of demand is -0.2

c) The price elasticity of demand is -2

d) The price elasticity of demand is infinity

A shift in supply will have more effect on price than quantity if the price elasticity of demand is price inelastic e.g. the price elasticity of demand is -0.2.


Question 6

A decrease in demand for a product should:

a) Increase equilibrium price and quantity

b) Decrease equilibrium price and quantity

c) Increase equilibrium price and decrease quantity

d) Decrease equilibrium price and increase quantity


Question 7

An increase in demand for a product should:

a) Increase equilibrium price and quantity

b) Decrease equilibrium price and quantity

c) Increase equilibrium price and decrease quantity

d) Decrease equilibrium price and increase quantity


Question 8

“Income inequality can be high in the free market and should be reduced.” This is an example of what?

a) Judicial economic statement

b) Positive economic statement

c) Formative economic statement

d) Normative economic statement


Question 9

A public good will:

a) Be underprovided in the free market

b) Be overprovided in the free market

c) Not be provided in the free market

d) Has no opportunity cost


Question 10

A positive externality occurs when:

a) The social marginal costs are higher than the private marginal costs

b) A product is not provided in the free market

c) The social marginal cost equals the social marginal benefit

d) The social marginal benefits are higher than the private marginal benefits


Question 1

If the price in a market is fixed by the government below equilibrium:

a) There is excess equilibrium

b) There is excess supply

c) There is excess demand

d) There is equilibrium


Question 2

If the price in a market is fixed by the government above equilibrium:

a) There is excess equilibrium

b) There is excess supply

c) There is excess demand

d) There is equilibrium


Question 3

Merit goods are:

a) Not provided in the free market economy

b) Under provided in the free market economy

c) Over provided in the free market economy

d) Provided free


Question 4

Agricultural prices tend to be unstable because:

a) Supply is price elastic

b) Demand is price elastic

c) Supply is stable

d) Demand and supply are price inelastic


Question 5

When supply increases in an agricultural market farmer’s earnings might fall because:

a) Supply is price elastic

b) Demand is price inelastic

c) The government buys up all the excess production

d) All output must be sold at a maximum price


Question 6

Which of the following is the government most likely to subsidise?

a) Negative externalities

b) Positive externalities

c) Monopolies

d) Oligopolies


Question 7

With a positive externality:

a) There is under-consumption in the free market

b) There is over consumption in the free market

c) The government may tax to decrease production

d) Society could be made off if less was produced


Question 8

A public good:

a) Is provided by the government

b) Is free

c) Has the properties of being non-excludable and non-diminishable

d) Has external costs


Question 9

Nationalisation occurs when:

a) The government sells assets to a the private sector

b) The government bans a product

c) The government takes control of an industry

d) The government taxes a product to a raise its price


Question 10

If a maximum price is set below equilibrium there will be:

a) A price fall

b) A price increase

c) Excess supply

d) Excess demand


Question 1

Which of the following is true?

a) If the marginal cost is greater than the average cost the average cost falls

b) If the marginal cost is greater than the average cost the average cost increases

c) If the marginal cost is positive total costs are maximised

d) If the marginal cost is negative total costs increase at a decreasing rate if output increases


Question 2

According the law of diminishing returns:

a) The marginal product falls as more units of a variable factor are added to a fixed factor

b) Marginal utility falls as more units of a product are consumed

c) The total product falls as more units of a variable factor are added to a fixed factor

d) The marginal product increases as more units of a variable factor are added to a fixed factor


Question 3

The law of diminishing returns assumes:

a) There are no fixed factors of production

b) There are no variable factors of production

c) Utility is maximised when marginal product falls

d) Some factors of production are fixed


Question 4

When internal economies of scale occur:

a) Total costs fall

b) Marginal costs increase

c) Average costs fall

d) Revenue falls


Question 5

The first level of output at which the long run average costs are minimised is called:

a) The Minimum Efficient Scale

b) The Minimum External Scale

c) The Maximum External Scale

d) The Maximum Effective Scale


Question 6

The average variable cost curve:

a) Is derived from the average fixed costs

b) Converges with the average cost as output increases

c) Equals the total costs divided by the output

d) Equals revenue minus profits


Question 7

If marginal cost is positive and falling:

a) Total cost is falling

b) Total cost is increasing at a falling rate

c) Total cost is falling at a falling rate

d) Total cost is increasing at an increasing rate


Question 8

Total increases from £500 to £600 when output increases from 20 to 30 units. Fixed costs are £200. Which of the following is true?

a) Marginal cost is £20

b) Average cost falls

c) Variable cost rises by £100

d) Average fixed cost is £10


Question 9

Total increases from £500 to £600 when output increases from 20 to 30 units. Fixed costs are £200. Which of the following is true?

a) Marginal cost is £20

b) Average cost rises

c) Variable cost rises by £200

d) Average fixed cost was £10 originally


Question 10

If marginal product is below average product:

a) The total product will fall

b) The average product will fall

c) Average variable costs will fall

d) Total revenue will fall


Question 1

If the marginal revenue is less than the marginal cost then to profit maximise a firm should:

a) Reduce output

b) Increase output

c) Leave output where it is

d) Increase costs


Question 2

If the price is less than the average costs but higher than the average variable costs:

a) The firm is making a loss and will shutdown in the short term

b) The firm is making a profit

c) The firm is making a loss but will continue to produce in the short term

d) The firm is making a loss and is making a negative contribution to fixed costs


Question 3

If firms earn normal profits:

a) They will aim to leave the industry

b) Other firms will join the industry

c) The revenue equals total costs

d) No profit is made in accounting terms


Question 4

In the long term a firm will produce provided the revenue covers:

a) Fixed costs

b) Variable costs

c) Total costs

d) Revenue


Question 5

In the short term a firm will produce provided the revenue:

a) Covers fixed costs

b) Covers variable costs

c) Covers total costs

d) Covers revenue

Question 6

The profit per sale is a measure of:

a) Profit

b) Profitability

c) Feasibility

d) Realism


Question 7

The total costs are £2000 and 10 units are produced. The marginal cost of an 11th unit is £1300. Which of the following is true?

a) The average cost increases from £20 to £30

b) The total costs for 11 units are £700

c) The average cost for 10 units is £1300

d) The average cost for 11 units is £1300


Question 8

Total revenue equals:

a) Price plus quantity

b) Price multiplied by quantity sold

c) Price divided by the quantity sold

d) Price minus quantity sold


Question 9

If marginal revenue equals marginal cost:

a) No profit is being made

b) Total revenue equals total cost

c) Profits are maximised

d) Producing another unit would increase profits


Question 10

Price equals:

a) Total revenue – quantity

b) Total revenue / quantity sold

c) Total quantity sold * quantity sold

d) Total revenue / total cost


Question 1

Firms in the perfect competition face a:

a) Perfectly elastic demand curve

b) Perfectly inelastic demand curve

c) Perfectly elastic supply curve

d) Perfectly inelastic supply curve


Question 2

In perfect competition:

a) The price equals the marginal revenue

b) The price equals the average variable cost

c) The fixed cost equals the variable costs

d) The price equals the total costs


Question 3

A profit maximising firm in perfect competition produces where:

a) Total revenue is maximised

b) Marginal revenue equals zero

c) Marginal revenue equals marginal cost

d) Marginal revenue equals average cost


Question 4

In perfect competition:

a) The products firm offer are very similar

b) Products are heavily differentiated

c) A few firms dominate the market

d) Consumers have limited information


Question 5

In the long run in perfect competition:

a) The price equals the total revenue

b) Firms are allocatively inefficient

c) Firms are productively efficient

d) The price equals total cost


Question 6

In perfect competition:

a) Short run abnormal profits are competed away by firms leaving the industry

b) Short run abnormal profits are competed away by firms entering the industry

c) Short run abnormal profits are competed away by the government

d) Short run abnormal profits are competed away by greater advertising


Question 7

In perfect competition:

a) A few firms dominate the industry

b) Firms are price makers

c) There are many buyers but few sellers

d) There are many buyers and sellers


Question 8

In the short run firms in perfect competition will still produce provided:

a) The price covers average variable cost

b) The price covers variable cost

c) The price covers average fixed cost

d) The price covers fixed costs


Question 9

In the long run in perfect competition:

a) Price = average cost = marginal cost

b) Price = average cost = total cost

c) Price = marginal revenue = total cost

d) Total revenue = total variable cost


Question 10

For a perfectly competitive firm:

a) Price equals marginal revenue

b) Price is greater than marginal revenue

c) Price equals total revenue

d) Price equals total cost


Question 1

X inefficiency occurs when:

a) The price is greater than the marginal cost

b) The price is greater than the average cost

c) Costs are higher than they could be due to a lack of competitive pressure

d) There are external costs


Question 2

The marginal revenue curve in monopoly:

a) Equals the demand curve

b) Is parallel with the demand curve

c) Lies below and converges with the demand curve

d) Lies below and diverges from the demand curve


Question 3

In monopoly when abnormal profits are made:

a) The price set is greater than the marginal cost

b) The price is less than the average cost

c) The average revenue equals the marginal cost

d) Revenue equals total cost


Question 4

In monopoly in long run equilibrium:

a) The firm is productively efficient

b) The firm is allocatively inefficient

c) The firm produces where marginal cost is less than marginal revenue

d) The firm produces at the socially optimal level


Question 5

Barriers to entry do not include

a) Patents

b) Internal economies of scale

c) Mobility of resources

d) High investment costs

Question 6

In a monopoly which of the following is not true?

a) Products are differentiated

b) There is freedom of entry and exit into the industry in the long run

c) The firm is a price taker

d) There is one main seller


Question 7

In monopoly which of the following is true?

a) There are many buyers and sellers

b) There is one main buyer

c) There is one main seller

d) The actions of one firm do not affect the market price and quantity


Question 8

According to Schumpeter:

a) Monopolies are inefficient

b) Monopoly profits act as an incentive for innovation

c) Monopolies are alocatively efficient

d) Monopolies are productively efficient


Question 9

A welfare loss occurs in monopoly where:

a) The price is greater than the marginal cost

b) The price is greater than the marginal benefit

c) The price is greater than the average revenue

d) The price is greater than the marginal revenue


Question 10

In the UK the government:

a) Bans monopolies

b) Fines all monopolies

c) Prevents firms acquiring more than 25% of the market

d) Has the right to investigate monopolies and will assess each one on its own merits


Question 1

If a few firms dominate an industry the market is known as:

a) Monopolistic competition

b) Competitively monopolistic

c) Duopoly

d) Oligopoly


Question 2

In a cartel member firms may be given a fixed amount to produce. This is called a:

a) Limit

b) Factor

c) Quota

d) Quotient


Question 3

In the Kinked Demand Curve theory it is assumed that:

a) An increase in price by the firm is not followed by others

b) An increase in price by the firm is followed by others

c) A decrease in price by the firm is followed by others

d) Firms collude to fix the price


Question 4

The Kinked Demand Curve theory assumes:

a) Firms cooperate

b) Firms act as part of a cartel

c) Firms are competitive

d) Firms are not profit maximizers


Question 5

In-Game Theory:

a) Firms are assumed to act independently

b) Firms are assumed to cooperate with each other

c) Firms collude as part of a cartel

d) Firms consider the actions of others before deciding what to do


Question 6

In the kinked demand curve theory:

a) There is a kink in the marginal cost curve

b) Demand is price inelastic

c) Demand is price elastic

d) Non-price competition is likely


Question 7

Firms in oligopoly are likely to:

a) Invest heavily in branding

b) Act independently of other firms

c) Try to differentiate its products

d) Try to be a price maker


Question 8

A model of Game Theory of oligopoly is known as the:

a) Prisoner’s Dilemma

b) Monopoly Cell

c) Jailhouse Sentence

d) Jury Box


Question 9

In cartels:

a) Each individual firm profit maximises

b) There may be an incentive to cheat

c) The industry as a whole is loss making

d) There is no need to police agreements


Question 10

In a cartel:

a) Firms compete against each other

b) Price wars are common

c) Firms use price to win market share from competitors

d) Firms collude


Question 1

In monopolistic competition:

a) Firms face a perfectly elastic demand curve

b) All products are homogeneous

c) Firms make normal profits in the long run

d) There are barriers to entry to prevent entry


Question 2

In monopolistic competition:

a) Demand is perfectly elastic

b) Products are homogeneous

c) Marginal revenue = price

d) The marginal revenue is below the demand curve and diverges


Question 3

In monopolistic competition firms profit maximise where:

a) Marginal revenue = Average revenue

b) Marginal revenue = Marginal cost

c) Marginal revenue = Average cost

d) Marginal revenue = Total cost


Question 4

Which of the following is not one of the four Ps in marketing?

a) Product

b) Price

c) Place

d) Presence


Question 5

Effective branding will tend to make:

a) Demand more price inelastic

b) Supply more price inelastic

c) Demand more income elastic

d) Supply more income elastic


Question 6

In monopolistic competition if firms are making abnormal profit other firms will enter and:

a) The marginal cost will shift outwards

b) The demand curve will shift inwards

c) The average cost will shift downwards

d) The average variable cost will increase


Question 7

In Porter’s five forces model conditions are more favourable for firms within an industry if:

a) Buyer power is high

b) Supplier power is high

c) Entry threat is low

d) Substitute threat is high


Question 8

If a firm takes over a competitor then, according to Porter’s 5 forces model,:

a) Buyer power is higher

b) Supplier power is higher

c) Substitute threat is higher

d) Rivalry is lower


Question 9

In marketing “USP” stands for:

a) Unique Selling Proposition

b) Underlying Sales Pitch

c) Unit Sales Point

d) Under Sales Procedure


Question 10

In monopolistic competition:

a) There are few sellers

b) There are few buyers

c) There is one seller

d) There are many sellers


Question 1

Barriers to entry:

a) Do not exist in monopoly

b) Cannot exist in oligopoly

c) Do not exist in monopolistic competition

d) Do exist in perfect competition


Question 2

Which best describes price discrimination?

a) Charging different prices for different products

b) Charging the same prices for different products

c) Charging the same prices for the same products

d) Charging different prices for the same products


Question 3

For a firm operating in two markets and price discriminating the profit maximising condition is:

a) Marginal revenue in A = Price B

b) Marginal revenue in A = Marginal revenue B = Price A = Price B

c) Marginal revenue in A = Marginal revenue B = Marginal cost

d) Marginal revenue in A = Marginal revenue B = Average cost


Question 4

If the price elasticity of demand for a product in market A is -0.2 and in market B is -3 a

price discriminator will charge:

a) The higher price in market A

b) The higher price in market B

c) The same price in both markets

d) Cannot tell which price will be higher


Question 5

In perfect price discrimination:

a) Consumer surplus is maximised

b) Produce surplus is zero

c) Community surplus is maximised

d) Consumer surplus is zero


Question 6

A benefit to consumers of price discrimination is that:

a) Some products are produced that would not otherwise be produced

b) Producer surplus increases

c) Consumer surplus decreases

d) Firms’ profits increase


Question 7

In perfect price discrimination:

a) The demand curve is the marginal cost curve

b) The average revenue equals the average cost

c) The marginal cost is the average cost curve

d) The demand curve is the marginal revenue


Question 8

In price discrimination abnormal profits are made if:

a) Average revenue is greater than average variable cost

b) Average revenue is greater than average cost

c) Average revenue is greater than marginal revenue

d) Average revenue is greater than average fixed cost


Question 9

Barriers to entry:

a) Enable abnormal profits to be made in the long run

b) Enable losses to be made in the long run

c) Enable abnormal profits to be made in the short run only

d) Occur in perfect competition


Question 10

If the price elasticity is -0.3 this means:

a) Demand is upward sloping

b) Demand is price elastic

c) A price fall would increase revenue

d) Demand is price inelastic


Question 1

If one car company takes over another car company this is an example of which type of integration?

a) Vertical

b) Horizontal

c) Conglomerate

d) Literal


Question 2

If a car company takes over a clothes business this is an example of which type of integration?

a) Vertical

b) Horizontal

c) Conglomerate

d) Literal


Question 3

Horizontal integration may lead to internal economies of scale. Which of the following is not a type of internal economy of scale?

a) Purchasing

b) Technical

c) Financial

d) Safety


Question 4

Acquisition and merger are examples of:

a) Internal growth

b) External growth

c) Organic growth

d) Underlying growth


Question 5

Unfair competition does not include:

a) Price cutting

b) Predatory pricing

c) Cartels

d) Price fixing


Question 6

If firms join together to set prices and quantities this is known as what?

a) Interaction

b) Conglomerate

c) Collusion

d) Integration


Question 7

In the Ansoff matrix a strategy focusing on new products and new markets is known as:

a) New product development

b) Diversification

c) Market development

d) Market penetration


Question 8

A monopoly in the UK can be investigated if it has a market share of:

a) 100%

b) 10% or over

c) 25% or over

d) 33% or over


Question 9

Anti-competitive behaviour in the UK can lead to fines of up to:

a) 10% of profits

b) 10% of turnover

c) 10% of costs

d) 25% of market share


Question 10

An example of backward vertical integration is:

a) A supermarket buying a farm

b) A supermarket buying another supermarket

c) A supermarket buying an insurance company

d) A supermarket buying a car rental business


Question 1

To maximise sales revenue a firm should produce where:

a) Marginal cost is zero

b) Marginal revenue is maximised

c) Marginal revenue is zero

d) Marginal revenue equals marginal cost


Question 2

To maximise growth without making a loss a firm should produce the highest output

where:

a) Average revenue equals marginal cost

b) Average revenue equals average cost

c) Marginal revenue equals marginal cost

d) Average cost equals marginal cost


Question 3

Profit is measured by:

a) Revenue – fixed costs

b) Fixed cost + revenue

c) Revenue – sales

d) Revenue – total costs


Question 4

When marginal revenue equals marginal cost:

a) Total revenue equals total cost

b) There is the biggest positive difference between total revenue and total cost

c) There is the biggest negative difference between total revenue and total cost

d) Profits are zero


Question 5

To be allocatively efficient a firm must produce where:

a) The total cost equals demand

b) The average revenue equals the marginal revenue

c) The price equals the average cost

d) The price equals the marginal cost


Question 6

To be productively efficient a firm must produce where:

a) Marginal costs are maximised

b) Marginal costs are minimised

c) Average costs are minimised

d) Average revenue is maximised


Question 7

Normal profit occurs when:

a) Average revenue equals average variable cost

b) Marginal revenue equals marginal cost

c) Average revenue equals marginal cost

d) Average revenue equals average cost


Question 8

If the marginal revenue is positive:

a) Selling another unit will increase total revenue

b) Selling another unit will increase profits

c) Selling another unit will increase costs

d) Selling another unit will increase average revenue


Question 9

Companies in the private sector are owned by:

a) The government

b) Shareholders

c) Employees

d) The community


Question 10

An independent assessment of the impact of firm’s activities on society is called a:

a) Financial audit

b) Balance sheet

c) Profit and loss account

d) Social audit


Question 1

An increase in the wage rate:

a) Will usually lead to more people employed

b) Will decrease total earnings if the demand for labour is wage elastic

c) Is illegal in a free market

d) Will cause a shift in the demand for labour


Question 2

The Marginal Revenue Product is likely to be wage inelastic if:

a) Labour costs are a high percentage of total costs

b) Demand for the final product is price inelastic

c) It is relatively easy to substitute capital for labour

d) There are many substitutes for the final product


Question 3

A fall in demand for labour is likely to lead to:

a) A lower equilibrium wage and lower quantity of labour

b) A lower equilibrium wage and higher quantity of labour

c) A higher equilibrium wage and higher quantity of labour

d) A higher equilibrium wage and lower quantity of labour


Question 4

A decrease in the supply of labour is likely to lead to:

a) A lower equilibrium wage and lower quantity of labour

b) A lower equilibrium wage and higher quantity of labour

c) A higher equilibrium wage and higher quantity of labour

d) A higher equilibrium wage and lower quantity of labour


Question 5

The Marginal Revenue Product is:

a) Upward sloping due to the law of demand

b) Upward sloping due to the law of marginal utility

c) Downward sloping due to the law of diminishing returns

d) Downward sloping due to the law of supply


Question 6

Demand for labour is more likely to be wage inelastic if:

a) Wages are a small proportion of total costs

b) Demand for the final product is price elastic

c) It is easy to replace labour

d) Capital is a good substitute for labour


Question 7

A profit maximising firm will employ labour up to the point where:

a) Marginal revenue = marginal product

b) Marginal cost = marginal product

c) Marginal revenue product = average cost of labour

d) Marginal revenue product = marginal cost of labour


Question 8

In a perfectly competitive labour market firms are wage takers and the marginal cost of

labour equals:

a) The average cost of labour

b) The marginal product

c) The marginal revenue

d) The total cost of labour


Question 9

If employees cannot accept a job because of the costs of moving this is known as:

a) Occupational immobility

b) Cyclical unemployment

c) Structural immobility

d) Geographical immobility


Question 10

If the minimum wage is set above the equilibrium wage rate, then other things

unchanged:

a) There will be equilibrium in the labour market

b) There will excess demand in the labour market

c) There will be excess supply in the labour market

d) More people will be employed


Question 1

Which of the following is a macroeconomic issue?

a) The price of houses in Oxford

b) The wage rate for plumbers in London

c) Your decision to work or stay at home

d) The level of unemployment in the UK


Question 2

What is meant by an objective?

a) A policy

b) A way of reaching a target

c) A target

d) A strategy


Question 3

Which of the following is not involved with fiscal policy?

a) Income tax

b) National insurance

c) VAT

d) Interest rates


Question 4

Which does the government not control directly?

a) Spending on health

b) Spending on defence

c) Firms’ investment decisions

d) Spending on education


Question 5

Which of the following is not a macroeconomic issue?

a) Unemployment

b) Inflation

c) The wages paid to footballers

d) Economic growth


Question 6

Which of the following can the government not use directly to control the economy?

a) Pay rates within the private sector

b) Pay rates in the public sector

c) Investment in education

d) Benefits available for the unemployed and sick


Question 7

Which of the following is a policy instrument as opposed to a government objective?

a) Lower interest rates

b) A better balance of trade position

c) Faster economic growth

d) Lower unemployment


Question 8

Which of the following is a possible government objective as opposed to a policy?

a) Lower interest rates

b) Lower taxation rates

c) Lower government spending

d) Lower inflation


Question 9

Which of the following is not likely to be a government objective?

a) Increasing employment

b) Increasing economic growth

c) Increasing government spending

d) Increasing the level of exports


Question 10

“Reducing inflation is a more important objective than economic growth” is an example of:

a) Normative economics

b) Positive economics

c) Objective economics

d) Reality economics


Question 1

a) Decrease aggregate demand

b) Always equal savings

c) Always equal national income

d) Include investment and export spending

Question 2

An increase in national income is:

a) Likely to increase exports

b) Likely to decrease savings

c) Likely to decrease investment

d) Likely to increase spending on imports


Question 3

An increase in national income is likely to:

a) Decrease tax receipts

b) Worsen the balance of trade

c) Automatically cause an increase in government spending

d) Cause an increase in injections into the economy


Question 4

A significant increase in the government budget deficit is likely to:

a) Reduce injections into the economy

b) Reduce national income

c) Move the economy away from full employment

d) Boost aggregate demand


Question 5

If injections are greater than withdrawals:

a) National income will increase

b) National income will decrease

c) National income will stay in equilibrium

d) Prices will fall

Question 6

Injections are:

a) Assumed to be exogeneous

b) Assumed to be a function of national income

c) Decrease aggregate demand

d) Decrease the investment into an economy


Question 7

For equilibrium in an open four sector economy:

a) Actual injections = actual withdrawals

b) Planned injections = planned withdrawals

c) Savings = investment

d) Government spending = tax revenue


Question 8

A deflationary policy could include:

a) Increasing injections

b) Reducing taxation rates

c) Reducing interest rates

d) Reducing government spending


Question 9

A reflationary policy:

a) Increases aggregate supply

b) Increases aggregate demand

c) Decreases the price level

d) Increases full employment


Question 10

Which of the following is an injection into the economy?

a) Investment

b) Savings

c) Taxation

d) Import spending


Question 1

Gross National Product equals:

a) Net National Product adjusted for inflation

b) Gross Domestic Product adjusted for inflation

c) Gross Domestic Product plus net property income from abroad

d) Net National Product plus net property income from abroad


Question 2

Net National Product equals:

a) Gross National Product adjusted for inflation

b) Gross Domestic Product adjusted for inflation

c) Gross Domestic Product plus net property income from abroad

d) Gross National Product minus depreciation


Question 3

The standard of living is often measured by:

a) Real GDP per capita

b) Real GDP

c) Real GDP * population

d) Real GDP plus depreciation


Question 4

In a recession:

a) Unemployment is likely to be low

b) Prices are likely to increase

c) Growth is negative

d) Growth is slow


Question 5

In a boom:

a) Surpluses are likely to occur

b) Prices are likely to fall

c) Supply will increase immediately to match demand

d) Shortages may occur


Question 6

GDP plus net property income from abroad equals what?

a) GNP

b) NNP

c) Depreciation

d) Real GDP


Question 7

To adjust GDP from market prices to factor cost:

a) Add indirect taxes

b) Subtract subsidies

c) Deduct indirect taxes and subsidies

d) Deduct indirect taxes and add subsidies


Question 8

To adjust from Gross National Product to Net National Product:

a) Deduct depreciation

b) Deduct indirect taxes

c) Deduct subsidies

d) Add inflation


Question 9

In a recession a government:

a) Is likely to want to increase demand in the economy

b) Is likely to want to decrease demand in the economy

c) Is likely to want to stabilise demand in the economy

d) Is likely to want to increase supply in the economy


Question 10

A higher GDP per capita may not mean that the quality of life has really improved

because:

a) It measures wealth not income

b) It measures Gross Domestic Product

c) It does not measure the quality of the items produced

d) It is only measured every five years


Question 1

Economic growth can be measured by:

a) The CPI

b) The CBI

c) GDP

d) MPC


Question 2

In a boom:

a) Unemployment is likely to fall

b) Prices are likely to fall

c) Demand is likely to fall

d) Imports are likely to grow


Question 3

In a recession, GDP:

a) Grows negatively

b) Grows slowly

c) Grows by 0%

d) Grows rapidly


Question 4

If labour productivity per week is 200 units and there are 5 employees what is the total

output?

a) 40 units

b) 195 units

c) 1000 units

d) 200 units


Question 5

Labour productivity measures:

a) The output per worker

b) The output per machine

c) Total output

d) Marginal output


Question 6

Potential growth measures:

a) The growth of the fastest economy in the world

b) The fastest growth an economy has ever achieved

c) The present rate of growth of an economy

d) The rate of growth that could be achieved if resources were fully employed


Question 7

Economic growth can be seen by an outward shift of:

a) The Production Possibility Frontier

b) The Gross Domestic Barrier

c) The Marginal Consumption Frontier

d) The Minimum Efficient Scale


Question 8

The socially optimal rate of growth is:

a) Zero

b) Negative

c) Where the marginal social benefit = the marginal social cost

d) Total social costs are minimised


Question 9

To anticipate what the economy is going to do next the government will look at:

a) Lagging indicators

b) Flashing indicators

c) Coincidental indicators

d) Leading indicators


Question 10

When an economy first begins to grow more slowly:

a) GDP increases

b) Inflation is likely to increase

c) Stock levels are likely to increase

d) Investment in equipment is likely to increase


Question 1

A shift in aggregate supply is likely to:

a) Reduce the general price level and reduce national income

b) Reduce the general price level and increase national income

c) Increase the general price level and reduce national income

d) Increase the general price level and increase national income


Question 2

Aggregate demand will increase if:

a) Consumption falls

b) Investment falls

c) Exports fall

d) Imports fall


Question 3

An increase in aggregate demand will have most effect on prices if:

a) Aggregate supply is price inelastic

b) Aggregate supply is price elastic

c) Aggregate supply has a unitary price elasticity

d) Aggregate demand is price inelastic


Question 4

Which of the following would increase aggregate demand?

a) Increased saving

b) Increasing import spending

c) Increased taxation revenue

d) Increased investment

Question 5

Which of the following would decrease aggregate demand?

a) Increased consumption

b) Increasing export revenue

c) Increased taxation revenue

d) Increased investment


Question 6

Improved training of employees would:

a) Shift aggregate supply to the right

b) Shift aggregate supply to the left

c) Shift aggregate demand to the right

d) Shift aggregate demand to the left


Question 7

Increased unemployment benefits and less incentive to work would:

a) Shift aggregate supply to the right

b) Shift aggregate supply to the left

c) Shift aggregate demand to the right

d) Shift aggregate demand to the left


Question 8

Increased levels of consumption:

a) Shift aggregate supply to the right

b) Shift aggregate supply to the left

c) Shift aggregate demand to the right

d) Shift aggregate demand to the left


Question 9

Increased levels of spending on imports:

a) Shift aggregate supply to the right

b) Shift aggregate supply to the left

c) Shift aggregate demand to the right

d) Shift aggregate demand to the left


Question 10

An increase in aggregate demand if aggregate supply is totally inelastic will:

a) Increase price but not output

b) Increase output but not price

c) Increase output and price

d) Decrease output and price


Question 1

If the marginal propensity to consume on domestic products is 0.9 the size of the

multiplier is:

a) 10

b) 1

c) 9

d) 1

The multiplier is (1/1-mpc) so if the mpc is 0.1 the multiplier is 10.


Question 2

An increase in the marginal propensity to consume will:

a) Increase the size of the multiplier

b) Increase the marginal propensity to save

c) Decrease national income

d) Reduce injections into the economy


Question 3

If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income

is £1000, total consumption is what?

a) 8

b) 800

c) 810

d) 81

If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income is £1000,

total consumption = 10 + 0.8(1000) = 810


Question 4

If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income

is £1000, the marginal propensity to consume is what?

a) 8

b) 800

c) 810

d) 81

If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income is £1000,

the marginal propensity to consumer is 0.8.


Question 5

If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income

is £1000, the average propensity to consume is what?

a) 8

b) 800

c) 810

d) 81

If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income is £1000,

the average propensity to consume = 810/1000=0.81


Question 6

As income increases:

a) The average propensity to consume gets nearer in value to the marginal propensity to consume

b) The average propensity to consume diverges in value from the marginal propensity to consume

c) The average propensity to consume falls

d) The average propensity to consume always approaches 0


Question 7

An increase in consumption at any given level of income is likely to lead to:

a) A fall in savings

b) An increase in exports

c) A fall in taxation revenue

d) A decrease in import spending


Question 8

Lower interest rates are likely to:

a) Decrease consumption

b) Increase cost of borrowing

c) Encourage saving

d) Increase spending


Question 9

Friedman’s theory of consumption focuses on:

a) Past income

b) Current income

c) Disposable income

d) Permanent income


Question 10

The marginal propensity to consume is equal to:

a) Total spending / total consumption

b) Total consumption / total income

c) Change in consumption / change in income

d) Change in consumption / change in savings


Question 1

An increase in investment is most likely to be caused by:

a) Lower interest rates

b) Lower national income

c) A decrease in the marginal propensity to consume

d) An increase in withdrawals


Question 2

An outward shift in the Marginal Efficiency of Capital should:

a) Decrease consumption

b) Increase aggregate demand

c) Reduce aggregate supply

d) Slow economic growth


Question 3

An increase in interest rates:

a) Is likely to reduce savings

b) Is likely to reduce the external value of the currency

c) Leads to a shift in the MEC schedule

d) Leads to a movement along the MEC schedule


Question 4

The accelerator assumes:

a) The marginal propensity to consume is constant

b) The economy is at full employment

c) There is a constant relationship between net investment and the rate of change of output

d) The multiplier is constant


Question 5

Investment depends mainly on:

a) Past levels of income

b) Future expected profits

c) Present national income levels

d) Historic data


Question 6

A profit maximising firm will invest up to the level of investment where:

a) The cost of borrowing equals the marginal efficiency of capital

b) The cost of borrowing is greater than the marginal efficiency of capital

c) The cost of borrowing is less than the marginal efficiency of capital

d) The cost of borrowing equals the marginal propensity to consume


Question 7

Investment is:

a) An injection that increases aggregate demand

b) A withdrawal that increases aggregate demand

c) An injection that decreases aggregate demand

d) A withdrawal that decreases aggregate demand

Question 8

Investment is an unstable element of aggregate demand because is depends heavily on:

a) Government policy

b) Expectations

c) National income

d) Historic trends


Question 9

If an increase in investment leads to a bigger increase in national income this is called

the:

a) Accelerator

b) Aggregate demand

c) Monetarism

d) Multiplier


Question 10

The difference between gross investment and net investment is:

a) Depreciation

b) Acceleration

c) Deceleration

d) Capital investment


Question 1

An expansionist fiscal policy could include:

a) Lower interest rates

b) Increased lending by the banks

c) An increase in corporation tax

d) An increase in discretionary government spending


Question 2

If the economy grows the government’s budget position will automatically:

a) Worsen

b) Improve

c) Stay the same

d) Increase with inflation


Question 3

Fiscal drag occurs when:

a) Tax bands do not increase with inflation

b) Tax rates move inversely with inflation

c) Government spending falls to reduce aggregate demand

d) Tax bands increase with inflation


Question 4

If the marginal rate of tax is 40% and consumers’ income increase from £10,000 to

£12,000:

a) The amount of tax paid will increase by £4,800

b) The amount of tax paid will increase by £4,000

c) The amount of tax paid will increase by £800

d) The total tax paid will be £4,800

The extra tax paid is £800 (= 40%*£2000).


Question 5

Imagine there is no tax on income up to £10000; after that, there is a tax of 50%. What is

the average tax rate on an income of £20000?

a) £5000

b) 20%

c) 25%

d) £10,000


Question 6

The marginal rate of tax paid is:

a) The total tax paid / total income

b) Total income / total tax paid

c) Change in the tax paid / change in income

d) Change in income / change in tax paid


Question 7

In a regressive tax system:

a) The amount of tax paid increases with income

b) The marginal rate of tax decreases with more income

c) The average rate of tax falls as income increases

d) The average rate of tax is constant as income increases


Question 8

The Public Sector Net Cash Requirement (PSNCR) is:

a) A measure of the country’s trade position

b) A measure of the country’s budget position

c) A measure of the country’s total debt

d) A measure of the government’s monetary stance


Question 9

A government might use tax to:

a) Discourage consumption of positive externalities

b) Discourage consumption of public goods

c) Discourage consumption of merit goods

d) Discourage consumption of negative externalities


Question 10

As an economy grows:

a) The government’s budget position should automatically improve

b) The government’s budget position should automatically worsen

c) This will have no effect on the government’s budget position

d) This will reduce the government’s tax revenue


Question 1

If people are made unemployed because of a fall in aggregate demand this is known as:

a) Frictional unemployment

b) Seasonal unemployment

c) Cyclical unemployment

d) Structural unemployment


Question 2

Supply side policies are most appropriate to cure:

a) Involuntary unemployment

b) Cyclical unemployment

c) Voluntary unemployment

d) A fall in aggregate demand


Question 3

The natural rate of unemployment is likely to fall if:

a) Unemployment benefits increase

b) Income tax increases

c) More training is available for the unemployed

d) Geographical immobility increases


Question 4

If the real wage is too high in the labour market:

a) The quantity demanded of labour is higher than the quantity supplied

b) The quantity demanded of labour equals the quantity supplied

c) The quantity demanded of labour is lower than the quantity supplied

d) It will automatically adjust in the short run to bring about equilibrium


Question 5

If there is cyclical unemployment in the economy the government might:

a) Increase interest rates

b) Encourage savings

c) Cut taxes

d) Reduce government spending


Question 6

Occupational immobility of labour occurs if:

a) People lack information

b) People do not want to work

c) People do not have the right skills to work

d) People cannot afford to move location


Question 7

Which of the following is not a supply side measure?

a) Increased training

b) Providing more information

c) Helping individuals to move location to find work

d) Increasing spending on existing industries


Question 8

Reducing involuntary unemployment:

a) Helps the economy move on to the Production Possibility Frontier

b) Helps shift the economy’s Production Possibility Frontier outwards

c) Helps the economy move along its Production Possibility Frontier

d) Helps the economy move inside the Production Possibility Frontier


Question 9

Less demand in the economy may increase unemployment; this may lead to less

spending which may reduce demand further. This is called:

a) The upward accelerator

b) The downward multiplier

c) The upward PPF

d) The downward mpc


Question 10

To reduce cyclical unemployment the government might:

a) Increase the budget surplus

b) Increase the balance of payments deficit

c) Reduce interest rates

d) Reduce government expenditure


Question 1

The precautionary demand for money is:

a) An idle balance

b) An active balance

c) Directly related to interest rates

d) Inversely related to income


Question 2

The liquidity trap occurs when the demand for money:

a) Is perfectly interest elastic

b) Is perfectly interest inelastic

c) Means that an increase in money supply leads to a fall in the interest rate

d) Means that an increase in the money supply leads to an increase in the interest rate


Question 3

A fall in interest rates is likely to:

a) Increase aggregate demand

b) Increase savings

) Decrease consumption

d) Decrease exports


Question 4

According to the quantity theory of money an increase in the money supply is most likely

to lead to inflation if:

a) The velocity of circulation decreases

b) The number of transactions decreases

c) There is deflation

d) The velocity of circulation and the number of transactions is constant


Question 5

A reduction in the money supply is likely to:

a) Reduce the interest rate

b) Increase the interest rate

c) Increase inflation

d) Decrease deflation


Question 6

To reduce the supply of money the government could:

a) Reduce interest rates

b) Buy back government bonds

c) Sell government bonds

d) Encourage banks to lend


Question 7

The speculative demand for money occurs when:

a) Individuals hold money just in case an emergency happens

b) Individuals hold money to buy things

c) Individuals hold money rather than other assets because they are worried about the price of the

other assets falling

d) Individuals hold money to shop


Question 8

An outward shift in the demand for money, other things being equal should lead to:

a) A lower interest rate but the same quantity of money

b) A higher interest rate but the same quantity of money

c) A higher quantity of money but lower interest rates

d) A higher quantity of money but the same interest rate


Question 9

The interest rate in the UK is determined by:

a) The government

b) The electorate

c) The Monetary Policy Committee

d) The Federal Reserve Board


Question 10

Open Market Operations occur when the government:

a) Reduces the interest rate

b) Buys and sells bonds and securities

c) Increases taxation

d) Increases the exchange rate


Question 1

Demand pull inflation may be caused by:

a) An increase in costs

b) A reduction in interest rate

c) A reduction in government spending

d) An outward shift in aggregate supply


Question 2

Inflation:

a) Reduces the cost of living

b) Reduces the standard of living

c) Reduces the price of products

d) Reduces the purchasing power of a pound


Question 3

An increase in injections into the economy may lead to:

a) An outward shift of aggregate demand and demand pull inflation

b) An outward shift of aggregate demand and cost push inflation

c) An outward shift of aggregate supply and demand pull inflation

d) An outward shift of aggregate supply and cost push inflation


Question 4

An increase in aggregate demand is more likely to lead to demand pull inflation if:

a) Aggregate supply is perfectly elastic

b) Aggregate supply is perfectly inelastic

c) Aggregate supply is unit elastic

d) Aggregate supply is relatively elastic


Question 5

An increase in costs will:

a) Shift aggregate demand

b) Shift aggregate supply

c) Reduce the natural rate of unemployment

d) Increase the productivity of employees


Question 6

The effects of inflation on the price competitiveness of a country’s products may be

offset by:

a) An appreciation of the currency

b) A revaluation of the currency

c) A depreciation of the currency

d) Lower inflation abroad


Question 7

Menu costs in relation to inflation refer to:

a) Costs of finding better rates of return

b) Costs of altering price lists

c) Costs of money increasing its value

d) Costs of revaluing the currency


Question 8

In the short run unemployment may fall below the natural rate of unemployment if:

a) Nominal wages have risen less than inflation

b) Nominal wages have risen at the same rate as inflation

c) Nominal wages have risen more than inflation

d) Nominal wages have risen less than unemployment


Question 9

According to the Phillips curve unemployment will return to the natural rate when:

a) Nominal wages are equal to expected wages

b) Real wages are back at equilibrium level

c) Nominal wages are growing faster than inflation

d) Inflation is higher than the growth of nominal wages


Question 10

The Phillips curve shows the relationship between inflation and what?

a) The balance of trade

b) The rate of growth in an economy

c) The rate of price increases

d) Unemployment


 

Question 1

If the value of the pound in other currencies is strong:

a) The price of UK products abroad in foreign currency will fall

b) The price of UK products abroad in foreign currency will rise

c) The price of UK products in the UK will rise

d) The price of UK products in the UK will fall


Question 2

If the value of the pound in other currencies rises:

a) The spending on UK exports in pounds must rise

b) The spending on UK exports in foreign currency will rise if demand is price elastic

c) The demand for UK exports will rise

d) The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic


Question 3

The supply of pounds to the currency market will be upward sloping if:

a) The demand for UK exports is price elastic

b) The demand for UK exports is price inelastic

c) The demand for imports into the UK is price elastic

d) The demand for imports into the UK is price inelastic


Question 4

A fall in the value of the pound is likely to decrease spending on imports if:

a) The price elasticity of demand for imports is price elastic

b) The price elasticity of demand for imports is price inelastic

c) The price elasticity of demand for imports has a unit price elasticity

d) The price elasticity of demand for exports is price elastic


Question 5

If the exchange rate is above the equilibrium level:

a) There is excess demand and the exchange rate will fall

b) There is excess supply and the exchange rate will fall

c) There is excess demand and the exchange rate will rise

d) There is excess supply and the exchange rate will rise


Question 6

If the exchange rate is below the equilibrium level:

a) There is excess demand and the exchange rate will fall

b) There is excess supply and the exchange rate will fall

c) There is excess demand and the exchange rate will rise

d) There is excess supply and the exchange rate will rise


Question 7

To prevent the exchange rate rising the government could:

a) Sell its own currency

b) Increase interest rates

c) Buy its own currency

d) Sell foreign currency


Question 8

A depreciation of a currency occurs when:

a) The value of the currency falls

b) The value of the currency increases

c) Inflation falls

d) The balance of payments improves


Question 9

An appreciation of the currency may occur if:

a) Domestic interest rates fall

b) There is an increase in demand for imports

c) There is an increase in demand for exports

d) There is an increase in the balance of payments deficit


Question 10

A fall in the external value of a currency:

a) May cause an outward shift in the demand for the currency

b) May cause an inward shift in the supply for the currency

c) May lead to a movement along the demand curve for a currency

d) May be due to a increase in demand for the country’s exports


 

Question 1

Which of the following is not an argument for protectionism?

a) To protect infant industries

b) To increase the level of imports

c) To protect strategic industries

d) To improve the balance of payments


Question 2

A demand switching policy could be

a) Higher interest rates

b) Higher income tax

c) Tariffs

d) Reduced government spending


Question 3

Free trade is based on the principle of:

a) Comparative advantage

b) Comparative scale

c) Economies of advantage

d) Production possibility advantage


Question 4

If a country can produce 10 of product A or 4 of product B the opportunity cost of 1B is:

a) 4A

b) 5A

c) 10A

d) 1B

If a country can produce 10 of product A or 4 of product B the opportunity cost of 1B is

2.5A.

Question 5

Tariffs:

a) Decrease the domestic price of a product

b) Increase government earnings from tax

c) Increase the quantity of imports

d) Decrease domestic production

Question 6

The terms of trade measure:

a) The income of one country compared to another

b) The GDP of one country compared to another

c) The quantity of exports of one country compared to another

d) Export prices compared to import prices

Question 7

In a floating exchange rate system:

a) The government intervenes to influence the exchange rate

b) The exchange rate should adjust to equate the supply and demand of the currency

c) The Balance of Payments should always be in surplus

d) The Balance of payments will always equal the government budget

Question 8

The marginal propensity to consume is equal to:

a) Total spending / total consumption

b) Total consumption / total income

c) Change in consumption / change in income

d) Change in consumption / change in savings

Question 9

If there is a balance of payments deficit then in a floating exchange rate system:

a) The external value of the currency would tend to fall

b) The external value of the currency would tend to rise

c) The injections from trade are greater than the withdrawals

d) Aggregate demand is increasing

Question 10

To prevent the external value of the currency from falling the government might:

a) Reduce interest rates

b) Sell its own currency

c) Buy its own currency with foreign reserves

d) Increase its own spending


Question 1

Members of the European Union:

a) Have the same interest rates

b) Have one set of laws

c) All have the euro currency

d) Have common tariffs against non members


Question 2

Which of the following is not a member of the European Union?

a) France

b) Russia

c) Bulgaria

d) Poland


Question 3

The population of the European Union is approximately what?

a) 50 million

b) 450 million

c) 1000 million

d) 2000 million


Question 4

Within the European Union:

a) There are no tariffs between member countries

b) All member countries have the euro currency

c) All member countries have the same taxation policies

d) All member countries have the same defence policy


Question 5

Belonging to the European Union:

a) Encourages trade with non member countries

b) Encourages trade with member countries

c) Encourages protectionism within the union

d) Encourages countries to act independently


Question 6

The UK:

a) May join the European Union in the future

b) Relies on the European Union for all of its trade

c) Relies on the European Union for much of its tax revenue

d) Joined the European Union in 1973


Question 7

The CAP is:

a) The Common Agricultural Policy

b) The Common Alien Policy

c) The Community Agricultural Premium

d) The Cost And Price agreement


Question 8

By having a bigger target market within the European Union a firm might benefit from

economies of scale. Which of the following is not an economy of scale?

a) Purchasing

b) Financial

c) Managerial

d) Allocative efficiency


Question 9

Which of the following is not a European institution?

a) European Parliament

b) European Commission

c) European Congress

d) European Council


Question 10

Which of the following could be a problem of being a member of the European Union?

a) Greater competition

b) More customers

c) Easier access to markets

d) Greater uniformity in markets


Question 1

Which of the following is not a way of helping developing economies?

a) Aid

b) Loans

c) Protectionism of developed markets

d) Training and education programmes


Question 2

Developing economies usually have:

a) Low GDP per capita

b) Low CPI

c) Large balance of payments surpluses

d) Large budget surpluses


Question 3

a) Very sensitive to price

b) Price elastic

c) Unit elastic

d) Income inelastic


Question 4

Developing economies usually:

a) Have large industrialised sectors

b) Are dependent on primary products

c) Have high levels of wealth

d) Earn more from exports than is spent on imports


Question 5

Earning from primary products are often unstable because:

a) Demand is price elastic

b) Supply is price elastic

c) Supply conditions are relatively stable

d) Supply conditions are unstable


Question 6

Over time the price of primary products tends to fall because:

a) Demand is income elastic

b) Supply is income elastic

c) Of outward shifts in supply

d) Demand is price elastic


Question 7

Less Developed Countries tend to have:

a) A high average age

b) A slow population growth rate

c) High life expectancy

d) A low literacy rate


Question 8

In a Less Developed Country:

a) The infrastructure is likely to be good

b) Real wages are likely to be high

c) Unemployment is likely to be low

d) The primary sector is likely to be significant


Question 9

An injection of funds into a Less Developed Country might set off the:

a) Multipler

b) Marginal propensity to save

c) Average propensity to consume

d) The Laffer effect


Question 10

The marginal propensity to consume in a Less Developed Country is likely to be:

a) Less than 0

b) Nearly 0

c) High

d) Low


Question 1

Which of the following is not a global organisation?

a) IMF

b) World Bank

c) Competition Commission

d) WTO


Question 2

Globalisation is likely to increase with:

a) More protectionism

b) An increase in tariffs

c) More trade within countries

d) Greater trade flows between countries


Question 3

A multinational business:

a) Sells products abroad

b) Produces in more than one country

c) Imports from abroad

d) Sells only domestically


Question 4

Which of the following best describes the selling of a production licence to another firm?

a) Hands over all rights to its products

b) Sells its products abroad

c) Sells the right to produce to another business

d) Sells the business to another business


Question 5

Globalisation is made more difficult by:

a) The actions of the World Trade Organisation

b) The removal of protectionist measures

c) Exchange rate instability

d) More free trade agreements


Question 6

Finding a partner to work with abroad is called a:

a) Takeover

b) Merger

c) Acquisition

d) Joint venture


Question 7

Some pressure groups oppose globalisation. The best economic reason for opposition would be:

a) World trade may increase

b) The marginal social benefits of globalisation are less than the marginal social costs

c) Global standards of living may rise

d) World income inequality may increase


Question 8

The UK would not have attracted inward investment because:

a) It is within the European Union

b) English is a common world wide language

c) It has a stable economic system

d) A strong pound may have made it cheaper for foreign buyers to purchase UK companies


Question 9

Why might a country resist globalisation?

a) Greater choice of final products

b) Greater choice of supplies

c) Greater competition for domestic firms

d) More markets to sell to


Question 10

World trade has been increasing due to:

a) Increased tariffs

b) Increased legal barriers

c) Increased embargoes

d) Reduced protectionism


A study of how increases in the minimum wage rate will affect the national unemployment rate is an example of

  1. descriptive economics.
  2. normative economics.
  3. macroeconomics.
  4. microeconomics.

Aggregate supply is the total amount

  1. of goods and services produced in an economy.
  2. produced by the government.
  3. of products produced by a given industry.
  4. of labour supplied by all households.

The total demand for goods and services in an economy is known as

  1. aggregate demand.
  2. national demand.
  3. gross national product.
  4. economy-wide demand.

Deflation is

  1. an increase in the overall level of economic activity.
  2. an increase in the overall price level.
  3. a decrease in the overall level of economic activity.
  4. a decrease in the overall price level.

A recession is

  1. a period of declining prices.
  2. a period during which aggregate output declines.
  3. a period of declining unemployment.
  4. a period of falling trade volumes.

Involuntary unemployment means that

  1. people are not willing to work at the going wage rate.
  2. at the going wage rate, there are people who want to work but cannot find work.
  3. there are some people who will not work at the going wage rate.
  4. there is excess demand in the labour market.

A cut in the income tax rate designed to encourage household consumption is an example of

  1. expansionary demand-side policy.
  2. contractionary demand-side policy.
  3. expansionary supply-side policy.
  4. contractionary supply-side policy.

A cut in the tax rate designed to reduce the cost of capital and hence encourage business investment is an example of

  1. expansionary demand-side policy.
  2. contractionary demand-side policy.
  3. expansionary supply-side policy.
  4. contractionary supply-side policy.

Macroeconomics is the branch of economics that deals with

  1. the economy as a whole.
  2. imperfectly competitive markets.
  3. only the long run adjustments to equilibrium in the economy.
  4. the functioning of individual industries and the behaviour of individual decision-making units – business firms and households.

A group of modern economists who believe that price and wage rigidities do not provide the only rationale for macroeconomic policy activism are called:

  1. New-Keynesians.
  2. Keynesians.
  3. Monetarists.
  4. The Classical school.

Macroeconomic theory that emphasised the theories of Keynes and de-emphasised the Classical theory developed as the result of the failure of

  1. economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s.
  2. fine tuning during the 1960s.
  3. the economy to grow at a rapid rate during the 1950s.
  4. the Classical model to explain the prolonged existence of high unemployment during the Great Depression.

Keynes believed falling wages were not a solution to persistent unemployment because

  1. falling wages demoralised workers.
  2. this would reduce the purchasing power of labourers as consumers. This in turn would bleaken firms’ prospects of selling more goods, hence inducing them to cut their investment (and hence labour) demand.
  3. the unemployment was caused by frictional and structural factors.
  4. wages would fall more than required to clear the labour market.

The practice of using fiscal and monetary policy to stabilise the economy is known as

  1. fine tuning of demand
  2. monetarism
  3. laissez faire economics
  4. supply side economics

According to Classical models, the level of employment is determined primarily by

  1. interest rates.
  2. the level of prices.
  3. the level of aggregate supply in the economy
  4. the level of aggregate demand for goods and services.

According to Keynes, the level of employment is determined by

  1. interest rates.
  2. the level of prices.
  3. the level of aggregate supply in the economy
  4. the level of aggregate demand for goods and services.

According to the Classical model, unemployment

  1. could not persist because wages would fall to eliminate the excess supply of labour.
  2. could persist for long periods of time because wages are not flexible.
  3. could be eliminated only through government intervention.
  4. could never exist.

To get the economy out of a slump, Keynes believed that the government should

  1. increase both taxes and government spending.
  2. increase taxes and/or decrease government spending.
  3. cut both taxes and government spending.
  4. decrease taxes and/or increase government spending.

Aggregate demand refers to the total demand for all domestically produced goods and services in an economy generated from 

  1. the household and government sectors.
  2. the household sector.
  3. all sectors except the rest of the world.
  4. all sectors including the rest of the world.

Government policies that focus on increasing production rather than demand are called:

  1. fiscal policies.
  2. monetary policies.
  3. incomes policies.
  4. supply-side policies.

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are

  1. market prices.
  2. sticky prices.
  3. fixed prices.
  4. regulatory prices.

The economists who emphasised wage-flexibility as a solution for unemployment were

  1. Monetarists.
  2. New-Keynesians.
  3. Classical economists.
  4. Keynesians.

According to the Classical economists, the economy

  1. requires fine tuning to reach full employment.
  2. should not be left to market forces.
  3. will never be at full employment.
  4. is self correcting.

Monetarism became popular because it was able to, unlike Classical or Keynesian economics, explain

  1. stagflation in the late 1970s.
  2. demand-pull inflation in the 1960s.
  3. low growth rates in the 1950s.
  4. the prolonged existence of high unemployment during the Great Depression.

Keynes’ explanation for low firm investment during the Great Depression was

  1. low savings, which placed a constraint on investment
  2. high real borrowing rates, which discouraged firm borrowing
  3. high savings, which left consumers with less money to spend on goods and serviced produced by firms
  4. A permanent change in Europe’s corporate ownership structures.

Rapid increases in the price level during periods of recession or high unemployment are known as

  1. slump.
  2. stagnation.
  3. stagflation.
  4. inflation.

The hypothesis that people know the ‘true model’ of the economy and that they use this model and all available information to form their expectations of the future is the

  1. rational-expectations hypothesis.
  2. active-expectations hypothesis.
  3. static-expectations hypothesis.
  4. adaptive-expectations hypothesis.

Neo-Classical theories were an attempt to explain

  1. how unemployment could have persisted for so long during the Great Depression.
  2. the stagflation of the 1970s.
  3. why policy changes that are perceived as permanent have more of an impact on a person’s behaviour than policy changes that are viewed as temporary.
  4. the increase in the growth rate of real output in the 1950s.

A group of modern economists who believe that markets clear very rapidly and that expanding the money supply will always increase prices rather than employment are the

  1. New-Keynesians.
  2. Keynesians.
  3. Monetarists.
  4. The Classical school.

Say’s law states that:

  1. Supply creates its own demand.
  2. Demand creates its own supply.
  3. There is no such things as a free lunch
  4. Macroeconomic policy activism is essential to ensure full-employment.

The aggregate supply (AS) curve and aggregate demand (AD) curve in a realistic Keynesian world are:

  1. AS: fully horizontal; AD: downward sloping
  2. AS: horizontal only till the full capacity level; AD: downward sloping
  3. AS: vertical; AD: upward sloping
  4. AS: horizontal; AD: vertical

Based on the above information, we can say that:

  1. Poverty has fallen in the country
  2. Per capita real GDP is falling
  3. Income inequality has worsened
  4. Real growth in the informal sector is 0%

In the circular flow of income, Keynesian equilibrium obtains when

  1. All the individual sectors are in equilibrium: S=I, T=G, M=X
  2. The aggregate injections equal aggregate withdrawals S+T+M = I+G+X
  3. There is no inflation or unemployment
  4. The interest rate and exchange rate are at their market clearing levels

Under conditions of Keynesian equilibrium:

  1. aggregate demand equals aggregate supply
  2. aggregate demand equals national income
  3. both A and B
  4. none of the above

Which of the following is a determinant of consumption

  1. expectations about future prices
  2. level of indebtedness of consumers
  3. the price level
  4. all of the above

Which is the most volatile component of aggregate demand

  1. Net exports
  2. consumption
  3. investment
  4. government spending

Which of the following is not an obvious or direct determinant of a country’s imports

  1. real exchange rate
  2. income
  3. tariff rates
  4. interest rate

When consumption is 650, income is 750; when consumption is 620, income is 700. Assuming there is no government, I=100, net exports are 10, what is the level of equilibrium income?

  1. 500
  2. 625
  3. 775
  4. 850

Which of the following is not true?

  1. Starting from no growth, a positive output growth rate would be associated with even higher rates of investment (the accelerator effect)
  2. Higher investment causes a multiplied increase in income
  3. Such increases in income would continue to induce higher investment, which in turn would continue to cause multiplied increases in output.
  4. All of the above.

In the equation C = a + bY, which describes the aggregate consumption function, ‘a’ stands for

  1. the amount of consumption when income is zero.
  2. the marginal propensity to consume.
  3. the amount of consumption when income is Maximum.
  4. the average consumption level.

Total consumption divided by total income gives us:

  1. the average propensity to consume.
  2. the marginal propensity to save.
  3. the marginal propensity of expenditure.
  4. the marginal propensity to consume.

Disposable income is the part of households’ income left after the deduction of

  1. pension contributions.
  2. income tax and social security payments.
  3. income tax.
  4. savings.

As the MPS increases, the multiplier will

  1. increase.
  2. either increase or decrease depending on the size of the change in investment.
  3. remain constant.
  4. decrease.

In macroeconomics, equilibrium is defined as that point at which

  1. planned aggregate expenditure equals aggregate output.
  2. planned aggregate expenditure equals consumption.
  3. aggregate output equals consumption minus investment.
  4. saving equals consumption.

The ratio of the change in the equilibrium level of output to a change in some autonomous component of aggregate demand is the

  1. elasticity coefficient.
  2. multiplier.
  3. marginal propensity of the autonomous variable.
  4. automatic stabiliser.

Assuming there are no taxes (and no foreign sector), if the MPC is .8, the multiplier is

  1. 2.5.
  2. 8.
  3. 5.
  4. 2.

 

Assuming the net income tax rate is 25% (and there is no foreign sector), if the MPC is 0.8, the multiplier is

  1. 2.5.
  2. 8.
  3. 5.
  4. 2.

Assuming there is no foreign sector, if the multiplier is 3, and the net income tax rate is 20%, the MPC is

  1. 3/4
  2. 4/5
  3. 5/6
  4. 6/7

Assume there is no government or foreign sector. If the MPC is .75, a Rs.20 billion decrease in planned investment will cause aggregate output to decrease by

  1. Rs. 80 billion.
  2. Rs. 20 billion.
  3. Rs. 26.67 billion.
  4. Rs. 15 billion.

According to the ‘paradox of thrift,’ increased efforts to save will cause

  1. an increase in income and an increase in overall saving.
  2. a decrease in income and an overall decrease in saving.
  3. a decrease in income but an increase in saving.
  4. an increase in income but no overall change in saving.

If injections are less than withdrawals at the full-employment level of national income, there is

  1. an inflationary gap.
  2. equilibrium.
  3. a deflationary gap.
  4. hyperinflation.

The accelerator theory of investment says that induced investment is determined by

  1. the rate of change of national income.
  2. expectations.
  3. the level of national income.
  4. the level of aggregate demand.

The diagram that shows the money received and paid out by each sector of the economy is the

  1. income-price diagram.
  2. income-expenditures diagram.
  3. circular flow diagram.
  4. aggregate demand-aggregate supply diagram.

If both the no. of unemployed people and the size of the labour force increase by 10,000, then

  1. the unemployment rate will remain the same.
  2. the unemployment rate will increase.
  3. the unemployment rate will decrease.
  4. we cannot tell.

Which of the following could be a reason for the problem of “lack of jobs” being overestimated:

  1. the existence of disguised unemployment
  2. people are underemployment
  3. people holding only one job (as opposed to multiple jobs)
  4. the existence of child labour

Which of the following is not a cost of voluntary unemployment?

  1. potential output of the economy is greater than actual output
  2. government loses tax revenue
  3. firms lose (potential) revenues due to operating below capacity
  4. mental stress undergone by the unemployed persons

“Because higher wages are less likely to induce people who are structurally or physically unable to participate on the labour force. On the other hand people already on the labour force are more likely to respond to higher wages by accepting jobs.”

The above statement is an answer to which question?

  1. Why is the AJ curve more elastic than the LF curve
  2. Why is the LF curve not totally vertical
  3. Why is the AJ curve not completely vertical
  4. Why is it difficult to completely remove the horizontal distance between the AJ and LF curves

Which of the following would constitute sound government policy if you subscribed to the Monetarist view on unemployment?

  1. increase aggregate demand through monetary or fiscal policy
  2. reduce the obstacles to downward wage rigidity (like unions, unemployment benefits, minimum wage legislations etc.)
  3. Reduce the marginal income tax rate (to increase the incentive to work)
  4. All of the the above

The persistence of a phenomenon, such as unemployment, even when its causes have been removed is called

  1. The paradox of thrift.
  2. structural unemployment.
  3. ceteris paribus.

Cyclical unemployment is the

  1. portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.
  2. unemployment that results when people become discouraged about their chances of finding a job so they stop looking for work.
  3. portion of unemployment that is due to seasonal factors.
  4. unemployment that occurs during recessions and depressions.

The natural rate of unemployment is generally thought of as the

  1. ratio of the frictional unemployment rate to the cyclical unemployment rate.
  2. sum of frictional unemployment and cyclical unemployment.
  3. sum of frictional unemployment and structural unemployment.
  4. sum of structural unemployment and cyclical unemployment.

One of the tenets of the Classical view of the labour market is that the wage adjustments that are necessary to clear the labour market occur

  1. very infrequently.
  2. very quickly.

According to Keynesian economists, those who are not working

  1. have given up looking for a job, but would accept a job at the current wage if one were offered to them.
  2. are too productive to be hired at the current wage.
  3. have chosen not to work at the market wage.
  4. are unable to find a job at the current wage rate.

The index used most often to measure inflation is the

  1. consumer price index.
  2. wholesale price index.
  3. student price index.
  4. producer price index.

If you were the owner of a cycle manufacturing firm, would you be particularly worried if wage inflation were higher than price inflation?

  1. Because you would still be able to sell your goods at the higher price.
  2. Because the cost of your input is growing faster than the revenue obtained from your output
  3. Because both price and wage inflation are bad.
  4. Because any loss to the firm will be offset by the gain to the workers.

Which of the following is not a major cost of inflation:

  1. Resource wastage: as people spend time and money to guard against the “purchasing power erosion” effects of inflation, while firms suffer menu costs (i.e. the costs of frequently issuing “revised” price lists).
  2. Uncertainty: firms defer investment when inflation is high and volatile as the latter complicates predicting future cashflows.
  3. Worsened income inequality: inflation is a regressive tax on the people that does not take into account the taxpayers’ “ability to pay”. As such, there is a redistribution of wealth from the poor to the rich.
  4. Money printing costs: inflation requires more currency notes to be printed and this raises the government’s printing costs.

In the long run, the Phillips curve will be vertical at the natural rate of unemployment if

  1. the long-run supply curve is horizontal at the natural rate of inflation.
  2. the long-run aggregate demand curve is vertical at potential GDP.
  3. the long-run aggregate demand curve is horizontal at the natural rate of inflation.
  4. the long-run aggregate supply curve is vertical at potential GDP.

According to the monetarists, the measured unemployment rate can

  1. be reduced below the natural rate only in the short run, and not without inflation.
  2. be reduced below the natural rate only in the long run, and only if the price level is constant.
  3. be reduced below the natural rate only in the short run, and only if the price level is constant.
  4. be reduced below the natural rate only in the long run, and not without inflation.

If the prices of all inputs seem to be rising, can you be absolutely sure that it is cost-push inflation?

  1. No, because cost-push inflation is caused by an increase in the cost of only one input.
  2. Yes, because that is exactly the definition of cost-push inflation.
  3. No, because such a situation can also be caused by particular demand pressures in the economy.
  4. Yes, because this is exactly what happens in stagflation.

The quantity theory of money implies that, provided velocity of money is constant, a given percentage change in the money supply will cause

  1. an equal percentage change in nominal GDP.
  2. a larger percentage change in nominal GDP.
  3. an equal percentage change in real GDP.
  4. a smaller percentage change in nominal GDP.

If input prices adjusted very slowly to output prices, the Phillips curve would be

  1. downward sloping.
  2. vertical or nearly vertical.
  3. upward sloping.
  4. horizontal or nearly horizontal.

If inflationary expectations increase, the short-run Phillips curve will

  1. become vertical.
  2. become upwarding sloping.
  3. shift to the right.
  4. shift to the left.

The record of a country’s transactions in goods, services, and assets with the rest of the world is its _____________; while the difference between a country’s merchandise exports and its merchandise imports is the ____________.

  1. current account; trade balance.
  2. capital account; balance of payments.
  3. balance of trade; capital account.
  4. balance of payments; balance of trade.

Assuming there is no government intervention in the foreign exchange market, which of the following statements must clearly be FALSE, given that?

  1. If the capital account is in surplus, then the current account is likely to be in deficit.
  2. If the current account is in deficit, then the capital account is likely to be in surplus.
  3. If the current account is in balance, the capital account is also likely to be in balance.
  4. None of the above.

Which of the following statements is necessarily TRUE?

  1. A country runs a current account deficit if it imports more goods and services than it exports.
  2. The sum of the current and capital accounts must be zero.
  3. If both the current and capital accounts are in surplus, the exchange rate must appreciate.
  4. None of the above.

All currencies other than the domestic currency of a given country are referred to as

  1. reserve currencies.
  2. near monies.
  3. foreign exchange.
  4. hard currency.

 

Exchange rates that are determined by the unregulated forces of supply and demand are

  1. floating exchange rates.
  2. pegged exchange rates.
  3. fixed exchange rates.
  4. managed exchange rates.

If the State Bank of Pakistan reduces the money supply, a floating exchange rate will help in reducing inflation because

  1. as the money supply is decreased, the interest rate will increase, and the price of both Pakistani exports and Pakistani imports will rise.
  2. as the money supply is decreased, the interest rate will increase, and the price of Pakistani exports will rise and the price of Pakistani imports will fall.
  3. as the money supply is decreased, the interest rate will increase, and the price of Pakistani exports will fall and the price of Pakistani imports will rise.
  4. as the money supply is decreased, the interest rate will increase, and the price of Pakistani exports and Pakistani imports will fall.

The fall (rise) in value of one currency relative to another is

  1. a floating (fixing) of the currency.
  2. an appreciation (depreciation) of a currency.
  3. a depreciation (appreciation) of a currency.
  4. a strengthening (weakening) of a currency.

If purchasing power parity prevails absolutely in a two country world, the real exchange rate between the two countries should be:

  1. constantly changing.
  2. relatively stable, but not constant
  3. none of the above

The interest parity equation implies that there is a general tendency for:

  1. exchange rates to be insensitive to the differential rates of interest between countries.
  2. the currencies of relatively low-interest countries to appreciate.
  3. the currencies of relatively high-interest countries to appreciate.
  4. the currencies of relatively low-interest countries to depreciate.

Note that currencies with low rates of interest also typically have low inflation rates. This follows from the Fischer equation which maintains that the nominal interest rate = real interest rate + expected inflation.

Which of the following is (are) correct statement(s) about the current account deficit?

  1. A current account deficit is bad, if it is being caused by excessive consumer spending
  2. A current account deficit is bad, if it is fuelled by high fiscal deficits
  3. A current account deficit is good, if it is caused by the excess of productive domestic investment over domestic savings
  4. All of the above

The J-curve effect refers to the observation that

  1. GDP usually decreases before it increases after a currency depreciation.
  2. GDP usually decreases before it increases after a currency appreciation.
  3. the trade balance usually gets worse before it improves after a currency appreciation.
  4. the trade balance usually gets worse before it improves after a currency depreciation.

Today is Tuesday morning. If currency dealers expect the value of the dollar to fall by 10% on Wednesday, then, ceteris paribus, what will happen by the end of today to the Rs./dollar exchange rate? It will:

  1. Rise by more than 10%.
  2. Rise by exactly 10%.
  3. Fall by less than 10%.
  4. Remain constant.

According to traditional thinking on the subject, which of the following would not generate economic growth in an economy?

  1. an increase in the size of the labour force.
  2. an increase in the productivity of capital.
  3. a move to more capital intensive production methods
  4. discovery of a major mineral resource in the country

When referring to economic growth, we normally refer to:

  1. growth in actual real per capita output
  2. growth in potential real per capita output
  3. growth in actual nominal per capita output
  4. growth in potential real per capita output

A variable whose value is determined by the model of which it is a part is termed ___________.

  1. endogenous
  2. exogenous
  3. independent
  4. constant

An example of capital deepening, given an increasing L, would be:

  1. K increases so as to maintain a constant K/L
  2. K increases so much that K/L increases
  3. K remains constant so that L/K increases
  4. K falls, so as to reduce K/L

The neo-classical growth model says that:

  1. poor countries should catch-up (or converge to) with richer countries
  2. higher savings (or rates of capital accumulation) cannot raise a country’s steady state growth rate
  3. the steady state growth rate of real output depends on the sum of the (exogenous) growth rates in population and technical progress.
  4. All of the above.

The length of a business cycle would be measured from

  1. peak to trough.
  2. trough to peak.
  3. peak to peak.
  4. the slump to the expansion.

If the economy is in the expansionary phase of the business cycle, aggregate demand is likely to be ______ , unemployment is likely to be ______ , inflation is likely to be ______ , and the current account of the balance of payments is likely to be moving towards ______.

  1. rising; falling; rising; deficit
  2. static; low; rising; deficit
  3. falling; falling; falling; surplus
  4. falling; rising; falling; surplus

If the economy is at the peak of the business cycle, aggregate demand is likely to be ______ , unemployment is likely to be ______ , inflation is likely to be ______ , and the current account of the balance of payments is likely to be moving towards ______.

  1. rising; falling; rising; deficit
  2. static; low; rising; deficit
  3. falling; falling; falling; surplus
  4. falling; rising; falling; surplus

If the economy is approaching the trough phase of the business cycle, aggregate demand is likely to be ______ , unemployment is likely to be ______ , inflation is likely to be ______, and the current account of the balance of payments is likely to be moving towards ______.

  1. rising; falling; rising; deficit
  2. static; low; rising; deficit
  3. falling; falling; falling; surplus
  4. falling; rising; falling; surplus

Which of the following is not true regarding the effects of growth on the balance of payments and vice versa?

  1. Generally, growth raises incomes which will translate into higher consumption and higher imports, causing the current account of the BOPs to deteriorate.
  2. If growth is “export-led”, it will boost the current account surplus of the BOPs.
  3. If the current account deficit reflects an underlying private sector resource deficit, it is likely to be bad for future growth.
  4. If the current account reflects rising imports of military equipment by the government, it might not be beneficial for economic growth.

A country has high inflation and is running a current account deficit. What should it do in the context of the Salter-Swan diagram?

  1. Reduce government spending and revalue the exchange rate
  2. Increase government spending and devalue the exchange rate
  3. Reduce the money supply and devalue the exchange rate
  4. Increase government spending and revalue the exchange rate

According to the Laffer curve, as tax rates increase, tax revenues 

  1. decrease continuously.
  2. initially decrease and then increase.
  3. rise continuously.
  4. initially increase and then decrease.

The government imposes a new income tax legislation under which every male taxpayer must pay 15% of his income as taxes, while every female taxpayer must pay 20% of her income as taxes. Such tax legislation violates which equity principle?

  1. Both horizontal equity and vertical equity
  2. Vertical equity only
  3. Horizontal equity only
  4. Neither

A 15% VAT is a(n):

  1. Proportional income tax.
  2. Fixed excise duty.
  3. Ad valorem indirect tax.
  4. None of the above.

Tax incidence is the

  1. ultimate distribution of a tax’s burden.
  2. measure of the impact the tax has on employment and output.
  3. behaviour of shifting the tax to another party.
  4. structure of the tax.

You know that all taxes are distortionary. Under what conditions will this knowledge lead you to oppose the imposition of every single tax in the economy?

  1. If you live in a 1stbest world
  2. If you live in a 2ndbest world
  3. If the tax rates on some of the items are prohibitively high
  4. Either of the above

Let us say assume the Pakistani government is facing a fiscal deficit. Which of the following would not constitute a possible method of financing this deficit?

  1. printing rupees (borrowing from the central bank)
  2. selling dollars in the foreign exchange market
  3. imposing new taxes or raising existing tax rates
  4. borrowing from an international financial institution

The increase in base money divided by the corresponding induced increase in commercial bank deposits is the

  1. bank’s line of credit.
  2. reserve ratio.
  3. current ratio.
  4. money multiplier.

If the State Bank of Pakistan wished to pursue a ‘tight’ monetary policy, it would

  1. lower the required reserve ratio and the statutory liquidity ratio.
  2. lower interest rates.
  3. buy government securities on the open market.
  4. sell government securities on the open market.

An item designated as money that is intrinsically worthless could be

  1. a currency note.
  2. a silver coin.
  3. a barter item.
  4. any tradeable commodity.

A checking deposit (or current account) held at a commercial bank is considered __________ of that bank.

  1. an asset.
  2. net worth.
  3. a liability.
  4. capital.

Which of the following activities is one of the responsibilities of the State Bank of Pakistan?

  1. Monitoring the financial health of banks and non-bank financial insitutions.
  2. Auditing the various agencies and departments of the government.
  3. Issuing bonds on international capital markets to finance the fiscal deficit.
  4. Loaning money to other countries that are friendly to Pakistan.

A bank has excess liquidity reserves to lend but is unable to find a willing borrower. This will __________ the size of the money multiplier.

  1. reduce
  2. increase
  3. have no effect on
  4. double

The quantity of money demanded increases with income. Thus if income increases, the opportunity cost of holding money must go up in order to reduce money demand and re-establish equilibrium in the money market. This relation is captured by:

  1. an upward sloping LM curve.
  2. a downward sloping L curve.
  3. a downward sloping IS curve.
  4. the circular flow of money in the economy.

When economists speak of the ‘demand for money,’ which of the following questions are they asking?

  1. How much cash do you wish you could have?
  2. How much wealth would you like?
  3. How much income would you like to earn?
  4. What proportion of your financial assets do you want to hold in non-interest bearing forms?

Which of the following will not cause money supply to expand, given a fully floating exchange rate regime and a fixed supply of dollars in the market

  1. The central bank buying foreign currency in the foreign exchange market
  2. redemption of central bank liquidity paper
  3. build-up of commercial banks’ deposits held with the central bank
  4. decrease in the central bank discount rate

Which of the following events will lead to a decrease in the demand for money?1

  1. An increase in the level of aggregate output.
  2. A decrease in the supply of money.
  3. A decrease in the interest rate.
  4. A decrease in the price level.

Which of the following is neither a determinant of the slope of the IS curve nor a determinant of the slope of the LM curve?

  1. the sensitivity of interest rates to investment
  2. the sensitivity of money demand to income
  3. the sensitivity of money demand to interest rates
  4. the sensitivity of income to investment

Given a Keynesian world, a cut in taxes coupled with a lower reserve ratio for banks would have what effect on equilibrium income and interest rate?

  1. Both income and the interest rate will remain unchanged
  2. income will come down, but the interest rate will go up
  3. income will go up, but the effect on the interest rate cannot be predicted
  4. interest rates will go down, but the effect on income cannot be predicted

If the government increases its spending, but this causes prices to rise, what will “eventually” happen to the equilibrium income and interest rate?

  1. Both income and the interest rate will remain unchanged
  2. income will come down, but the interest rate will go up
  3. income will go up, but the effect on the interest rate cannot be predicted
  4. interest rates will go down, but the effect on income cannot be predicted

If the income elasticity of money demand and the Keynesian multiplier, both increase in an economy (ceteris paribus), how will the relative effectiveness of monetary and fiscal policy change?

  1. Fiscal policy will become relatively more effective than monetary policy
  2. Fiscal policy will become relatively less effective than monetary policy
  3. The relative effectiveness of fiscal and monetary policy will remain unchanged
  4. Both fiscal and monetary policy will become more effective.

The intersection of the IS and LM curves captures:

  1. the equilibrium of the demand and supply sides of the economy
  2. the equivalence of monetary and fiscal policy
  3. joint equilibrium in the goods and money markets
  4. all of the above

Disposable Income is obtained by subtracting _____________taxes from personal income:

  1. Indirect Taxes
  2. Direct Taxes
  3. Subsidies
  4. None

Per capita income is obtained by dividing National Income by:

  1. Total labor Force in the Country
  2. Unemployed Youth in the Country
  3. Total population of that country.
  4. None

The investment demand curve shows the relationship between the levels of:

  1. Investment and Consumption
  2. Consumption and Interest Rate
  3. Investment and Interest Rate
  4. None

The situation in which the imports are greater than exports is termed as:

  1. Trade Surplus
  2. Trade Deficit
  3. Budget Surplus
  4. None

Fiscal policy is the government programme with respect to it’s:

  1. Steel Mill Privatization
  2. Unemployment Reduction
  3. Expenditure and Tax revenue
  4. None

Imports for any economy are considered as:

  1. Injections
  2. Leakages
  3. Brain Drain
  4. None

The accelerator is a related concept which formalizes the investment response to:

  1. Consumption
  2. Interest rate
  3. Output
  4. None

According to Keynes macroeconomic equilibrium is attained when:

  1. Prime Minister is PhD in Macroeconomics
  2. Aggregate Demand Equals Aggregate Supply
  3. Inflation Exists in Economy.
  4. None

There are __________________methods of measuring GDP:

  1. Four
  2. Three
  3. Five
  4. None

Intermediate goods are meant for:

  1. Direct use by the consumers
  2. further processing
  3. The term do not exist
  4. None

Fiscal policy refers to:

  1. The actions of the central bank in controlling the money supply.
  2. The spending and taxing policies used by the government to influence the economy.
  3. The government’s regulation of financial intermediaries.
  4. None of the given options.

Disposable income is:

  1. Total income plus transfer payments
  2. Total income minus saving.
  3. Total income plus net taxes.
  4. Total income minus net taxes.

The deficit tends to decrease when:

  1. GDP decreases slightly.
  2. GDP decreases rapidly.
  3. GDP increases.
  4. GDP remains unchanged.

Money or paper currency serves at least ______________ functions:

  1.  Four
  2. Three
  3. Five
  4. Seven

The economic logic behind granting central banks independence from government in the conduct of monetary policy is:

  1. To eliminate seignior age.
  2. To allow open market operations.
  3. To enhance the credibility of monetary policy.
  4. None of the above.

An expansionary fiscal policy can:

  1. Raise the national debt.
  2. Decrease the national debt.
  3. Have no effect on national debt.
  4. None of above.

Which is high powered money?

  1. M1
  2. M2
  3. Mo
  4. None

There are _________major instruments of monetary policy:

  1.  Three
  2. Four
  3. Five
  4. None

The rate at which central bank lends to commercial banks is known as:

  1. Reserve rate.
  2. Discount rate.
  3. Open market operation.

Identify the three motives of money demand:

  1. Accumulative, speculative, precautionary
  2. Speculative, transaction, precautionary
  3. Precautionary special, transaction
  4. None

If, in a fully employed, closed economy, the supply of money and the velocity of circulation of money both increase, then in the short-run.

  1. Unemployment of factors will result
  2. Real national output will expand
  3. The volume of transactions will increase
  4. The average level of prices will rise

An increase in the rate of inflation which is not accompanied by any change in the volume of consumer goods sold will automatically increase the:

  1. Revenue from Value Added Tax
  2. Level of company profits
  3. Level of unemployment
  4. Average level of wages

The increase in the Public Sector Borrowing Requirement (PSBR) to almost £50 billion this year will automatically lead to:

  1. A higher rate of inflation
  2. A fall in the rate of unemployment
  3. An increase in the National Debt
  4. A deterioration in the Balance of Payments

The investment demand curve shows the relationship between the levels of:

  1. Investment and Consumption
  2. Consumption and Interest Rate
  3. Investment and Interest Rate
  4. None

According to Classical models, the level of employment is determined primarily by:

  1. The level of aggregate demand for goods and services.
  2. Prices and wages.
  3. Government taxation.
  4. Government spending.

Which of the following is not an important variable in growth accounting calculations?

  1. Productivity growth
  2. Money supply growth
  3. Labor growth
  4. Capital growth

The per-worker production function relates:

  1. Output per worker to capital per worker.
  2. Output per worker to production per worker.
  3. Output per worker to factors of production per worker.
  4. Production per worker to the size of the work force.

In a steady-state economy:

  1. Net investment equals depreciation rate.
  2. Per capita capital stock grows at the rate of labour growth.
  3. Per capita capital stock remains constant.
  4. Net investment equals the consumption.

The war in Iraq sent oil prices spiraling upwards, resulting in an increase in the overall price level. This is an example of which type of inflation?

  1.  Cost-pull
  2. Cost-push
  3. Demand-pull
  4. Demand-push

The IMF is an agency charged with providing:

  1. Technical assistance to stock market and financial market problems.
  2. Loans for post-World War II reconstruction.
  3. Short‑term credit for international balance of payments deficits.
  4. Bonds denominated in U.S. dollars as a loan to LDCs.

 

In a portfolio investment:

  1. Investors are directly involved in managing the operations.
  2. As in direct investment, investors export goods and services abroad.
  3. Investors transfer the technology to local investors.
  4. Investors have no control over operations.

Inflation:

  1. Reduces both the purchasing power of the dollar and one’s real income
  2. reduces the purchasing power of the dollar and increases one’s real income
  3. Reduces the purchasing power of the dollar but may have no impact on one’s real income
  4. Increases the purchasing power of the dollar and reduces one’s real income

13.One of the tenets of the classical view of the labour market is that the wage adjustments that are necessary to clear the labour market occur :

  1. Slow
  2. Quickly
  3. Very infrequently.
  4. Instantly

Those that hold the classical view of the labour market are likely to believe that:

  1. Monetary, but not fiscal policy will have an effect on output and employment.
  2. Both monetary and fiscal policy will have an effect on output and employment.
  3. Fiscal, but not monetary policy will have an effect on output and employment.
  4. Neither monetary nor fiscal policy will have an effect on output and employment.

Potential GDP is the level of aggregate output:

  1. That can be produced if structural unemployment is zero.
  2. That can be produced at a zero unemployment rate.
  3. That can be sustained in the long run, if the inflation rate is zero.
  4. That can be sustained in the long run without inflation.

Which school of economic thought suggested that one possible cause of inflation was a ‘push’ from the cost side?

  1. New classical economists.
  2. Monetarists
  3. Marxist
  4. Keynesians

An unspoken agreement between workers and firms that the firm will not cut wages is known as:

  1. An explicit contract.
  2. An implicit or social contract.
  3. Employment-at-will.
  4. A relative-wage contract.

To offset the downswing in the business cycle, the government announces a major increase in public expenditure.

  1. Technological Unemployment
  2. Demand Deficient Unemployment
  3. Real Wage Unemployment
  4. Regional Unemployment

The government puts pressure on trade unions to make pay claims which are below the increase in productivity over the past year.

  1. Frictional Unemployment
  2. Technological Unemployment
  3. Structural Unemployment
  4. Real Wage Unemployment

In which case is total expenditure in an economy not equal to total income?

  1. If total saving is larger than total investment
  2. If net exports are not zero
  3. If inventory investment is negative
  4. None of the above–they are always equal

 

1. Who is called as father of Economics?
A. Adam smith
B. Robinson
C. Marshall
D. George Bernard
ANSWER: A


2. Economics is the science of wealth who gave this definition?
A. J.K.Mehta
B. Marshall
C. Adam Smith
D. Robbins
ANSWER: C


3. Which of the following is related with controlling economic problems ?
A. What to produce
B. How to produce
C. For whom to produce
D. All of the above
ANSWER: D


4. The existence of both public and private sector enterprises constitutes
A. Capitalist economy
B. Mixed economy
C. Socialist economy
D. None of the Above
ANSWER: B


5. 12. Peoples wants are —————-
A. More
B. Limited
C. Unlimited
D. Few
ANSWER: C


6. Who has given scarcity definition of economics?
A. Adam smith

B. Marshall
C. Robbins
D. Robertson
ANSWER: C


7. Micro economic theory is also known as —————–.
A. Business Theory
B. Price Theory
C. Individual Theory.
D. Cost theory
ANSWER: B


8. Profit Maximisation goal is suitable for ———— and ———— markets .
A. Monopolistic and Oligopoly
B. Monopolistic and Duopoly
C. Monopsony and Duopsony
D. Perfect competition and monopoly
ANSWER: D


9. In economics the central problem is —————-
A. money.
B. production.
C. consumption.
D. scarcity.
ANSWER: D


10. Utility is measured by ______________.
A. wealth
B. price
C. value or worth .
D. income.
ANSWER: C


 

11. The extra utility from consuming one more unit of a commodity is called —————–
A. Mariginal utility
B. Additional utility
C. Surplus utility
D. Bonus utility
ANSWER: A


12. If marginal utility is zero —————-
A. Total utility is zero
B. An additional unit of consumption will decrease total utility
C. An additional unit of consumption will increase total utility
D. Total utility is maximum.
ANSWER: D


13. When the total utility curve reaches its maximum level, marginal utility is———————–
A. Zero
B. Positive
C. Rising

D. Negative
ANSWER: A


14. In case of Utility theory as income increases, marginal utility of money ———
A. Decreases
B. Increases
C. constant
D. none of these
ANSWER: A


15. Who has given the concept of consumer surplus
A. Marshall
B. Robbins
C. Pigou
D. None of these
ANSWER: A


16. Utility means _______________.
A. Power to satisfy a want.
B. Usefulness.
C. Willingness of a person.
D. Harmfulness.
ANSWER: B


17. At point of satiety, marginal utility is _________________.
A. Zero.
B. Positive.
C. Maximum.
D. Negative
ANSWER: A


18. Which of the following is the second law of Gossen ?
A. Law of equi-marginal utility
B. Law of equi-product.
C. Theory of indifference curve.
D. Law of diminishing marginal utility
ANSWER: A


19. Total utility of a commodity is measured by which price of that commodity ?
A. Value in use.
B. Value in exchange
C. Both of above.
D. Value of money
ANSWER: A


20. According to Marshall, the basis of consumer surplus is ______________.
A. Law of diminishing marginal utility
B. Law of equi-marginal utility
C. Law of proportions
D. All of the above
ANSWER: A


21. Which of the following is an economic activity?
A. Teaching of a teacher in the school.
B. To teach son at home.
C. To serve her child by mother.
D. To play football by a student.
ANSWER: A


22. Sales Maximisation is suitable for ———— market
A. Oligopoly
B. Duopoly
C. Monopoly
D. Monopsony
ANSWER: A


23. Demand is a function of ———–
A. Income.
B. Advertisement
C. Consumers
D. Price.
ANSWER: D


24. Which will cause a change in the demand for commodity X?
A. A Change In Tastes.
B. A Change In Income.
C. A Change In The Price of X .
D. A Change In Price Of Complementary Product
ANSWER: C


25. A market demand can be derived by adding all the individual demand curves ________________.
A. vertically.
B. horizontally.
C. in parallel.
D. by any of the above, as long as it is consistent.
ANSWER: C


26. A market demand Schedule for a product indicates that ______________.
A. as the product’s price falls, consumers buy less of the good
B. there is a direct relationship between price and quantity demanded
C. as a product’s price rises, consumers buy less of other goods.
D. there is an inverse relationship between price and quantity demanded.
ANSWER: D


27. When one speaks of “demand” in a particular market, this refers to __________.
A. the quantity demanded at a given price
B. only one price-quantity combination on the demand schedule
C. only one point on the entire demand curve.
D. the whole demand curve
ANSWER: D


28. Other things being equal, the law of demand implies that as ______________.

A. the demand for increases, the price will decrease
B. income increases, the quantity demanded will increase
C. the price increases, the quantity demanded will decrease
D. the price increases, the quantity demanded will increase
ANSWER: C


29. For inferior commodities, income effect is ______________.
A. Zero.
B. Negative
C. Infinite.
D. Positive.
ANSWER: B


30. Which is not a determinant of demand?
A. Income.
B. The Cost of Inputs In Production .
C. The Prices of Related Goods
D. Future Price Expectations
ANSWER: B


31. The price elasticity of demand is the ___________________.
A. percentage change in quantity demanded divided by the percentage change in price.
B. percentage change in price divided by the percentage change in quantity demanded
C. dollar change in quantity demanded divided by the dollar change in price.
D. percentage change in quantity demanded divided by the percentage change in quantity supplied
ANSWER: A


32. If two goods are close substitutes , ___________________.
A. an increase in the price of one will decrease the demand for the other.
B. an increase in the price of one will increase the demand for the other.
C. a decrease in the price of one will increase the demand for the other.
D. a decrease in the price of one will have no effect on the demand for the other.
ANSWER: B
33. People demand more of product X when the price of product Y decreases. This means X and Y are
_______________.
A. complements.
B. substitutes.
C. not related.
D. both inexpensive.
ANSWER: C


34. Derived demand is directly determined by ____________.
A. utility
B. the profitability of using inputs to produce output .
C. the ability to satisfy consumer desires
D. personal consumption
ANSWER: B


35. When demand is elastic ________________.
A. a fall in price is more than offset by an increase in quantity demanded, so that total revenue rises.

B. the good is probably a necessity, so price has little effect on quantity demanded.
C. a rise in price will increase total revenue, even though less is sold
D. buyers are not much influenced by prices of competing precedes.
ANSWER: C


36. The demand for a good is highly inelastic if __________________.
A. the price elasticity of the good is close to zero.
B. the income elasticity of the good is close to one
C. if it is a necessity
D. both a and c.
ANSWER: D


37. A perfectly inelastic demand curve __________________.
A. is a vertical line parallel to Y-axis.
B. is a vertical line parallel to X-axis
C. indicates a good with no close substitutes.
D. a and c.
ANSWER: D


38. Demand curve is a _____________.
A. falling curve
B. rising curve.
C. downward sloping curve.
D. upward sloping curve
ANSWER: C


39. Which of the following is not a step in the forecasting process?
A. Determine The Use Of The Forecast.
B. Eliminate Any Assumptions.
C. Determine The Time Horizon.
D. Select A ForecastingModel(S).
ANSWER: B


40. Gradual, long-term movement in time-series data is called _____________.
A. seasonal variation
B. cycles.
C. trends.
D. exponential variation.
ANSWER: A


41. Which of the following is not present in a time series?
A. Seasonality
B. Operational Variations.
C. Trend.
D. Random Variations.
ANSWER: D


42. In Sample survey method ——– Technique is adopted.
A. Deliberate
B. Convenience
C. Quota

D. Random
ANSWER: D


43. In time series, which of the following cannot be predicted?
A. Large Increases In Demand.
B. Technological Trends.
C. Seasonal Fluctuations
D. Random Fluctuations.
ANSWER: C


44. Which of the following is not a characteristic of simple moving averages?
A. It Smoothes Random Variations In The Data.
B. It Has Minimal Data Storage Requirements.
C. It Weights Each Historical Value Equally.
D. It Smoothes Real Variations In The Data.
ANSWER: B


45. Car and petrol are —————goods.
A. Substitutes
B. Complementay
C. Producers
D. None of the above.
ANSWER: B


46. Tea and coffee are ————–Goods
A. Substitutes
B. Complementay
C. Producers
D. None of the above.
ANSWER: A


47. In cross elasticity of demand, for unrelated goods the demand curve will be ——————–
A. Rectangular hyperbola
B. Vertical line
C. Horizontal line
D. None of the above.
ANSWER: B


48. The total outlay method expains the relationship between Price and—————
A. Demand
B. Supply
C. Expenditure
D. Income


ANSWER: C
49. Which of the following is included in exceptions to the law of demand
A. Giffen Goods
B. Prestigious goods
C. Both of the above
D. NOne of the above
ANSWER: C


50. When a commodity with many uses is demanded then it is called
A. Direct demand
B. Joint demand
C. Composite demand
D. None of these
ANSWER: C


51. A fall in the price of a commodity leads to _______________.
A. a shift in demand.
B. a fall in demand.
C. a rise in the consumers real income
D. a fall in the consumers real income.
ANSWER: C


52. An increase in demand can result from ____________.
A. a decline in market price
B. an increase in income
C. a reduction in the price of a substitute
D. an increase in the price of complements
ANSWER: B


53. Giffen goods are goods ___________.
A. for which demand increases as price increases.
B. which have a high income elasticity of demand.
C. which have a low cross elasticity of demand.
D. which are in very short supply
ANSWER: A


54. Decrease in demand means ________________.
A. movement upward on a demand curve.
B. movement downward on the demand curve.
C. shift downward of a demand curve.
D. shift upward of a demand curve.
ANSWER: C


55. Elasticity of demand is _______________.
A. slope of the demand curve.
B. usually unity
C. usually zero
D. degree of responsiveness of quantity demanded to a change in price.
ANSWER: D


56. How would you indicate relatively inelastic demand by using one of the following measures
_________________.
A. E = Zero.
B. E is less than 1.
C. E is greater than 1
D. E = 1.
ANSWER: B


57. A demand curve which is a horizontal straight line has an elasticity that is ————
A. zero.
B. greater than zero but less than one.
C. one.
D. infinite.
ANSWER: D


58. Demand forecasting means _________________.
A. simply guessing about future demand
B. establishing relations between demand and its determinants
C. predicting level of demand at a future date.
D. all the above.
ANSWER: C


59. The demand for labor slopes down and to the right because of _______________.
A. the law of demand .
B. the iron law of wages .
C. the law of diminishing marginal returns
D. economies of scale
ANSWER: C


60. Normal goods experience an increase in consumption when _______________.
A. real income increase
B. real income falls
C. price rises.
D. tastes change.
ANSWER: D


61. The demand for a good is price inelastic if ___________________.
A. the price elasticity is one.
B. the price elasticity is less than one.
C. the price elasticity is greater than one.
D. zero
ANSWER: B


62. A demand curve with unitary elasticity at all points is __________________.
A. a straight line .
B. a parabola.
C. a hyperbola
D. convex to the origin.
ANSWER: C


63. Supply is a function of ———–
A. Income.
B. Advertisement
C. Consumers
D. Price.
ANSWER: D


64. The supply of a product does not depend on _____________.
A. labor costs .

B. the number of sellers in the market .
C. consumers tastes .
D. existing technology .
ANSWER: C


65. ——– Economies views on reducing the Production costs
A. Internal
B. Inventory
C. Pecuniary
D. External
ANSWER: D


66. Which factor of production is considered as fixed input?
A. Labour
B. Technology
C. Capital
D. Land
ANSWER: D


67. ———– is the remuneration for organisation
A. Rent
B. Wages
C. Interest
D. Profit.
ANSWER: D


68. ————- input factor is divided as skilled, semi skilled, unskilled
A. Land
B. Capital
C. Technology
D. Labour
ANSWER: D


69. ———- is the remuneration for labour
A. Rent
B. Wages
C. Interest
D. Profit.
ANSWER: B


70. When the output increases in the same proportion as the increase in input it is ————–Returns.
A. Constant
B. Average
C. Decreasing
D. Increasing
ANSWER: A


71. Cobb- Douglas production function mainly studies ————–
A. Capital and labour
B. Labour and Entreprenueur
C. Land and Labour

D. Land and capital
ANSWER: A


72. Marginal cost is defined as
A. Change in total cost due change in output
B. Total cost divided by output
C. change in output due to a one unit change in an input
D. Total product divided by the quantity of input
ANSWER: A


73. The cost with which the concept of marginal cost is closely related ————-
A. Variable cost
B. Fixed cost
C. Opportunity cost
D. Economic Cost
ANSWER: A


74. Opportunity Cost is also Known as —————
A. Outlay cost
B. Sunk Cost
C. Alternative Cost
D. Total Cost
ANSWER: C


75. The costs that depend on output in the short run are _____________.
A. total variable costs only.
B. both total variable costs and total costs.
C. total costs only
D. total fixed cost only.
ANSWER: A


76. In the short run, as economists use the phrase, is characterised by ______________________.
A. all inputs being variable
B. a period where the law of diminishing returns does not hold
C. c. at least one fixed factor of production and firms neither leaving nor entering the industry.
D. no variable inputs – that is, all of the factors of production are fixed.
ANSWER: C


77. The formula for average fixed costs is __________________.
A. TFC/Q.
B. Dq/DFC.
C. Q/TFC.
D. TVC/Q.
ANSWER: A


78. The formula for average variable cost (AVC) is __________________.
A. DQ/DTVC.
B. DTVC/DQ
C. TVC/Q
D. Q/TVC
ANSWER: C


79. Implicit costs are ________________.
A. equal to total fixed costs
B. comprised entirely of variable costs
C. payments for self-employed resources.
D. always greater in the short run than in the long run.
ANSWER: C


80. Which would be an implicit cost for a firm? The cost _________________.
A. of worker wages and salaries for the firm
B. b. paid for leasing a building for the firm
C. paid for production supplies for the firm
D. of wages foregone by the owner of the firm
ANSWER: D


81. If a firms revenues just cover all its opportunity costs, then ________________.
A. normal profit is zero
B. economic profit is zero
C. total revenues equal its explicit costs.
D. total revenues equal its implicit costs
ANSWER: A


82. When the total product curve is falling, the ______________________.
A. marginal product of labor is zero
B. marginal product of labor is negative
C. average product of labor is increasing
D. average product of labor must be negative.
ANSWER: B


83. Variable costs are __________________.
A. sunk costs
B. multiplied by fixed costs
C. costs that change with the level of production.
D. defined as the change in total cost resulting from the production of an additional unit of output.
ANSWER: C


84. Opportunity cost of a factor of production with specific use is ____________.
A. very high.
B. infinite
C. zero.
D. constant.
ANSWER: C


85. Money paid to unskilled labour is called —————
A. Wages
B. Salary
C. Royalty
D. None
ANSWER: A
86. Which of the following curve is not U-shaped?

A. AVC
B. AFC
C. AC
D. MC
ANSWER: B


87. Labour is a _________________.
A. gift
B. immovable factor.
C. bargaining factor.
D. passive factor.
ANSWER: C


88. Off all the factors of production given below, which one is perishable in nature ____________.
A. labour.
B. land.
C. capital.
D. entrepreneurship.
ANSWER: A


89. External economies of scale arise when ______________.
A. expansion of output of one firm improves the efficiency of others
B. a large firm acquires monopoly advantage
C. the staff of the firm makes a discovery which patentable.
D. prices are reduced for bulk buying of raw materials
ANSWER: A


90. Internal economies of scale may not arise due to _______________.
A. division of labour.
B. vertical integration.
C. bulk purchases.
D. high cost.
ANSWER: D


91. Opportunity cost is a term which describes ________________.
A. a bargain price for a factor of production
B. costs related to an optimum level of production.
C. variable costs.
D. cost of one product in terms of production of others forgone.
ANSWER: D


92. Total cost is ____________.
A. the overall cost associated with a given level of output.
B. equal to marginal cost times the quantity of output.
C. determined by adding marginal cost and average cost.
D. fixed cost plus marginal cost.
ANSWER: A


93. Marginal cost curve cuts the average cost curve _____________.
A. at the left of its lowest point.
B. at its lowest point.

C. at the right of its lowest point.
D. at its highest point.
ANSWER: B


94. Marginal cost means ______________.
A. subtraction to the total cost.
B. addition to the total cost.
C. multiplication to the total cost.
D. variable cost.
ANSWER: B


95. An LAC curve is not known as _________________.
A. envelope curve.
B. planning curve.
C. operating curve.
D. plant curve.
ANSWER: D
96. The marginal product equals the average product when the latter is _______________.
A.
B.
C. equals to its maximum value
D. equals to its minimum value.
ANSWER: D


97. In case of oligopoly, number of firms is ————-
A. Large
B. Infinite
C. One
D. Few
ANSWER: D


98. What are homogenous products?
A. Undifferentiated products
B. Differentiated products
C. Both (a) and (b)
D. None of the above
ANSWER: A


99. A distinguishing characteristic of monopolistic competition is —————-
A. Large number of firms
B. Low entry barriers
C. Product standardisation
D. Product differentiation
ANSWER: D


100. In perfect competition, the marginal revenue curve ———————-
A. And the demand curve facing the firm are identical
B. Is always above the demand curve facing the firm
C. Is always below the demand curve facing the firm
D. Intersects the demand curve when marginal revenue is minimized.

ANSWER: A


101. If firms can neither enter nor leave an industry, the relevant time period is the ————–
A. Short run
B. Intermediate run
C. Long run
D. Immediate run
ANSWER: A


102. Which of the following is a characteristic of a perfectly competitive market?
A. Firms are price setters.
B. There are few sellers in the market.
C. Firms can exit and enter the market freely.
D. All of the above are correct.
ANSWER: C


103. In the long run, a profit-maximizing firm will choose to exit a market when _________________.
A. fixed costs exceed sunk costs
B. average fixed cost is rising
C. revenue from production is less than total costs
D. marginal cost exceeds marginal revenue at the current level of production
ANSWER: C


104. When firms have an incentive to exit a competitive market, their exit will _____________________.
A. drive down market prices.
B. drive down profits of existing firms in the market.
C. decrease the quantity of goods supplied in the market.
D. All of the above are correct.
ANSWER: D


105. In a perfectly competitive market, the process of entry or exit ends when ____________________.
A. firms are operating with excess capacity.
B. firms are making zero economic profit.
C. firms experience decreasing marginal revenue.
D. price is equal to marginal cost.
ANSWER: C
106. Imperfect competition was introduced by ————-
A. Marshall
B. Chamberlin
C. Keynes
D. None of these
ANSWER: B


107. In case of Monopoly, a firm in long run can have —————-
A. Loss
B. Profit
C. Super normal profit
D. All of above
ANSWER: D


108. In Perfect Competition equilibrium is attained When ———
A. AR = AC
B. TR = TC
C. MR = MC
D. Q = P
ANSWER: C


109. Price leadership may not arise due to _________________.
A. cost advantage.
B. substantial market share.
C. initiative in developing a product.
D. make poor quality of the product.
ANSWER: D


110. Concentration of monopoly is implemented under —————-
A. FERA
B. MRTP
C. FEMA
D. None
ANSWER: B


111. Which method is better in measuring the national income?
A. Expenditure census method
B. Social accounting method
C. Opportunity method
D. Incremental method
ANSWER: A


112. In perfectly inelastic, demand curve will be —————–
A. Horizontal Straight line
B. Vertical line
C. Rectangular hyperbola
D. None
ANSWER: B


113. In relatively inelastic, demand curve will be —————-
A. Horizontal Straight line
B. Vertical line
C. Steeper
D. Flatter
ANSWER: C


114. Deductive method explains things from——————
A. General to particular
B. Particular to General
C. Both
D. None
ANSWER: A


115. The primary objective for discriminating monopolist is ————–
A. Loss minimization

B. Profit maximisation
C. To cover production cost
D. All the above.
ANSWER: B


116. A monopolistic competitive firm sells —————– products
A. Differentated
B. Homogenous
C. All of the above
D. None
ANSWER: A


117. Under perfect competition firms do not engage in price-war because _________________.
A. firms work in co-operation with one another under the same
B. number of firms under the same is very large.
C. the demand for the product of a firm under the same is perfectly elastic
D. all the above-mentioned conditions are responsible.
ANSWER: B


118. The equilibrium of a firm occurs when _______________.
A. P = MC.
B. MC = MR.
C. P = MR.
D. AC = MC.
ANSWER: B


119. In a perfectly competitive market, the firm will be ________________.
A. a price maker.
B. attempting to maximise profits.
C. producing a product which will be different from its competitors.
D. a price taker.
ANSWER: D


120. In an Oligopolistic market, there are ________________.
A. a large number of sellers and few buyers
B. few sellers and few buyers.
C. few sellers and a large number of buyers
D. only one seller.
ANSWER: C


121. Which one is not collusive oligopoly ___________________.
A. price leadership.
B. market-sharing cartel.
C. price discrimination
D. price fixing cartel.
ANSWER: B


122. Equilibrium implies a state of ________________.
A. rest.
B. inactivity.
C. absence of motion.

D. movement.
ANSWER: A


123. Uncertainty refers to ______________.
A. insurable risks.
B. uninsurable risks
C. risks due to fires and accidents
D. no risks.
ANSWER: B


124. Willingness to pay, _______________.
A. is the minimum valuation of each buyer of a good.
B. is the price that each buyer can afford given his current income.
C. is the maximum valuation of each buyer of a good.
D. must be greater than the price of a good.
ANSWER: B


125. A marginal buyer is the one _______________________.
A. who, if the price is increased a little is the first to go out of the market.
B. who, if the price is decreased a little is the first to enter the market
C. who is indifferent about buying and not buying
D. both a and c.
ANSWER: A


126. A market is said to be efficient ___________________.
A. if quantity demanded and the quantity supplied are the same.
B. if both consumer surplus and the producer surplus are maximized.
C. if the sum of the producer surplus and the consumer surplus is maximized
D. both a and c.
ANSWER: D


127. Under perfect competition, rivalry is _____________________.
A. impersonal.
B. very personal and direct, advertising being important.
C. nonexistent since the firms cooperate.
D. control output.
ANSWER: B


128. Monopolies arise as a consequence of ______________.
A. patents .
B. control over the supply of a basic input.
C. franchise .
D. capture the market.
ANSWER: B


129. A monopolist will never produce at a point where ____________________.
A. demand is price-inelastic.
B. demand is price-elastic.
C. marginal cost is positive.
D. marginal cost is increasing.
ANSWER: D


130. Which of the following best defines price discrimination?
A. Charging Different Prices On The Basis Of Race.
B. Charging Different Prices For Goods With Different Costs Of Production
C. Charging Different Prices Based On Cost-Of-Service Differences.
D. Selling A Certain Product Of Given Quality And Cost Per Unit At Different Prices To Different
Buyers.
ANSWER: D


131. Dynamic Theory of profit given by —————-
A. J.B.Clark
B. Hawley
C. Schumpeter
D. J.S.Mill
ANSWER: A


132. A recession is—————–
A. A period during which aggregate output declines
B. A period of decling unemployment
C. A period of very rapidly declining prices
D. A period of declining prices
ANSWER: A


133. ——– phase takes twice in a trade cycle
A. Depression
B. Recession
C. Recovery
D. Prosperity
ANSWER: D


134. Business cycle also known as ________________.
A. trade cycle.
B. contraction.
C. expansion.
D. upper turning point.
ANSWER: A


135. The main aim of monetary policy is _________________________.
A. to regulate cost and credit.
B. to control inflation
C. to control foreign exchange
D. all the above.
ANSWER: D


136. The phases of business cycle are ————–
A. Boom and Recession
B. Depression and Recovery
C. Both
D. None
ANSWER: C


137. In the ———— phase , demand, output, employment and income are at a high level.
A. Depression
B. Recession
C. Boom
D. Recovery
ANSWER: C


138. The taxation and Public expenditure policy is Known as ————
A. Monetary Policy
B. Fiscal Policy
C. Trade Policy
D. Pricing policies.
ANSWER: B


139. When national income of a country is calculated in terms of constant prices, it is called as————
A. Nominal GNP.
B. GNP at current prices.
C. GNP at constant prices.
D. GDP at constant prices
ANSWER: C


140. Inflation means ——————-
A. More money less value
B. Less money high value
C. More money more value
D. Less money less value
ANSWER: A


141. —————— refers to the credit control measures adopted by the central bank of a country.
A. Monetary policy
B. Fiscal policy
C. Direct controls
D. All of the above
ANSWER: A


142. The instruments of monetary policy are ——————–
A. qualitative
B. quantitative
C. Qualitative and Quantitative
D. None
ANSWER: C


143. A————– is a quantitative expression of a plan for a defined period of time.
A. Budget
B. Open market operation
C. Both
D. None
ANSWER: A


144. ————— is a budget where receipts are equal to expenditure.
A. Revenue Budget

B. Receipts Budget
C. Balanced Budget
D. Performance Budget
ANSWER: C


145. ———- is a variable budget.
A. Flexible budget
B. Fixed budget
C. Both
D. None
ANSWER: A


146. In India, the central monetary authority is the ——————
A. Federal Bank
B. State Bank
C. Reserve Bank of India
D. Indian Bank
ANSWER: C


147. ———– Income is the total income received by individuals of a country from all sources before
payment of direct taxes in one year.
A. Domestic Income
B. Private Income
C. Personal Income
D. Real Income
ANSWER: C


148. The average income of the people of a country in a particular year is called ———–
A. Private Income
B. Real Income
C. Diposable Income
D. Per capita Income
ANSWER: D


149. ———- control is used to regulate the commercial banks
A. Qualitative
B. Quantitative
C. Public Debt
D. FiscalMeasures
ANSWER: B


150. Which is not a tool of fiscal policy?
A. Public Debt
B. Public Taxation
C. Bill market
D. Public Expenditure
ANSWER: C


1 The process by which resources are transformed into useful forms is

  1. capitalisation.
  2. consumption.
  3. allocation.
  4. production.

2 The concept of choice would become irrelevant if

  1. capital were eliminated.
  2. scarcity were eliminated.
  3. we were dealing with a very simple, one-person economy.
  4. poverty were eliminated.

3 Which of the following is not a resource as the term is used by economists?

  1. money.
  2. land.
  3. buildings.
  4. labour.

4 Capital, as economists use the term,

  1. is the money the fir m spends to hire resources.
  2. is money the firm raises from selling stock.
  3. refers to the process by which resources are transformed into useful forms.
  4. refers to things that have already been produced that are in turn used to produce other goods and services.

5 Opportunity cost, most broadly define, is

  1. the additional cost of producing an additional unit of output.
  2. what we forgo, or give up, when we make a choice or a decision.
  3. a cost that cannot be avoided, regardless of what is done in the future.
  4. the additional cost of buying an additional unit of a product.

6 A graph showing all the combinations of goods and services that can be produced if all of society’s resources are used efficiently is a

  1. demand curve.
  2. supply curve
  3. production possibility frontier .
  4. circular-flow diagram.

7 Periods of “less than full employment” of resources correspond to

  1. points on the ppf.
  2. points outside the ppf.
  3. either points inside or outside the ppf.
  4. points inside the ppf.

8 What lies is at the heart of the allocation of goods and services in a free-market economy?

  1. Concerns of equity or equal distribution among individuals.
  2. The order or command of the ruling government or dictator.
  3. The wishes of consumers in the market.
  4. The price mechanism.

9 The phrase ‘ceteris paribus’ is best expressed as

  1. ‘all else equal.’
  2. ‘everything affects everything else.’
  3. ‘scarcity is a fact of life.’
  4. ‘there is no such thing as a free lunch.’

10 Laborator y (or controlled) experiments cannot be performed in economics because:

  1. of resource scarcity.
  2. economics is a natural science.
  3. of the difficulty of distinguishing between normative and positive statements.
  4. economics is a social science.

Positive statements are:

  1. value judgments
  2. verifiable or testable
  3. statements in the affirmative
  4. good statements

The former Soviet Union was an example of:

  1. a planned economy
  2. free-market/capitalism
  3. dictatorship
  4. a mixed economy

Rational choice or rational decision-making involves comparing the net benefit of a choice with the total net benefit foregone of all the

alternatives combined

  1. weighing up total costs and total benefits associated with a decision
  2. weighing up m arginal costs and marginal benefits associated with a decision
  3. all of the above.

The PPF can be used to illustrate:

  1. the principle of opportunity costs and increasing opportunity costs
  2. the distinction between micro and macroeconomics
  3. efficient, infeasible and inefficient production combinations
  4. all of the above

The concept of “interdependence of markets” can refer to the interdependence between:

  1. two or more factor markets
  2. goods and factor markets
  3. goods markets
  4. all of the above

The ‘law of demand’ implies that

  1. as prices fall, quantity dem anded increases.
  2. as prices fall, demand increases.
  3. as prices rise, quantity demanded increases.
  4. as prices rise, demand decreases.

Demand curves in P-Q space are derived while holding constant

  1. consumer tastes and the prices of other goods.
  2. incomes, tastes, and the price of the good.
  3. incomes and tastes.
  4. incomes, tastes, and the prices of other goods.

Suppose the demand for good Z goes up when the price of good Y goes down. We can say that goods Z and Y are

  1. perfect substitutes.
  2. unrelated goods.
  3. complements.
  4. substitutes.

If the demand for coffee decreases as income decreases, coffee is

  1. a normal good.
  2. a complementary good.
  3. an inferior good.
  4. a substitute good.

Which of the following will NOT cause a shift in the demand curve for compact discs?

  1. a change in the price of pre-recorded cassette tapes.
  2. a change in wealth.
  3. a change in income.
  4. a change in the price of compact discs.

Which of the following is consistent with the law of supply?

  1. As the price of calculators rises, the supply of calculators increases, ceteris paribus.
  2. As the price of calculators falls, the supply of calculators increases, ceteris paribus.
  3. As the price of calculators rises, the quantity supplied of calculators increases,ceteris paribus .
  4. As the price of calculators rises, the quantity supplied of calculators decreases, ceteris paribus.

The price of computer chips used in the manufacture of personal computers has fallen. This will lead to __________ personal computers.

  1. a decrease in the supply of
  2. a decrease in the quantity supplied of
  3. an increase in the supply of
  4. an increase in the quantity supplied of

When there is excess demand in an unregulated market, there is a tendency for

  1. quantity demanded to increase.
  2. quantity supplied to decrease.
  3. price to fall.
  4. price to rise.

Equilibrium in the market for good A obtains

  1. when there is no surplus or shortage prevailing in the market
  2. where the demand and supply curves for A intersect
  3. when all of what is produced of A is consumed
  4. all of the above

A shift in the demand curve (drawn in the traditional Price-Quantity space) to the left may be caused by

  1. a decrease in supply.
  2. a fall in income.
  3. a fall in the price of a complementar y good.
  4. a fall in the number of substitute goods.

 


A shift in the demand curve (drawn in Income-Quantity space) to the left may be caused by

  1. a fall in the price of a complementar y good.
  2. a fall in income.
  3. a change in tastes such that consumers prefer the good more.
  4. a rise in the number of substitute goods.

 


A movement along the demand curve (drawn in Quantity-Price space) to the left may be caused by

  1. an increase in supply.
  2. a rise in income.
  3. a rise in the price of a complementary good.
  4. a fall in the number of substitute goods

When the market operates without interference, price increases will distribute what is available to those who are willing and able to pay the most. This process is known as

  1. price-fixing.
  2. quantity setting.
  3. quantity adjustment.
  4. price rationing.

ECONOMICS IS THE STUDY OF

DECISIONS THAT ARE NECESSARY BECAUSE OF SCARCE RESOURCES


THE TERM SCARCITY REFERS TO

GOOD & SERVICES CAN NOT BE PRODUCED ENOUGH TO SATIFY THE NEEDS OF PEOPLE


A RECURRING THEME IN ECONOMICS IS

PEOPLE HAVE LIMITED WANTS DUE TO LIMITED RESOURCES


‘THERE IS NO SUCH THINGS AS A FREE LUNCH’ .THE PHRASE MEANS

CONSUMPTION OF ANY GOOD REQUIRES THAT OTHER GOODS BE GIVEN UP.


CAN ECONOMICS THEORIES BE TESTED ?

YES


CETERIS PARIBUS MEANS

“OTHER THING REMAINS THE SAME”


ECONOMICS THEORY ASSUMES THAT PEOPLE ARE MOTIVATED BY

SELF INTEREST


PEOPLE LEARN FROM

MISTAKES


MACRO ECONOMICS DEALS WITH

LARGE SCALE DECISIONS


UNEMPLOYEMENT , INFLATION AND ECONOMICS GROWTH ARE ISSUES DISCUSSED IN

MACRO ECONOMICS


A SCARCE GOOD IS A GOOD THAT IS

AVAILABLE IN LIMITED QUANTITY AND DESIREDIN GREATER QUANTITY


PEOPLE ARE RATIONAL , THE PHRASE IN ECONOMICS MEANS

THEY TRY TO GET THE DESIRED GOOD AS BEST THEY CAN GET


ECONOMICS IS SCIENTIFIC BECAUSE

IT TESTS THEORIES AGAINST OBSERVATIONSAND MODIFIES THOSE THOERIES AS PER NEED


LAND INTENSIVE METHOD MEANS THAT

PRODUCTION IS USED IN COMPARATIVELY MORE THAN LAND


BASIC MOTIVE OF CAPITALISM OF

CAPITALISM


MERKET MECHANISM OS THE FEATURE OF

CAPITALISM


WHO IS THE FATHER OF ECONOMICS?

ADAM SMITH


MARSHAL IS THE FOUNDER OF

NEO-CLASSICAL ECONOMICS


WHO ADVOCATES LAISSEZ FAIRE?

CLASSICAL


ORDINAL MEASUREMENT APPROACH WAS NOT PRESENTED BY

ROBBINS


RESOURCES IN AN ECONOMY ARE

LIMITED


OPPORTUNITY COST IS THE

SACRIFICE IN CHOOSING A PARTICULAR COURSE OF ACTION


REVEALED PREFERENCE THOERY WAS PRESENTED BY

SAMUELSON


THE FUNDAMENTAL ECONOMIC PROBLEM FACED BY ALL SOCIETIES IS

SCARCITY


THE FREE MARKET INVOLVES

MARKET FORCE OF SUPPLY AND DEMAND


THE ECONOMY WHICH HAS MARKET FORCES AND GOVERONMENT INTERVENTION IS CALLED

MIXED ECONOMY


THE PUBLIC SECTOR IS LARGE IN

PLANNED ECONOMY


THE PUBLIC SECTOR INCLUDES

GOVERNMENT OWNERSHIP OF ASSESTS


THE GOVERNMENT SHOULD CONCENTRATE ON

REDUCING UNEMPLOYMENT


ECONOMIC GROWTH CAN BE SHOWN BY

AN OUTWARD SHIFT OF THE PRODUCTION POSSIBILTY FRONTIER POSSIBILTY FRONTIER


THE SHIFT OF RESOURCES FROM ONE INDUSTRY TO ANOTHER CAN BE SHOWN BY

A MOVEMENT ALONG THE PRODUCTION OF POSSIBILITY FRONTIER


THE MARKET FORCES OF SUPPLY AND DEMAND IN A FREE MARKET WILL DETERMINE THE

COMBINATION OF PRODUCTS PRODUCED


AN ECONOMY MAY OPERATE OUTSIDE THE PPF (PRODUCTION POSSIBILITY FRONTIER ) IF

IT IS TRADING WITH OTHER ECONOMIES


DEMAND IS NOT A PART OF _________ IN THE ECONOMY

RESOURCES


THE RESOURCES IN THE ECONOMY ARE _______ AT ANY MOMENT

FIXED


ANY GROUPING OF PRODUCTS INSIDE THE PPF (PRODUCTION POSSIBILITY FRONTIER) IS

PRODUCTIVELY INEFFECIENT


IF THE PRICE OF A SUBSTITUE FALLS

THE DEMAND FOR NORMAL PRODUCT MAY SHIFT OUTWARD


ACCORDING TO LAW OF DIMINISHING UTILITY

THE TOTAL UTILITY IS MAXIMIZED


A DECREASE IN INCOME SHOULD SHIFT DEMAND FOR AN INFERIOR PRODUCT

INWARD


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