PPSC Eco Mcqs
PPSC Eco Mcqs
PPSC Eco Mcqs
Punjab Public Service Commission FPSC Lecturer Economics Mcqs Paper for Written Test
Preparation
1. Which of the following concepts represents the extra revenue a firm receives from the
services of an additional unit of a factor of production?
a. total revenue
b. marginal physical product
c. marginal revenues product
d. marginal revenue
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Punjab Public service Commission for Economics Exam
c. non-pecuniary skills
d. all of the above
7. Which skills are most likely to be paid for by the employer?
a. General skills
b. Specific skills
c. Educational skills
8. If worker A earns more in wages than worker B, it could be because:
a. The product made by worker A sells for a higher price than that made by worker B
b. Worker A uses more capital per worker than worker B
c. Worker A has more natural ability than worker B
d. All of the above
9. Skills that embodied in a person are called
a. Human capital
b. Embodied skills
c. Physical capital
d. Experience skills
10. “Treating an individual as typical of a group” is the definition of
a. pure discrimination
b. statistical discrimination
c. human capital
d. specific skills
Answers: C B A C C A B D A B
1. Which of the following is a characteristic of pure monopoly?
a. one seller of the product
b. low barriers to entry
c. close substitute products
d. perfect information
2. In pure monopoly, what is the relation between the price and the marginal revenue?
a. the price is greater than the marginal revenue
b. the price is less than the marginal revenue
c. there is no relation
d. they are equal
3. In order to maximize profits, a monopoly company will produce that quantity at which the:
a. marginal revenue equals average total cost
b. price equals marginal revenue
c. marginal revenue equals marginal cost
d. total revenue equals total cost
4. Quantity Price Total Cost
1 $100 $ 60
2 95 130
3 90 210
4 85 300
5 80 400
This monopolist should produce:
a. 1
b. 2
c. 3
d. 4
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Punjab Public service Commission for Economics Exam
e. 5
5. Compared to the case of perfect competition, a monopolist is more likely to:
a. charge a higher price
b. produce a lower quantity of the product
c. make a greater amount of economic profit
d. all of the above
6. Which of the following is necessary for a natural monopoly?
a. economies of scale
b. a high proportion of the total cost is the cost of capital goods
c. the market is very small
d. all of the above
7. Which of the following is true about the way by which SDG&E has been regulated by the PUC?
a. SDG&E has been allowed to earn very high economic profits
b. The profits of SDG&E are calculated as a percent of the value of the capital goods
c. When the demand for electricity would fall, the price of electricity would also fall
d. All of the above
8. 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
9. In order to practice price discrimination, which of the following is needed?
a. some degree of monopoly power
b. an ability to separate the market
c. an ability to prevent reselling
d. all of the above
10. In price discrimination, which section of the market is charged the higher price?
a. the section with the richest people
b. the section with the oldest people
c. the section with the most inelastic demand
d. the section with the most elastic demand
Answers: A A C C D D B D D C
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Punjab Public service Commission for Economics Exam
7. Capitalism refers to
8. Per capita income formula national income divided by population
9. Canon of equity social justice, porgressive tax, both a and b(correct answer) and none of these
10. Index to measure inflation-CPI
11. Propensity to consume
12. Isoquant is convex to origin
13. Inconsistent to notion of profit competition-
14. Assumption indifference curve-
15. Monopsony -one purchaser/buyer
16. Law of demand
17. Depreciation value-capital good
18. Devaluation –official decrease in money
19. Demand curve-ordinary good
20. Difference between economic profit and account profit
21. Central bank-not function: a) loan business and individual
22. Money function-a) medium of exchange and store value
23. Monetary policy- to supply money
24. In marketing selling and buying: primary function
25. Buyer market in which b) supply exceeds demand
26. Transfer of payment:
27. Normative economics
Mcqs Economics From Past Papers For Subject Specialist & Lecturer Exams
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Punjab Public service Commission for Economics Exam
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Punjab Public service Commission for Economics Exam
1. The largest source of tax revenue for the federal government is:
a. the personal income tax
b. the social security tax
c. the property tax
d. the sales tax
2. When my income was $100,000, I paid $10,000 in taxes. When my income became $200,000, I
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Punjab Public service Commission for Economics Exam
5. Assume that there are two goods, A and B. In 1996, Americans produced 10 units of A at a
price of $10 and 20 units of B at a price of $20. In 2002, Americans produced 20 units of A at a
price of $20 and 30 units of B at a price of $30. The Nominal GDP for 2002 is:
a. $100
b. $400
c. $500
d. $900
e. $1300
6. Using the numbers in question 5, the Real GDP for 2002 is:
a. $400 b. $500 c. $800 d. $900 e. $1,300
9. Last week, Martha spent one day cleaning a house. For this, she was paid $50. The rest of the
week, she spent looking for a job. Martha would be classified as
a. employed
b. unemployed
c. not in the labor force
10. John lost his accounting job when Montgomery Wards closed its stores in San Diego. He
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Punjab Public service Commission for Economics Exam
looked for a similar job for ten months before finding an accounting job at Sears. During the
month John was unemployed, he was
a. frictionally unemployed
b. seasonally unemployed
c. cyclically unemployed
d. structurally unemployed
Answers: A C A C E C B C A D
4. Which of the following is true about the Federal Reserve System (Fed)?
a. it is a system of 12 central banks
b. its Board of Governors is elected by a vote of the people
c. its main policy-making body is the FDIC
d. it accepts deposits from the public and makes loans to businesses
e. all of the above
5. An IOU of the Federal Reserve Bank of San Francisco to Bank of America is called:
a. discounts
b. federal funds
c. reserves
d. collateral
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Punjab Public service Commission for Economics Exam
8. If the monetary base is increased by $1,000 and the reserve requirement is 10% (1/10), by how
much will the money supply be increased?
a. $100
b. $1,000
c. $5,000
d. $10,000
Answers: D C C A C A C D C B
Economics MCQs
Economics MCQs
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Punjab Public service Commission for Economics Exam
7. Which of the following is true about the way by which SDG&E has been regulated by the PUC?
a. SDG&E has been allowed to earn very high economic profits
b. The profits of SDG&E are calculated as a percent of the value of the capital goods
c. When the demand for electricity would fall, the price of electricity would also fall
d. All of the above
10. In price discrimination, which section of the market is charged the higher price?
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Punjab Public service Commission for Economics Exam
Answers: A A C C D D B D D C
1. Which of the following concepts represents the extra revenue a firm receives from the
services of an additional unit of a factor of production?
a. total revenue
b. marginal physical product
c. marginal revenus product
d. marginal revenue2. Workers Quantity Produced
1 15
2 28
3 39
4 48
5 55
6 60
This company is a profit-maximizing firm selling in a competitive product market and hiring in a
competitive labor market. It uses semi-skilled labor to produce dampers used in office building
ventilation systems. Assume that the current market price per damper is $50 and that the
prevailing weekly salary per semi-skilled worker is $550. This company should employ ______
workers.
a. 2
b. 3
c. 4
d. 5
e. 6
4. 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
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Punjab Public service Commission for Economics Exam
Answers: C B A C C A B D A B
1. The largest source of tax revenue for the federal government is:
a. the personal income tax
b. the social security tax
c. the property tax
d. the sales tax2. When my income was $100,000, I paid $10,000 in taxes. When my income
became $200,000, I paid $40,000 in taxes. My marginal tax rate is:
a. 10%
b. 20%
c. 30%
d. 40%
3. The tax is question #2 is:
a. progressive
b. regressive
c. proportional
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Punjab Public service Commission for Economics Exam
5. Assume that there are two goods, A and B. In 1996, Americans produced 10 units of A at a
price of $10 and 20 units of B at a price of $20. In 2002, Americans produced 20 units of A at a
price of $20 and 30 units of B at a price of $30. The Nominal GDP for 2002 is:
a. $100
b. $400
c. $500
d. $900
e. $1300
6. Using the numbers in question 5, the Real GDP for 2002 is:
a. $400 b. $500 c. $800 d. $900 e. $1,300
9. Last week, Martha spent one day cleaning a house. For this, she was paid $50. The rest of the
week, she spent looking for a job. Martha would be classified as
a. employed
b. unemployed
c. not in the labor force10. John lost his accounting job when Montgomery Wards closed its
stores in San Diego. He looked for a similar job for ten months before finding an accounting job
at Sears. During the month John was unemployed, he was
a. frictionally unemployed
b. seasonally unemployed
c. cyclically unemployed
d. structurally unemployed
Answers: A C A C E C B C A D
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Punjab Public service Commission for Economics Exam
2. GNP is always
a. less then NNP
b. Grater then NNP
c. Equal to NNP
d. Any of a, b, c
Answer is = B
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Punjab Public service Commission for Economics Exam
c. Text payments
d. Payments made to all factors of production
Answer is = B
9. GNP is ?
a. Total sales in the economy
b. Total monetary transactions in an economy
c. The market values of all goods and services produced in an economy
d. Total spending in an economy
Answer is = C
12. Market value of all final goods and services produced in a country during a year is defination
of
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Punjab Public service Commission for Economics Exam
a. NI
b NNP
c. GNP
d. Consumption
Answer is = C
15. Which of the following is a withdrawal from the circular flow income strem.
a. Investment
b. Subsidies
c. Taxation
d. consumption
Answer is = C
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Punjab Public service Commission for Economics Exam
19. According to the Economic Survey of Pakistan 2008-09 Pakistan’s per capita income is U.S.
dollars
a. 320
b. 1046
c. 950
d. 1520
Answer is = B
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Punjab Public service Commission for Economics Exam
d. 3700 billion
Answer is = B
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Punjab Public service Commission for Economics Exam
37. If quantity of money increases 100 % other things remaining constant, value of changes by
a. Increases by 100 %
b. Decreases by 100 %
C.Decreases by 200 %
d. Dose not changes
Answer is = B
38. When banks prepare their balance sheets, they show the money lent in
a. Liability
b. Assets
c. Both assets and liabilities
d. None
Answer is = B
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Punjab Public service Commission for Economics Exam
40. A bank has Rs. 5 million in cash. The minimum reserve ratio is 20 %. What is maximum
potential increases in total deposits?
a. 0
b. 5m
c. 10m
d. 25m
Answer is = D
41. When a commercial bank creates credit, its immediate effect is that it raises
A. The exchanges rate
B. The insert rate
C. The money supply
D. The real national income
Answer is = C
45. when the state bank wants to decrease money supply in the country, it
A. buys govt securities in stock market
B. sells govt. securities
C. lowers discount rate
D.B and C of above.
Answer is = B
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Punjab Public service Commission for Economics Exam
47. When a central bank wants to increase money supply in circulation it called?
A. Purchase govt. securities
B. Lowers bank rate
C. Directs banks to advance more loans
D. A and B
Answer is = D
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Punjab Public service Commission for Economics Exam
8. During Perfect compitition, the firm would earn a normal profit when:
a) AC > AR
b) AR = AC
c) P= MP
d) None of these
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Punjab Public service Commission for Economics Exam
11) A positive externality in which a consumer wishes to posses a good in part because others
do:
a) Supply
b) Concavity
c) Money demand
d) None of these
13) The derative of cost function with respect to output price provides:
a) Input supply function
b) Output supply function
c) Both (a) & (b)
d) None of these
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Punjab Public service Commission for Economics Exam
d) None of these
2. Per capita income of Pakistan during the fiscal year 2011-12 was:
a) $ 1258
b) $ 1372
c) $ 1025
d) $ 1050
c) Both (a) & (b)
d) None of these
4. During the last decade income inequality in rural areas of Pakistan has:
a) Increased
b) Decreased
Remained unchanged
d) None of these
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a) Internal sources
b) External sources
c) Pakistani banks
d) All of these
e) None of these
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Punjab Public service Commission for Economics Exam
b) 5%
c) 3%
d) 6%
e) None of these
(iii) If the quantity of X increases whenever the price of X decreases, one can conclude that:
(a) the relationship between the price and the quantity of X is direct
(b) the relationship between the price and the quantity of X is inverse
(c) the relationship between the price and the quantity of X is linear
(d) the relationship between the price and the quantity of X is nonlinear
(iv) A simultaneous decrease in demand and supply will always result in:
(a) a decrease in the equilibrium price
(b) an increase in the equilibrium price
(c) a decrease in the equilibrium quantity
(d) an increase in the equilibrium quantity
(vii) Actual GDP may exceed potential GDP for a short period of time when:
(a) the unemployment rate is high
(b) plants run extra shifts that ordinarily are not scheduled.
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Punjab Public service Commission for Economics Exam
(c) plants are shut down to remove old equipment and install new equipment
(d) any or all of the above occur.
(ix) If inflation is expected to be 5 percent in the coming year and the nominal interest rate is 8
percent, then the real interest rate is:
(a) –3 percent
(b) 3 percent
(c) 8 percent
(d) 13 percent
(xiii) A country that makes large net income payments to investors in another country is likely to:
(a) have a large GDP than GNP
(b) have smaller GDP than GNP
(c) grow slower economically than the other country
(d) grow faster economically than the other country.
(xiv) Which of the following would be the best measure of changes in the standard of living in an
economy, expressed in a time series?
(a) real GDP
(b) output per labor hour of output
(c) real GDP per capita
(d) nominal GDP per capita
(xv) An MPC of less than 1 means that an increase in current disposable income would cause
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Punjab Public service Commission for Economics Exam
(xvi) For money to serve as an efficient medium of exchange, it must have all but which of the
following characteristics?
(a) general acceptability
(b) convertibility into precious metals
(c) high value relative to its weight
(d) divisibility
(xvii) A bond that pays interest forever and never repays the principals is called a:
(a) perpetuity
(b) preferred share
(c) fixed-term bond
(d) treasury bill
(xviii) If given the same amount of inputs, U.S farmers produce 2 tons of rice per acre while
Japanese farmers produce 1 ton of rice per acre, we can be certain that:
(a) the United Sates should export rice to Japan.
(b) the United States has a comparative in rice production.
(c) the United States has an absolute advantage in rice production.
(d) Japanese farmers must be paid twice as much as American farmers.
(xix) The doctrine of comparative advantage says that there are gains from international trade:
(a) only if both comparative and absolute advantage are present in both countries.
(b) if opportunity costs are the same in the countries involved.
(c) only there are economies of scale available.
(d) if countries specialize in the production of goods in which they are relatively more efficient.
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Punjab Public service Commission for Economics Exam
(9) If saving Rate is 12.0%, ICOR Value is 3% and Population Rate is 2.0%, then the Growth Rate
would be:
(a) 2.0%
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Punjab Public service Commission for Economics Exam
(b) 3.6%
(c) 4.0%
(d) 6.0%
(e) None of these
(i) The best and comprehensive definition of economic development was presented by:
(a) Higgins
(b) Maddison
(c) Friedman
(d) None of these
(iii) Pakistan was the leading exporter before the separation of East Pakistan:
(a) Cotton
(b) Tea
(c) Rice
(d) None of these
(vii) Primary deficit (primary balance) is the difference between total revenue and:
(a) Non-interest total expenditure
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Punjab Public service Commission for Economics Exam
(ix) The Ryotwari system was introduced by the British rules in the provinces of:
(a) Sindh, Madras and Mumbai
(b) Sindh, Punjab and Mumbai
(c) Sindh, Madras and NWFP
(d) Both (a) and (b)
(x) Pakistan Agricultural Storage and Service Corporation (PASSCO) was established in:
(a) 1973
(b) 1963
(c) 1953
(d) 1983
(xi) Who developed Physical Quality Life Index (PQLI) in his famous book named by “Measuring
the Condition of the World’s Poor: PQLI in 1987?
(a) Morris D. Morris
(b) Higgins
(c) Keynes
(d) None of these
(xii) The Human Development Index (HDI) ranks all countries on the scale of:
(a) 0 to 1
(b) 1 to 100
(c) -1 to +1
(d) None of these
(xv) The loan which is given at a nominal rate of interest ranging from 1% to 3% is called:
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Punjab Public service Commission for Economics Exam
(xvi) The accumulation of a stock of debt so large as to threaten the country’s ability to repay its
past loan:
(a) Debt equity swap
(b) Debt trap
(c) Debt overhang
(d) None of these
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Punjab Public service Commission for Economics Exam
(iii) In case of two goods, following utility approach, a consumer is in equilibrium when:
(a) MUx/Px = MUy/Py
(b) MUx/Px < MUy/Py
(c) MUx/Mx > MUy/Py
(d) Both (b) and (c)
(vi) Normal profit, excess profit and loss of the firm depends on level of:
(a) Average costs in short run
(b) Total costs in short run
(c) Marginal costs in short run
(d) All of these
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Punjab Public service Commission for Economics Exam
(xiv) Money can be a standard of deferred payments only if the value of money itself:
(a) Remains stable
(b) increases
(c) Decreases
(d) None of these
(xvii) According to Keynes, the relationship between money supply and rate of interest is:
(a) Negative
(b) Positive
(c) Indirect
(d) None of these
(xviii) An object that is generally accepted in exchange for goods and services is called:
(a) Standardized money
(b) Medium of exchange
(c) Unit of account
(d) All of these
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Punjab Public service Commission for Economics Exam
(xix) The account in balance of payment that consists of all transactions in financial assets is
known as:
(a) Capital account
(b) Current account
(c) Official Reserve account
(d) None of these
(xx) The difference between exports and imports of visible items of a country is called:
(a) Budget surplus
(b) Balanced budget
(c) Balance of trade
(d) Both (a) and (c)
(ii) Due to land reforms of 1972 the number of farmers benefited were around:
(a) 50,300
(b) 71,500
(c) 81,201
(d) 40,301
(iii) The best measure of economic development, among the following is:
(a) Life expectancy
(b) Industrial development
(c) Agricultural and industrial development
(d) Development of services sector
(iv) As per 1990 census, the number of tenants in Pakistan were around:
(a) 16%
(b) 20%
(c) 25%
(d) 13%
(e) None of these
(v) Area irrigated by different sources in Pakistan is around ___________ Million hectares:
(a) 17
(b) 20
(c) 15
(d) 18
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Punjab Public service Commission for Economics Exam
(b) 1970’s
(c) 1980’s
(d) 1990’s
(e) 2000’s
(x) Out of total reveue of Pakistan, the following percentage is spent on defence and debt
services:
(a) 50%
(b) 30%
(c) 90%
(d) 80%
(e) 70%
(xi) Under WTO, Pakistan has bounded tariff for agriculture around:
(a) 100%
(b) 50%
(c) 150%
(d) None of these
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Punjab Public service Commission for Economics Exam
(c) 15%
(d) 10%
(xvii) In the last ten years, foreign debt servicing of Pakistan has:
(a) Increased
(b) Decreased
(c) Remained the same
(xviii) With the introduction of reforms in the foreign sector Pakistan’s competitiveness has:
(a) Improved
(b) Deteriorated
(c) Improved and deteriorated
(d) Deteriorated and improved
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Punjab Public service Commission for Economics Exam
(ii) Which of the following is true in long run equilibrium for a firm in monopolistic competition?
(a) MC = ATC
(b) MC > ATC
(c) MC ≤ ATC
(d) None of thes
(vi) The relation between labour units employed and wage rate is shown by:
(a) Value of marginal product of labour [VMP1]
(b) Value of average product of labour [VAP1]
(c) Negatively sloped marginal productivity curve
(d) Both (b) and (c)
(vii) A market with few entry barriers and with many firms that sell differentiated products is:
(a) Purely competitive
(b) Monopoly
(c) Monopolistically competitive
(d) Oligopolistic Competition
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Punjab Public service Commission for Economics Exam
(xi) When Slope of the Aggregate Expenditure Curve increases; (Keynesian Cross model)
(a) National Income will increase
(b) National Income will decrease
(c) There will be recessionary gap
(d) There will be inflationary gap
(e) None of these
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Punjab Public service Commission for Economics Exam
1 A study of how increases in the minimum wage rate will affect the national unemployment rate
is an example of
A. descriptive economics.
B. normative economics.
C. macroeconomics.
D. microeconomics.
4 Deflation is
A. an increase in the overall level of economic activity.
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Punjab Public service Commission for Economics Exam
5 A recession is
A. a period of declining prices.
B. a period during which aggregate output declines.
C. a period of declining unemployment.
D. a period of falling trade volumes.
7 A cut in the income tax rate designed to encourage household consumption is an example of
A. expansionary demand-side policy.
B. contractionary demand-side policy.
C. expansionary supply-side policy.
D. contractionary supply-side policy.
8 A cut in the tax rate designed to reduce the cost of capital and hence encourage business
investment is an example of
A. expansionary demand-side policy.
B. contractionary demand-side policy.
C. expansionary supply-side policy.
D. contractionary supply-side policy.
10 A group of modern economists who believe that price and wage rigidities do not provide the
only rationale for macroeconomic policy activism are called:
A. New-Keynesians.
B. Keynesians.
C. Monetarists.
D. The Classical school.
11 Macroeconomic theory that emphasised the theories of Keynes and de-emphasised the
Classical theory developed as the result of the failure of
A. economic theory to explain the simultaneous increases in inflation and unemployment during
the 1970s.
B. fine tuning during the 1960s.
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12 Keynes believed falling wages were not a solution to persistent unemployment because
A. falling wages demoralised workers.
B. 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.
C. the unemployment was caused by frictional and structural factors.
D. wages would fall more than required to clear the labour market.
13 The practice of using fiscal and monetary policy to stabilise the economy is known as
A. fine tuning of demand
B. monetarism
C. laissez faire economics
D. supply side economics
17 To get the economy out of a slump, Keynes believed that the government should
A. increase both taxes and government spending.
B. increase taxes and/or decrease government spending.
C. cut both taxes and government spending.
D. decrease taxes and/or increase government spending.
18 Aggregate demand refers to the total demand for all domestically produced goods and
services in an economy generated from
A. the household and government sectors.
B. the household sector.
C. all sectors except the rest of the world.
D. all sectors including the rest of the world.
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19 Government policies that focus on increasing production rather than demand are called:
A. fiscal policies.
B. monetary policies.
C. incomes policies.
D. supply-side policies.
20 Prices that do not always adjust rapidly to maintain equality between quantity supplied and
quantity demanded are
A. market prices.
B. sticky prices.
C. fixed prices.
D. regulatory prices.
23 Monetarism became popular because it was able to, unlike Classical or Keynesian economics,
explain
A. stagflation in the late 1970s.
B. demand-pull inflation in the 1960s.
C. low growth rates in the 1950s.
D. the prolonged existence of high unemployment during the Great Depression.
24 Keynes’ explanation for low firm investment during the Great Depression was
A. low savings, which placed a constraint on investment
B. high real borrowing rates, which discouraged firm borrowing
C. high savings, which left consumers with less money to spend on goods and serviced produced
by firms
D. A permanent change in Europe’s corporate ownership structures.
25 Rapid increases in the price level during periods of recession or high unemployment are
known as
A. slump.
B. stagnation.
C. stagflation.
D. inflation.
26 The hypothesis that people know the ‘true model’ of the economy and that they use this
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model and all available information to form their expectations of the future is the
A. rational-expectations hypothesis.
B. active-expectations hypothesis.
C. static-expectations hypothesis.
D. adaptive-expectations hypothesis.
28 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
A. New-Keynesians.
B. Keynesians.
C. Monetarists.
D. The Classical school.
30 The aggregate supply (AS) curve and aggregate demand (AD) curve in a realistic Keynesian
world are:
A. AS: fully horizontal; AD: downward sloping
B. AS: horizontal only till the full capacity level; AD: downward sloping
C. AS: vertical; AD: upward sloping
D. AS: horizontal; AD: vertical
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A. -10%
B. 12.5%
C. 20%
D. 0%
2. By how much has per capita nominal GNP changed from 2001 to 2002?
A. -10%
B. 12.5%
C. 20%
D. 0%
9. When consumption is 650, income is 750; when consumption is 620, income is 700. Assuming
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there is no government, I=100, net exports are 10, what is the level of equilibrium income?
A. 500
B. 625
C. 775
D. 850
11. In the equation C = a + bY, which describes the aggregate consumption function, ‘a’ stands
for
A. the amount of consumption when income is zero.
B. the marginal propensity to consume.
C. the amount of consumption when income is Maximum.
D. the average consumption level.
13 Disposable income is the part of households’ income left after the deduction of
A. pension contributions.
B. income tax and social security payments.
C. income tax.
D. savings.
A. increase.
B. either increase or decrease depending on the size of the change in investment.
C. remain constant.
D. decrease.
16. The ratio of the change in the equilibrium level of output to a change in some autonomous
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17. Assuming there are no taxes (and no foreign sector), if the MPC is .8, the multiplier is
A. 2.5.
B. 8.
C. 5.
D. 2.
18. Assuming the net income tax rate is 25% (and there is no foreign sector), if the MPC is 0.8,
the multiplier is
A. 2.5.
B. 8.
C. 5.
D. 2.
19. Assuming there is no foreign sector, if the multiplier is 3, and the net income tax rate is 20%,
the MPC is
A. 3/4
B. 4/5
C. 5/6
D. 6/7
20. 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
A. Rs. 80 billion.
B. Rs. 20 billion.
C. Rs. 26.67 billion.
D. Rs. 15 billion.
21. According to the ‘paradox of thrift,’ increased efforts to save will cause
A. an increase in income and an increase in overall saving.
B. a decrease in income and an overall decrease in saving.
C. a decrease in income but an increase in saving.
D. an increase in income but no overall change in saving.
22. If injections are less than withdrawals at the full-employment level of national income, there
is
A. an inflationary gap.
B. equilibrium.
C. a deflationary gap.
D. hyperinflation.
23. The accelerator theory of investment says that induced investment is determined by
A. the rate of change of national income.
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B. expectations.
C. the level of national income.
D. the level of aggregate demand.
24. The diagram that shows the money received and paid out by each sector of the economy is
the
A. income-price diagram.
B. income-expenditures diagram.
C. circular flow diagram.
D. aggregate demand-aggregate supply diagram.
UNEMPLOYMENT
1. If both the no. of unemployed people and the size of the labour force increase by 10,000, then
A. the unemployment rate will remain the same.
B. the unemployment rate will increase.
C. the unemployment rate will decrease.
D. we cannot tell.
2. Which of the following could be a reason for the problem of “lack of jobs” being
overestimated:
4. “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.”
5. Which of the following would constitute sound government policy if you subscribed to the
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6. The persistence of a phenomenon, such as unemployment, even when its causes have been
removed is called
A. The paradox of thrift.
B. hysteresis.
C. structural unemployment.
D. ceteris paribus.
9. 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
A. slowly.
B. instantly.
C. very infrequently.
D. very quickly.
INFLATION
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12. If you were the owner of a cycle manufacturing firm, would you be particularly worried if
wage inflation were higher than price inflation?
A. No. Because you would still be able to sell your goods at the higher price.
B. Yes. Because the cost of your input is growing faster than the revenue obtained from your
output
C. Yes. Because both price and wage inflation are bad.
D. No. Because any loss to the firm will be offset by the gain to the workers.
A. 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).
B. Uncertainty: firms defer investment when inflation is high and volatile as the latter
complicates predicting future cashflows.
C. 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.
D. Money printing costs: inflation requires more currency notes to be printed and this raises the
government’s printing costs.
14. In the long run, the Phillips curve will be vertical at the natural rate of unemployment if
A. the long-run supply curve is horizontal at the natural rate of inflation.
B. the long-run aggregate demand curve is vertical at potential GDP.
C. the long-run aggregate demand curve is horizontal at the natural rate of inflation.
D. the long-run aggregate supply curve is vertical at potential GDP.
16. If the prices of all inputs seem to be rising, can you be absolutely sure that it is cost-push
inflation?
A. No, because cost-push inflation is caused by an increase in the cost of only one input.
B. Yes, because that is exactly the definition of cost-push inflation.
C. No, because such a situation can also be caused by particular demand pressures in the
economy.
D. Yes, because this is exactly what happens in stagflation.
17. The quantity theory of money implies that, provided velocity of money is constant, a given
percentage change in the money supply will cause
A. an equal percentage change in nominal GDP.
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18. If input prices adjusted very slowly to output prices, the Phillips curve would be
A. downward sloping.
B. vertical or nearly vertical.
C. upward sloping.
D. horizontal or nearly horizontal.
BALANCE OF PAYMENTS
20. 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 ____________.
A. current account; trade balance.
B. capital account; balance of payments.
C. balance of trade; capital account.
D. balance of payments; balance of trade.
21. Assuming there is no government intervention in the foreign exchange market, which of the
following statements must clearly be FALSE, given that?
A. If the capital account is in surplus, then the current account is likely to be in deficit.
B. If the current account is in deficit, then the capital account is likely to be in surplus.
C. If the current account is in balance, the capital account is also likely to be in balance.
D. None of the above.
23. All currencies other than the domestic currency of a given country are referred to as
A. reserve currencies.
B. near monies.
C. foreign exchange.
D. hard currency.
24. Exchange rates that are determined by the unregulated forces of supply and demand are
A. floating exchange rates.
B. pegged exchange rates.
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25. If the State Bank of Pakistan reduces the money supply, a floating exchange rate will help in
reducing inflation because
A. as the money supply is decreased, the interest rate will increase, and the price of both
Pakistani exports and Pakistani imports will rise.
B. 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.
C. 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.
D. as the money supply is decreased, the interest rate will increase, and the price of Pakistani
exports and Pakistani imports will fall.
27. If purchasing power parity prevails absolutely in a two country world, the real exchange rate
between the two countries should be:
A. 1.
B. constantly changing.
C. relatively stable, but not constant
D. none of the above
28. The interest parity equation implies that there is a general tendency for:
A. exchange rates to be insensitive to the differential rates of interest between countries.
B. the currencies of relatively low-interest countries to appreciate.
C. the currencies of relatively high-interest countries to appreciate.
D. 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.
29. Which of the following is (are) correct statement(s) about the current account deficit?
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C. the trade balance usually gets worse before it improves after a currency appreciation.
D. the trade balance usually gets worse before it improves after a currency depreciation.
31. If Japan exports more direct investment capital abroad than expected, then the yen will tend
to
A. appreciate.
B. fluctuate more than if exports were lower.
C. depreciate.
D. not be affected.
32. 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:
A. Rise by more than 10%.
B. Rise by exactly 10%.
C. Fall by less than 10%.
D. Remain constant.
Hint: Use your common sense. Think of “yourself” as a currency trader and then answer the
question, based on your future expectation and the incentive it creates.
GROWTH
33. According to traditional thinking on the subject, which of the following would not generate
economic growth in an economy?
35. A variable whose value is determined by the model of which it is a part is termed
___________.
A. endogenous
B. exogenous
C. independent
D. constant
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A. poor countries should catch-up (or converge to) with richer countries
B. higher savings (or rates of capital accumulation) cannot raise a country’s steady state growth
rate
C. the steady state growth rate of real output depends on the sum of the (exogenous) growth
rates in population and technical progress.
D. All of the above.
39. 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 ______.
A. rising; falling; rising; deficit
B. static; low; rising; deficit
C. falling; falling; falling; surplus
D. falling; rising; falling; surplus
40. 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 ______.
A. rising; falling; rising; deficit
B. static; low; rising; deficit
C. falling; falling; falling; surplus
D. falling; rising; falling; surplus
41. 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 ______.
A. rising; falling; rising; deficit
B. static; low; rising; deficit
C. falling; falling; falling; surplus
D. falling; rising; falling; surplus
42. Which of the following is not true regarding the effects of growth on the balance of
payments and vice versa?
A. Generally, growth raises incomes which will translate into higher consumption and higher
imports, causing the current account of the BOPs to deteriorate.
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B. If growth is “export-led”, it will boost the current account surplus of the BOPs.
C. If the current account deficit reflects an underlying private sector resource deficit, it is likely to
be bad for future growth.
D. If the current account reflects rising imports of military equipment by the government, it
might not be beneficial for economic growth.
43. A country has high inflation and is running a current account deficit. What should it do in the
context of the Salter-Swan diagram?
Q.1. Select the best option/answer and fill in the appropriate box on the Answer Sheet.
(ii) Which of the following is true in long run equilibrium for a firm in monopolistic competition?
(a) MC = ATC
(b) MC > ATC
(c) MC ≤ ATC
(d) None of thes
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(vi) The relation between labour units employed and wage rate is shown by:
(a) Value of marginal product of labour [VMP1]
(b) Value of average product of labour [VAP1]
(c) Negatively sloped marginal productivity curve
(d) Both (b) and (c)
(vii) A market with few entry barriers and with many firms that sell differentiated products is:
(a) Purely competitive
(b) Monopoly
(c) Monopolistically competitive
(d) Oligopolistic Competition
(xi) When Slope of the Aggregate Expenditure Curve increases; (Keynesian Cross model)
(a) National Income will increase
(b) National Income will decrease
(c) There will be recessionary gap
(d) There will be inflationary gap
(e) None of these
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this illustrates:
(a) The situation of unemployment trap.
(b) The poverty trap
(c) Fiscal boost
(d) Fiscal drag
(19) A balance of payment surplus may cause:
(a) Employment and the money supply to rise.
(b) The money supplies to fall
(c) Employment to rise and the money supply to fall
(d) Employment and the money supply to fall.
(20) Green revolution refers to:
(a) Introduction of modern technology
(b) Reform in land tenure system
(c) Introduction of agro-based industry
(d) Boosting exports of agricultural products
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