ECO401- Economics (Session - 4) (Part-2 of 2)

FINAL TERM EXAMINATION

Spring 2010

ECO401- Economics (Session - 4)

Time: 90 min

Marks: 69

Question No: 24 ( Marks: 1 ) - Please choose one

Double counting in national income refers to:

► Counting a product more than once.

► Counting a product at the final stage of output process.

► Counting both as product and as factor payment.

► Counting both as real goods and as money flow.

Question No: 25 ( Marks: 1 ) - Please choose one

Which of the following best describes the “savings”?

► It is that part of income which is not consumed.

► It is that part of income which is not spent.

► It is that part of income which is paid out to others.

► It is that part of income which is hoarded.

Question No: 26 ( Marks: 1 ) - Please choose one

Which of the following is an example of a leakage?

► Saving.

► Investment.

► Exports.

► Government expenditures.

Question No: 27 ( Marks: 1 ) - Please choose one

The demand curve for chicken is downward-sloping. Suddenly the price of chicken rises from Rs.130 per kg to Rs.140 per kg. This will cause:

► The demand curve for chicken to shift to the left.

► The demand curve for chicken to shift to the right.

► Quantity demanded of chicken to increase.

► Quantity demanded of chicken to decrease.

Question No: 28 ( Marks: 1 ) - Please choose one

Which of the following best defines the aggregate demand?

► The demand for goods and services generated by all sectors in the economy, holding price level constant.

► The relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged.

► The relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged.

► The relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged.

Question No: 29 ( Marks: 1 ) - Please choose one

Refer to the above figure, what are the prevailing price level and the output level in the economy?

► Price level = P₁; real GDP = Y_p.

► Price level = P₁; real GDP = Y_1.

► Price level = P₂; real GDP = Y_2.

► Price level = P₃; real GDP = Y_p.

Question No: 30 ( Marks: 1 ) - Please choose one

Changes in aggregate demand can be caused by changes in:

I. Wages.

II.Raw materials costs.

III. Government spending.

IV. Government regulations that increase the cost of doing business.

► I, II, III, and IV.

► I and III only.

► I, III, and IV.

► III only.

Question No: 31 ( Marks: 1 ) - Please choose one

The long run in macroeconomic analysis is a period:

► In which wages and some other prices are sticky.

► In which full wage and price flexibility and market adjustment have been achieved.

► Greater than 12 months.

► In which the capital stock is held constant.

Question No: 32 ( Marks: 1 ) - Please choose one

The Phillips curve shows that:

► High unemployment rates are associated with low inflation rates.

► High unemployment rates are associated with high inflation rates.

► High unemployment rates are associated with a large increase in the nominal wage.

► High inflation rates are associated with a small increase in the nominal wage.

Question No: 33 ( Marks: 1 ) - Please choose one

Which of the following is TRUE for the equation MV = PQ?

► M is the money supply.

► V is the velocity.

► Q is the real output level.

► All of the given options.

Question No: 34 ( Marks: 1 ) - Please choose one

What will happen if exchange rate increases from $1 = Pak Rs. 80 to $1 = Pak Rs. 85?

► It will reduce exports of Pakistan.

► It will increase exports of Pakistan.

► It will increase imports of Pakistan.

► Its imports and exports will remain unchanged.

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

A change from $1.00 = Rs. 82.00 to $1.00 = Rs. 80.00 represents:

► An appreciation of the dollar.

► An appreciation of the rupee.

► Depreciation of the rupee.

► None of the given options.

Question No: 36 ( Marks: 1 ) - Please choose one

Suppose that a country is in a steady state condition. It implements policies to increase the saving rate of its economy. What will be TRUE at the new steady state level?

► Output per worker will grow more rapidly than before.

► The level of output per worker will be higher than before.

► The amount of capital per worker will be the same as before.

► All of the given options.

Question No: 37 ( Marks: 1 ) - Please choose one

A contractionary fiscal policy shifts:

► The aggregate demand curve o the left.

► The aggregate demand curve to the right.

► The aggregate supply curve to the right.

► The aggregate supply curve to the left.

Question No: 38 ( Marks: 1 ) - Please choose one

Which of the following is included in M2 but not in M1?

► Currency.

► Demand deposits.

► Time deposits.

► Debit cards.

Question No: 39 ( Marks: 1 ) - Please choose one

Which of the following best describes a bank’s reserves?

► The minimum value of assets it must have.

► The amount of gold it is required to have as reserves against loans.

► The value of federal securities it is required to have as reserves against loans.

► Deposits that bank has accepted from customers but have not loaned out.

Question No: 40 ( Marks: 1 ) - Please choose one

Which of the following has positive relationship with demand for money?

► Level of income.

► Price level.

► Rate of interest.

► Discount rate.

Question No: 41 ( Marks: 1 ) - Please choose one

Which of the following will be TRUE if real income rose and the interest rate fell following an increase in government purchases?

► IS curve must be vertical.

► LM curve must be vertical.

► Central Bank must have increased the money supply at the same time.

► Central Bank must have decreased the money supply at the same time.

Question No: 42 ( Marks: 1 ) - Please choose one

Suppose the total costs of first four units of an output produced are 20, 40, 60, and 80 respectively. What is the marginal cost of the second unit of output?

► 10.

► 20.

► 30.

► 40.

Question No: 43 ( Marks: 1 ) - Please choose one

The demand curve for eggs is downward-sloping. Suddenly the price of eggs decreases from Rs.60/- per dozen to Rs.50/- per dozen. This will cause:

► The demand curve for eggs to shift leftward.

► Quantity demanded of eggs to decrease.

► The demand curve for eggs to shift rightward.

► Quantity demanded of eggs to increase.

Question No: 44 ( Marks: 1 ) - Please choose one

The marginal propensity to consume is the ratio of:

► A change in consumption to a change in disposable income.

► A change in consumption to total disposable income at a specific income level.

► Total consumption to total disposable income at a specific income level.

► Total consumption to a change in disposable income.

Question No: 45 ( Marks: 1 ) - Please choose one

Suppose the consumption function is C = $10 + 0.75Y. If Y = 50 $, then the amount of consumption is:

► 37.50

► 85.00

► 47.50

► 10.75

Question No: 46 ( Marks: 1 ) - Please choose one

Government can borrow from domestic banking system or general public by selling:

► Shares of any of its institute.

► Stocks.

► Treasury bills.

► Debentures.

Question No: 47 ( Marks: 1 ) - Please choose one

A process by which money is created is called:

► Credit rationing.

► Credit expansion.

► Credit creation.

► None of the given options.

Question No: 48 ( Marks: 1 ) - Please choose one

Which of the following will happen if suddenly people wish to hold less money at same interest rate?

► The LM curve will shift downward (to the right).

► The money demand curve will shift to the right.

► The IS curve will shift to right.

► None of the given options.

Question No: 49 ( Marks: 3 )

“Devaluation is a sign of economic failure and will do little to help improve the balance of payments or economic performance.” Discuss..

Question No: 50 ( Marks: 3 )

Differentiate between international trade and international finance.

Question No: 51 ( Marks: 5 )

Discuss the components on the assets and liabilities side of the balance sheet of a central bank.

Question No: 52 ( Marks: 5 )

In the above figure, suppose the economy is on the horizontal portion of aggregate supply (AS) curve.

a) If government expenditures increase, what will happen to the aggregate expenditure line E, aggregate demand curve AD and output level Y.

b) Is there any multiplier effect? How it works in this case?

(Marks: 3+2)

Question No: 53 ( Marks: 5 )

If y = Y / L, where, Y = Total GDP, L = Population, y = Per capita GDP then prove that Growth rate of per capita income = Growth rate of total output - Growth rate of population