ECO401 Final Term Past Papers

ECO401: Final term mcqs

1. When government sets the price of a good and that price is above the equilibrium price, the result will be:

Answer: A surplus of the good

2. A firm spends Rs.1000 for making a product and sells its product for Rs.1500, then the value added is equal to:

Answer: selling price-cost price (500)

3. To calculate Nominal GDP, use the formula:

Answer: Real GDP * GDP deflator

4. The consumption function represents the relationship between consumer spending (consumption) and disposable income. It shows how much households spend on goods and services at different levels of income.

Q5. Gross Domestic Product (GDP) is a comprehensive measure of a country's economic activity. It can be understood in several ways, all of which are equivalent in theory:

1. ​ Total income of everyone in the economy.
2. ​ Expenditures on all final goods and services.
3. ​ Total value-added by all firms in the economy.
4. Suppose the overall production of goods and services increases in a country because of technological improvement. This will shift:

Answer: Aggregate supply curve to the right

7. Aggregate demand (AD) is the total planned or desired spending (expenditure) in the economy during a given period.
8. Aggregate supply (AS) is the total value of goods and services that all the firms in the economy would and can willingly produce in a given time period.
9. The optimal role for the government under classical economics was one of laissez-faire.
10. Invisible hand was a concept introduced by Adam Smith in 1776 to describe the paradox of laissez-faire market economy.
11. The invisible hand doctrine holds that, with each participant pursuing his or her own private interest, a market system nevertheless works to the benefits of all as though a benevolent invisible hand were directing the whole process.
12. The Classical economists assumed that if the economy was left to itself, then it would tend to full employment equilibrium. This would happen if the labour market worked properly.
13. After 1930, the classical model failed. Solution of classical economist was not found reasonable to solve the world crises prevailed at that time.
14. The Great Depression was the longest and severest recession the world has ever seen.
15. Keynesian economics promotes a mixed economy, in which both the state and the private sector are considered to play an important role.
16. Keynes’ view on the causes of the Great Depression and what needed to be done was very different. He believed that there were overarching problems of low demand and static pessimistic expectations that needed to be addressed rather than disequilibria in the loanable funds, labour and goods markets.
17. Marginal utility refers to the additional satisfaction or benefit gained from consuming one more unit of a good or service.
18. An indifference curve shows all the different combinations of two goods or services that give the consumer the same level of satisfaction or utility.
19. The marginal rate of substitution (MRS) refers to the rate at which a consumer is willing to give up one good in exchange for another while maintaining the same level of utility.
20. Government collects zero revenue if the tax rate is 0% and if the tax rate is 100%.” This statement is best described by:

Answer: Left curve

Q21. What happens to the interest rate if the central bank decreases money supply in the economy?

Answer: The interest rate will be increase

22. The concave shape of the production possibilities curve for two goods X and Y illustrates:

Answer: Increasing opportunity cost for both goods

23. When college students leave town for the summer, the demand for meals at the local restaurants decline. This results in:

Answer: A decrease in equilibrium price and quantity of meal.

24. A demand curve is price elastic when:

Answer: Changes in demand are proportionately greater than changes in price

25. The numerical measurement of a consumer’s preference is called:

Answer: Utility

26. Marginal profit is equal to marginal revenue minus marginal cost.
27. The supply curve for a competitive firm is the portion of its marginal cost (MC) curve that lies above the average variable cost (AVC).
28. A market with few entry barriers and many firms that sell differentiated products is called monopolistic competition.
29. The market structure in which strategic considerations are most important is oligopoly.
30. In an oligopoly, there are only a few firms that dominate the market, and each firm's decisions, such as pricing, output, and product development, can significantly affect the decisions of other firms.
31. Consumption spending, investment expenditures, government expenditures, and net exports are the components of aggregate demand (AD) in an economy.
32. Classical economics was replaced as the dominant theory of macroeconomic analysis by Keynesian economics.
33. Keynesian economics, developed by John Maynard Keynes during the Great Depression of the 1930s, emphasized the role of government intervention in stabilizing the economy.
34. A source of fluctuations in investment spending is business expectations about future economic conditions.
35. In the Keynesian cross model, the aggregate expenditure line has a slope of:

Answer: Less than 1

36. Demand is elastic when the elasticity of demand is greater than 1.
37. Suppose a monopolist set his output at the level where marginal revenue, marginal cost and average total cost are equal. In this case, economic profit will be positive.