ECO401 Solved Papers

FINALTERM EXAMINATION · Spring 2009 · ECO401 – Economics · Time: 120 min

Q1. To (1 marks)

calculate · the · price · elasticity · of

demand,

you · need · to

know ____________________ point(s) on the ____________________ demand curve.

1. One, same.
2. Two, same.
3. One, opposite.
4. Two, opposite.

Correct answer: Two, same.

Ref:To calculate price elasticity of demand need two points on the same demand curve.

Q2. Governments protect domestic industries from foreign competition by (1 marks)

1. Encouraging agreements like NAFTA.
2. Using tariff and non tariff barriers.
3. Discouraging union membership.
4. Keeping the minimum wage low.

Correct answer: Using tariff and non tariff barriers.

Lesson 44

Q3. To make the equation of exchange in the quantity theory of money: (1 marks)

1. V and Q are assumed to be constant.
2. The money supply is assumed to be produced by the banking system and not exclusively in currency.
3. The quantity of money is assumed to determine the amount of Real GDP.
4. M and P are considered constant.

Correct answer: V and Q are assumed to be constant.

Lesson 35

Q4. In the equation MV = PQ, according to the crude quantity theory of money: (1 marks)

1. M has no effect on the price level.
2. V is the number of times each dollar is spent per year.
3. Q is the real price level.
4. P rises as V falls, other things constant.

Correct answer: V is the number of times each dollar is spent per year.

Lesson 35 V is the velocity of money (the no. of times money is circulated in the economy in a year).

Q5. What would result from a depreciation of the pound on the foreign exchange market? (1 marks)

1. An increase in the price of imported computers.
2. A fall in the purchasing power of US tourists in London.
3. A fall in the price of imported computers.
4. An increase in the purchasing power of UK tourists overseas.

Correct answer: An increase in the price of imported computers.

Q6. Disposable income is: (1 marks)

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

Correct answer: Total income minus net taxes.

Disposable income is obtained by subtracting income tax from total income.

Q7. How should monetary policy be used during recessions? (1 marks)

1. Decrease money supply to increase interest rate and increase aggregate demand.
2. Increase money supply to increase interest rate and increase aggregate demand.
3. Decrease money supply to decrease interest rate and increase aggregate demand.
4. Increase money supply to decrease interest rate and increase aggregate demand.

Correct answer: Increase money supply to decrease interest rate and increase aggregate demand.

Q8. Which of the following policy options would simultaneously increase interest rates and decrease output? (1 marks)

1. The central bank sells bonds through open market operations.
2. The federal government increases its defense purchases.
3. The central bank expands the money supply.
4. The federal government increases the tax rate.

Correct answer: The central bank sells bonds through open market operations.

Q9. An increase in the money supply will cause interest rates to: (1 marks)

1. Rise.
2. Fall.
3. Remain unchanged.
4. None of the given options.

Correct answer: Fall.

Q10. Commercial banks in Pakistan are supervised by: (1 marks)

1. State bank.
2. National bank.
3. Finance minister.
4. World bank.

Correct answer: State bank.

Q11. Fiscal policy is the government program with respect to its: (1 marks)

1. Expenditure and tax revenue.
2. Increase in unemployment.
3. Steel Mill Privatization.
4. Unemployment reduction.

Correct answer: Expenditure and tax revenue.

In economics, fiscal policy is the use of government expenditure and revenue collection to influence the economy.

Q12. An expansionary fiscal policy can: (1 marks)

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

Correct answer: Raise the national debt.

EXPANSIONARY FISCAL POLICY: A form of fiscal policy in which an increase in government purchases, a decrease in taxes, and/or an increase in transfer payments are used to correct the problems of a business-cycle contraction. The total stock of government bonds and interest payments outstanding, from both the present and the past, is known as the national debt.

Q13. If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the exogenous model predicts that output will grow and the new steady state will approach: (1 marks)

1. A higher output level than before.
2. The same output level as before.
3. A lower output level than before.
4. The Golden Rule output level.

Correct answer: A lower output level than before.

Lesson 39 The Exogenous growth model, also known as the Neo-classical growth model or Solow growth model states that as a fixed stock of labor, the impact on output of the last unit of capital accumulated will always be less than the one before.

Q14. If the prices of all goods and services rise during the year: (1 marks)

1. Real GDP may fall.
2. Nominal GDP must fall.
3. Nominal GDP may increase.
4. Real GDP must rise.

Correct answer: Nominal GDP may increase.