Last Final by Saqib

BY: saqib taimoor saqibtaimoor@yahoo.
com
FINALTERM EXAMINATION (1
Fa!! "##$
E%O&#1' Eco(omics ()*ssio( ' &
Tim*: 1"# mi(
Mar+s: ,-

./*stio( No: 1 ( Mar+s: 1 ' 0!*as* choos* o(*

I1 th* q/a(tity 2*ma(2*2 o1 a 3ro2/ct is 4r*at*r tha( th* q/a(tity s/33!i*2 o1 a 3ro2/ct5 th*(:
Th*r* is a shorta4* o1 th* 3ro2/ct .
There is a surplus of the product.
The product is a normal good.
The product is an inferior good.

./*stio( No: " ( Mar+s: 1 ' 0!*as* choos* o(*

Th* cross 3ric* *!asticity o1 2*ma(2 1or com3!*m*(tary 4oo2s is:
Less than 0.
Equal to 0.
Greater than 0.
B*t6**( # a(2 1.


Ass/m* !*is/r* is a (orma! 4oo2. I1 i(com* *11*ct *q/a!s s/bstit/tio( *11*ct th*( a 6a4* rat*
i(cr*as* 6i!! !*a2 a 3*rso( to:
Increase hours of work.
8*cr*as* ho/rs o1 6or+.
Not change hours of work.
None of the given options.

./*stio( No: & ( Mar+s: 1 ' 0!*as* choos* o(*

999999999999999 aris*s 6h*( a( i(cr*as* i( a!! i(3/ts !*a2s to a mor*'tha('3ro3ortio(a!
i(cr*as* i( th* !*:*! o1 o/t3/t. 9999999999999 m*a(s that as i(3/ts ar* a22*2 to th*
3ro2/ctio( 3roc*ss5 o/t3/t i(cr*as*s 3ro3ortio(a!!y.
Eco(omi*s o1 sca!*; co(sta(t r*t/r(s to sca!* .
Constant returns to scale decreasing returns to scale.
!ecreasing returns to scale economies of scale.
Economies of scale decreasing returns to scale.

./*stio( No: < ( Mar+s: 1 ' 0!*as* choos* o(*

A( isoq/a(t c/r:* sho6s:
A!! th* a!t*r(ati:* combi(atio(s o1 t6o i(3/ts that yi*!2 th* sam* ma=im/m tota!
3ro2/ct.
"ll the alternative com#inations of two products that can #e produced #$ using a given set of
inputs full$ and in the #est possi#le wa$.
"ll the alternative com#inations of two products among which a producer is indifferent #ecause
the$ $ield the same profit.

./*stio( No: > ( Mar+s: 1 ' 0!*as* choos* o(*

Tota! costs ar* th* s/m o1:
%arginal costs and varia#le costs.
Fi=*2 costs a(2 :ariab!* costs.
&i'ed costs and marginal costs.
"verage varia#le costs and marginal costs.

./*stio( No: - ( Mar+s: 1 ' 0!*as* choos* o(*

A 1irm is char4i(4 a 2i11*r*(t 3ric* 1or *ach /(it 3/rchas*2 by a co(s/m*r. This is ca!!*2:
&irst(degree price discrimination.
)*co(2'2*4r** 3ric* 2iscrimi(atio( .
Third(degree price discrimination.

./*stio( No: , ( Mar+s: 1 ' 0!*as* choos* o(*

?hich o1 th* 1o!!o6i(4 b*st *=3r*ss*s th* !a6 o1 2*ma(2@
" higher price reduces demand.
BY: saqib taimoor saqibtaimoor@yahoo.com
" lower price reduces demand.
A hi4h*r 3ric* r*2/c*s q/a(tity 2*ma(2*2.
" lower price shifts the demand curve to the right.

./*stio( No: $ ( Mar+s: 1 ' 0!*as* choos* o(*

I1 a sa!*s ta= o( b**r !*a2s to r*2/c*2 ta= r*:*(/*5 this m*a(s:
Elasticit$ of demand is ) *.
E!asticity o1 2*ma(2 is A 1.
!emand is upward(sloping.
!emand is perfectl$ inelastic.

./*stio( No: 1# ( Mar+s: 1 ' 0!*as* choos* o(*

For a 1irm b/yi(4 !abor com3*titi:*!y5 th* mar4i(a! i(3/t cost is *q/a! to th*:
?a4*.
Interest rate.
+rice of output.
Cost of raw materials.


Th* c!assica! *co(omists tho/4ht that th* *co(omy 6o/!2 q/ic+!y o:*rcom* a(y short r/(
i(stabi!ity b*ca/s*:
+rice level and quantit$ are fle'i#le.
+rices would get stuck at a low level.
The long run aggregate suppl$ would shift to the left.
0ric*s a(2 6a4*s ar* 1!*=ib!*.

./*stio( No: 1" ( Mar+s: 1 ' 0!*as* choos* o(*

Fi(a! 4oo2s ar* m*a(t 1or:
8ir*ct /s* by th* co(s/m*rs.
&urther processing.
The term do not e'ist.


Th* a:*ra4* 3ro3*(sity to co(s/m* is th* ratio o1:
A cha(4* i( co(s/m3tio( to a cha(4* i( 2is3osab!* i(com*.
" change in consumption to total disposa#le income at a specific income level.
Total consumption to total disposa#le income at a specific income level.
Total consumption to a change in disposa#le income.

./*stio( No: 1& ( Mar+s: 1 ' 0!*as* choos* o(*

Th* s!o3* o1 th* sa:i(4 1/(ctio( (or !i(* is th*:
"verage propensit$ to save.
"verage propensit$ to consume.
Mar4i(a! 3ro3*(sity to sa:*.
%arginal propensit$ to consume.

./*stio( No: 1< ( Mar+s: 1 ' 0!*as* choos* o(*

Th* 4o:*r(m*(t i(cr*as*s th* (/mb*r o1 Bob c*(tr*s a(2 /s*s mor* a2:a(c*2 com3/t*rs to
im3ro:* th* i(1ormatio( 2atabas*. This cr*at*s:
,tructural -nemplo$ment.
.egional -nemplo$ment.
Frictio(a! C(*m3!oym*(t .
!emand !eficient -nemplo$ment.

./*stio( No: 1> ( Mar+s: 1 ' 0!*as* choos* o(*

?hich o(* o1 th* 1o!!o6i(4 ca( !*a2 to a ris* i( i(1!atio(@
A( i(cr*as* i( costs o1 3ro2/ctio( .
"n increase in productive capacit$.
"n increase in the level of direct ta'ation.
"n increase in the e'change rate.

./*stio( No: 1- ( Mar+s: 1 ' 0!*as* choos* o(*

?hat 2o*s th* t*rm Dba!a(c* o1 3aym*(t 2*1icitD r*1*r to@
"n increase in official international reserves.
" positive statistical discrepanc$.
" negative statistical discrepanc$.
A 2*c!i(* i( o11icia! i(t*r(atio(a! r*s*r:*s.

./*stio( No: 1, ( Mar+s: 1 ' 0!*as* choos* o(*

Eo6 sho/!2 1isca! 3o!icy b* /s*2 2/ri(4 i(1!atio(@
Increase Government e'penditure and decrease ta'es to decrease aggregate demand.
Increase Government e'penditure and decrease ta'es to increase aggregate demand.
!ecrease Government e'penditure and increase ta'es to increase aggregate demand.
8*cr*as* Fo:*r(m*(t *=3*(2it/r* a(2 i(cr*as* ta=*s to 2*cr*as* a44r*4at* 2*ma(2.

./*stio( No: 1$ ( Mar+s: 1 ' 0!*as* choos* o(*

I1 th* 2*ma(2 c/r:* 1or a 4oo2 is 2o6(6ar2 s!o3i(45 th*( th* 4oo2:
%ust #e inferior.
%ust #e giffen.
Can #e normal or inferior.
M/st b* (orma!.

./*stio( No: "# ( Mar+s: 1 ' 0!*as* choos* o(*

G**3i(4 i( :i*6 th* mo2*! o1 a44r*4at* s/33!y a(2 a44r*4at* 2*ma(25 i( th* !o(4 r/(5 a(
i(cr*as* i( th* mo(*y s/33!y sho/!2 ca/s*:
Both 3ric*s a(2 o/t3/t to ris*.
+rices to fall and output to remain unchanged.
/oth prices and output to fall.
+rices to rise and output to remain unchanged.

./*stio( No: "1 ( Mar+s: 1 ' 0!*as* choos* o(*

?hich o1 th* 1o!!o6i(4 is TRCE accor2i(4 to c!assica! *co(omists@
A44r*4at* 2*ma(2 c/r:* is 2o6(6ar2 s!o3i(4 a(2 th* a44r*4at* s/33!y c/r:* is
:*rtica!.
"ggregate demand curve is downward sloping and the aggregate suppl$ curve is upward sloping.
"ggregate demand curve is vertical and the aggregate suppl$ curve is upward sloping.
"ggregate demand curve is vertical and the aggregate suppl$ curve is hori0ontal.

./*stio( No: "" ( Mar+s: 1 ' 0!*as* choos* o(*

?hy ca!c/!atio(s o1 Fross 8om*stic 0ro2/ct (F80 co/(t o(!y 1i(a! 4oo2s a(2 s*r:ic*s@
/ecause it is difficult to measure the prices of intermediate goods produced.
/ecause these are the onl$ goods and services that are purchased in an econom$.
B*ca/s* co/(ti(4 a!! 4oo2s a(2 s*r:ic*s 6o/!2 !*a2 to 2o/b!*'co/(ti(4 o1 ma(y
acti:iti*s.
/ecause one cannot calculate the quantities of intermediate goods produced.


'''''''''''''''''' 3!ays a( im3orta(t ro!* i( ma+i(4 s/r* that th* *co(omy r*ach*s a(2 stays at
*q/i!ibri/m at th* 3ot*(tia! o/t3/t !*:*!.
.eal e'change rate.
The production function.
.eal price level.
R*a! i(t*r*st rat*.

./*stio( No: "& ( Mar+s: 1 ' 0!*as* choos* o(*

?hy a H1 i(cr*as* i( 4o:*r(m*(t s3*(2i(4 6i!! ha:* a !ar4*r im3act /3o( (atio(a! i(com* tha(
a H1 ta= c/t@
/ecause the government prints the currenc$ it spends.
B*ca/s* (ot a!! o1 th* ta= c/t is s3*(t .
/ecause when ta'es are cut1 government spending is also cut.
/ecause ta'es are an in2ection into the s$stem.

./*stio( No: "< ( Mar+s: 1 ' 0!*as* choos* o(*

%omm*rcia! ba(+s i( 0a+ista( ar* s/3*r:is*2 by:
)tat* ba(+ o1 0a+ista(.
National #ank of +akistan.
&inance minister of +akistan.
3orld #ank.

./*stio( No: "> ( Mar+s: 1 ' 0!*as* choos* o(*

Tra2* ca( b* b*(*1icia! i( 6hich o1 th* 1o!!o6i(4 sit/atio(s@
Two countries produce the same goods at the same costs.
T6o co/(tri*s 3ro2/c* 2i11*r*(t 4oo2s at 2i11*r*(t costs .
Two countries are isolated.
Two countries have the same markets.

./*stio( No: "- ( Mar+s: 1 ' 0!*as* choos* o(*

Firm A 3ro2/c*s cotto( 6orth Rs. 1### a(2 s*!!s it to 1irm B. From this5 1irm B ma+*s yar(
6orth Rs. 1<## a(2 s*!!s to 1irm %. Firm % ma(/1act/r*s c!oth 6orth Rs. "<## a(2 s*!!s to
co(s/m*rs. Th* :a!/* a22*2 is:
1###I1<##I"<## J Rs. <###
*000450046500 7 .s. 8000
*00045004*000 7 .s. 6500
*0004*5004*000 7.s. 9500

./*stio( No: ", ( Mar+s: 1 ' 0!*as* choos* o(*

?hich o1 th* 1o!!o6i(4 b*st 2*1i(*s Ks/bsi2i*sL@
+a$ment #$ Government for purchase of goods and services.
+a$ment #$ #usiness enterprises to factors of production.
+a$ment #$ companies to share holders.
0aym*(t by Fo:*r(m*(t to b/si(*ss *(t*r3ris*s 6itho/t b/yi(4 a(y 4oo2s a(2 s*r:ic*s.

./*stio( No: "$ ( Mar+s: 1 ' 0!*as* choos* o(*

Natio(a! 3ro2/ct at mar+*t 3ric*s i(cor3orat*:
0ric*s 6hich b/y*rs act/a!!y 3ay.
+a$ments made to the factor owners.
Costs incurred in producing goods and services.
Costs minus su#sidies.


A mar4i(a! 3ro3*(sity to co(s/m* (M0% o1 #.$< i(2icat*s that:
M % to MY 2 is #.$<.
C : ;d is 0.<5.
=;d to =C is 0.<5.
;d : C is 0.<5.


?h*( M0% is #.,# a(2 A0% is #.$< th*( M0) is:
#."# a(2 A0) is #.#<.
0.05 and "+, is 0.60.
0.60 and "+, is 0.60.
0.05 and "+, is 0.05.


?hich o1 th* 1o!!o6i(4 ar* !*a+a4*s 1rom th* circ/!ar 1!o6@
Consumption and saving.
)a:i(4 a(2 im3orts.
Imports and e'ports.
E'ports and savings.


Th* tim* that a !abor*r /s*s 1or r*!a=atio( a(2 a!! acti:iti*s oth*r tha( 6or+ or (*c*ssary s!**3
is +(o6( as:
&ree time.
L*is/r* .
Time not used for earning.
"ll of the given options.


Labor s/33!y c/r:* is bac+6ar2 b*(2i(4 b*ca/s*:
Th* i(com* *11*ct o1 hi4h*r i(com* 2omi(at*s th* s/bstit/tio( *11*ct o1 hi4h*r 6a4*s.
The su#stitution effect of higher income dominates the income effect of higher wages.
The income effect of higher income dominates the price effect of higher wages.


Th* 4o:*r(m*(t s/33orts r*s*arch i( basic sci*(c* b*ca/s*:
It is a pu#lic good.
E'ternal costs are created.
I(t*r(a! b*(*1its ar* cr*at*2.
&ree markets would do so otherwise.


I( c!assica! th*ory5 *=c*ss s/33!y o1 a 3ro2/ct 6o/!2 b* associat*2 6ith:
.ising interest rates.
&alling interest rates.
Risi(4 3ric* 1or th* 3ro2/ct.
&alling price for the product.


?hich o1 th* 1o!!o6i(4 is NOT a 2*t*rmi(a(t o1 (*t *=3orts@
!omestic and foreign incomes.
.elative price levels.
!omestic and foreign trade policies.
0ro2/c*rsN *=3*ctatio(s abo/t 1/t/r* 3ric*s.


A tra2* s/r3!/s occ/rs 6h*(:
" countr$>s firms open more stores a#road than foreign firms open in the countr$.
A co/(try s*!!s mor* abroa2 tha( it 3/rchas*s 1rom abroa2.
&oreign firms open more stores in a countr$ than the countr$ opens in foreign countries.
" countr$ purchases more from a#road than other countries purchase from it.


A cha(4* 1rom H1.## J Rs. ,#.## to H1.## J Rs. ,<.## r*3r*s*(ts:
!epreciation of the dollar.
"n appreciation of the dollar.
"n appreciation of the rupee.
No(* o1 th* 4i:*( o3tio(s.

./*stio( No: &# ( Mar+s: 1 ' 0!*as* choos* o(*

Th*r* is a( i(cr*as* i( th* *co(omyNs 3ot*(tia! o/t3/t 6h*( th*r* is:
"n increase in government spending.
" decrease in government spending.
A( i(cr*as* i( th* *co(omyNs ca3ita! stoc+.
"n increase in the econom$?s depreciation rate.

./*stio( No: &1 ( Mar+s: 1 ' 0!*as* choos* o(*

O(* o1 th* im3!icatio(s o1 )o!o6 4ro6th mo2*! is that a!! oth*r thi(4s r*mai(i(4 th* sam*5
co/(tri*s 6ith ra3i2!y 4ro6i(4 3o3/!atio( 6i!! t*(2 to:
B* 3oor*r tha( co/(tri*s 6ith !o6*r 3o3/!atio( 4ro6th.
Grow slower than countries with lower population growth.
Grow higher than countries with lower population growth.
@ave lower marginal products of capital than countries with lower population growth.

./*stio( No: &" ( Mar+s: 1 ' 0!*as* choos* o(*

Th* ra3i2 3o3/!atio( 4ro6th i( to2ayNs 2*:*!o3i(4 (atio(s is 2/* to th*:
@igh #irth rates onl$.
Low death rates onl$.
Ei4h birth rat* a(2 !o6 2*ath rat*.
@igher standard of living.


Th* 3ri(ci3!* o1 ta=atio( 6hich *m3hasiO*s o( 1air(*ss or B/st sacri1ic* is +(o6( as:
Efficienc$.
Eq/ity.
+rogressive ta'.
.egressive ta'.

./*stio( No: && ( Mar+s: 1 ' 0!*as* choos* o(*

Th* r*!atio(shi3 b*t6**( ta= rat*s a(2 tota! ta= co!!*ctio(s by 4o:*r(m*(t is +(o6( as:
La11*r c/r:*.
!emand curve.
,uppl$ curve.
Investment curve.

./*stio( No: &< ( Mar+s: 1 ' 0!*as* choos* o(*

Th* o3tim/m ta= rat* i( 6hich 4o:*r(m*(t r*:*(/* is ma=imiO*2 !i*s som*6h*r* b*t6**(:
0A and *A.
#P a(2 <#P.
50A and *00A.
0A and *00A.

./*stio( No: &> ( Mar+s: 1 ' 0!*as* choos* o(*

Mo(*y is 2*1i(*2 as a( it*m that:
)*r:*s as a m*2i/m o1 *=cha(4* 1or 4oo2s a(2 s*r:ic*s.
Can #e converted into silver with relativel$ little loss in value.
Can #e converted into gold with relativel$ little loss in value.
&acilitates a connecting link #etween credit instruments and de#t instruments.

./*stio( No: &- ( Mar+s: 1 ' 0!*as* choos* o(*

A ta= im3os*2 by a co/(try o( a( im3ort*2 4oo2 or s*r:ic* is ca!!*2 a:
Buota.
Tari11.
Non(tariff #arrier.
Trade em#argo.

./*stio( No: &, ( Mar+s: 1 ' 0!*as* choos* o(*

0oor co/(tri*s r*mai(*2 3oor b*ca/s* o1:
@igher per capita income.
Qicio/s circ!* o1 3o:*rty.
@igh level of investment.
@igh rates of savings.

./*stio( No: &$ ( Mar+s: 1 ' 0!*as* choos* o(*

I1 oth*r thi(4s r*mai(i(4 th* sam*5 *=3*ct*2 i(com* ca( b* /s*2 as a 2ir*ct m*as/r* o1 6*!!'
b*i(4 i( 6hich o1 th* 1o!!o6i(4 sit/atio(s@
It can #e used if and onl$ if individuals are not risk(loving.
It can #e used if and onl$ if individuals are risk averse.
It can #e used if and onl$ if individuals are risk neutral.
It ca( b* /s*2 (o matt*r 6hat a 3*rso(Rs 3r*1*r*(c* to ris+ .

./*stio( No: <# ( Mar+s: 1 ' 0!*as* choos* o(*

?hat q/*stio(s ar* r*!at*2 6ith *=3!a(atio(@ ?hat q/*stio(s ar* r*!at*2 6ith 6hat o/4ht to
b*@
+ositive1 negative.
Negative1 normative.
Normative1 positive.
0ositi:*5 (ormati:*.

./*stio( No: <1 ( Mar+s: 1 ' 0!*as* choos* o(*

?hat 6i!! ha33*( to th* 2*ma(2 1or 3ro2/ct X5 i1 th*r* is a( i(cr*as* i( co(s/m*rNs i(com*@
It will necessaril$ remain unchanged.
It will shift to the right if C is a complementar$ good.
It 6i!! shi1t to th* ri4ht i1 X is a (orma! 4oo2.
It will shift to the right if C is an inferior good.

./*stio( No: <" ( Mar+s: 1 ' 0!*as* choos* o(*

?hich o1 th* 1o!!o6i(4 occ/r 6h*( a( isocost !i(* is B/st ta(4*(t to a( isoq/a(t@
O/t3/t is b*i(4 3ro2/c*2 at mi(im/m cost.
Dutput is not #eing produced at minimum cost.
The two products are #eing produced at the medium input cost to the firm.
The two products are #eing produced at the highest input cost to the firm.


)/33os* a!! i(3/ts ar* i(cr*as*2 by "#P b/t o/t3/t i(cr*as*s by !*ss tha( "#P i( a 3ro2/ctio(
3roc*ss. This m*a(s that th* 1irm *=3*ri*(c*s:
8*cr*asi(4 r*t/r(s to sca!*.
Constant returns to scale.
Increasing returns to scale.

./*stio( No: <& ( Mar+s: 1 ' 0!*as* choos* o(*

I( 6hich o1 th* 1o!!o6i(4 co(2itio(s5 a 1irm 6i!! (*:*r o3*rat*@
"t the minimum of its average total cost curve.
At th* mi(im/m o1 its a:*ra4* :ariab!* cost c/r:* .
Dn the downward(sloping portion of its average total cost curve.
Dn the downward(sloping portion of its average varia#le cost curve.

./*stio( No: << ( Mar+s: 7

Eo6 th* c*(tra! ba(+ 3!ays its ro!* i( or2*r to co(tro! th* acti:iti*s o1 comm*rcia! ba(+s@

./*stio( No: <> ( Mar+s: <

Bri*1!y 2isc/ss 2i11*r*(t ty3*s o1 ta=*s 6hich a 4o:*r(m*(t ca( im3os*.

./*stio( No: <- ( Mar+s: <
A.

8i11*r*(tiat* b*t6**( 1i(a! 4oo2s a(2 i(t*rm*2iat* 4oo2s 6ith th* h*!3 o1 *=am3!*s.
B. )** th* 1o!!o6i(4 tab!*:
Y*ar 1$-$ 1$,# 1$,1 1$," 1$,7 1$,& 1$,< 1$,>
R*a! F80 Fro6th
Rat*
*.6A (5.5A *.EA 9.<A 8.5A 5.9A 6.FA *.<A
a %a!c/!at* th* a:*ra4* 4ro6th rat* 1rom 1$," a(2 1$,<.
b %a!c/!at* th* a:*ra4* 4ro6th rat* 1rom 1$-$ a(2 1$,>.
(Mar+s: 7I"
./*stio( No: <, ( Mar+s: 1#

From th* i(1ormatio( 4i:*( i( th* 1o!!o6i(4 tab!*5 ca!c/!at* th* (/mb*r o1 /(*m3!oy*2 3*rso(s
a(2 /(*m3!oym*(t rat*.
Y*ar )iO* o1 Labor Forc* N/mb*r o1 3*rso(s
Em3!oy*2
*<E8 **9588 *05005
*<E5 **58F* *0G*50
*<EF **GE98 *0<5<G
*<EG **<EF5 **6880
*<EE *6*FF< **8<FE
(Mar+s: <I<
./*stio( No: <$ ( Mar+s: 1#

A(s6*r th* 1o!!o6i(4 q/*stio(s.
a ?hat is i(t*r*st 3arity co(2itio(@
b ?h*( 2o*s this co(2itio( ho!2@
c ?hat is th* *q/atio( o1 this co(2itio(@
2 ?hat 6i!! ha33*( i1 th* *q/a!ity o1 th* co(2itio( 2o*s (ot ho!2@
(Mar+s: "I"I"I&
FINALTERM EXAMINATION ("
)3ri(4 "##$
E%O&#1' Eco(omics ()*ssio( ' "

As!am 2*ci2*s to stay at hom* a(2 st/2y 1or his *=am rath*r tha( 4oi(4 o/t 6ith his 1ri*(2s to
a mo:i*. Eis 2i!*mma is a( *=am3!* o1:

The economic perspective.
%arginal anal$sis.
"llocative efficienc$.
O33ort/(ity cost.

A 4oo2 1or 6hich i(com* a(2 q/a(tity 2*ma(2*2 ar* i(:*rs*!y r*!at*2 is +(o6( as:

I(1*rior 4oo2.
Complementar$ good.
Normal good.

A( i(cr*as* i( s/33!y is sho6( by:
,hifting the suppl$ curve to the left.
)hi1ti(4 th* s/33!y c/r:* to th* ri4ht.
-pward movement along the suppl$ curve.
!ownward movement along the suppl$ curve.

0ric* 1!oor r*s/!ts i(:
E'cess suppl$.
Equili#rium.
E=c*ss 2*ma(2.

Th* 3ric* *!asticity o1 2*ma(2 m*as/r*s th* r*s3o(si:*(*ss o1 q/a(tity 2*ma(2*2 to:

Buantit$ demanded.
Buantit$ supplied.
0ric*.
Dutput.

Ass/m* that th* tota! /ti!iti*s 1or th* 1i1th a(2 si=th /(its o1 a 4oo2 co(s/m*2 ar* ,7 a(2 $-5
r*s3*cti:*!y. Th* mar4i(a! /ti!ity 1or th* si=th /(it is:

(*8.
1&.
E9.
<G.

I(2i11*r*(c* c/r:*s that ar* co(:*= to th* ori4i( r*1!*ct:

"n increasing marginal rate of su#stitution.
A 2*cr*asi(4 mar4i(a! rat* o1 s/bstit/tio(.
" constant marginal rate of su#stitution.
" marginal rate of su#stitution that first decreases1 then increases.

To 1i(2 th* 3ro1it ma=imiOi(4 !*:*! o1 o/t3/t5 a 1irm 1i(2s th* o/t3/t !*:*! 6h*r*:
+rice equals marginal cost.
%arginal revenue and average total cost.
+rice equals marginal revenue.
No(* o1 th* 4i:*( o3tio(s.
Th* 3ro1it ma=imiOi(4 !*:*! o1 o/t3/t is 1o/(2 by *q/ati(4 its mar4i(a! r*:*(/* 6ith its
mar4i(a! cost5 6hich is th* sam* 3ro1it ma=imiOi(4 co(2itio( that a 3*r1*ct!y com3*titi:*
1irm /s*s to 2*t*rmi(* its *q/i!ibri/m !*:*! o1 o/t3/t. I(2**25 th* co(2itio( that
mar4i(a! r*:*(/* *q/a! mar4i(a! cost is /s*2 to 2*t*rmi(* th* 3ro1it ma=imiOi(4 !*:*! o1
o/t3/t o1 every firm, regardless of the market structure i( 6hich th* 1irm is o3*rati(4.

As com3ar*2 to *=isti(4 1irms5 a (*6 1irm *(t*ri(4 i( mo(o3o!ist mar+*t has:
Ei4h costs.
Low costs.
Equal costs.

A 1irm is char4i(4 a 2i11*r*(t 3ric* 1or *ach /(it 3/rchas*2 by a co(s/m*r. This is ca!!*2:
&irst(degree price discrimination.
,econd(degree price discrimination.
Thir2'2*4r** 3ric* 2iscrimi(atio(.

Mc8o(a!2Rs r*sta/ra(t !ocat*2 (*ar th* hi4h schoo! o11*r*2 a T/*s2ay s3*cia! 1or hi4h schoo!
st/2*(ts. I1 hi4h schoo! st/2*(ts sho6*2 th*ir st/2*(t I8 car2s5 th*y 6o/!2 b* 4i:*( <# c*(ts
o11 a(y s3*cia! m*a!. This 3ractic* is a( *=am3!* o1:

Collusion.
+rice discrimination.
Two(part tariff.
B/(2!i(4.

Th* 3ric* *!asticity o1 2*ma(2 1or a(y 4oo2 m/st b* !*ss tha( or *q/a! to O*ro /(!*ss:

The good is a necessit$.
The good is a lu'ur$.
Th* 4oo2 is a Fi11*( 4oo2.


Fi4/r*
I( 1i4/r* 4i:*( abo:*5 th* mar4i(a! /ti!ity o1 i(com* is:

I(cr*asi(4 as i(com* i(cr*as*s.
Constant for all levels of income.
!iminishes as income increases.

I( mo(o3o!y5 6hich o1 th* 1o!!o6i(4 is NOT tr/*@

+roducts are differentiated.
Th*r* is 1r**2om o1 *(try a(2 *=it i(to th* i(2/stry i( th* !o(4 r/(.
The firm is a price maker.
There is one main seller.

?*!1ar* *co(omics is th* bra(ch o1 *co(omics 6hich 2*a!s 6ith:

+ositive issues.
Normati:* iss/*s.
%icro issues.
%acro issues.

C(2*r th* +i(+*2 2*ma(2 c/r:* mo2*!5 a( i(cr*as* i( mar4i(a! cost 6i!! !*a2 to:

"n increase in output level and a decrease in price.
" decrease in output level and an increase in price.
A 2*cr*as* i( o/t3/t !*:*! a(2 (o cha(4* i( 3ric*.
Neither a change in output level nor a change in price.

?hich o1 th* 1o!!o6i(4 mar+*t sit/atio( is m/ch !i+* a 3/r* mo(o3o!y *=c*3t that its m*mb*r
1irms t*(2 to ch*at o( a4r**2 /3o( 3ric* a(2 o/t3/t strat*4i*s@

!uopol$.
%art*!.
%arket sharing monopol$.
Natural monopol$.

I( th* com3!*t* c!assica! mo2*!5 a ri4ht6ar2 shi1t o1 th* !abor s/33!y c/r:* 6i!!:

!ecrease the price level and increase the nominal wage.
!ecrease the nominal wage and increase the price level.
!ecrease #oth the price level and the nominal wage.
I(cr*as* both th* 3ric* !*:*! a(2 th* (omi(a! 6a4*.

?hich o1 th* 1o!!o6i(4 *:*(ts co/!2 ca/s* th* a44r*4at* 2*ma(2 c/r:* to shi1t to th* ri4ht@

"n increase in the rate of inflation.
" decrease in government e'penditures.
" decrease in investment spending.
A 2*cr*as* i( i(com* ta= rat*s.

Th* Fr*at 8*3r*ssio( o1 1$7#s o3*(*2 th* 2oor to th* 9999999999 r*:o!/tio( i(
macro*co(omic th*ory.

G*y(*sia(.
New classical.
Dld classical.
New He$nesian.

G*y(*sia( *co(omics 6as th* 3r*2omi(a(t *co(omic th*ory:

+rior to the late *G00s.
&rom the late *G00s to the earl$ *<00s.
From 1$7#s to 1$-#s.
,ince *<G0s.

%!assica! *co(omics 6as r*3!ac*2 as th* 2omi(a(t th*ory o1 macro*co(omic a(a!ysis by:

%onetarism.
.ational e'pectations.
G*y(*sia( *co(omics.
Neoclassical economics.

Accor2i(4 to th* mo2*! o1 a44r*4at* s/33!y a(2 a44r*4at* 2*ma(25 i( th* !o(4 r/(5 a(

/oth prices and output to rise.
0ric*s to ris* a(2 o/t3/t to r*mai( /(cha(4*2.

I(t*rm*2iat* 4oo2s ar* m*a(t 1or:

!irect use #$ the consumers.
F/rth*r 3roc*ssi(4.


&urther processing.

?hich o1 th* 1o!!o6i(4 is a 1!o6 :ariab!*@
The value of the house in which $ou live.
Th* ba!a(c* i( yo/r sa:i(4s acco/(t.
;our monthl$ consumption on food items.
The num#er of carrots in $our refrigerator at the #eginning of the month.

?hich o1 th* 1o!!o6i(4 is NOT a stoc+ :ariab!*@

Government de#t.
Capital.
Th* amo/(t o1 mo(*y h*!2 by th* 3/b!ic.
Inventor$ investment.

A!! oth*r thi(4s r*mai( th* sam*5 Fross 8om*stic 0ro2/ct (F80 6i!! ris* i1:

Imports rises.
E'ports falls.
8/rab!* 4oo2s co(s/m3tio( ris*s.
%ilitar$ spending falls.

I1 2is3osab!* i(com* i(cr*as*s 1rom H< tri!!io( to H> tri!!io( a(2 as a r*s/!t5 co(s/m3tio(
*=3*(2it/r* i(cr*as*s 1rom H- tri!!io( to H-., tri!!io(5 th* Mar4i(a! 0ro3*(sity to %o(s/m* is:

*.0.
#.,.
5:G 7 0.G*.
F:G.E 7 0.GG.

Th* s!o3* o1 th* co(s/m3tio( 1/(ctio( (or !i(* is th*:

%arginal propensit$ to save.
Mar4i(a! 3ro3*(sity to co(s/m*.

)/33os* that yo/r i(com* i(cr*as*s 1rom H1##5### to H1<#5### a(2 yo/r co(s/m3tio(
i(cr*as*s 1rom H,#5### to H1"#5###. Yo/r Mar4i(a! 0ro3*(sity to )a:* (M0) is:

0.6.
0.8.
0.F.
#.,.

Th* /(*m3!oym*(t rat* is *q/a! to:

Num#er of emplo$ed : la#our force ' *00.
N/mb*r o1 /(*m3!oy*2 S !abo/r 1orc*.
INum#er of unemplo$ed : la#our forceJ ' *00.

Th* tra2itio(a! 0hi!!i3s %/r:* sho6s th*:

I(:*rs* r*!atio(shi3 b*t6**( th* rat* o1 i(1!atio( a(2 /(*m3!oym*(t rat*.
Inverse relationship #etween the nominal and real wage.
!irect relationship #etween unemplo$ment and demand(pull inflation.
Tradeoff #etween the short run and long run.

8*1!atio( is:

"n increase in the overall level of economic activit$.
"n increase in the overall price level.
" decrease in the overall level of economic activit$.
A 2*cr*as* i( th* o:*ra!! 3ric* !*:*!.

Is Frosss 8om*stic 0ro2/ct (F80 a( acc/rat* m*as/r* o1 a co/(tryNs 6*!! b*i(4@
;es1 it is the #est measure of national well #eing.
Y*s5 3ro:i2*2 6* /s* r*a! F80 a(2 (ot (omi(a! F80.
-ncertain1 depending on whether G!+ is rising or falling.
No1 it is not.

R*a! Fross 8om*stic 0ro2/ct (F80:

Is (omi(a! F80 a2B/st*2 1or cha(4*s i( th* 3ric* !*:*!.
Is also called nominal G!+.
%easures G!+ minus depreciation of capital.
3ill alwa$s change when prices change.

I1 a 6ar 2*stroys a !ar4* 3ortio( o1 a co/(tryRs ca3ita! stoc+ b/t th* sa:i(4 rat* is /(cha(4*25
th* *=o4*(o/s mo2*! 3r*2icts that o/t3/t 6i!! 4ro6 a(2 th* (*6 st*a2y stat* 6i!! a33roach:

" higher output level than #efore.
The same output level as #efore.
A !o6*r o/t3/t !*:*! tha( b*1or*.
The Golden .ule output level.

A c/rr*(cy a33r*ciatio(:

R*2/c*s a44r*4at* 2*ma(2 a(2 i(cr*as*s a44r*4at* s/33!y.
.educes #oth aggregate demand and aggregate suppl$.
Increases aggregate demand and reduces aggregate suppl$.
Increases #oth aggregate demand and aggregate suppl$.

M1 com3o(*(t o1 mo(*y s/33!y co(sists o1:

+aper currenc$ and coins.
0a3*r c/rr*(cy5 coi(s a(2 ch*c+ 6riti(4 2*3osits.
+aper currenc$1 coins1 check writing deposits and savings deposits.
+aper currenc$1 coins1 check writing deposits1 savings deposits and certificates of deposits.

0*rso(a! i(com*:

Is income received #$ individuals during a given $ear.
Is the income individuals have availa#le for spending during a given $ear.
Equals national income minus indirect ta'es.
Is th* s/m o1 6a4*s 3!/s i(t*r*st r*c*i:*2 by i(2i:i2/a!s 2/ri(4 a 4i:*( y*ar.

R*a! Fross Natio(a! 0ro2/ct (FN0 is b*st 2*1i(*2 as:

The pound value of all final goods and services produced in the econom$ during a particular time
period and measured in current prices.
The pound value of all goods produced for final consumption #$ households in a particular $ear and
measured in constant prices.
The current pound value of all new and used goods produced and sold in the econom$ during a
particular time period.
Th* mar+*t :a!/* o1 a!! 1i(a! 4oo2s a(2 s*r:ic*s 3ro2/c*2 by th* *co(omy 2/ri(4 a 4i:*(
tim* 3*rio25 6ith 3ric*s h*!2 co(sta(t r*!ati:* to som* bas* 3*rio2.

?hich o1 th* 1o!!o6i(4 stat*m*(ts 2*scrib*s th* 2i11*r*(c* b*t6**( (omi(a! a(2 r*a! Fross
8om*stic 0ro2/ct (F80@
.eal G!+ includes onl$ goods nominal G!+ includes goods and services.
R*a! F80 is m*as/r*2 /si(4 co(sta(t bas*'y*ar 3ric*s; (omi(a! F80 is m*as/r*2 /si(4
c/rr*(t 3ric*s.
.eal G!+ is equal to nominal G!+ less the depreciation of the capital stock.
.eal G!+ is equal to nominal G!+ multiplied #$ the C+I.

I1 6* com3ar* Fross 8om*stic 0ro2/ct (F80 6ith Fross Natio(a! 0ro2/ct (FN0 th*(:

GN+ 7 G!+ K Net income from a#road.
FN0 J F80 I N*t i(com* 1rom abroa2.
GN+ 7 NN+ K Net income from a#road.
GN+ 7 NN+ 4 Net income from a#road.

Fross 2om*stic 3ro2/ct (F80 is th* mar+*t :a!/* o1:

"ll transactions in an econom$ during one($ear period.
"ll goods and services e'changed in an econom$ during one($ear period.
"ll final goods and services e'changed in an econom$ during one($ear period.
A!! 1i(a! 4oo2s a(2 s*r:ic*s 3ro2/c*2 i( a 2om*stic *co(omy 2/ri(4 o(*'y*ar 3*rio2.

?hich o1 th* 1o!!o6i(4 sho6s th* Fish*r *q/atio( o1 *=cha(4*@

%T7+L.
LT7+%.
MQJ0..
%;7L+.

A( *=cha(4* rat* that :ari*s accor2i(4 to th* s/33!y a(2 2*ma(2 1or th* c/rr*(cy i( th*
1or*i4( *=cha(4* mar+*t is ca!!*2:
Dvervalued e'change rate.
-ndervalued e'change rate.
&i'ed e'change rate.
F!*=ib!* *=cha(4* rat*.

I( th* *q/atio( MQ J 0.5 accor2i(4 to th* cr/2* q/a(tity th*ory o1 mo(*y:

% has no effect on the price level.
Q is th* (/mb*r o1 tim*s *ach 2o!!ar is s3*(t 3*r y*ar.
B is the real price level.
+ rises as L falls1 other things constant.

I( th* G*y(*sia( cross mo2*!5 th* &<'2*4r** !i(* has a s!o3* o1:

85.
Infinit$.
1.
0.

I( G*y(*sia( *co(omics5 *q/i!ibri/m ca( occ/r:

Dnl$ at full emplo$ment level.
Dnl$ at levels less than full emplo$ment.
Dnl$ at levels greater than full emplo$ment.
At a(y !*:*! o1 a44r*4at* o/t3/t 6hich is *q/a! to a44r*4at* *=3*(2it/r*s.

A1t*r a 2*cr*as* i( th* 6a4*5 th* s/bstit/tio( *11*ct im3!i*s that:

Dnl$ the amount demanded of capital decreases.
Dnl$ the amount demanded of la#or decreases.
O(!y th* amo/(t 2*ma(2*2 o1 ca3ita! i(cr*as*s.
The amount demanded of all inputs increases.

./*stio( No: <1 ( Mar+s: <
Bri*1!y 2isc/ss th* 3ri:at* cost o1 a2:*rtisi(4. Eo6 6* ca( ca!c/!at* th* mar4i(a! socia! cost@

AN)?ER: 0ri:at* %ost O1 A2:*rtisi(4: The private cost of advertising is the cost incurred #$ firm in
making the advertisement i.e newspaper adds1 tv commercials etc. The firms do not take into account the
nuisance faced #$ people due to these advertisements otherwise the firms would do less advertisement.
Mar4i(a! )ocia! %ost: %arginal social cost is not a monetar$ #ased cost. It is the cost #orne #$ the
societ$ as a whole. It is the cost of consumption of one ne't unit.

./*stio( No: <" ( Mar+s: 1#
A. ?hat co(c!/sio(s ar* 2*ri:*2 1rom *=o4*(o/s 4ro6th th*ory@

AN)?ER: E=o4*(o/s Fro6th Th*ory: The ma2or conclusions derived from the e'ogenous growth are
as followsM
N The stead$ growth rate of real G!+ depends on e'ogenous rates of growth of population
InJ and technolog$ ItJ. There are no policies for government for how to affect the stead$ growth
rate of a countr$. @igher savings can onl$ have a little effect on income it cannot cause long term
growth #ecause savings cause diminishing returns to investment and capital accumulation.
N If one countr$ started with lower income and capital than another countr$1 the poorer
countr$ will grow faster to catch up the richer countr$ and then #oth the countries will grow
together.

B. ?hat is m*a(t by co(:*r4*(c* th*ory@ E=3!ai( th* co(:*r4*(c* th*ory i( th* 4i:*(
4ra3h.

(Mar+s: &I>

./*stio( No: <7 ( Mar+s: 1#
8*1i(* 1isca! 3o!icy. 8i11*r*(tiat* b*t6**( co(tractio(ary a(2 *=3a(sio(ary 1isca! 3o!icy. I(
6hich sit/atio(s5 b/24*t 2*1icit a(2 b/24*t s/r3!/s *=ist@
A(s6*r: Fisca! 0o!icy: &iscal polic$ is the government?s a#out the
e'penditure in form of purchases1 su#sidies and interest pa$ments on de#t etc.
revenue in form of ta'es etc.

8i11*r*(c* b*t6**( %o(tractio(ary a(2 E=3a(sio(ary Fisca! 0o!icy:

%o(tactio(ary Fisca! 0o!icy E=3a(sio(ary Fisca! 0o!icy
In conactionar$ fiscal polic$ government decreases
its e'penditure.
In e'pansionar$ fiscal polic$ government increases its
e'penditure.

B/24*t 8*1icit a(2 B/24*t )/r3!/s: /udget deficit e'ists if government e'penditure increases the
revenue earned. In this case government needs to finance its e'penditure through #orrowing.
/udget surplus e'ists when revenue e'ceeds the government e'penditure. In this condition
government can easil$ pa$ off its de#t #orrowings.

(Mar+s: "I&I&

./*stio( No: <& ( Mar+s: 1#
8isc/ss th* basic th*ori*s r*4ar2i(4 IMFNs stabi!iOatio( 3ro4ram. Ar* th*s* th*ori*s
s/cc*ss1/!@ I1 (ot5 4i:* r*aso(s.

A(s6*r: IMFNs )tabi!iOatio( Th*ori*s:
N Ti4ht Fisca! 0o!icy: It works through higher revenues and reduced government
e'penditure.
N 8*:a!/atio(: ,witching from imports to home produced goods. It increases
competitiveness1 e'ports and increase investors confidence in local currenc$.
N Ti4ht Mo(*tary 0o!icy: @igher interest rates resulting in reduced private sector
consumption and investment demand. It reduces inflation and increases savings. @igh interest
rates also results in higher capital inflow.

Theses theories are generall$ not successful in lower income countries ILICsJ. /ecause the$ caused the
pro#lems ofM
8*:a!/atio(: It raises the price of imports and also increased the inflation while the real wage
rate could not increase.
)tabi!iOatio( h/rts 3oorM decrease in e'penditure alwa$s #adl$ effects the poor which can
then cause political insta#ilit$.

FINALTERM EXAMINATION (7
)3ri(4 "##$

I( a 1r**'mar+*t *co(omy5 th* a!!ocatio( o1 r*so/rc*s is 2*t*rmi(*2 by:

Lotes taken #$ consumers.
" central planning authorit$.
%o(s/m*r 3r*1*r*(c*s.
The level of profits of firms.

Th* co(ca:* sha3* o1 th* 3ro2/ctio( 3ossibi!iti*s c/r:* 1or t6o 4oo2s X a(2 Y i!!/strat*s:

I(cr*asi(4 o33ort/(ity cost 1or both 4oo2s.
Increasing opportunit$ cost for good C #ut not for good ;.
Increasing opportunit$ cost for good ; #ut not for good C.
Constant opportunit$ cost for #oth goods.

I1 th* q/a(tity 2*ma(2*2 o1 a 3ro2/ct is 4r*at*r tha( th* q/a(tity s/33!i*2 o1 a 3ro2/ct5 th*(:
There is a shortage of the product.
Th*r* is a s/r3!/s o1 th* 3ro2/ct.
The product is a normal good.
The product is an inferior good.

Th* s/33!y c/r:* is /36ar2's!o3i(4 b*ca/s*:

"s the price increases1 consumers demand less.
As th* 3ric* i(cr*as*s5 s/33!i*rs ca( *ar( hi4h*r !*:*!s o1 3ro1it or B/sti1y hi4h*r
mar4i(a! costs to 3ro2/c* mor*.
"s the price increases1 so do costs.

?h*( a( i(2/stryRs ra6 mat*ria! costs i(cr*as*5 oth*r thi(4s r*mai(i(4 th* sam*:
Th* s/33!y c/r:* shi1ts to th* ri4ht.
Dutput increases regardless of the market price and the suppl$ curve shifts upward.
Dutput decreases and the market price also decrease.
The suppl$ curve shifts to the left.

?h*( th* 3ric* o1 3*tro! ris*s by 1"P5 th* q/a(tity o1 3*tro! 3/rchas*2 1a!!s by ,P. This
sho6s that th* 2*ma(2 1or 3*tro! is:
so!/tio(J +ed7 A change in B demand :A change in B +rice7 *0A:*6A7 0.5 where eO* elastic
e)* inelastic

+erfectl$ elastic.
-nit elastic.
Elastic.
Inelastic.

)/33os* 3ric* ris*s 1rom H1< to H1- a(2 q/a(tity 2*ma(2*2 2*cr*as*s by "#P. ?* ca(
co(c!/2*:

!emand is unitar$ elastic.
!emand is elastic.
The elasticit$ of demand is 6.
Tota! r*:*(/* 6i!! 2*cr*as*.

DCti!ityD is most c!os*!y r*!at*2 to th* t*rm:

-seless.
.equire.
Necessar$.
)atis1actio(.

?h*( th* mar4i(a! /ti!ity o1 a 4oo2 is O*ro5 this im3!i*s that:

Th* co(s/m*r 6o/!2 (ot s3*(2 a(y a22itio(a! i(com* to b/y mor* o1 that 4oo2.
Consumption of additional units would have positive marginal utilit$.
Total utilit$ is minimi0ed.
Total utilit$ is also 0ero.

?h*( th* s/bstit/tio( *11*ct o1 a !o6*r*2 3ric* is co/(t*ract*2 by th* i(com* *11*ct5 th* 4oo2
i( q/*stio( is:

A( i(1*rior 4oo2.
" su#stitute good.
"n independent good.
" normal good.

8imi(ishi(4 mar4i(a! r*t/r(s im3!i*s:

!ecreasing marginal costs.
I(cr*asi(4 mar4i(a! costs.
!ecreasing average varia#le costs.
!ecreasing average fi'ed costs.

A 4ra3h sho6i(4 a!! th* combi(atio(s o1 ca3ita! a(2 !abo/r a:ai!ab!* 1or a 4i:*( tota! cost is
th*:
/udget constraint.
E'penditure set.
Isoquant.
Isocost.

?h*( a( isocost !i(* is B/st ta(4*(t to a( isoq/a(t5 6* +(o6 that:
Dutput is #eing produced at minimum cost.

I( or2*r 1or a ta=icab to b* o3*rat*2 i( N*6 Yor+ %ity5 it m/st ha:* a m*2a!!io( o( its hoo2.
M*2a!!io(s ar* *=3*(si:* b/t ca( b* r*so!2 a(2 ar* th*r*1or* a( *=am3!* o1: mi2 q/*stio(
A 1i=*2 cost.
" varia#le cost.
"n implicit cost.
"n opportunit$ cost.

Th* 4oo2 3ro2/c*2 by a mo(o3o!y:

@as perfect su#stitutes.
@as no su#stitutes at all.
Eas (o c!os* s/bstit/t*s.
Can #e easil$ duplicated.


+ositive issues.
Normati:* iss/*s.
%icro issues.
%acro issues.

Th* o!i4o3o!y mo2*! 6hich 3r*2icts that o!i4o3o!y 3ric*s 6i!! t*(2 to b* :*ry ri4i2 is th*:

Cournot model.
Co#we# model.
!ominant firm model.
Gi(+*2 2*ma(2 mo2*!.

Th* +i(+*2 2*ma(2 c/r:* mo2*! is bas*2 o( 6hich o1 th* 1o!!o6i(4 ass/m3tio(s@
Each firm considers its rival>s output to #e fi'ed.
Each firm considers its rival>s price to #e fi'ed.
Each firm #elieves rival will match all price changes.

?hich o1 th* 1o!!o6i(4 is NOT co(2/ci:* to th* s/cc*ss1/! o3*ratio( o1 a cart*!@

%arket demand for the good is relativel$ inelastic.
The cartel supplies all of the world>s output of the good.
Cartel mem#ers have su#stantial cost advantages over non(mem#er producers.
The suppl$ of non(cartel mem#ers is ver$ price elastic.

%art*!s ar*:
Or4a(iOatio(s o1 i(2*3*(2*(t 1irms5 3ro2/ci(4 simi!ar 3ro2/cts5 that 6or+ to4*th*r to
rais* 3ric*s a(2 r*strict o/t3/t.
Drgani0ations of interdependent firms1 producing similar products1 that work together to raise
prices and restrict output.
Drgani0ations of independent firms1 producing different products1 that work together to raise prices
and restrict output.
Considered as part of monopolistic competition.

Th* mar4i(a! r*:*(/* 3ro2/ct is:

-pward sloping due to the law of demand.
-pward sloping due to the law of marginal utilit$.
8o6(6ar2 s!o3i(4 2/* to th* !a6 o1 2imi(ishi(4 r*t/r(s.
!ownward sloping due to the law of suppl$.

A r*aso( 6hy som* *co(omists basica!!y i4(or* th* short r/( is b*ca/s* th*y b*!i*:* that th*
*co(omy:

@as self(correcting mechanisms.
Can onl$ #e graphed with a hori0ontal curve.
Never needs correction.

Th* !o(4 r/( a44r*4at* s/33!y c/r:* 6i!! shi1t to th* ri4ht i1:

The price level increases.
Factors o1 3ro2/ctio( (s/ch as !abor a(2 ca3ita! i(cr*as*.
E'penditures Isuch as consumption and net e'portsJ increase.
The prices of inputs used to produce goods and services Isuch as wages and the price of oilJ
decrease.

A 3rimary im3!icatio( o1 G*y(*sia( *co(omics is:

The #est government is the least government.
F!*=ib!* 6a4*s a(2 3ric*s *(s/r* 1/!! *m3!oym*(t.
%onetar$ polic$ is far superior to fiscal polic$.
/usiness(c$cle insta#ilit$ is #est corrected through government policies.

Th* *co(omic a(a!ysis most c!os*!y r*!at*2 to )ayRs La6 is:

,hort(run aggregate market.
+roduction possi#ilities.
Imperfect competition.
Circular flow.

?hich o1 th* 1o!!o6i(4 is NOT a r*aso( o1 2o6(6ar2 s!o3* o1 a44r*4at* 2*ma(2 c/r:*@

The e'change(rate effect.
The wealth effect.
Th* c!assica! 2ichotomy S mo(*tary (*/tra!ity *11*cts.
The interest(rate effect.

Th* /36ar2's!o3i(4 a44r*4at* s/33!y c/r:* i(2icat*s that:

"s firms increase their level of output1 the cost of producing an e'tra unit increases.
"n increase in aggregate demand causes little1 if an$ increase in real output the econom$ is
operating in the long run.
"n$ increase in aggregate demand causes the output of producers to fall #ecause the general price
level rises.

A( im3orta(t 2i11*r*(c* b*t6**( th* %!assica! a(2 G*y(*sia( a33roach*s to achi*:* a
macro*co(omic *q/i!ibri/m is that:

G*y(*sia( *co(omists acti:*!y 3romot* th* /s* o1 1isca! 3o!icy 6hi!* th* c!assica!
*co(omists 2o (ot.
He$nesian economists activel$ promote the use of monetar$ polic$ to improve aggregate economic
performance while the classical economists do not.
Classical economists #elieve that monetar$ polic$ will certainl$ affect the level of output while the
He$nesians #elieve that mone$ growth affects onl$ prices.
Classical economists #elieve that fiscal polic$ is an effective tool for achieving economic sta#ilit$
while the He$nesians do not.

Accor2i(4 to c!assica! *co(omists5 th*:

"ggregate demand curve is downward sloping and the aggregate suppl$ curve is vertical.
"ggregate demand curve is downward sloping and the aggregate suppl$ curve is upward sloping.
"ggregate demand curve is vertical and the aggregate suppl$ curve is upward sloping.
"ggregate demand curve is vertical and the aggregate suppl$ curve is hori0ontal.

Eo6 ma(y m*tho2s ar* th*r* to m*as/r* Fross 8om*stic 0ro2/ct@
Thr**.
&our.
&ive.
,i'.

The #alance in $our savings account.
Yo/r mo(th!y co(s/m3tio( o( 1oo2 it*ms.


Government de#t.
%a3ita!.
The amount of mone$ held #$ the pu#lic.

2*!ta co(s/mtio(S 2*!ta i(com* J&#S<#J.,

0.6.
0.8.
0.F.
#.,.

?hich o1 th* 1o!!o6i(4 3!ays th* +*y ba!a(ci(4 ro!* i( ma+i(4 s/r* that th* *co(omy r*ach*s
a(2 stays at *q/i!ibri/m at th* 3ot*(tia! o/t3/t !*:*!@

.eal e'change rate.
The production function.
.eal price level.
.eal interest rate.

I1 i(B*ctio(s ar* !*ss tha( 6ith2ra6a!s at th* 1/!!'*m3!oym*(t !*:*! o1 i(com* th*( th*r*
aris*s:

" deflationar$ gap.
@$steresis.
@$perinflation.
"n inflationar$ gap.

Th* !abo/r 1orc* is ma2* /3 o1:

The num#er of people emplo$ed minus the num#er of people unemplo$ed.
The num#er of people emplo$ed plus the num#er of people unemplo$ed.
Pust the num#er of people emplo$ed.
The whole population.

8*1!atio( is:

"n increase in the overall level of economic activit$.
"n increase in the overall price level.
" decrease in the overall level of economic activit$.
A 2*cr*as* i( th* o:*ra!! 3ric* !*:*!.

?hich o1 th* 1o!!o6i(4 6i!! r*s/!t i1 th*r* is a 2*cr*as* i( a44r*4at* 2*ma(2@
E'pansion inflation.
.ecession deflation.
E'pansion deflation.
.ecession inflation.

A 2*cr*as* i( th* (at/ra! rat* o1 /(*m3!oym*(t 6i!!:
,hift the +hillips curve to the left.
.esult in a decrease in the inflation rate along the +hillips curve.
)hi1t th* 0hi!!i3s c/r:* to th* ri4ht.
.esult in an increase in the inflation rate along the +hillips curve.

Th* 0hi!!i3s c/r:* 6i!! shi1t to th* ri4ht:

If there is a decrease in the e'pected inflation rate.
If there is an increase in the e'pected inflation rate.
If there is a decrease in the natural rate of unemplo$ment.
I1 th*r* is a 1a:orab!* s/33!y shoc+.

I1 a co/(try has 1!*=ib!* *=cha(4* rat* a(2 has mor* ra3i2 i(1!atio( rat* tha( oth*r co/(tri*s5
its c/rr*(cy 6i!!:

"ppreciate.
8*3r*ciat*.
Not effect.
"ll of the given are possi#le.

Th* (omi(a! *=cha(4* rat* is 2*1i(*2 as th*:

%arket on which currencies of various nations are traded for one another.
+rice of one unit of foriegn good in terms of domestic good.
0ric* o1 o(* /(it o1 1ori*4( c/rr*(cy i( t*rms o1 2om*stic c/rr*(cy.

%/rr*(t acco/(t 2*1icit is *q/a! to:

+rivate sector resource deficit.
Government #udget deficit.
+rivate sector resource deficit 4 Government #udget deficit.

I( th* *=o4*(o/s 4ro6th mo2*!5 i1 i(:*stm*(t *=c**2s 2*3r*ciatio(5 th* ca3ita! stoc+ 6i!!
''''''''''' a(2 o/t3/t 6i!!'''''''''''''' /(ti! th* st*a2y stat* is attai(*2.
I(cr*as*; i(cr*as*.
Increase decrease.
!ecrease decrease.
!ecrease increase.

E(2o4*(o/s 4ro6th th*ory 2i11*rs i( 6hat *ss*(tia! as3*ct 1rom th* )o!o6 th*ory o1 *co(omic
4ro6th@

Endogenous growth theor$ is a monetar$ theor$ whereas the ,olow theor$ is a
real theor$.
Endogenous growth theor$ assumes diminishing returns to capital and the ,olow theor$ assumes
constant returns.
I( *(2o4*(o/s 4ro6th th*ory5 *co(omi*s 6ith th* sam* t*ch(o!o4y a(2 sa:i(4 rat*
(**2 (ot co(:*r4* to th* sam* st*a2y stat* as i( th* )o!o6 mo2*!.
"ll of the given options are correct.

A c/rr*(cy a33r*ciatio( sho/!2:

.educe net e'ports and therefore increase aggregate demand.
.aise net e'ports and therefore decrease aggregate demand.
.educe net e'ports and therefore decrease aggregate demand.
.aise net e'ports and therefore increase aggregate demand.




)tat* ba(+.
National #ank.
&inance minister.
3orld #ank.

?hat 6o/!2 r*s/!t 1rom a 2*3r*ciatio( o1 th* 3o/(2 o( th* 1or*i4( *=cha(4* mar+*t@
"n increase in the price of imported computers.
" fall in the purchasing power of -, tourists in London.
" fall in the price of imported computers.
"n increase in the purchasing power of -H tourists overseas.

A( *=am3!* o1 hyst*r*sis ha:i(4 a (*4ati:* *11*ct o( a co/(tryRs *co(omy 6o/!2 b*:

@$perinflation caused #$ e'cessive demand.
Nervous investors selling all their shares1 causing the stockmarket to crash.
-nemplo$ed workers not taking availa#le 2o#s.
3omen #eing kept out of 2o#s traditionall$ held #$ men.

./*stio( No: <1 ( Mar+s: <
Bri*1!y 2isc/ss th* co(c*3t o1 com3arati:* a2:a(ta4* 6ith th* h*!3 o1 *=am3!*.

./*stio( No: <" ( Mar+s: 1#
A. 8i11*r*(tiat* b*t6**( Mar4i(a! 0ro3*(sity to %o(s/m* (M0% a(2 Mar4i(a!
0ro3*(sity to )a:* (M0).
B. )/33os* a ho/s*ho!2 has th* co(s/m3tio( 1/(ctio( (% 3r*s*(t*2 i( th* 1i4/r*
4i:*( b*!o6:
a. Fi(2 co(s/m3tio( 6h*( 2is3osab!* i(com* is H,5### a(2 H1#5###.
b. Fi(2 co(s/m3tio( 6h*( 2is3osab!* i(com* is H >5###. Eo6 ca( a ho/s*ho!2
co(s/m* mor* tha( its 2is3osab!* i(com*@
c. ?hat is tr/* 1or *:*ry 3oi(t o( th* &<
#
!i(*@

(Mar+s: &I>

./*stio( No: <7 ( Mar+s: 1#
8*1i(* M# a(2 M1. Bri*1!y 2isc/ss th* thr** broa2 moti:*s o1 ho!2i(4 mo(*y.

(Mar+s:&I>

./*stio( No: <& ( Mar+s: 1#
R*ca!! th* Eq/atio( o1 ./a(tity th*ory o1 mo(*y a(2 ca!c/!at* th* missi(4 1i4/r* i( *ach o1 th*
1o!!o6i(4 cas*s:
aJ %one$ suppl$ I%J 7*001 +rice I+J 7 9 and real output IBJ 7 600. Calculate the
missing figure.
#J Lelocit$ of mone$ ILJ 7 81 +rice I+J 7 5 and output IBJ 7*00. Calculate the missing
figure.
cJ %one$ suppl$ I%J 7 6001 velocit$ of mone$ ILJ 7 G and output IBJ 7 G00. Calculate
the missing figure.
dJ %one$ suppl$ I%J 7*501 velocit$ of mone$ ILJ 7 E1 +rice level I+J 7 9. Calculate the
missing value.

(Mar+s: ".< *ach
FINALTERM EXAMINATION (&
Fa!! "##,
E%O&#1' Eco(omics ()*ssio( ' 7
Tim*: 1"# mi(
Mar+s: ,<


To ca!c/!at* th* 3ric* *!asticity o1 2*ma(25 yo/ (**2 to +(o6 99999999999999999999 3oi(t(s
o( th* 99999999999999999999 2*ma(2 c/r:*.
Dne1 same.
Two1 same.
Dne1 opposite.
Two1 o33osit*.


Fo:*r(m*(ts 3rot*ct 2om*stic i(2/stri*s 1rom 1or*i4( com3*titio( by 9999999999999.
E(co/ra4i(4 a4r**m*(ts !i+* NAFTA.
-sing tariff and non tariff #arriers.
!iscouraging union mem#ership.
Heeping the minimum wage low.


To ma+* th* *q/atio( o1 *=cha(4* i( th* q/a(tity th*ory o1 mo(*y:
L and B are assumed to #e constant.
The mone$ suppl$ is assumed to #e produced #$ the #anking s$stem and not e'clusivel$ in
currenc$.
The quantit$ of mone$ is assumed to determine the amount of .eal G!+.
M a(2 0 ar* co(si2*r*2 co(sta(t.


I( th* *q/atio( MQ J 0.5 accor2i(4 to th* cr/2* q/a(tity th*ory o1 mo(*y:
% has no effect on the price level.
Q is th* (/mb*r o1 tim*s *ach 2o!!ar is s3*(t 3*r y*ar.
B is the real price level.
+ rises as L falls1 other things constant.


A( i(cr*as* i( th* 3ric* o1 im3ort*2 com3/t*rs.
" fall in the price of imported computers.


8is3osab!* i(com* is:
Total income plus transfer pa$ments.
Total income minus saving.
Total income plus net ta'es.
Tota! i(com* mi(/s (*t ta=*s.


Eo6 sho/!2 mo(*tary 3o!icy b* /s*2 2/ri(4 r*c*ssio(s@
!ecrease mone$ suppl$ to increase interest rate and increase aggregate demand.
Increase mone$ suppl$ to increase interest rate and increase aggregate demand.
8*cr*as* mo(*y s/33!y to 2*cr*as* i(t*r*st rat* a(2 i(cr*as* a44r*4at* 2*ma(2.
Increase mone$ suppl$ to decrease interest rate and increase aggregate demand.


?hich o1 th* 1o!!o6i(4 3o!icy o3tio(s 6o/!2 sim/!ta(*o/s!y i(cr*as* i(t*r*st rat*s a(2
2*cr*as* o/t3/t@
Th* c*(tra! ba(+ s*!!s bo(2s thro/4h o3*( mar+*t o3*ratio(s.
The federal government increases its defense purchases.
The central #ank e'pands the mone$ suppl$.
The federal government increases the ta' rate.


A( i(cr*as* i( th* mo(*y s/33!y 6i!! ca/s* i(t*r*st rat*s to:
Ris*.
&all.
.emain unchanged.


,tate #ank.
National #ank.
&inance minister.
3orld #ank.


Fisca! 3o!icy is th* 4o:*r(m*(t 3ro4ram 6ith r*s3*ct to its:
E=3*(2it/r* a(2 ta= r*:*(/*.
Increase in unemplo$ment.
,teel %ill +rivati0ation.
-nemplo$ment reduction.


A( *=3a(sio(ary 1isca! 3o!icy ca(:
.aise the national de#t.
8*cr*as* th* (atio(a! 2*bt.
@ave no effect on national de#t.


I1 a 6ar 2*stroys a !ar4* 3ortio( o1 a co/(tryRs ca3ita! stoc+ b/t th* sa:i(4 rat* is /(cha(4*25
th* *=o4*(o/s mo2*! 3r*2icts that o/t3/t 6i!! 4ro6 a(2 th* (*6 st*a2y stat* 6i!! a33roach:
" higher output level than #efore.
The same output level as #efore.
" lower output level than #efore.
Th* Fo!2*( R/!* o/t3/t !*:*!.


I1 th* 3ric*s o1 a!! 4oo2s a(2 s*r:ic*s ris* 2/ri(4 th* y*ar:
.eal G!+ ma$ fall.
Nominal G!+ must fall.
Nominal G!+ ma$ increase.
R*a! F80 m/st ris*.


Is Frosss 8om*stic 0ro2/ct (F80 a( acc/rat* m*as/r* o1 a co/(tryNs 6*!! b*i(4@
;es1 it is the #est measure of national well #eing.
;es1 provided we use real G!+ and not nominal G!+.
C(c*rtai(5 2*3*(2i(4 o( 6h*th*r F80 is risi(4 or 1a!!i(4.
No1 it is not.


Eco(omic acti:ity mo:*s 1rom a tro/4h i(to a 3*rio2 o1 ''''''''''''''' /(ti! it r*ach*s a
'''''''''''''''''' a(2 th*( i(to a 3*rio2 o1 ''''''''''''''''''.
E'pansion trough recession
.ecession trough e'pansion
E=3a(sio(; 3*a+; r*c*ssio(
.ecession peak e'pansion




A 2*cr*as* i( th* (at/ra! rat* o1 /(*m3!oym*(t 6i!!:
,hift the +hillips curve to the left.
.esult in a decrease in the inflation rate along the +hillips curve.
)hi1t th* 0hi!!i3s c/r:* to th* ri4ht.
.esult in an increase in the inflation rate along the +hillips curve.


Th* /(*m3!oym*(t rat* is *q/a! to:
Num#er of emplo$ed : la#our force ' *00.
Num#er of unemplo$ed : la#our force.
(N/mb*r o1 /(*m3!oy*2 S !abo/r 1orc* = 1##.


0.6.
0.8.
0.F.
#.,.


Government de#t.
%a3ita!.


The #alance in $our savings account.
Yo/r mo(th!y co(s/m3tio( o( 1oo2 it*ms.


R*a! Fross 8om*stic 0ro2/ct (F80 is m*as/r*2:
"t #ase $ear prices.
"t current $ear prices.
"t a constant output level #ut at current prices.
As th* 2i11*r*(c* b*t6**( th* c/rr*(t y*arRs F80 a(2 !ast y*arRs F80.


Accor2i(4 to th* mo2*! o1 a44r*4at* s/33!y a(2 a44r*4at* 2*ma(25 i( th* !o(4 r/(5 a(
/oth prices and output to rise.
0ric*s to ris* a(2 o/t3/t to r*mai( /(cha(4*2.


Accor2i(4 to c!assica! *co(omics5 th* *co(omy 6as /(!i+*!y to *=3*ri*(c*:
F/!! *m3!oym*(t.
&le'i#le wages and prices.
Equalit$ #etween saving and investment.
@igh rates of unemplo$ment.


A 3rimary im3!icatio( o1 G*y(*sia( *co(omics is:
The #est government is the least government.
F!*=ib!* 6a4*s a(2 3ric*s *(s/r* 1/!! *m3!oym*(t.
%onetar$ polic$ is far superior to fiscal polic$.
/usiness(c$cle insta#ilit$ is #est corrected through government policies.


G*y(*sia( *co(omics 6as th* 3r*2omi(a(t *co(omic th*ory:
+rior to the late *G00s.
&rom the late *G00s to the earl$ *<00s.
&rom *<90s to *<G0s.
)i(c* 1$-#s.


Accor2i(4 to G*y(*s5 th* *co(omy 2o*s (ot s*!1 corr*ct q/ic+!y b*ca/s*:
3ith less consumption and more savings the interest rate will drop.
In the short run workers are full$ emplo$ed and cannot produce enough to get to long run
equili#rium.
3ages and prices are fle'i#le in the short run.
?a4*s a(2 3ric*s ar* stic+y i( th* short r/(.


?hich o1 th* 1o!!o6i(4 6i!! !*a2 to a( i(cr*as* i( a44r*4at* 2*ma(2@
"n increase in government ta' revenues.
"n increase in household savings.
A( i(cr*as* i( b/si(*ss ca3ita! i(:*stm*(t.
"n increase in demand for imports.


Th* a44r*4at* s/33!y c/r:* is th* r*!atio(shi3 b*t6**(:
The price level and the real domestic output purchased.
Th* 3ric* !*:*! a(2 th* r*a! 2om*stic o/t3/t 3ro2/c*2.
The price level which producers are willing to accept and the price level purchasers are willing to
pa$.
The real domestic output purchased and the real domestic output produced.




%art*!s ar*:
Or4a(iOatio(s o1 i(2*3*(2*(t 1irms5 3ro2/ci(4 simi!ar 3ro2/cts5 that 6or+ to4*th*r to
rais* 3ric*s a(2 r*strict o/t3/t.
Drgani0ations of interdependent firms1 producing similar products1 that work together to raise
Drgani0ations of independent firms1 producing different products1 that work together to raise
Considered as part of monopolistic competition.


DTh* sit/atio( i( 6hich t6o or mor* 1irms s*t th*ir 3ric*s a(2 o/t3/t accor2i(4 to a 3!a(
a4r**2 /3o( b*t6**( th*m i( or2*r to 2i:i2* th* mar+*t amo(4 th*ms*!:*sD. ?hich o1 th*
1o!!o6i(4 b*st 2*srib*s this sit/atio(@
,trategic interaction.
%onopolistic competition.
Dligopol$.
%o!!/sio(.


?hich o1 th* 1o!!o6i(4 mar+*t sit/atio( is m/ch !i+* a 3/r* mo(o3o!y *=c*3t that its m*mb*r
1irms t*(2 to ch*at o( a4r**2 /3o( 3ric* a(2 o/t3/t strat*4i*s@
!uopol$.
Cartel.
%arket sharing monopol$.
Nat/ra! mo(o3o!y.


"n increase in output level and a decrease in price.
A 2*cr*as* i( o/t3/t !*:*! a(2 a( i(cr*as* i( 3ric*.
" decrease in output level and no change in price.


+ositive issues.
Normati:* iss/*s.
%icro issues.
%acro issues.


A 6*!1ar* !oss occ/rs i( mo(o3o!y 6h*r*:
The price is greater than the marginal cost.
The price is greater than the marginal #enefit.
The price is greater than the average revenue.
Th* 3ric* is 4r*at*r tha( th* mar4i(a! r*:*(/*.


0ro2/cts ar* 2i11*r*(tiat*2.
There is freedom of entr$ and e'it into the industr$ in the long run.


Fra3hica!!y5 th* Mar4i(a! %ost c/r:* c/ts thro/4h th* A:*ra4* Tota! %ost c/r:* at:
The lowest point on the %C curve.
The highest point on the %C curve.
Th* !o6*st 3oi(t o( th* AT% c/r:*.
The middle of the upward(sloping portion of the total cost curve.


I1 c/rr*(t o/t3/t is !*ss tha( th* 3ro1it'ma=imiOi(4 o/t3/t th*( 6hich o1 th* 1o!!o6i(4 m/st b*
TRCE@
Total revenue is less than total cost.
"verage revenue is less than average cost.
Mar4i(a! r*:*(/* is !*ss tha( mar4i(a! cost.
%arginal revenue is greater than marginal cost.


A 3ro2/ctio( 1/(ctio(:
R*!at*s i(3/ts 6ith o/t3/t.
Generates a curve that is upward sloping.
,hows diminishing marginal product of an input1 since it gets flatter as output rises.


A (orma! 4oo2 ca( b* 2*1i(*2 as o(* 6hich co(s/m*rs 3/rchas* mor* o1 as:
+rices fall.
+rices rise.
Incomes fall.
I(com*s i(cr*as*.


I1 a mar+*t bas+*t is cha(4*2 by a22i(4 mor* to at !*ast o(* o1 th* 4oo2s5 th*( *:*ry
co(s/m*r 6i!!:
.ank the market #asket more highl$ after the change.
.ank the market #asket more highl$ #efore the change.
Ra(+ th* mar+*t bas+*t B/st as 2*sirab!* a1t*r th* cha(4*.
/e una#le to decide whether he prefers the first market #asket to the second or the second to the
first.


Th* co(c*3t o1 a ris+ 3r*mi/m a33!i*s to a 3*rso( that is:
.isk averse.
.isk neutral.
Ris+ !o:i(4.


La6 o1 2imi(ishi(4 mar4i(a! /ti!ity i(2icat*s that th* s!o3* o1 th* mar4i(a! /ti!ity c/r:* is:
@ori0ontal.
Lertical.
N*4ati:*.
+ositive.


Th* *=tra :a!/* that co(s/m*rs r*c*i:* abo:* 6hat th*y 3ay 1or that 4oo2 is ca!!*2:
+roducer surplus.
-tilit$.
%arginal utilit$.
%o(s/m*r s/r3!/s.


I1 a 2*cr*as* i( 3ric* i(cr*as*s th* tota! r*:*(/* th*(:
8*ma(2 is *!astic.
!emand is inelastic.
,uppl$ is elastic.
,uppl$ is inelastic.




?hi!* mo:i(4 1rom !*1t to ri4ht5 th* ty3ica! 3ro2/ctio( 3ossibi!iti*s c/r:* has:
A( i(cr*asi(4!y st**3 (*4ati:* s!o3*.
" decreasingl$ steep negative slope.
"n increasingl$ steep positive slope.
" constant and negative slope.


O/r *co(omy is charact*riO*2 by:
C(!imit*2 6a(ts a(2 (**2s.
-nlimited material resources.
No energ$ resources.
"#undant productive la#or.

./*stio( No: <1 ( Mar+s: <

8*1i(* 1or*i4( *=cha(4* mar+*ts. A!so 4i:* som* *=am3!*s o1 1or*i4( *=cha(4* mar+*ts.

&oreign e'change marketsM
The foreign e'change market is a specific s$stem of a countr$ for a foreign trade and currenc$ e'change.
&or e'ample1 if +akistan imports a product from -,"1 +akistan will #u$ dollars from rupees1 so +akistan
e'changed its currenc$ in foreign market.
&oreign markets depend on imports1 e'ports and currenc$ e'changed process. /$ these wa$s two
countries e'change their markets.
./*stio( No: <" ( Mar+s: 1#

?hat 6i!! b* th* ro!* o1 4o:*r(m*(t i( th* 1or*i4( *=cha(4* mar+*t i( th* 1o!!o6i(4 cas*s@
a. I1 th* s/33!y c/r:* o1 2o!!ars shi1ts to th* ri4ht 2/* to ris* i( *=3orts.
if the suppl$ curve of dollars shifts to the right due to rise in e'ports1 the government role in foreign
markets will #e ver$ good. /ecause due to rise in e'ports government will e'change mone$ and the$ will
gain high price against its currenc$. The government will increase its e'ports so it raises the price of its
currenc$ in foreign e'change.

b. I1 th* 2*ma(2 c/r:* 1or 2o!!ars shi1ts to ri4ht 2/* to ris* i( im3orts.
If the demand curves for dollars shifts to right due to rise in imports1 the government should decrease the
imports rate to save the currenc$ from falling its price. /asicall$ rise in imports decreases the price of
currenc$ in foreign e'change markets. ,o government will slow down the imports and will tr$ to increase
its own products to complete the necessar$ requirement of the countr$.
(Mar+s:<I<

./*stio( No: <7 ( Mar+s: 1#

Fisca! 3o!icy:
&iscal polic$ is #asicall$ a government polic$ for e'penses1 imports1 e'ports of goods1 #enefits from
unemplo$ment1 interest on de#ts etc.
E=3a(sio(ary 1isca! 3o!icy:
3hen there is an increase in government spending1 there will #e more interest rate of #ank loan which
government has #orrowed for spending.
%o(tractio(ary 1isca! 3o!icy:
In this polic$ the aggregate demand rises due to increase in unemplo$ment rate of countr$.
-nemplo$ment rise the government e'penditures.
(Mar+s: "I&I&

./*stio( No: <& ( Mar+s: 1#
A.

I1 th*r* is a 4ra2/a! i(cr*as* i( th* sa:i(4 rat* o:*r tim*5 6o/!2 this !*a2 to s/stai(*2
*co(omic 4ro6th@ Fi:* yo/r a(s6*r 6ith bri*1 *=3!a(atio(.
!ifinetl$1 it will increase economic growth rate. "s we save more and more mone$ or goods from spendings.
Dur economical position #ecomes good. If we have much more savings we can inverst it in a good #usiness
or production. This savings will produce more goods and and ma$ #e more people will #e emplo$ed in this
proccess. ,o our counrt$ will develop graduall$. /$ this wa$ we will #e a#le top increase our growth rate
economicall$.
B. I1 this is tr/*5 6hy 2o 3*o3!* (ot i(cr*as* th*ir rat* o1 sa:i(4@
,ome times +eople are afraid #ecause of decrease in saving rate and from low e'change rate. The$ don?t put
their mone$ in #anks. "nd the$ sometimes don?t invest. &or a good economical grwoth e'tra time is required
which more people don?t want to wait. ,ometimes the savings rate from #anks is too low.
%. I1 th*r* is a hi4h*r 3artici3atio( rat* a(2 F80 3*r ca3ita ris*s5 6o/!2 o/t3/t 3*r 6or+*r a!so
ris*@ Fi:* yo/r a(s6*r 6ith bri*1 *=3!a(atio(.
;es1 #ecause when the rate of G!+ per capita rises1 there will #e more and more chances for emplo$ment
and the life of people will #ecome standard. The$ will increase the salaries and wages of workers. /$ this
wa$ the workers will #e motivated and the$ will produce more output.
(Mar+s:&I7I7
FINALTERM EXAMINATION (<
Fa!! "##$
)har*2 T )o!:*2 by :/Us T*am
Tim*: 1"# mi(
Mar+s: ,-
I1 3*( a(2 i(+ ar* com3!*m*(ts5 th*( a( i(cr*as* i( th* 3ric* o1 3*( 6i!! ca/s*:

"n increase in the price of ink.
L*ss i(+ to b* 2*ma(2*2 at *ach 3ric*.
" decrease in the demand for pen.
" rightward shift in the demand curve for ink.

A mar+*t is sai2 to b* i( *q/i!ibri/m 6h*(:
!emand equals output.
There is downward pressure on price.
Th* amo/(t co(s/m*rs 6ish to b/y at th* c/rr*(t 3ric* *q/a!s th* amo/(t 3ro2/c*rs
6ish to s*!! at that 3ric*.
"ll #u$ers are a#le to find sellers willing to sell to them at the current price.
.efM " market is said to #e in equili#rium when #oth #u$ers and sellers are satisfied.

As mor* o1 a 4oo2 is co(s/m*25 th*( tota! /ti!ity ty3ica!!y:
I(cr*as*s at a 2*cr*asi(4 rat*.
!ecreases as long as marginal utilit$ is negative.
!ecreases as long as marginal utilit$ is positive.
Is negative as long as marginal utilit$ is decreasing.

A mo(o3o!istica!!y com3*titi:* 1irm i( short r/( *q/i!ibri/m:

3ill make negative profit Ilose mone$J.
3ill make 0ero profit I#reak(evenJ.
3ill make positive profit.
A(y o1 th* 4i:*( ar* 3ossib!*.

A mo(o3o!istica!!y com3*titi:* 1irm i( th* !o(4 r/( *q/i!ibri/m:

3ill make negative profit.
?i!! ma+* O*ro 3ro1it.
"n$ of the given are possi#le.
.efM " monopolisticall$ competitive firm in the long run will alwa$s #reak even1 or earn onl$ normal profit
ensured #$ entr$ and e'it of firms.

Th* mar+*t str/ct/r* i( 6hich strat*4ic co(si2*ratio(s ar* most im3orta(t is:

O!i4o3o!y.
+ure competition.
+ure monopol$.


.efM httpM::www.cengage.co.uk:nicholson:students:mcqs:ch08.htm
httpM::groups.google.com:group:vuQs
Th* t*=tboo+ 1or yo/r c!ass 6as (ot 3ro2/c*2 i( a 3*r1*ct!y com3*titi:* i(2/stry b*ca/s*:
There are so few firms in the industr$ that market shares are not small1 and firm>s decisions have
an impact on market price.
-pper(division microeconomics te'ts are not all alike.
It is not costless to enter or e'it the te't#ook industr$.


0ro2/cts ar* 2i11*r*(tiat*2.
There is freedom of entr$ and e'it into the industr$ in the long run.


A( i(cr*as* i( o/t3/t !*:*! a(2 a 2*cr*as* i( 3ric*.
" decrease in output level and an increase in price.
" decrease in output level and no change in price.

For a 1irm b/yi(4 !abor com3*titi:*!y5 th* mar4i(a! i(3/t cost is *q/a! to th*:
?a4*.
Interest rate.
+rice of output.
Cost of raw materials.

Th* a44r*4at* s/33!y c/r:* is th* r*!atio(shi3 b*t6**(:

The price level and the real domestic output purchased.
Th* 3ric* !*:*! a(2 th* r*a! 2om*stic o/t3/t 3ro2/c*2.
The price level which producers are willing to accept and the price level purchasers are willing to
pa$.
The real domestic output purchased and the real domestic output produced.
.efMhttpM::economics.uakron.edu:facult$:ghosh:600<:prinmacro:Chapter*9R"ggregate,uppl$and!emand.
pdf

decrease.

G*y(*sia( *co(omics r*B*ct*2 th* c!assica! ass/m3tio( that:

)/33!y cr*at*s its o6( 2*ma(2.
+rices and wages are infle'i#le.
,elf(correction takes a long time.
Consumption e'penditures depend on disposa#le income.


Government de#t.
%a3ita!.

A (atio(Rs ba!a(c* o1 3aym*(ts ca( b* a11*ct*2 by cha(4*s i(:

&oreign income.
The differential #etween domestic and foreign interest rates.
Th* r*a! *=cha(4* rat*.

R*a! F80 is *q/a! to:

Nomi(a! F80 V I(1!atio(.
Nominal G!+ 4 Inflation.
Nominal G!+: Inflation.
Inflation : Nominal G!+.

I1 6* com3ar* Fross 8om*stic 0ro2/ct (F80 6ith Fross Natio(a! 0ro2/ct (FN0 th*(:

GN+ 7 G!+ K Net income from a#road.
FN0 J F80 I N*t i(com* 1rom abroa2.
GN+ 7 NN+ K Net income from a#road.
GN+ 7 NN+ 4 Net income from a#road.

I( G*y(*sia( *co(omics5 i1 a44r*4at* *=3*(2it/r*s ar* !*ss tha( a44r*4at* o/t3/t th*(:

The price level rises.
Inventories decrease.
Emplo$ment decreases.
A44r*4at* o/t3/t i(cr*as*s.

?hich o1 th* 1o!!o6i(4 is tr/* abo/t s/33!y c/r:* /(2*r mo(o3o!y@
It is same as the competitive market suppl$ curve.
It is th* 3ortio( o1 mar4i(a! cost c/r:* 6h*r* mar4i(a! costs *=c**2 th* mi(im/m :a!/*
o1 a:*ra4* :ariab!* costs.
It is the result of market power and production costs.
None of the given statements is true.

A1t*r th* co!!/sio(5 o!i4o3o!ists ar* ab!* to:
.aise price #ut not restrict output.
.aise price and restrict output #ut not attain the monopol$ profit.
Rais* 3ric* a(2 r*strict o/t3/t a(2 th*r*1or* attai( th* mo(o3o!y 3ro1it.
.estrict output #ut not raise price.

?hich o1 th* 1o!!o6i(4 *:*(t 6i!! !*a2 to6ar2s cost'3/sh i(1!atio( a(2 th*r*1or* sta41!atio(@
A( i(cr*as* i( ta=*s o( i(2i:i2/a!s.
" decrease in real interest rates.
" union settlement that increases wage levels.
"n increase in government purchases.

8o/b!* co/(ti(4 i( (atio(a! i(com* r*1*rs to:
Counting a product more than once.
%o/(ti(4 a 3ro2/ct at th* 1i(a! sta4* o1 o/t3/t 3roc*ss.
Counting #oth as product and as factor pa$ment.
Counting #oth as real goods and as mone$ flow.
.efM httpM::www.google.com.pk:urlSsa7tTsource7we#Tct7resTcd7*Tved70C";B&2""Turl7httpA9"
A6&A6&www.wi0iq.comA6&online(testsA6&5<60(general(economicsTrct72Tq7
A66!ou#le4counting4in4national4incomeA66Tei7#k6C,E(2!p(
psBa9ooi6/"Tusg7"&B2CNGe5GQEl&row$kDmk3Rqw3wQu%DDg

For +(o6i(4 th* s3*(2i(4 ca3acity o1 th* ho/s*ho!2 s*ctor5 6* ha:* to /s* th* co(c*3t o1:
Natio(a! i(com*.
+ersonal income.
+rivate income.
+ersonal disposa#le income.

For a st/2y o1 th* !o(4 t*rm 4ro6th o1 th* *co(omy5 6* /s*:
R*a! FN0.
Nominal GN+.
+ersonal income.
!isposa#le personal income.
.efM httpM::#ooks.google.com.pk:#ooksSid7tug!""""%/"PTpg7+TE*Tlpg7+TE*Tdq7
A66&or4a4stud$4of4the4long4term4growth4of4the4econom$14we4use
A66Tsource7#lTots7R@L.cpeuvrTsig76'oG'o&<i2FCnhpl0etu#CC!i0oThl7enTei7;EFC,(
CBPpfgs"#v'ITa/"Tsa7CToi7#ookRresultTct7resultTresnum7*Tved70C"cBF"Ew""Uv7onepageTq7
A66&orA60aA60stud$A60ofA60theA60longA60termA60growthA60ofA60theA60econom$A6C
A60weA60useA66Tf7false
vuQs
?hich o1 th* 1o!!o6i(4 is a( *=am3!* o1 a !*a+a4*@
,aving.
Investment.
E=3orts.
Government e'penditures.

Tota! 3ro2/ct o1 !abor 3*r 2ay is sho6( i( th* 1o!!o6i(4 tab!* a(2 th* 3ric* o1 th* 3ro2/ct is
H1#S/(it. ?hat is th* :a!/* o1 th* mar4i(a! 3ro2/ct o1 !abor (QM0L o1 th* 7r2 6or+*r@
Labor Tota! 0ro2/ct
* *0
6 65
9 95
8 80
5 8*

5.
1#.
50.
*00.

I( th* short r/(5 th* *q/i!ibri/m 3ric* !*:*! a(2 th* *q/i!ibri/m !*:*! o1 tota! o/t3/t ar*
2*t*rmi(*2 by th* i(t*rs*ctio( o1:
The aggregate demand1 the short(run aggregate suppl$ and the long(run aggregate suppl$ curves.
The short(run aggregate suppl$ and the long(run aggregate suppl$ curves.
Th* a44r*4at* 2*ma(2 a(2 th* short'r/( a44r*4at* s/33!y c/r:*s.
The aggregate demand and the long(run aggregate suppl$ curves.
.efM httpM::www.flatworldknowledge.com:pu#:*.0:principles(macroeconomics:6<<<*

?hat is th* i(t*r*st rat* *11*ct that *=3!ai(s 6hy th* a44r*4at* 2*ma(2 c/r:* s!o3*s
2o6(6ar2@
It refers to the effect of changes in the price level on quantit$ of investment demanded which in
turn affects interest rates.
It refers to the effect of interest rates on #orrowing which in turn affects consumption spending.
It r*1*rs to th* *11*ct o1 cha(4*s i( th* 3ric* !*:*! o( i(t*r*st rat*s 6hich i( t/r( a11*cts
th* q/a(tity o1 i(:*stm*(t 2*ma(2*2.
It refers to the shifts in aggregate demand when interest rates change.

I( th* c!assica! 6or!25 yo/ co/!2 a!6ays 4*t a Bob i1 yo/:
@ad a good education.
3orked in an industr$ that was recession proof.
@ad unemplo$ment in the manufacturing sector.
?o/!2 acc*3t a !o6*r 6a4*.

Th* !*:*! o1 o/t3/t 3ro2/c*2 6h*( th* !abor mar+*t is i( *q/i!ibri/m is ca!!*2:
Target output.
+roduct market equili#rium output.
F/!!'*m3!oym*(t o/t3/t.
Natural output.

?hich o1 th* 1o!!o6i(4 *co(omists cam* /3 6ith a th*ory r*4ar2i(4 th* tra2*o11 b*t6**(
/(*m3!oym*(t a(2 i(1!atio(@
A.?. 0hi!!i3s.
Pohn %a$nard He$nes.
Poseph ,chumpeter.
%ilton &riedman.


R*1*r to th* abo:* 1i4/r*5 mo:i(4 1rom B to A sho6s a tra2*o11 o1:
R*1*r to th* abo:* 1i4/r*5 mo:i(4 1rom B to A sho6s a tra2*o11 o1:

%ore unemplo$ment for less inflation.
L*ss /(*m3!oym*(t 1or mor* i(1!atio(.
" fi'ed amount of unemplo$ment for more inflation.
Less unemplo$ment for less inflation.

Fa!!i(4 i(1!atio( m*a(s:
That the price level is falling from one period to the ne't.
That the price level is falling at a decreasing rate.
That the price level is falling at an increasing rate.
That th* 3ric* !*:*! is i(cr*asi(4 at a 2*cr*asi(4 rat*.

8is3osab!* 0*rso(a! I(com*
H
%o(s/m3tio(
H
*00 *80
600 660
900 900
800 9E0
500 8F0
R*1*r to th* abo:* tab!*5 6h*( 2is3osab!* 3*rso(a! i(com* is H7##5 6hat is th* amo/(t o1
3*rso(a! sa:i(4@
VW80.
VW60.
H#.
W60.

Th* r*a! *=cha(4* rat* is 2*1i(*2 as th*:
Mar+*t *=cha(4* rat* a2B/st*2 1or 3ric*s.
%arket e'change rate ad2usted for interest rates.
%arket e'change rate.
E'change rate determined #$ the government.
Th* i(t*r*st rat* 3arity is th* basic i2*(tity that r*!at*s 6hich o1 th* 1o!!o6i(4@
I(t*r*st rat*s a(2 *=cha(4* rat*s.
Interest rates and inflation rate.
E'change rates and inflation rate.
!iscount rate and inflation rate.

)/33os* th*r* is a st*a2y stat* co(2itio( i( a( *co(omy 6ith (o 3o3/!atio( 4ro6th. I( 6hich
co(2itio(5 th* st*a2y'stat* !*:*! o1 ca3ita! 3*r 6or+*r 6i!! i(cr*as*@
3hen the amount of investment per worker decreases.
3hen the depreciation rate increases.
?h*( th* sa:i(4 rat* i(cr*as*s.
In all of the given options.

KFo:*r(m*(t co!!*cts O*ro r*:*(/* i1 th* ta= rat* is #P a(2 i1 th* ta= rat* is 1##P.L ?hich o1
th* 1o!!o6i(4 b*st 2*scrib*s this stat*m*(t@
Consumption curve.
,uppl$ curve.
La11*r c/r:*.
Investment curve.
.efM en.wikipedia.org/wiki/Laffer_curve

A ta= o( th* acco/(ti(4 3ro1its o1 cor3oratio(s is +(o6( as:
,ales ta'.
E'cise ta'.
%or3orat* i(com* ta=.
+ersonal income ta'.
.efM httpM::qui0let.com:G65*6*:economics(flash(cards:

?hich o1 th* 1o!!o6i(4 sho6s th* 1/(ctio(s o1 mo(*y@
A co(2/ctor o1 *co(omic acti:ity5 a m*2i/m o1 *=cha(4*5 a(2 a stor* o1 :a!/*.
" medium of e'change1 a store of value1 and a factor of production.
" store of value1 a medium of e'change1 and a determinant of investment.
" store of value1 a unit of account1 and a medium of e'change.

?hich o1 th* 1o!!o6i(4 b*st 2*scrib*s a ba(+Ns r*s*r:*s@
The minimum value of assets it must have.
The amount of gold it is required to have as reserves against loans.
Th* :a!/* o1 1*2*ra! s*c/riti*s it is r*q/ir*2 to ha:* as r*s*r:*s a4ai(st !oa(s.
!eposits that #ank has accepted from customers #ut have not loaned out.

Th* s3*cia! im3orta(c* o1 ba(+s amo(4 th* 1i(a(cia! i(stit/tio(s aris*s 1rom:
Their large and heav$ transactions.
Their position as suppliers of mone$.
Their power to create mone$.
Th*ir i(1!/*(c* o( th* *co(omy.

?hich o1 th* 1o!!o6i(4 6i!! b* TRCE i1 r*a! i(com* ros* a(2 th* i(t*r*st rat* 1*!! 1o!!o6i(4 a(
i(cr*as* i( 4o:*r(m*(t 3/rchas*s@
I, curve must #e vertical.
L% curve must #e vertical.
%*(tra! Ba(+ m/st ha:* i(cr*as*2 th* mo(*y s/33!y at th* sam* tim*.
Central /ank must have decreased the mone$ suppl$ at the same time.

I1 mo(*y s/33!y is 1i=*2 by th* c*(tra! ba(+ th*( i( i(t*r*st rat*'mo(*y s/33!y s3ac*5 mo(*y
s/33!y c/r:* 6i!! b*:
@ori0ontal.
Lertical.
Negativel$ sloped.
0ositi:*!y s!o3*2.

?hy a4ric/!t/r* s*ctor has a( im3orta(t ro!* to 3!ay i( th* 2*:*!o3m*(t 3roc*ss@
/ecause a #alanced approach to growth is necessar$.
/ecause the vast ma2orit$ of an under developed countr$ is engaged in agriculture.
B*ca/s* a4ric/!t/r* may b* a maBor bott!*(*c+ i( th* 3roc*ss o1 2*:*!o3m*(t.
/ecause of all of the given options.

R*1*r to th* abo:* 1i4/r*5 th* mar4i(a! 3ro3*(sity to co(s/m* is:
0.65.
0.50.
0.F0.
#.>-.


R*1*r to th* abo:* 1i4/r*5 6h*( 2is3osab!* 3*rso(a! i(com* is H"5### bi!!io(:
+ersonal saving is W*1600 #illion.
Consumption is W*1F00 #illion.
)a:i(4 is H,## bi!!io(.
Consumption is WE00 #illion.

?hat is m*a(t by th* (*4ati:* s!o3* o1 a 3ro2/ctio( 3ossibi!iti*s c/r:*@
It means that some resources are alwa$s unemplo$ed.
It m*a(s that a( *co(omy ca( 3ro2/c* mor* o1 o(* thi(4 o(!y by 3ro2/ci(4 !*ss o1
som*thi(4 *!s*.
It means that opportunit$ costs are constant.
It means that #usiness can sell more when prices are low.

?hich o1 th* 1o!!o6i(4 is TRCE 1or a Fi11*( 4oo2@
Its marginal utilit$ is 0ero.
Its 2*ma(2 c/r:* is 3*r1*ct!y *!astic.
Its su#stitution effect is positive.
Its demand curve is positivel$ sloped.

?hich o1 th* 1o!!o6i(4 occ/r 6h*( a( isocost !i(* is B/st ta(4*(t to a( isoq/a(t@
O/t3/t is b*i(4 3ro2/c*2 at mi(im/m cost.
.efM httpM::econwe#.rutgers.edu:#esedes:sampleRe'am6Rintermediate.pdf

?hich o1 th* 1o!!o6i(4 is TRCE abo/t L'sha3*2 isoq/a(t@
It indicates that the firm could switch from one output to another costlessl$.
It indicates that the firm could not switch from one output to another.
It i(2icat*s that ca3ita! a(2 !abor ca((ot b* s/bstit/t*2 1or *ach oth*r i( 3ro2/ctio(.
It is impossi#le.

Th* tota! cost (T% 1/(ctio( is 4i:*( as: T% J "## I <.. ?hat is th* 1i=*2 cost@
5B.
5.
5 4 I600:BJ.
"##.

Th* tota! cost (T% 1/(ctio( is 4i:*( as: T% J "## I <.. ?hat is th* a:*ra4* tota! cost@
5B.
5.
< I ("##S..

./*stio( No: << ( Mar+s: 7
8*1i(* co(s/m3tio( 1/(ctio(. ?rit* 2o6( th* 2*t*rmi(a(ts o1 co(s/m3tio(.
%o(s/m3tio( a(2 %o(s/m3tio( F/(ctio(:
Consumption ICJ is the amount of national income that is spent on goods and services produced #$
domestic firms in a given period of time. Consumption is the most sta#le and important component of
aggregate demand1 accounting for a#out two(thirds to three(fourths of G!+ in most countries.
The consumption function is a schedule relating total consumption to personal disposa#le income. It
usuall$ takes the form C 7 a 4 #;d 7 a 4 #I;(TJ1 where a is the minimum level of consumption that must
take place even if ;d is 0ero1 and # is the marginal propensit$ to consume.

8*t*rmi(a(ts o1 co(s/m3tio(
Thus there are two determinants of consumption Inamel$ income and ta'ation1 which will not cause
saving to rise if consumption is caused to fall.

./*stio( No: <> ( Mar+s: <
Th* 3ara2o= o1 thri1t is 2*mo(strat*2 a!4*braica!!y by *q/ati(4 !*a+a4*s a(2 i(B*ctio(s.
)/33os* th* )a:i(4 1/(ctio( is s3*ci1i*2 as ) J 'H1# bi!!io( I#."Y5 Fross im3orts *q/a! H-#
bi!!io(5 I(:*stm*(t is H1## bi!!io( a(2 Fross *=3orts *q/a! H-# bi!!io(. %a!c/!at* th*
*q/i!ibri/m !*:*! o1 o/t3/t by /si(4 !*a+a4*s'i(B*ctio(s a33roach.

./*stio( No: <- ( Mar+s: <
%o/(try %ommo2ity Amo/(t that ca( b* 3ro2/c*2 i( 1 y*ar

C)A
Cotton 80 units
&ood F0 units

CG
Cotton 90 units
&ood 60 units
A. %o(si2*r th*r* is (o i(t*r(atio(a! tra2*. )** th* abo:* tab!* a(2 a(s6*r 6hich
co/(try has abso!/t* a2:a(ta4* i( 6hich 3ro2/ct@
B. 8ra6 th* 3ro2/ctio( 3ossibi!ity 1ro(ti*rs 1or C)A a(2 CG.
(Mar+s: "I7

./*stio( No: <, ( Mar+s: 1#
A. From th* i(1ormatio( 4i:*( b*!o65 ca!c/!at* th* 1o!!o6i(4:
a Nomi(a! F80 i( y*ar 1
b Nomi(a! F80 i( y*ar "
c Fro6th rat* i( (omi(a! F80
Y*ar 1 Y*ar "
A33!*s 3ro2/c*2 *00 *50
%hic+*( 3ro2/c*2 *00 *80
%ost 3*r a33!* (Rs. 6 8
%ost 3*r chic+*( (Rs. 8 F
B. )/33os* that i( th* *co(omy o1 0a+ista(5 th* R*a! Fross Natio(a! 0ro2/ct i( 1$,- 6as
1&,7 bi!!io(. I( 1$,,5 R*a! Fross Natio(a! 0ro2/ct 6as 1<1# bi!!io(. %a!c/!at* th* 4ro6th
rat* o1 r*a! Fross Natio(a! 0ro2/ct 1rom this i(1ormatio(.
(Mar+s: >I&

./*stio( No: <$ ( Mar+s: 1#
(A Fo!!o6i(4 tab!* sho6s th* i(com* *ar(*2 by 2i11*r*(t 1actors o1 3ro2/ctio(.
)*ria! W R*6ar2s Amo/(t (bi!!io( r/3**s
* 3ages and salaries *50.56
6 Interest on #onds and loans 50.F9
9 .ent of properties *00.*6
8 +rofit *65.E8
5 Corporate profit ta' 50.6F
F -ndistri#uted corporate profit 90.96
G Contri#utions for social securit$ 60.60
Fi(2 o/t th* (atio(a! i(com* 1rom this i(1ormatio(.
(B A!tho/4h F80 3ro:i2* /s a 4oo2 *stimat* abo/t th* o:*ra!! 3ro2/ctio( o1 th* *co(omy5 b/t
sti!! it has som* 1!a6s. 8isc/ss thos* 1!a6s.
(Mar+s: &I>
FINALTERM EXAMINATION (>
Fa!! "##$
E%O&#1' Eco(omics
)o!:*2 T )har*2 By
Tim*: 1"# mi(
Mar+s: ,-


Th* sha3* o1 a 3ro2/ctio( 3ossibi!ity c/r:* commo(!y 2ra6( as co(ca:* 2o6(6ar2 to
r*3r*s*(t i(cr*asi(4 o33ort/(ity cost 6ith i(cr*as*2 o/t3/t o1 a 4oo2.

?h*( co!!*4* st/2*(ts !*a:* to6( 1or th* s/mm*r5 th* 2*ma(2 1or m*a!s at th* !oca!
r*sta/ra(ts 2*c!i(*. This r*s/!ts i(:

" decrease in equili#rium price and an increase in quantit$ of meal.
"n increase in equili#rium price and quantit$ of meal.
A 2*cr*as* i( *q/i!ibri/m 3ric* a(2 q/a(tity o1 m*a!.
"n increase in equili#rium price and a decrease in quantit$ of meal.
A 2*cr*as* i( *q/i!ibri/m 3ric* a(2 q/a(tity. Th* 2*ma(2 c/r:* shi1ts to th* !*1t b*ca/s* th*
to6( 3o3/!atio( 2*c!i(*s5 r*s/!ti(4 i( !o6*r 3ric*s a(2 q/a(tity.

A 2*ma(2 c/r:* is 3ric* *!astic 6h*(:

%ha(4*s i( 2*ma(2 ar* 3ro3ortio(at*!y 4r*at*r tha( cha(4*s i( 3ric*.
Changes in demand are equal to changes in price.
Changes in demand are proportionatel$ smaller than changes in price.
For *!astic 2*ma(2 c/r:*5 1irm 2o*s (ot i(cr*as* its 3ric*s. B*ca/s* as 3ric*s i(cr*as*s5
q/a(tity 8*ma(2*2 2*cr*as*s m/ch !ar4*r. 8*cr*as* i( q/a(tity 2*ma(2*2 is 4r*at*r tha( th*
i(cr*as* i( 3ric*s. )o 1irm 6i!! *ar( !*ss r*:*(/*. )o TR 2*cr*as*s as 3ric* i(cr*as*s.

Th* (/m*rica! m*as/r*m*(t o1 a co(s/m*rNs 3r*1*r*(c* is ca!!*2:
-se.
+leasure.
Cti!ity.
,atisfaction.
Cti!ity is a (/m*rica! r*3r*s*(tatio( o1 a 3r*1*r*(c* ra(+i(4

?hich o1 th* 1o!!o6i(4 is TRCE abo/t 3ric*'co(s/m3tio( c/r:* 1or 4oo2 X@

Nominal income falls as the price of C falls.
The a#solute price of C falls1 #ut the relative price #etween C and the composite good ; sta$s the
same.
It is alwa$s downward sloping for a normal good.
It r*3r*s*(ts o(!y thos* mar+*t bas+*ts that ar* o3tima! 1or th* 4i:*( 3ric* ratio a(2
3r*1*r*(c* 3att*r( a(2 th*r*1or* a 2*ma(2 c/r:* ca( b* 3!ott*2 1rom it.
Th* 3ric* co(s/m3tio( c/r:* (0%% trac*s o/t th* o3tima! choic* o1 co(s/m3tio( at 2i11*r*(t
3ric*s. Th* 0%% ca( b* /s*2 to 2*ri:* th* 2*ma(2 c/r:*5 6hich sho6s th* r*!atio(shi3 b*t6**(
3ric* T q/a(tity 2*ma(2*2.

Mar4i(a! 3ro1it is *q/a! to:
Mar4i(a! r*:*(/* mi(/s mar4i(a! cost.
%arginal revenue plus marginal cost.
%arginal cost minus marginal revenue.
%arginal revenue times marginal cost.
mar4i(a! 3ro1it is th* t*rm /s*2 to r*1*r to tota! 6h*( mar4i(a! cost is s/btract*2
1rom mar4i(a! r*:*(/*.

Th* s/33!y c/r:* 1or a com3*titi:* 1irm is:
Its entire marginal cost curve.
The upward(sloping portion of its marginal cost curve.
Its marginal cost curve a#ove the minimum point of the average varia#le cost curve.
Its mar4i(a! cost c/r:* abo:* th* mi(im/m 3oi(t o1 th* a:*ra4* tota! cost c/r:*.
A 3*r1*ct!y com3*titi:* 1irmRs s/33!y c/r:* is that 3ortio( o1 its mar4i(a! cost c/r:* that !i*s
abo:* th* mi(im/m o1 th* a:*ra4* :ariab!* cost c/r:*.

)*co(2'2*4r** 3ric* 2iscrimi(atio( is th* 3ractic* o1 char4i(4:

The reservation price to each customer.
8i11*r*(t 3ric*s 1or 2i11*r*(t b!oc+s o1 th* sam* 4oo2 or s*r:ic*.
!ifferent groups of customers different prices for the same products.
Each customer the ma'imum price that he or she is willing to pa$.

)*co(2 2*4r** 3ric* 2iscrimi(atio(5 a!!o6s th* s/33!i*r to s*t 2i11*r*(t 3ric*s to th* 2i11*r*(t
4ro/3s a(2 ca3t/r* a !ar4*r 3ortio( o1 th* tota! mar+*t s/r3!/s.

A mar+*t 6ith 1*6 *(try barri*rs a(2 6ith ma(y 1irms that s*!! 2i11*r*(tiat*2 3ro2/cts is:

+urel$ competitive.
" monopol$.
Mo(o3o!istica!!y com3*titi:*.
Dligopolistic.

Mo(o3o!istic com3*titio( is a!so charact*riO*2 by a !ar4* (/mb*r o1 b/y*rs a(2 s*!!*rs a(2
abs*(c* o1 *(try barri*rs.

Th* mar+*t str/ct/r* i( 6hich strat*4ic co(si2*ratio(s ar* most im3orta(t is:

O!i4o3o!y.
+ure competition.
+ure monopol$.


" good for which the Xincome elasticit$ of demandX is O0 T )*
" good for which the Xincome elasticit$ of demandX is O *.

Foo2s 1or 6hich th* Dq/a(tity 2*ma(2*2D o1 o(* 4oo2 2o*s (ot 2*3*(2 /3o( th* 3ric* o1 th*
oth*r. (i.*. 0*(ci!s T cars. Th* Dcross *!asticity o1 2*ma(2D 6i!! b* #.

%o(s/m3tio( s3*(2i(45 i(:*stm*(t *=3*(2it/r*s5 4o:*r(m*(t *=3*(2it/r*s a(2 (*t *=3orts
ar*:

The components of household income.
The components of aggregate suppl$.
Th* com3o(*(ts o1 a44r*4at* 2*ma(2
The components of government revenue.
A8 is th* s/m o1 co(s/m3tio(5 i(:*stm*(t5 4o:*r(m*(t s3*(2i(4 a(2 (*t *=3orts (i.*. *=3orts
mi(/s im3orts5 a(2 is i(:*rs*!y r*!at*2 to th* a44r*4at* 3ric* !*:*! thro/4h th* 6*a!th5
i(t*r*st rat* a(2 i(t*r(atio(a! 3/rchasi(4 3o6*r *11*cts.

%!assica! *co(omics 6as r*3!ac*2 as th* 2omi(a(t th*ory o1 macro*co(omic a(a!ysis by:

%onetarism.
.ational e'pectations.
G*y(*sia( *co(omics.
Neoclassical economics.

htt3:SS4ro/3s.4oo4!*.comS4ro/3S:/Us
Accor2i(4 to c!assica! *co(omics5 th* *co(omy 6i!! a!6ays t*(2 to6ar2 1/!! *m3!oym*(t 2/*
to:

%inimum wages.
F!*=ib!* 6a4*s a(2 3ric*s.
E'tended periods of unemplo$ment.
Inequalit$ #etween saving and investment.

Th* r*a! i(t*r*st rat* 6i!! i(cr*as*:

I1 th*r* is a( *=c*ss s/33!y o1 !oa(ab!* 1/(2s i( th* 1i(a(cia! mar+*ts.
If there is an e'cess demand for loana#le funds in the financial markets.
If there is an e'cess suppl$ of loana#le funds in the foreign e'change markets.
If there is an e'cess demand for loana#le funds in the foreign e'change markets.

A so/rc* o1 1!/ct/atio(s i( i(:*stm*(t s3*(2i(4 is:

Changes in government e'pectations of future output growth.
Changes in household>s e'pectations a#out future output growth.
Changes in household>s e'pectations a#out future risk.
%ha(4*s i( i(:*storRs *=3*ctatio(s abo/t 1/t/r* 3ro1its.

?hat 2o*s th* t*rm Dba!a(c* o1 3aym*(t 2*1icitD r*1*r to@

"n increase in official international reserves.
" positive statistical discrepanc$.
" negative statistical discrepanc$.
A 2*c!i(* i( o11icia! i(t*r(atio(a! r*s*r:*s.


M1 i(c!/2*s c/rr*(cy h*!2 by th* 3/b!ic5 3!/s tra:*!*rsR ch*c+s5 2*ma(2 2*3osits5 oth*r
ch*c+ab!* 2*3osits (i(c!/2i(4 (*4otiab!* or2*r o1 6ith2ra6a! (NO? acco/(ts5 A/tomatic
Tra(s1*r )*r:ic* (AT) acco/(ts5 a(2 cr*2it /(io( shar* 2ra1t acco/(ts.

?h*( o(* 3ro2/c*r ca( 3ro2/c* a 4i:*( amo/(t o1 o/t3/t 6ith 1*6*r i(3/ts5 6hich o1 th*
1o!!o6i(4 6o/!2 occ/r@

Comparative advantage.
Comparative disadvantage.
Abso!/t* a2:a(ta4*.
"#solute disadvantage.
"#solute advantage.M Capa#ilit$ of one producer to produce a given good using fewer resources than an$
other producer.

"n increase in the price of imported computers.
A 1a!! i( th* 3ric* o1 im3ort*2 com3/t*rs.
A c/rr*(cy is sai2 to 2*3r*ciat* i( :a!/* i1 its *=cha(4* rat* 2*cr*as*s5 s/ch as a 2*cr*as* i(
th* *=cha(4* rat* o1 2o!!ars 1rom #.< 3o/(2s 3*r 2o!!ar to #.77 3o/(2s 3*r 2o!!ar. %/rr*(cy
2*3r*ciatio( ma+*s *=3orts 1rom th* co/(try r*!ati:*!y !*ss *=3*(si:* r*s/!ti(4 i( mor*
*=3orts a(2 /s/a!!y 1*6*r im3orts.

Th* (*6s o( th* t*!*:isio( r*3orts that th* 2o!!ar has str*(4th*(*2 r*!ati:* to th* Xa3a(*s*
y*(. This m*a(s that:
The dollar can now purchase more $en.
The -, trade #alance with the Papanese econom$ has improved.
Th* y*( ca( (o6 3/rchas* mor* 2o!!ars.
The dollar has depreciated relative to the $en.

Th* *=cha(4* rat* i(cr*as*s (i.*.5 a /(it o1 yo/r c/rr*(cy is 6orth mor* i( 1or*i4( c/rr*(cy
tha( 3r*:io/s!y5 th* c/rr*(cy is sai2 to ha:* strengthened, appreciated, or increased in
value (r*:a!/atio(. For *=am3!*5 ass/m* that th* *=cha(4* rat* b*t6**( th* C.). 2o!!ar a(2
th* Xa3a(*s* y*( cha(4*2 1rom C)H1J1#& y*( to C)H1J11# y*(. This 6o/!2 str*(4th*( th*
:a!/* o1 th* C.). 2o!!ar i( that yo/ 6o/!2 r*c*i:* mor* y*( i( *=cha(4* 1or yo/r 2o!!ar

I( G*y(*sia( *co(omics5 i1 a44r*4at* *=3*(2it/r*s ar* !*ss tha( a44r*4at* o/t3/t th*(:

The price level rises.
Inventories decrease.
Emplo$ment decreases.
A44r*4at* o/t3/t i(cr*as*s.

I( th* G*y(*sia( cross mo2*!5 th* a44r*4at* *=3*(2it/r* !i(* has a s!o3* o1:

*.
0.
Infinit$.
L*ss tha( 1.
I( th* G*y(*sia( cross mo2*! I1 6* 2ra6 a 4ra3h 6ith *=3*(2it/r* o( th* :*rtica! a=is5 6* ca(
s** that th* E=3*(2it/r* !i(* sho/!2 ha:* a s!o3* o1 (Y15

8*ma(2 is *!astic 6h*( th* *!asticity o1 2*ma(2 is:
Greater than 0 #ut less than *.
Fr*at*r tha( 1.
Less than 0.
Equal to *. /(it *!astic

I1 0*2 A 11 then demand responds more than proportionatel$ to a change in price i.e. 2*ma(2 is
*!astic.

?hich o1 th* 1o!!o6i(4 stat*m*(ts is TRCE abo/t cart*!s@
These are considered as part of monopolistic competition.
these are organi0ations of independent firms1 producing similar products1 that work together to
raise prices and restrict output.
th*s* ar* or4a(iOatio(s o1 i(t*r2*3*(2*(t 1irms5 3ro2/ci(4 simi!ar 3ro2/cts5 that 6or+
to4*th*r to rais* 3ric*s a(2 r*strict o/t3/t.
These are organi0ations of independent firms1 producing different products1 that work together to
raise prices and restrict output.

A cart*! is a 1orma! (*=3!icit a4r**m*(t amo(4 1irms. %art*!s /s/a!!y occ/r i( a( o!i4o3o!istic
i(2/stry5 6h*r* th*r* ar* a sma!! (/mb*r o1 s*!!*rs a(2 /s/a!!y i(:o!:* homo4*(*o/s 3ro2/cts.

A1t*r th* co!!/sio(5 o!i4o3o!ists ar* ab!* to:
.aise price #ut not restrict output.
.aise price and restrict output #ut not attain the monopol$ profit.
Rais* 3ric* a(2 r*strict o/t3/t a(2 th*r*1or* attai( th* mo(o3o!y 3ro1it.
.estrict output #ut not raise price.

?hich o1 th* 1o!!o6i(4 stat*m*(ts is TRCE abo/t th* 2i11*r*(c* b*t6**( (omi(a! a(2 r*a!
Fross 8om*stic 0ro2/ct (F80@
.eal G!+ includes onl$ goods nominal G!+ includes goods and services.
R*a! F80 is m*as/r*2 /si(4 co(sta(t bas*'y*ar 3ric*s; (omi(a! F80 is m*as/r*2 /si(4
c/rr*(t 3ric*s.
.eal G!+ is equal to nominal G!+ less the depreciation of the capital stock.
.eal G!+ is equal to nominal G!+ multiplied #$ the C+I.

Nominal G!+M The total market value1 measured in current prices1
.eal G!+M The total market value1 measured in constant prices

I1 3ro2/ctio( r*mai(s th* sam* a(2 a!! 3ric*s 2o/b!*5 th*( 6hich o1 th* 1o!!o6i(4 6i!! ha33*(@
.eal G!+ and nominal G!+ will #oth remain constant.
.eal G!+ will remain constant and nominal G!+ will reduce #$ half.
R*a! F80 6i!! r*mai( co(sta(t a(2 (omi(a! F80 6i!! 2o/b!*.
.eal G!+ will dou#le and nominal G!+ will remain constant.

Ass/m* that th*r* is (o 4o:*r(m*(t or 1or*i4( s*ctor5 i1 th* mar4i(a! 3ro3*(sity to co(s/m*
(M0% is #.$5 th*( th* :a!/* o1 m/!ti3!i*r 6i!! b* *q/a! to:
6.
5.
E.
*0.
NO I8EA... MAY BE ?RONF .CE)TION

Firm A 3ro2/c*s cotto( 6orth Rs. 1### a(2 s*!!s it to 1irm B. From this5 1irm B ma+*s yar(
6orth Rs. 1<## a(2 s*!!s to 1irm %. Firm % ma(/1act/r*s c!oth 6orth Rs. "<## a(2 s*!!s to
co(s/m*rs. Th* :a!/* a22*2 is:
1###I1<##I"<## J Rs. <###
*000450046500 7 .s. 8000
*00045004*000 7 .s. 6500
*0004*5004*000 7.s. 9500

?hich o1 th* 1o!!o6i(4 is a tra(s1*r 3aym*(t@
+a$ment made to housewife.
+ocket allowance to children.
%aintenance allowance to old parents.
A!! o1 th* 4i:*( o3tio(s.

Th* r*!atio(shi3 b*t6**( ho/rs 3ro:i2*2 by !abor a(2 6a4* rat* is:
0ositi:*.
Negative.
"m#iguous.
Ler$ strong.

Mar+*t 1ai!/r* occ/rs 6h*(:
Competitive markets do not achieve equita#le outcomes.
Competitive markets do not achieve efficient outcomes.
Government takes steps to intervene in markets.
A!! o1 th* 4i:*( ha33*(.

A 4ra3h that 2*3icts th* r*!atio(shi3 b*t6**( th* tota! q/a(tity o1 4oo2s a(2 s*r:ic*s
2*ma(2*2 a(2 th* 3ric* !*:*! is +(o6( as:
A44r*4at* 2*ma(2 c/r:*.
"verage price level.
Circular flow model.
G!+ curve.

Th* a44r*4at* 2*ma(2 c/r:* i!!/strat*s th* r*!atio(shi3 b*t6**( *co(omic 4oo2s 2*ma(2*2
a(2 th* 3ric* !*:*!5 ass/mi(4 a!! *!s* is h*!2 co(sta(t (that is5 /(2*r ac*t*ris
3arib/s ass/m3tio(.

I( th* short r/(5 th* *q/i!ibri/m 3ric* !*:*! a(2 th* *q/i!ibri/m !*:*! o1 tota! o/t3/t ar*
2*t*rmi(*2 by th* i(t*rs*ctio( o1:
The aggregate demand1 the short(run aggregate suppl$ and the long(run aggregate suppl$ curves.
The short(run aggregate suppl$ and the long(run aggregate suppl$ curves.
The aggregate demand and the short(run aggregate suppl$ curves.
The aggregate demand and the long(run aggregate suppl$ curves.

%ha(4*s i( a44r*4at* 2*ma(2 ca( b* ca/s*2 by cha(4*s i(:
I. ?a4*s.
II.Ra6 mat*ria!s costs.
III. Fo:*r(m*(t s3*(2i(4.
IQ. Fo:*r(m*(t r*4/!atio(s that i(cr*as* th* cost o1 2oi(4 b/si(*ss.
I1 II1 III1 and IL.
I and III onl$.
I1 III1 and IL.
III o(!y.

I( th* !o(4 r/(5 th* o/t3/t !*:*! is 2*t*rmi(*2 by:
"ggregate demand.
A44r*4at* s/33!y.
The government.
@ousehold income.
Lo(4 r/( a44r*4at* s/33!y (LRA): L.", shows total planned output when #oth prices and average
wage rates can change K it is a measure of a countr$?s potential output and the concept is linked strongl$
to that of the 3ro2/ctio( 3ossibi!ity 1ro(ti*r

?hich o1 th* 1o!!o6i(4 is TRCE@
1 Z M0) J M0%
* 4 %+, 7 %+C
* : %+, 7 %+C
* Y %+, 7 %+C
(M0) is th* 1ractio( o1 th* a22itio(a! 2o!!ar o1 2is3osab!* i(com* that is
)a:*2. Th/s5 M0% J 1 V M0).


Th* abo:* 1i4/r* sho6s 2is3osab!* 3*rso(a! i(com* o( th* horiOo(ta! a=is a(2 co(s/m3tio(
3*r 3*rio2 o( th* :*rtica! a=is. ?hich o1 th* 1o!!o6i(4 is TRCE at *:*ry 3oi(t o( th* &<'2*4r**
!i(*@
The value of disposa#le income equals the sum of personal saving and consumption.
The value of disposa#le income equals consumption.
The value of disposa#le income equals personal saving.
The value of disposa#le income and consumption equals *.

I1 th* 4o:*r(m*(t 6ish*s to achi*:* a 1a!! i( /(*m3!oym*(t5 6hich o1 th* 1o!!o6i(4 3o!ici*s
sho/!2 it a2o3t@
.educe the real value of income ta' free allowances.
.educe government spending on capital pro2ects.
.aise Lalue "dded Ta' IL"TJ.
)tart 3/b!ic Bob trai(i(4 3ro4rams.

I( th* !o(4 r/(5 s/stai(*2 i(1!atio( is 2/* to:
" one(time increase in mone$ growth.
A co(ti(/o/s i(cr*as* i( th* mo(*y 4ro6th rat*.
" continuous increase in aggregate demand.
The rising price of oil.
Th* sit/atio( 6h*( a co/(try im3orts mor* tha( it *=3orts is +(o6( as:
A tra2* 2*1icit.
" trade surplus.
"n e'pansion.
" recession.
A (*4ati:* ba!a(c* o1 tra2*5 i.*. im3orts *=c**2 *=3orts. o33osit* o1 tra2* s/r3!/s.

0/b!ic i(:*stm*(t *=3*(2it/r* 1or hi4h6ays5 schoo!s5 a(2 (atio(a! 2*1*(s* is i(c!/2*2 i(
6hich com3o(*(t o1 F80@
Consumption.
Gross private investment.
Fo:*r(m*(t 3/rchas*s.
+u#lic investment.

Th* 4o:*r(m*(t has a ba!a(c*2 b/24*t i1:
Its tota! r*:*(/*s ar* *q/a! to its tota! *=3*(2it/r*s.
Its total revenues are less than its total e'penditures.
Its total revenues are greater than its total e'penditures.
The mone$ suppl$ is less than total e'penditures.

I( 4*(*ra!5 3*rso(a! i(com* ta=*s:
.ise automaticall$ during a recession.
Ris* a/tomatica!!y 2/ri(4 a( *=3a(sio(. Not s/r*
&all automaticall$ during an e'pansion.
.emains same in all phases of economic fluctuations.
vuQs
A ta= o( i(2i:i2/a!Ns i(com* is +(o6( as:
,ales ta'.
. E'cise ta'
Corporate income ta'.
0*rso(a! i(com* ta=.
0*rso(a! i(com* ta=: " ta' on individual income. This is the primar$ source
of revenue for the federal government1 a #ig source for man$ state and local governments. In principle1
personal income ta'es are progressive1 #ased on a graduated ta' scale. @owever1 it>s much more
proportional toda$ than it was several decades ago.

?hich o1 th* 1o!!o6i(4 is TRCE 1or ba(+s@
Th*y 2*a! 6ith mo(*y o(!y.
The$ deal with shares and assets.
The$ not onl$ deal with mone$ #ut also create mone$.
The$ deal with mone$ #ut do not create mone$.

I( a 3*rio2 o1 boom5 cr*2it cr*atio( is:
,mall.
E*a:y.
-nchanged.
Qero.

?hat 6i!! b* th* im3act o1 a( i(cr*as* i( ta=*s@
It will shift the I, curve to the left and decrease #oth the interest rate and the level of income.
It will shift the I, curve to the right and increase #oth the interest rate and the level of income.
It will shift the I, curve to the right and increase the level of income #ut decrease the interest
rate.
It 6i!! shi1t th* LM c/r:* 2o6(6ar2 (to th* ri4ht a(2 i(cr*as* th* !*:*! o1 i(com* b/t
2*cr*as* th* i(t*r*st rat*. Not s/r*

To 2*t*rmi(* 6h*th*r a( *co(omyNs o/t3/t is 4ro6i(4 or shri(+i(45 o(* m/st +**3 trac+ o1:
Changes in nominal G!+.
Changes in the growth rate of nominal G!+.
Changes in the general price level.
%ha(4*s i( r*a! F80.
Eco(omic 4ro6th is i(cr*as* i( a( *co(omyNs !*:*! o1 3ro2/ctio(5 o/t3/t or i(com*. ?* ca( ta!+
abo/t 3ro2/ctio( or o/t3/t i( t6o broa2 2*1i(itio(a! co(t*=ts. O(*5 6* ca( com3ar* r*a! F80
6ith som* oth*r m*as/r* o1 6*!1ar* (1or *.4.5 o(* 6hich a2B/sts 1or *=t*r(a!iti*s5 socia!
i(2icators5 th* b!ac+ mar+*t5 3/rchasi(4 3o6*r 3arity5 i(com* i(*q/a!ity *tc..
)/33os* th* 3ric* o1 rai! tic+*ts 2*cr*as*s5 6hat 6i!! ha33*( to th* 2*ma(2 1or air!i(* tra:*!@
Th* 2*ma(2 c/r:* 1or air!i(* tra:*! shi1ts !*1t.
The demand curve for airline travel shifts right.
The suppl$ curve of airline travel shifts left.
The suppl$ curve of airline travel shifts right.
Th* 2*ma(2 c/r:* shi1ts !*1t. Rai! a(2 air!i(* tra:*! ar* s/bstit/t*s. I1 th* 3ric* o1 a s/bstit/t*
2*c!i(*s5 th*( th* 2*ma(2 c/r:* 1or th* s/bstit/t* 3ro2/ct shi1ts to th* !*1t.

0ro2/ctio( 3ossibi!iti*s c/r:* 6i!! shi1t /36ar2 i1 th*r* is:
" reduction in unemplo$ment.
A( i(cr*as* i( th* 3ro2/ctio( o1 ca3ita! 4oo2s.
" reduction in discrimination.

?hich o1 th* 1o!!o6i(4 is NOT i(c!/2*2 i( th* 3*r1*ct i(1ormatio( ass/m3tio( o1 3*r1*ct
com3*titio(@
Consumers know their preferences.
Consumers know their income levels.
Consumers know the prices availa#le.
%o(s/m*rs ca( a(tici3at* 3ric* cha(4*s.

)/33os* a mo(o3o!ist s*t his o/t3/t at th* !*:*! 6h*r* mar4i(a! r*:*(/*5 mar4i(a! cost a(2
a:*ra4* tota! cost ar* *q/a!. I( this cas*5 *co(omic 3ro1it 6i!! b*:
Negative.
0ositi:*.
Qero.
Indeterminate from the given information.
As 3ro1it is ma=imiO*2 at th* 3oi(t 6h*r* MR J M%5
8*3*(2i(4 /3o( th* !*:*! o1 A% at th* 3oi(t 6h*r* MRJM%5 th* mo(o3o!ist mi4ht b*
*ar( s/3*r(orma! 3ro1its5 br*a+i(4 *:*( or mi(imiOi(4 short r/( !oss*s.
./*stio( No: << ( Mar+s: 7
8i11*r*(tiat* b*t6**( th* t*rms 1!o6 a(2 stoc+.
)toc+s a(2 thos* 6hich ar* 1!o6s; th*s* 2i11*r i( th*ir /(its o1 m*as/r*m*(t. A stoc+ :ariab!*
is m*as/r*2 at o(* s3*ci1ic tim*5 a(2 r*3r*s*(ts a q/a(tity *=isti(4 at that 3oi(t i( tim*5 6hich
may ha:* b**( acc/m/!at*2 i( th* 3ast. A 1!o6 :ariab!* is m*as/r*2 o:*r a( i(t*r:a! o1 tim*.
Th*r*1or* a 1!o6 6o/!2 b* m*as/r*2 3*r /(it o1 tim*.
)toc+s a(2 1!o6s ha:* 2i11*r*(t /(its a(2 ar* th/s (ot comm*(s/rab!* V th*y ca((ot b*
m*a(i(41/!!y com3ar*25 *q/at*25 a22*25 or s/btract*2. Eo6*:*r5 o(* may m*a(i(41/!!y
ta+* ratios o1 stoc+s a(2 1!o6s5 or m/!ti3!y or 2i:i2* th*m.

./*stio( No: <> ( Mar+s: <
?hat sho/!2 b* th* o3tima! ro!* o1 4o:*r(m*(t i( a( *co(omy accor2i(4 to th* %!assica!
schoo! o1 tho/4ht@ 8isc/ss.

./*stio( No: <- ( Mar+s: <
E=3!ai( th* 2i11*r*(c* b*t6**( c/rr*(t acco/(t a(2 ca3ita! acco/(t.
%/rr*(t acco/(t :
%/rr*(t acco/(t is o(* o1 th* t6o 3rimary com3o(*(ts o1 th* ba!a(c* o1 3aym*(ts5 th* oth*r
b*i(4 th* ca3ita! acco/(t. It is th* s/m o1 th* ba!a(c* o1 tra2* (*=3orts mi(/s im3orts o1 4oo2s
a(2 s*r:ic*s.
%/rr*(t acco/(t J ba!a(c* o1 tra2* I (*t 1actor i(com* 1rom abroa2 I (*t /(i!at*ra! tra(s1*rs
1rom abroa2
%/rr*(t acco/(t 2*a!s 6ith i(t*r(atio(a! tra2* i( 4oo2s a(2 s*r:ic*s a(2 6ith *ar(i(4s o(
i(:*stm*(ts.

%a3ita! acco/(t:
Th* ca3ita! acco/(t co(sists o1 ca3ita! tra(s1*rs a(2 th* acq/isitio( a(2 2is3osa! o1 (o('
3ro2/c*25 (o('1i(a(cia! ass*ts. A s/b2i:isio( o1 th* ca3ita! acco/(t5 th* 1i(a(cia!
acco/(t r*cor2s tra(s1*rs o1 1i(a(cia! ca3ita! a(2 (o('1i(a(cia! ca3ita!. Th* o11icia! r*s*r:*s
acco/(t5 6hich is 3art o1 th* 1i(a(cia! acco/(t5 is th* 1or*i4( c/rr*(cy h*!2 by c*(tra! ba(+s5
a(2 is /s*2 to 3ay ba!a(c*'o1'3aym*(t 2*1icits. Each acco/(t is 1/rth*r 2i:i2*2 i(to s/b'
acco/(ts.
./*stio( No: <, ( Mar+s: 1#

(A Th* abo:* 2*ma(2 c/r:* has t6o 2isti(ct s*4m*(ts 6hich ha:* 2i11*r*(t *!asticiti*s that
Boi( to 1orm a cor(*r or +i(+. ?hy th* 1irms ar* r*!/cta(t to cha(4* th* 3ric* i( th*s* t6o
s*4m*(ts@
(B ?hat ar* th* maBor a2:a(ta4*s that a( o!i4o3o!y o11*rs 1or 3/b!ic i(t*r*sts@
(Mar+s: <I<

./*stio( No: <$ ( Mar+s: 1#
Th* it*ms o1 ba!a(c* sh**t o1 )tat* Ba(+ o1 0a+ista( ar* 4i:*( as 1o!!o6s:
&ore' reserves 7 .s. 500
Notes and coins 7 .s. E00
Credit to government 7 .s. 600
Government and commercial #ank deposits 7 .s. 900
Credit to private sector 7 .s. G00
Liquidit$ paper 7 .s. 900
0r*3ar* th* ba!a(c* sh**t i( its 3ro3*r 1ormat o1 ass*t a(2 !iabi!iti*s si2*. A!so ca!c/!at* tota!
ass*ts a(2 tota! !iabi!iti*s.

)o!/tio( : (this q/*stio( so!:*2 by +ash a4ai(

Ass*ts Liabi!iti*s
For*= r*s*r:*s J Rs. <##

Fo:*r(m*(t a(2 comm*rcia! ba(+ 2*3osits J Rs. 7##

%r*2it to 4o:*r(m*(t J Rs. "##

Not*s a(2 coi(s J Rs. ,##

%r*2it to 3ri:at* s*ctor J Rs. -##
Liq/i2ity 3a3*r J Rs. 7##

Tota!J R) 1&## Tota!J R) 1&##
FINALTERM EXAMINATION
Fa!! "##$
Mari(a +ha( )damsel.khanZgooglemail.comO
Tim*: 1"# mi(
Mar+s: ,-

I1 th* q/a(tity s/33!i*2 o1 ora(4*s *=c**2s th* q/a(tity 2*ma(2*2 th*(:

There is a shortage of oranges.
Mar+*t 1orc*s 6i!! ca/s* th* 3ric* to 1a!!.
%arket forces will cause the price to rise.
The market is in equili#rium.

I(2i11*r*(c* c/r:*s that ar* co(:*= to th* ori4i( r*1!*ct:

"n increasing marginal rate of su#stitution.
A 2*cr*asi(4 mar4i(a! rat* o1 s/bstit/tio(.
" constant marginal rate of su#stitution.
" marginal rate of su#stitution that first decreases1 then increases.

)/33os* that th* 3ric* o1 a 3iOOa is H1# a(2 3ric* o1 a B*a(s is H7#. I1 ratio o1 mar4i(a! /ti!ity
o1 3iOOa to mar4i(a! /ti!ity o1 B*a(s is 1S& th*( to ma=imiO* tota! /ti!ity5 a co(s/m*r sho/!2:

/u$ more pi00as and fewer 2eans.
B/y 1*6*r 3iOOas a(2 mor* B*a(s.
Continue to #u$ the same quantities of pi00a and 2eans.
,pend more time consuming pi00a.

As !o(4 as a!! 3ric*s r*mai( co(sta(t5 a( i(cr*as* i( mo(*y i(com* r*s/!ts i(:

A( i(cr*as* i( th* s!o3* o1 th* b/24*t !i(*.
" decrease in the slope of the #udget line.
"n increase in the intercept of the #udget line.
" decrease in the intercept of the #udget line.

A!i i(itia!!y !*as*2 o(*'room s3ac* a(2 start*2 a sma!! 2ay car* c*(tr* 6ith o(!y & chi!2r*( a(2
o(* sta11 m*mb*r. B/t h* 1o/(2 that th* cost 3*r chi!2 is :*ry hi4h. E* 6a(ts to *=3a(2 th*
c*(tr*. ?hich o1 th* 1o!!o6i(4 6i!! ha33*( 6h*( A!i *=3a(2 th* c*(tr*@

Economies of scale.
!iseconomies of scale.
!ecreasing returns to the la#or inputs.
I(cr*asi(4 r*t/r(s to th* !abor i(3/ts.

Tota! costs ar* th* s/m o1:
%arginal costs and varia#le costs.
Fi=*2 costs a(2 :ariab!* costs.
&i'ed costs and marginal costs.
"verage varia#le costs and marginal costs.

Th* s/33!y c/r:* 1or a com3*titi:* 1irm is:
Its entire marginal cost curve.
The upward(sloping portion of its marginal cost curve.
Its mar4i(a! cost c/r:* abo:* th* mi(im/m 3oi(t o1 th* a:*ra4* :ariab!* cost c/r:*.
Its marginal cost curve a#ove the minimum point of the average total cost curve.

A mo(o3o!istica!!y com3*titi:* 1irm i( short r/( *q/i!ibri/m:

3ill make negative profit Ilose mone$J.
3ill make 0ero profit I#reak(evenJ.
A(y o1 th* 4i:*( ar* 3ossib!*.




decrease.

G*y(*sia( *co(omics r*B*ct*2 th* c!assica! ass/m3tio( that:

)/33!y cr*at*s its o6( 2*ma(2.
+rices and wages are infle'i#le.
,elf(correction takes a long time.
Consumption e'penditures depend on disposa#le income.


&urther processing.

Th* s!o3* o1 th* sa:i(4 1/(ctio( (or !i(* is th*:

Mar4i(a! 3ro3*(sity to sa:*.
%arginal propensit$ to consume.

Th* i(:*stm*(t 2*ma(2 c/r:* sho6s th* r*!atio(shi3 b*t6**( th* !*:*!s o1:

Investment and consumption.
Consumption and interest rate.
I(:*stm*(t a(2 i(t*r*st rat*.
Investment and saving.

Th* circ/!ar 1!o6 3ri(ci3!* 4/ara(t**s that i( *q/i!ibri/mM

The level of investment spending will #e equal to the level of private savings.
The level of e'ports will #e equal to the level of imports.
Th* !*:*! o1 a44r*4at* 2*ma(2 6i!! b* *q/a! to r*a! Fross 8om*stic 0ro2/ct.
The level of government spending will #e equal to ta' revenue.

Th* r*a! i(t*r*st rat* 6i!! i(cr*as*:

If there is an e'cess suppl$ of loana#le funds in the financial markets.
I1 th*r* is a( *=c*ss 2*ma(2 1or !oa(ab!* 1/(2s i( th* 1i(a(cia! mar+*ts.
If there is an e'cess suppl$ of loana#le funds in the foreign e'change markets.
If there is an e'cess demand for loana#le funds in the foreign e'change markets.

Th* tr*(2 o1 /(*m3!oym*(t o:*r th* !ast 1orty y*ars is:

" decrease in unemplo$ment.
It has remained largel$ unchanged.
A( i(cr*as* i( /(*m3!oym*(t.
It is too difficult to tell so don>t #other.



%/rr*(t acco/(t 2*1icit is *q/a! to:

+rivate sector resource deficit.
Government #udget deficit.
0ri:at* s*ctor r*so/rc* 2*1icit I Fo:*r(m*(t b/24*t 2*1icit.

Fisca! 3o!icy is th* 4o:*r(m*(t 3ro4ram 6ith r*s3*ct to its:

,teel %ill +rivati0ation.
-nemplo$ment reduction.
E=3*(2it/r* a(2 ta= r*:*(/*.
Increase in unemplo$ment.

I( G*y(*sia( *co(omics5 a( i(1!atio(ary 4a3 r*s/!ts i1:

"ggregate e'penditures are less than aggregate production.
A44r*4at* *=3*(2it/r*s ar* 4r*at*r tha( a44r*4at* 3ro2/ctio(.
"ggregate e'penditures are equal to aggregate production.
There are no changes in inventories.

Th* acc*!*rator is a r*!at*2 co(c*3t 6hich 1orma!iO*s th* i(:*stm*(t r*s3o(s* to:

%o(s/m3tio(.
Interest rate.
Dutput.

Th* 3ri(ci3!* *co(omic 2i11*r*(c* b*t6**( a com3*titi:* a(2 a (o('com3*titi:* mar+*t is:

The num#er of firms in the market.
Th* *=t*(t to 6hich a(y 1irm ca( i(1!/*(c* th* 3ric* o1 th* 3ro2/ct.
The si0e of the firms in the market.
The annual sales made #$ the largest firms in the market.

Th* amo/(t o1 o/t3/t that a 1irm 2*ci2*s to s*!! has (o *11*ct o( th* mar+*t 3ric* i( a
com3*titi:* i(2/stry b*ca/s*:
The market price is determined Ithrough regulationJ #$ the government.
The firm supplies a different good than its rivals.
Th* 1irmRs o/t3/t is a sma!! 1ractio( o1 th* *(tir* i(2/stryRs o/t3/t.
The short run market price is determined solel$ #$ the firm>s technolog$.

Th* co(c*3t o1 a ris+ 3r*mi/m a33!i*s to a 3*rso( that is:

Ris+ !o:i(4.
.isk averse.
.isk neutral.
.ational.

G**3i(4 i( :i*6 th* mo2*! o1 a44r*4at* s/33!y a(2 a44r*4at* 2*ma(25 i( th* !o(4 r/(5 a(
Both 3ric*s a(2 o/t3/t to ris*.
+rices to rise and output to remain unchanged.

)/33os* a co/(try has 1!*=ib!* *=cha(4* rat* a(2 has mor* ra3i2 i(1!atio( rat* tha( oth*r
co/(tri*s. ?hat 6i!! ha33*( to its c/rr*(cy i( this sit/atio(@
Its currenc$ will appreciate.
Its currenc$ will depreciate.
There will #e no effect on its currenc$.
A!! o1 th* 4i:*( o3tio(s ca( b* 3ossib!*.

?hich o1 th* 1o!!o6i(4 stat*m*(ts b*st r*1!*cts th* im3!icatio( o1 !a6 o1 com3arati:*
a2:a(ta4*@
Trade #etween two countries is alwa$s to the advantage of #oth.
Tra2* b*t6**( t6o co/(tri*s ca( b* to th* a2:a(ta4* o1 both *:*( tho/4h o(* may b*
mor* 3ro2/cti:*!y *11ici*(t at 3ro2/ci(4 *:*rythi(4.
Trade #etween two countries is to the advantage of #oth if countries import onl$ those goods that
the$ are incapa#le of producing themselves.
Trade #etween two countries is #eneficial to #oth if the e'porter uses less resource than the
importer would use to produce the same quantit$ of goods.

Firm A 3ro2/c*s a(2 s*!!s cotto( to 1irm B 1or Rs. <##. Firm B ma+*s yar( o/t o1 it a(2 s*!!s to
1irm % 1or Rs. -##. Firm % ma+*s c!oth a(2 s*!! to co(s/m*rs 1or Rs. 1"##. ?hich 1i4/r* has to
b* /s*2 1or 1i(2i(4 th* *co(omyNs 3ro2/ct@
.s. 500 of firm ".
.s. G00 of firm /.
Rs. 1"## o1 1irm %.
Total of all three .s. 6800.

Th* !ar4*st co(trib/tio( i( :a!/* t*rms to 0a+ista( FN0 is ma2* by:
Construction sector.
Drgani0ed industries.
-norgani0ed industries.
A4ric/!t/r* s*ctor.

Natio(a! i(com* 1i4/r*s ar*:
Ler$ e'act.
+racticall$ e'act.
O(!y *stimat*s.
3rong.

A mar4i(a! 3ro3*(sity to co(s/m* (M0% o1 #.$< i(2icat*s that:
=C to =;d is 0.<5.
% S Y2 is #.$<.
=;d to =C is 0.<5.
;d : C is 0.<5.

?hich o1 th* 1o!!o6i(4 2*scrib*s th* 1o/r so/rc*s o1 a44r*4at* 2*ma(2@
Consumption1 private investment1 ta'es1 and e'penditures.
Consumption1 private investment1 wage increases1 and government e'penditures.
Consumption1 private investment1 e'penditures1 and net e'ports.
%o(s/m3tio(5 3ri:at* i(:*stm*(t5 4o:*r(m*(t 3/rchas*s5 a(2 (*t *=3orts.


R*1*r to th* abo:* 1i4/r*5 th* 3ot*(tia! o/t3/t i( this *co(omy is:
WG1000 #illion at a price level of *.*F.
WG1000 #illion at a price level of *.*6.
H-5### bi!!io( at a 3ric* !*:*! o1 1.#,.

%ha(4*s i( a44r*4at* 2*ma(2 ca( b* ca/s*2 by cha(4*s i(:
I. ?a4*s.
II.Ra6 mat*ria!s costs.
III. Fo:*r(m*(t s3*(2i(4.
IQ. Fo:*r(m*(t r*4/!atio(s that i(cr*as* th* cost o1 2oi(4 b/si(*ss.
I1 II1 III1 and IL.
I and III onl$.
I1 III1 and IL.
III o(!y.

Th* short r/( i( macro*co(omic a(a!ysis is a 3*rio2:
In which wages and some other prices do not respond to changes in economic conditions.
I( 6hich 1/!! 6a4* a(2 3ric* 1!*=ibi!ity a(2 mar+*t a2B/stm*(t ha:* b**( achi*:*2.
Df less than *6 months.
In which all macroeconomic varia#les are fi'ed.

?hich o1 th* 1o!!o6i(4 is TRCE@
1 Z M0) J M0%
* 4 %+, 7 %+C
* : %+, 7 %+C
* Y %+, 7 %+C


R*1*r to th* abo:* 1i4/r*5 6h*( 2is3osab!* 3*rso(a! i(com* is H15"## bi!!io(5 co(s/m3tio( is:
WF00 #illion.
WE00 #illion.
W*1600 #illion.
H"5### bi!!io(.

C(*m3!oym*(t 4*(*ra!!y '''''''''''''''' 6h*( th* Dr*a!D F80 4ro6s ra3i2!y.
.emains the same.
!ecreases.
I(cr*as*s.
"ll of the a#ove are possi#le.

?hich o1 th* 1o!!o6i(4 6i!! i(1!/*(c* a co/(tryRs *=3orts@
%o(s/m*r tast*s 1or 2om*stic a(2 1or*i4( 4oo2s.
+rices of goods at home and a#road.
Costs of transporting goods from countr$ to countr$.

Fr** tra2* is 1a:o/r*2 b*ca/s*:
Countries have less work to do.
It leads to greater world efficienc$ i.e. resources are #etter utili0ed.
?*a!thi*r co/(tri*s 4ai( a( a2:a(ta4* o:*r /(2*r2*:*!o3*2 co/(tri*s.
"ll countries gain from tariff imposition.

8*:a!/atio( is 2o(* to:
E(co/ra4* *=3orts.
!iscourage e'ports.
Encourage imports.
Encourage inflation.

?hich o1 th* 1o!!o6i(4 6i!! ha33*( by a r*2/ctio( i( (*t *=3orts a!! oth*r thi(4s b*i(4 *q/a!@
It will result in a movement up along the aggregate demand curve.
It will reduce aggregate suppl$.
It 6i!! r*2/c* a44r*4at* 2*ma(2.
It will not change aggregate demand or aggregate suppl$ in the domestic econom$.

?hich o1 th* 1o!!o6i(4 is 3art o1 M1@
I. ,avings deposits.
II. Cash in $our hand.
III. Checking deposits.
I and III.
II and III.
I o(!y.
II onl$.

?hich o1 th* 1o!!o6i(4 is (ar* 3rimary 1/(ctio( (s o1 a c*(tra! ba(+@
IL. "ct as a regulator of #anks.
L. Issue government #onds.
LI. ,et monetar$ polic$.
I onl$.
I and III.
I and II.
I5 II a(2 III.

?hat 6i!! b* th* im3act o1 a( i(cr*as* o1 H1 i( 4o:*r(m*(t 3/rchas*s@
It will shift the e'penditure line upward #$ W*.
It will shift the I, curve to the right #$ W*: I* ( %+CJ.
It will not shift the L% curve.
A!! o1 th* 4i:*( o3tio(s.

%o/(tri*s that ar* (ot amo(4 th* hi4h i(com* (atio(s o1 th* 6or!2 ar* cat*4oriO*2 as:
!eveloped countries.
+rogressed countries.
8*:*!o3i(4 co/(tri*s.
@igh income countries.

?hich o1 th* 1o!!o6i(4 is a charact*ristic o1 !o6 i(com* co/(tri*s@
Ei4h*r rat*s o1 3o3/!atio( 4ro6th.
Greater government control.
" larger share of income used for investment.
" smaller proportion of the la#or force in agriculture.


R*1*r to th* abo:* 1i4/r*5 6h*( 2is3osab!* 3*rso(a! i(com* is H"5### bi!!io(:
+ersonal saving is W*1600 #illion.
Consumption is W*1F00 #illion.
)a:i(4 is H,## bi!!io(.
Consumption is WE00 #illion.

Eo6 ma(y 3oi(ts yo/ (**2 to +(o6 to ca!c/!at* th* 3ric* *!asticity o1 2*ma(2 o( th* sam*
2*ma(2 c/r:*@
Dne.
Two.
Thr**.
&our.

?hat is m*a(t by th* (*4ati:* s!o3* o1 a 3ro2/ctio( 3ossibi!iti*s c/r:*@
It means that some resources are alwa$s unemplo$ed.
It m*a(s that a( *co(omy ca( 3ro2/c* mor* o1 o(* thi(4 o(!y by 3ro2/ci(4 !*ss o1
som*thi(4 *!s*.
It means that opportunit$ costs are constant.
It means that #usiness can sell more when prices are low.

?hich o1 th* 1o!!o6i(4 6i!! ha33*( i1 th* c/rr*(t mar+*t 3ric* is s*t b*!o6 th* mar+*t c!*ari(4
!*:*!@
There will #e a surplus to accumulate.
Th*r* 6i!! b* 2o6(6ar2 3r*ss/r* o( th* c/rr*(t mar+*t 3ric*.
There will #e upward pressure on the current market price.
There will #e lower production during the ne't time period.

For 6hich o1 th* 1o!!o6i(4 4oo25 th* s/bstit/tio( *11*ct o1 a !o6*r*2 3ric* is co/(t*racti(4 by
th* i(com* *11*ct@
&or an inferior good.
A s/bstit/t* 4oo2.
&or an independent good.
&or a normal good.

?hich o1 th* 1o!!o6i(4 is TRCE abo/t th* mar4i(a! 3ro2/ct o1 !abo/r i( a(y 3ro2/ctio(
3roc*ss@
It is total output divided #$ total la#our inputs.
It is total output minus the total capital stock.
It is the change in total output resulting from a >small> change on the la#our input.
It is tota! o/t3/t 3ro2/c*2 by !abo/r i(3/ts.

./*stio( No: << ( Mar+s: 7
?hat ar* th* 2i11*r*(t com3o(*(ts o1 a44r*4at* 2*ma(2@ 8isc/ss bri*1!y.

"ggregate demand is the total demand for final goods and services in the econom$ at a given time
and price level. It is the amount of goods and services in the econom$ that will #e purchased at all
possi#le price levels. There are four components of aggregate demand which are most importantM
*. %o(s/m3tio(: Consumption ICJ is the amount of national income that is spent on goods
and services produced #$ domestic firms in a given period of time.
6. I(:*stm*(t: Investment IIJ or gross capital formation is an$ economic activit$ that
forgoes consumption toda$ with an e$e to increase output in future.
9. N*t E=3orts: It is net demand from rest of world for countr$?s output.
8. Fo:*r(m*(t )3*(2i(4: These are gross investments and consumption e'penditure done
#$ government.

./*stio( No: <> ( Mar+s: <
E=3!ai( th* 2i11*r*(c* b*t6**( Fross Natio(a! 0ro2/ct (FN0 a(2 N*t Natio(a! 0ro2/ct (NN0
6ith th* h*!3 o1 th*ir 1orm/!as.

8i11*r*(c* b*t6**( FN0 a(2 NN0:
[ GN+ is the value1 at current market prices1 of all final goods and services produced during
a $ear #$ the factors owned #$ the citi0ens of a countr$.

GN+ 7 G!+ 4 net factor income from a#road

[ NN+ is same application as N!+ INational !omestic +roductJ which equal to G!+ minus
depreciation. @ere1 deprecation is amount which spends on capital goods that measure GN+. In
other words1 it is the net output of commodities and services flowing during the $ear from the
countr$?s production s$stem in the hands of ultimate consumers.

./*stio( No: <- ( Mar+s: <
)om* *co(omists s/44*st K4ro6th thro/4h r*so/rc* tra(s1*rL a(2 K4ro6th thro/4h
stabi!iOatio( a(2 r*1ormsL strat*4i*s to tac+!* th* 3rob!*m o1 3o:*rty o1 /(2*r 2*:*!o3*2
co/(tri*s. ?hat is th* basic th*m* o1 both th*s* strat*4i*s@ 8isc/ss.

Fro6th tro/4h r*so/rc* tra(s1*r:
The #usinesses core resources transfer strategies are having close effect on customer satisfaction1
production performance1 and personnel e'pertise of the non(financial performance of #usiness
performances #ut1 these strategies show minor influences on the variance #readth of costs1 sales
performance1 and development performance of #usiness performances. &or the growth of it1 larger effect
e'ists on the transfer of e'pertise1 organi0ational learning1 reputation and innovation of core resources.
@owever1 this strateg$ shows minor effect on the transfer of #rand1 management skills1 interpersonal
relationship1 and management.

Fro6th thro/4h stabi!iOatio( a(2 r*1orms:
" sta#ili0ation strateg$ centers on addressing people?s #asic needs and opportunities at the local level #$
improving their access to #asic services1 #$ e'panding economic opportunities and #$ promoting
political:civic empowerment. Livelihood1 for the purposes of this strateg$1 is defined as the com#ination of
factors in a communit$ that have a direct impact on the qualit$ of individuals? lives. Those factors include
the elements in a communit$ that affect citi0en well(#eing1 prosperit$1 and future choices1 such as income1
health1 education1 securit$1 water1 small infrastructure and citi0en participation.

./*stio( No: <, ( Mar+s: 1#
(A Fo!!o6i(4 ar* th* it*ms o1 ba!a(c* sh**t o1 ba(+ A
Loans 7 E0
!eposits 7 *00
.eserves 7 60
0r*3ar* th* ba!a(c* sh**t i( 3ro3*r 1orm a(2 1i(2 o/t tota! ass*ts a(2 tota! !iabi!iti*s.
(B Fo!!o6i(4 ar* th* it*ms o1 ba!a(c* sh**t o1 ba(+ A
Loans 7 F0
!eposits 7 **0
.eserves 7 50
Firm A 2*3osits Rs. <# i( ba(+ A. 0r*3ar* th* ba!a(c* sh**t i( 3ro3*r 1orm a(2 1i(2 o/t tota!
ass*ts a(2 tota! !iabi!iti*s a1t*r th* 2*3osits o1 1irm A.
(Mar+s: <I<

./*stio( No: <$ ( Mar+s: 1#

(A Th* abo:* 2*ma(2 c/r:* has t6o 2isti(ct s*4m*(ts 6hich ha:* 2i11*r*(t *!asticiti*s that
Boi( to 1orm a cor(*r or +i(+. ?hy th* 1irms ar* r*!/cta(t to cha(4* th* 3ric* i( th*s* t6o
s*4m*(ts@
(B ?hat ar* th* maBor a2:a(ta4*s that a( o!i4o3o!y o11*rs 1or 3/b!ic i(t*r*sts@
(Mar+s: <I<
8IFFERENT )%EOOL) OF TEOCFET
(LE%T. "<'"-
* " stud$ of how increases in the minimum wage rate will affect the national unemplo$ment rate is an
e'ample of
". descriptive economics.
/. normative economics.
%. macro*co(omics.
!. microeconomics.
6 "ggregate suppl$ is the total amount
A. o1 4oo2s a(2 s*r:ic*s 3ro2/c*2 i( a( *co(omy.
/. produced #$ the government.
C. of products produced #$ a given industr$.
!. of la#our supplied #$ all households.
9 The total demand for goods and services in an econom$ is known as
A. a44r*4at* 2*ma(2.
/. national demand.
C. gross national product.
!. econom$(wide demand.
8 !eflation is
". an increase in the overall level of economic activit$.
/. an increase in the overall price level.
C. a decrease in the overall level of economic activit$.
8. a 2*cr*as* i( th* o:*ra!! 3ric* !*:*!.
5 " recession is
". a period of declining prices.
B. a 3*rio2 2/ri(4 6hich a44r*4at* o/t3/t 2*c!i(*s.
C. a period of declining unemplo$ment.
!. a period of falling trade volumes.
F Involuntar$ unemplo$ment means that
". people are not willing to work at the going wage rate.
/. at th* 4oi(4 6a4* rat*5 th*r* ar* 3*o3!* 6ho 6a(t to 6or+ b/t ca((ot 1i(2 6or+.
C. there are some people who will not work at the going wage rate.
!. there is e'cess demand in the la#our market.
G " cut in the income ta' rate designed to encourage household consumption is an e'ample of
A. *=3a(sio(ary 2*ma(2'si2* 3o!icy.
/. contractionar$ demand(side polic$.
C. e'pansionar$ suppl$(side polic$.
!. contractionar$ suppl$(side polic$.

E " cut in the ta' rate designed to reduce the cost of capital and hence encourage #usiness investment
is an e'ample of
". e'pansionar$ demand(side polic$.
/. contractionar$ demand(side polic$.
%. *=3a(sio(ary s/33!y'si2* 3o!icy.
!. contractionar$ suppl$(side polic$.
< %acroeconomics is the #ranch of economics that deals with
A. th* *co(omy as a 6ho!*.
/. imperfectl$ competitive markets.
C. onl$ the long run ad2ustments to equili#rium in the econom$.
!. the functioning of individual industries and the #ehaviour of individual decision(making units
( #usiness firms and households.
*0 " group of modern economists who #elieve that price and wage rigidities do not provide the onl$
rationale for macroeconomic polic$ activism are calledM
A. N*6'G*y(*sia(s.
/. He$nesians.
C. %onetarists.
!. The Classical school.

** %acroeconomic theor$ that emphasised the theories of He$nes and de(emphasised the Classical
theor$ developed as the result of the failure of
". economic theor$ to e'plain the simultaneous increases in inflation and unemplo$ment during
the *<G0s.
/. fine tuning during the *<F0s.
C. the econom$ to grow at a rapid rate during the *<50s.
!. th* %!assica! mo2*! to *=3!ai( th* 3ro!o(4*2 *=ist*(c* o1 hi4h /(*m3!oym*(t
2/ri(4 th* Fr*at 8*3r*ssio(.
*6 He$nes #elieved falling wages were not a solution to persistent unemplo$ment #ecause
". falling wages demoralised workers.
B. this 6o/!2 r*2/c* th* 3/rchasi(4 3o6*r o1 !abo/r*rs as co(s/m*rs. This i( t/r(
6o/!2 b!*a+*( 1irmsN 3ros3*cts o1 s*!!i(4 mor* 4oo2s5 h*(c* i(2/ci(4 th*m to c/t
th*ir i(:*stm*(t (a(2 h*(c* !abo/r 2*ma(2.
C. the unemplo$ment was caused #$ frictional and structural factors.
!. wages would fall more than required to clear the la#our market.
*9 The practice of using fiscal and monetar$ polic$ to sta#ilise the econom$ is known as
A. 1i(* t/(i(4 o1 2*ma(2
/. monetarism
C. laisse0 faire economics
!. suppl$ side economics
*8 "ccording to Classical models1 the level of emplo$ment is determined primaril$ #$
". interest rates.
/. the level of prices.
%. th* !*:*! o1 a44r*4at* s/33!y i( th* *co(omy
!. the level of aggregate demand for goods and services.

*5 "ccording to He$nes1 the level of emplo$ment is determined #$
". interest rates.
/. the level of prices.
C. the level of aggregate suppl$ in the econom$
8. th* !*:*! o1 a44r*4at* 2*ma(2 1or 4oo2s a(2 s*r:ic*s.
*F "ccording to the Classical model1 unemplo$ment
A. co/!2 (ot 3*rsist b*ca/s* 6a4*s 6o/!2 1a!! to *!imi(at* th* *=c*ss s/33!y o1
!abo/r.
/. could persist for long periods of time #ecause wages are not fle'i#le.
C. could #e eliminated onl$ through government intervention.
!. could never e'ist.
*G To get the econom$ out of a slump1 He$nes #elieved that the government should
". increase #oth ta'es and government spending.
/. increase ta'es and:or decrease government spending.
C. cut #oth ta'es and government spending.
!. 2*cr*as* ta=*s a(2Sor i(cr*as* 4o:*r(m*(t s3*(2i(4.
*E "ggregate demand refers to the tota! 2*ma(2 for all domesticall$ produced goods and services in
an econom$ 4*(*rat*2 1rom
". the household and government sectors.
/. the household sector.
C. all sectors e'cept the rest of the world.
8. a!! s*ctors i(c!/2i(4 th* r*st o1 th* 6or!2.
*< Government policies that focus on increasing production rather than demand are calledM
". fiscal policies.
/. monetar$ policies.
C. incomes policies.
8. s/33!y'si2* 3o!ici*s.
60 +rices that do not alwa$s ad2ust rapidl$ to maintain equalit$ #etween quantit$ supplied and quantit$
demanded are
". market prices.
B. stic+y 3ric*s.
C. fi'ed prices.
!. regulator$ prices.

6* The economists who emphasised wage(fle'i#ilit$ as a solution for unemplo$ment were
". %onetarists.
/. New(He$nesians.
%. %!assica! *co(omists.
!. He$nesians.

66 "ccording to the Classical economists1 the econom$
". requires fine tuning to reach full emplo$ment.
/. should not #e left to market forces.
C. will never #e at full emplo$ment.
8. is s*!1 corr*cti(4.
69 %onetarism #ecame popular #ecause it was a#le to1 unlike Classical or He$nesian economics1 e'plain
A. sta41!atio( i( th* !at* 1$-#s.
/. demand(pull inflation in the *<F0s.
C. low growth rates in the *<50s.
!. the prolonged e'istence of high unemplo$ment during the Great !epression.

68 He$nes? e'planation for low firm investment during the Great !epression was
". low savings1 which placed a constraint on investment
/. high real #orrowing rates1 which discouraged firm #orrowing
%. hi4h sa:i(4s5 6hich !*1t co(s/m*rs 6ith !*ss mo(*y to s3*(2 o( 4oo2s a(2
s*r:ic*2 3ro2/c*2 by 1irms
!. " permanent change in Europe?s corporate ownership structures.

65 .apid increases in the price level during periods of recession or high unemplo$ment are known as
". slump.
/. sta4(atio(.
C. stagflation.
!. inflation.
6F The h$pothesis that people know the >true model> of the econom$ and that the$ use this model and
all availa#le information to form their e'pectations of the future is the
A. ratio(a!'*=3*ctatio(s hy3oth*sis.
/. active(e'pectations h$pothesis.
C. static(e'pectations h$pothesis.
!. adaptive(e'pectations h$pothesis.
6G Neo(Classical theories were an attempt to e'plain
". how unemplo$ment could have persisted for so long during the Great !epression.
B. th* sta41!atio( o1 th* 1$-#s.
C. wh$ polic$ changes that are perceived as permanent have more of an impact on a person>s
#ehaviour than polic$ changes that are viewed as temporar$.
!. the increase in the growth rate of real output in the *<50s.
6E " group of modern economists who #elieve that markets clear ver$ rapidl$ and that e'panding the
mone$ suppl$ will alwa$s increase prices rather than emplo$ment are the
". New(He$nesians.
/. He$nesians.
%. Mo(*tarists.
!. The Classical school.
6< ,a$?s law states thatM
A. )/33!y cr*at*s its o6( 2*ma(2.
/. !emand creates its own suppl$.
C. There is no such things as a free lunch
!. %acroeconomic polic$ activism is essential to ensure full(emplo$ment.
90 The aggregate suppl$ I",J curve and aggregate demand I"!J curve in a realistic He$nesian
world areM
". ",M full$ hori0ontal "!M downward sloping
B. A): horiOo(ta! o(!y ti!! th* 1/!! ca3acity !*:*!; A8: 2o6(6ar2 s!o3i(4
C. ",M vertical "!M upward sloping
!. ",M hori0ontal "!M vertical
Tota! Mar+s J 1#
Ei4h!i4ht th* corr*ct o3tio(.
1. A 3ric* ta+*r is:
". " firm that accepts different prices from different customers.
/. " consumer who accepts different prices from different firms.
%. A 1irm that ca((ot i(1!/*(c* th* mar+*t 3ric*.
!. /oth I#.J and Ic.J.
". ?hich o1 1o!!o6i(4 is a +*y ass/m3tio( o1 a 3*r1*ct!y com3*titi:* mar+*t@
". &irms can influence market price.
/. Commodities have few sellers.
C. It is difficult for new sellers to enter the market.
8. Each s*!!*r has a :*ry sma!! shar* o1 th* mar+*t.
7. A 1irm ma=imiO*s 3ro1it by o3*rati(4 at th* !*:*! o1 o/t3/t 6h*r*:
". "verage revenue equals average cost.
/. "verage revenue equals average varia#le cost.
C. Total costs are minimi0ed.
8. Mar4i(a! r*:*(/* *q/a!s mar4i(a! cost.
&. Th* 2*ma(2 c/r:* 1aci(4 a 3*r1*ct!y com3*titi:* 1irm is:
". !ownward(sloping and less flat than the market demand curve.
/. !ownward(sloping and more flat than the market demand curve.
%. 0*r1*ct!y horiOo(ta!.
!. +erfectl$ vertical.
<. %om3ar*2 to th* *q/i!ibri/m 3ric* a(2 q/a(tity so!2 i( a com3*titi:* mar+*t5 a mo(o3o!ist
6i!! char4* a 99999999999999 3ric* a(2 s*!! a 99999999999999 q/a(tity:
". @igher larger
/. Lower larger
%. Ei4h*r; sma!!*r
!. Lower smaller
>. Th* mo(o3o!ist has (o s/33!y c/r:* b*ca/s*:
A. Th* q/a(tity s/33!i*2 at a(y 3artic/!ar 3ric* 2*3*(2s o( th* mo(o3o!istRs 2*ma(2
c/r:*.
/. The monopolist>s marginal cost curve changes considera#l$ over time.
C. The relationship #etween price and quantit$ depends on #oth marginal cost and average cost.
!. There is a single seller in the market.
-. A 2octor siO*s /3 3ati*(tsR i(com* a(2 char4*s 6*a!thy 3ati*(ts mor* tha( 3oor*r o(*s.
This 3rici(4 sch*m* r*3r*s*(ts a 1orm o1:
". &irst(degree price discrimination.
/. ,econd(degree price discrimination.
%. Thir2'2*4r** 3ric* 2iscrimi(atio(.
!. +ricing at each consumer?s reservation price.
,. For 6hich o1 th* 1o!!o6i(4 mar+*t str/ct/r*s is it ass/m*2 that th*r* ar* barri*rs to *(try@
". +erfect competition
/. %onopolistic competition
%. Mo(o3o!y
!. "ll of the a#ove
$. A mar+*t 6ith 1*6 *(try barri*rs a(2 6ith ma(y 1irms that s*!! 2i11*r*(tiat*2 3ro2/cts is:
". +urel$ competitive.
/. " monopol$.
%. Mo(o3o!istica!!y com3*titi:*.
!. Dligopolistic.
1#. ?hich o1 th* 1o!!o6i(4 2o*s (ot r*1*r to macro*co(omics@
". The stud$ of aggregate level of economic activit$.
/. The stud$ of causes of unemplo$ment.
C. The stud$ of causes of inflation.
8. Th* st/2y o1 th* *co(omic b*ha:ior o1 i(2i:i2/a! 2*cisio('ma+i(4 /(its s/ch as
co(s/m*rs5 r*so/rc* o6(*rs a(2 b/si(*ss 1irms.
Assi4(m*(t W 1 E%O&#1
Tota! mar+s J 1#
1. Th* st/2y o1 *co(omics is 3rimari!y co(c*r(*2 6ith:
". !emonstrating that capitalistic economies are superior to socialistic economies.
/. !etermining the most equita#le distri#ution of societ$>s output.
C. Heeping private #usinesses from losing mone$.
8. %hoic*s 6hich ar* ma2* i( s**+i(4 to /s* scarc* r*so/rc*s *11ici*(t!y.
". O33ort/(ity cost is:
". That 6hich 6* 1or*4o5 or 4i:* /35 6h*( 6* ma+* a choic* or a 2*cisio(.
/. " cost that cannot #e avoided1 regardless of what is done in the future.
C. The additional cost of producing an additional unit of output.
!. The additional cost of #u$ing an additional unit of a product.
7. 0*rio2s o1 !*ss tha( 1/!! *m3!oym*(t corr*s3o(2 to:
". +oints outside the ppf.Iproduction possi#ilit$ frontierJ.
/. 0oi(ts i(si2* th* 331.
C. +oints on the ppf.
!. Either points inside or outside the ppf.
&. I( a 1r**'mar+*t *co(omy th* a!!ocatio( o1 r*so/rc*s is 2*t*rmi(*2 by:
". votes taken #$ consumers
/. a central planning authorit$
%. %o(s/m*r 3r*1*r*(c*s
!. the level of profits of firms
<. A 1irm 3ro2/c*s chairs. A( *co(omist 6or+i(4 1or th* 1irm 3r*2icts that Ri1 3*o3!*Rs i(com*s
ris* (*=t y*ar5 th*( th* 2*ma(2 1or o/r chairs 6i!! i(cr*as*5 c*t*ris 3arib/s.R Th* acc/racy o1
th* *co(omistRs 3r*2ictio( 2*3*(2s o( 6h*th*r th* chairs that 1irm 3ro2/c*s:
". @ave man$ complementar$ goods.
/. @ave few su#stitutes.
C. @ave few complementar$ goods.
!. Ar* (orma! 4oo2s.
>. Accor2i(4 to !a6 o1 2*ma(25 a 2*ma(2 c/r:* is:
". @ori0ontal
/. Lertical
%. 8o6(6ar2 s!o3i(4
!. !irectl$ related to law of suppl$
-. A ratio(a! 2*cisio( ma+*r 6i!! ta+* o(!y thos* actio(s 1or 6hich th* mar4i(a! b*(*1it:
". Is positive.
/. Is at its ma'imum level.
C. Is less than marginal cost.
8. Is 4r*at*r tha( or *q/a! to th* *=3*ct*2 mar4i(a! cost.
,. A!! o1 th* 1o!!o6i(4 ar* 2*t*rmi(a(ts o1 s/33!y *=c*3t:
". +rice
B. I(com* !*:*!s
C. D#2ectives of the firm
!. Level of technolog$
$. Normati:* *co(omics:
". !eals solel$ with the facts
/. Is never studied in the colleges
%. I(:o!:*s o3i(io(s a(2 i(t*r3r*tatio(s
!. Is clearl$ prefera#le to positive economics
1#. Th* tra(s1ormatio( o1 r*so/rc*s i(to *co(omic 4oo2s a(2 s*r:ic*s is:
". Technical efficienc$
/. Input
%. 0ro2/ctio(
!. Increasing returns
)o!/tio( o1 ./iO W " E%O&#1

Tota! Mar+s: 1#
1. Th* 3ric* *!asticity o1 2*ma(2 is 2*1i(*2 as th* abso!/t* :a!/* o1 th* ratio o1:
". +rice over quantit$ demanded.
/. Change in price over change in quantit$ demanded.
C. +ercentage change in price over the percentage change in quantit$ demanded.
8. 0*rc*(ta4* cha(4* i( q/a(tity 2*ma(2*2 o:*r th* 3*rc*(ta4* cha(4* i( 3ric*.
". I1 a 4oo2 is a !/=/ry5 its i(com* *!asticity o1 2*ma(2 is:
". positive and less than *
/. negative #ut greater than (*
C. 3ositi:* a(2 4r*at*r tha( 1
!. 0ero
7. A r*so/rc* is som*thi(4 that:
A. Is /s*2 to 3ro2/c* 4oo2s a(2 s*r:ic*s.
/. Is provided #$ nature1 not made #$ societ$.
C. E'ists in unlimited quantities.
!. %ust #e produced #$ a firm.
&. I1 th* cross'3ric* *!asticity b*t6**( hom* 3*rso(a! com3/t*rs a(2 :i2*o 4am* /(its 1or TQ
is 3ositi:*5 o(* ca( co(c!/2* that
A. Th*s* 3ro2/cts ar* s/bstit/t*s 1or o(* a(oth*r.
/. These products complement one another.
C. These products are over(priced.
!. Consumers are irrational.
<. As o(* mo:*s a!o(4 a co(:*= isoq/a(t5 6hich o1 th* 1o!!o6i(4 2o*s (ot cha(4*@
". The marginal rate of technical su#stitution.
/. The capital(la#or ratio.
C. The marginal product of la#or relative to the marginal product of capital.
8. Th* !*:*! o/t3/t 3ro2/c*2.
>. O1 th* 1o!!o6i(4 4oo2s5 th* o(* 6h*r* th* !a6 o1 2imi(ishi(4 mar4i(a! /ti!ity is !*ast !i+*!y to
a33!y is:

". 3ater.
B. %i4ar*tt*s.
C. Toothpaste.
!. .ap music.
-. Th* o3tima! 3/rchasi(4 r/!* stat*s that tota! /ti!ity is ma=imiO*2 6h*( a co(s/m*r:

". Consumes as much as possi#le of all good.
/. Consumes the same quantities of all goods.
C. Completel$ uses up their income.
8. %o(s/m*s to th* 3oi(t 6h*r* th* mar4i(a! /ti!ity 3*r 2o!!ar s3*(t o( a!! 4oo2s is th*
sam*.
,. ?hich o1 th* 1o!!o6i(4 3airs com* c!os*st to b*i(4 com3!*m*(tary 4oo2s@

". "pples and oranges.
B. %am*ras a(2 1i!ms.
C. " free hotel room and a free meal.
!. Cream and milk.
$. A Fi11*( 4oo2:

". Is a good that people #u$ more of as their incomes fall.
B. Is a 4oo2 6hich 3*o3!* b/y mor* o1 as its 3ric* i(cr*as*s.
C. Is a good on which people spend a small portion of their income.
!. @as a vertical demand curve.
1#. ?h*( a( i(2/stry *=3a(2s its costs o1 3ro2/ctio( 6i!!:

A. I(cr*as*.
/. !ecrease.
C. sta$ the same.
!. none of the a#ove.
Tota! Mar+s J 1#
Ei4h!i4ht th* corr*ct o3tio(:
1. 8is3osab!* I(com* is obtai(*2 by s/btracti(4 9999999999999ta=*s 1rom 3*rso(a! i(com*:
". Indirect Ta'es
B. 8ir*ct Ta=*s
C. ,u#sidies
!. None
". 0*r ca3ita i(com* is obtai(*2 by 2i:i2i(4 Natio(a! I(com* by:
". Total la#or &orce in the Countr$
/. -nemplo$ed ;outh in the Countr$
%. Tota! 3o3/!atio( o1 that co/(try.
!. None
7. Th* i(:*stm*(t 2*ma(2 c/r:* sho6s th* r*!atio(shi3 b*t6**( th* !*:*!s o1:

". Investment and Consumption
/. Consumption and Interest .ate
%. I(:*stm*(t a(2 I(t*r*st Rat*
!. None
&. Th* sit/atio( i( 6hich th* im3orts ar* 4r*at*r tha( *=3orts is t*rm*2 as:
". Trade ,urplus
B. Tra2* 8*1icit
C. /udget ,urplus
!. None
<. Fisca! 3o!icy is th* 4o:*r(m*(t 3ro4ramm* 6ith r*s3*ct to itNs:
". ,teel %ill +rivati0ation
/. -nemplo$ment .eduction
%. E=3*(2it/r* a(2 Ta= r*:*(/*
!. None
>. Im3orts 1or a(y *co(omy ar* co(si2*r*2 as:
". In2ections
B. L*a+a4*s
C. /rain !rain
!. None
-. Th* acc*!*rator is a r*!at*2 co(c*3t 6hich 1orma!iO*s th* i(:*stm*(t r*s3o(s* to:
". Consumption
/. Interest rate
%. O/t3/t
!. None
,. Accor2i(4 to G*y(*s macro*co(omic *q/i!ibri/m is attai(*2 6h*(:
". +rime %inister is +h! in %acroeconomics
B. A44r*4at* 8*ma(2 Eq/a!s A44r*4at* )/33!y
C. Inflation E'ists in Econom$.
!. None
$. Th*r* ar* 999999999999999999m*tho2s o1 m*as/ri(4 F80:
". &our
B. Thr**
C. &ive
!. None
1#. I(t*rm*2iat* 4oo2s ar* m*a(t 1or:
". !irect use #$ the consumers
B. 1/rth*r 3roc*ssi(4
C. The term do not e'ist
!. None
)o!/tio( o1 Assi4(m*(t W "()3*cia! "##> E%O&#1
Assi4(m*(t ./*stio(:
If
TR J 1##q V &q
"
T% J <# I "#q
&ind out the value of output at which profit is ma'imi0ed.
,olutionM
+rofit is ma'imi0ed at the point where
M% J MR
%C function can #e found #$ taking derivative of total cost function. i.e.M
%C 7 d TC : dB
%C 7 60
%. function can #e found #$ taking derivative of total revenue IT.J function i.e.M
%. 7 d T. : dB
7 *00 K EB
"s profit is ma'imi0ed at the point where %. 7 %C1 so #$ equating values of %C and %. function1 we get1

MR JM%

*00 K EB 7 60

EB 7 *00 K 60
EB 7 E0
. J 1#
The equation for total profit is1

T\ 7 T. K TC
7 *00B K 8B
6
( I50 4 60BJ
7 *00B K 8B
6
K 50 K 60B
7 (8B
6
4 E0B K 50
+utting B 7 *01 we get1
T\ 7 ( 8I*0J
6
4 E0 I*0J K 50
7 (800 4 E00 (50
T[ J 7<#
,o profit is ma'imi0ed where output is *0 and the ma'imum profit is 950.

A))IFNMENT ,
MA%ROE%ONOMI% 8ATA AN8 QARIABLE)5 NATIONAL IN%OME A%%OCNTINF AN8 E.CILIBRICM
IN A GEYNE)IAN E%ONOMY
(LE%T. ",'7"
Buestions *(9 are #ased on the following information a#out an econom$M
Consumer price inde' I6006J 7 *96
Consumer price inde' I600*J 7 **0
Nominal G!+ I6006J 7 WF0#n
Nominal G!+ I600*J 7 W50#n
+opulation I6006J 7 Gmn
+opulation I600*J 7 Fmn
Net factor income from a#road I6006J 7 4W9#n
Net factor income from a#road I600*J 7 (W6#n
*. /$ how much has real G!+ grown from 600* to 6006S
". (*0A
/. *6.5A
C. 60A
8. #P
6. /$ how much has per capita nominal GN+ changed from 600* to 6006S
". (*0A
B. 1".<P
C. 60A
!. 0A
9. /ased on the a#ove information1 we can sa$ thatM
". +overt$ has fallen in the countr$
B. 0*r ca3ita r*a! F80 is 1a!!i(4
C. Income inequalit$ has worsened
!. .eal growth in the informal sector is 0A
8. In the circular flow of income1 He$nesian equili#rium o#tains when
". "ll the individual sectors are in equili#riumM ,7I1 T7G1 %7C
/. Th* a44r*4at* i(B*ctio(s *q/a! a44r*4at* 6ith2ra6a!s )ITIM J IIFIX
C. There is no inflation or unemplo$ment
!. The interest rate and e'change rate are at their market clearing levels
5. -nder conditions of He$nesian equili#riumM
". aggregate demand equals aggregate suppl$
/. aggregate demand equals national income
%. both A a(2 B
!. none of the a#ove
F. 3hich of the following is a determinant of consumption
". e'pectations a#out future prices
/. level of inde#tedness of consumers
C. the price level
8. a!! o1 th* abo:*
G. 3hich is the most volatile component of aggregate demand
". Net e'ports
/. consumption
%. i(:*stm*(t
!. government spending
E. 3hich of the following is not an o#vious or direct determinant of a countr$?s imports
". real e'change rate
/. income
C. tariff rates
8. i(t*r*st rat*
<. 3hen consumption is F501 income is G50 when consumption is F601 income is G00. "ssuming there is
no government1 I7*001 net e'ports are *01 what is the level of equili#rium incomeS
". 500
/. F65
%. --<
!. E50
*0. 3hich of the following is not trueS
". ,tarting from no growth1 a positive output growth rate would #e associated with even higher
rates of investment Ithe accelerator effectJ
/. @igher investment causes a multiplied increase in income
C. ,uch increases in income would continue to induce higher investment1 which in turn would
continue to cause multiplied increases in output.
8. A!! o1 th* abo:*.
**. In the equation C 7 a 4 #;1 which descri#es the aggregate consumption function1 >a> stands for
". th* amo/(t o1 co(s/m3tio( 6h*( i(com* is O*ro.
/. the marginal propensit$ to consume.
C. the amount of consumption when income is %a'imum.
!. the average consumption level.
*6. Total consumption divided #$ total income gives usM
". th* a:*ra4* 3ro3*(sity to co(s/m*.
/. the marginal propensit$ to save.
C. the marginal propensit$ of e'penditure.
!. the marginal propensit$ to consume.
*9 !isposa#le income is the part of households> income left after the deduction of

". pension contri#utions.
/. income ta' and social securit$ pa$ments.
%. i(com* ta=.
!. savings.
*8. "s the %+, increases1 the multiplier will
". increase.
/. either increase or decrease depending on the si0e of the change in investment.
C. remain constant.
8. 2*cr*as*.
*5. In macroeconomics1 equili#rium is defined as that point at which
". 3!a((*2 a44r*4at* *=3*(2it/r* *q/a!s a44r*4at* o/t3/t.
/. planned aggregate e'penditure equals consumption.
C. aggregate output equals consumption minus investment.
!. saving equals consumption.
*F. The ratio of the change in the equili#rium level of output to a change in some autonomous
component of aggregate demand is the
". elasticit$ coefficient.
/. m/!ti3!i*r.
C. marginal propensit$ of the autonomous varia#le.
!. automatic sta#iliser.
*G. "ssuming there are no ta'es Iand no foreign sectorJ1 if the %+C is .E1 the multiplier is
". 6.5.
/. E.
%. <.
!. 6.
*E. "ssuming the net income ta' rate is 65A Iand there is no foreign sectorJ1 if the %+C is 0.E1 the
multiplier is
A. ".<.
/. E.
C. 5.
!. 6.
*<. "ssuming there is no foreign sector1 if the multiplier is 91 and the net income ta' rate is 60A1 the
%+C is
". 9:8
/. 8:5
%. <S>
!. F:G
60. "ssume there is no government or foreign sector. If the %+C is .G51 a .s.60 #illion decrease in
planned investment will cause aggregate output to decrease #$
A. Rs. ,# bi!!io(.
/. .s. 60 #illion.
C. .s. 6F.FG #illion.
!. .s. *5 #illion.
6*. "ccording to the >parado' of thrift1> increased efforts to save will cause
". an increase in income and an increase in overall saving.
B. a 2*cr*as* i( i(com* a(2 a( o:*ra!! 2*cr*as* i( sa:i(4.
C. a decrease in income #ut an increase in saving.
!. an increase in income #ut no overall change in saving.
66. If in2ections are less than withdrawals at the full(emplo$ment level of national income1 there is
". an inflationar$ gap.
/. equili#rium.
%. a 2*1!atio(ary 4a3.
!. h$perinflation.
69. The accelerator theor$ of investment sa$s that induced investment is determined #$
". the rate of change of national income.
/. e'pectations.
%. th* !*:*! o1 (atio(a! i(com*.
!. the level of aggregate demand.
68. The diagram that shows the mone$ received and paid out #$ each sector of the
econom$ is the
". income(price diagram.
/. income(e'penditures diagram.
%. circ/!ar 1!o6 2ia4ram.
!. aggregate demand(aggregate suppl$ diagram.
A))IFNMENT #$
TEE BIF FOCR: CNEM0LOYMENT5 INFLATION5 BALAN%E OF 0AYMENT) AN8 FRO?TE
(LE%T. 77'7$
CNEM0LOYMENT
*. If #oth the no. of unemplo$ed people and the si0e of the la#our force increase #$ *010001 then
". the unemplo$ment rate will remain the same.
B. th* /(*m3!oym*(t rat* 6i!! i(cr*as*.
C. the unemplo$ment rate will decrease.
!. we cannot tell.
6. 3hich of the following could #e a reason for the pro#lem of ]lack of 2o#s^ #eing overestimatedM
". the e'istence of disguised unemplo$ment
/. people are underemplo$ment
C. people holding onl$ one 2o# Ias opposed to multiple 2o#sJ
8. th* *=ist*(c* o1 chi!2 !abo/r
9. 3hich of the following is not a cost of voluntar$ unemplo$mentS
". potential output of the econom$ is greater than actual output
/. government loses ta' revenue
C. firms lose IpotentialJ revenues due to operating #elow capacit$
8. m*(ta! str*ss /(2*r4o(* by th* /(*m3!oy*2 3*rso(s
8. ]/ecause higher wages are less likel$ to induce people who are structurall$ or ph$sicall$ una#le
to participate on the la#our force. Dn the other hand people alread$ on the la#our force are more
likel$ to respond to higher wages #$ accepting 2o#s.^
The a#ove statement is an answer to which questionS
A. ?hy is th* AX c/r:* mor* *!astic tha( th* LF c/r:*
/. 3h$ is the L& curve not totall$ vertical
C. 3h$ is the "P curve not completel$ vertical
!. 3h$ is it difficult to completel$ remove the hori0ontal distance #etween the "P and L& curves
5. 3hich of the following would constitute sound government polic$ if $ou su#scri#ed to the %onetarist
view on unemplo$mentS
". increase aggregate demand through monetar$ or fiscal polic$
/. reduce the o#stacles to downward wage rigidit$ Ilike unions1 unemplo$ment #enefits1 minimum
wage legislations etc.J
%. R*2/c* th* mar4i(a! i(com* ta= rat* (to i(cr*as* th* i(c*(ti:* to 6or+
!. "ll of the the a#ove
F. The persistence of a phenomenon1 such as unemplo$ment1 even when its causes have #een removed
is called
". The parado' of thrift.
B. hyst*r*sis.
C. structural unemplo$ment.
!. ceteris pari#us.
G. C$clical unemplo$ment is the
". portion of unemplo$ment that is due to changes in the structure of the econom$ that result
in a significant loss of 2o#s in certain industries.
/. unemplo$ment that results when people #ecome discouraged a#out their chances of finding
a 2o# so the$ stop looking for work.
C. portion of unemplo$ment that is due to seasonal factors.
8. /(*m3!oym*(t that occ/rs 2/ri(4 r*c*ssio(s a(2 2*3r*ssio(s.
E. The natural rate of unemplo$ment is generall$ thought of as the
". ratio of the frictional unemplo$ment rate to the c$clical unemplo$ment rate.
/. sum of frictional unemplo$ment and c$clical unemplo$ment.
C. s/m o1 1rictio(a! /(*m3!oym*(t a(2 str/ct/ra! /(*m3!oym*(t.
!. sum of structural unemplo$ment and c$clical unemplo$ment.

<. Dne of the tenets of the Classical view of the la#our market is that the wage ad2ustments that are
necessar$ to clear the la#our market occur
". slowl$.
/. instantl$.
C. ver$ infrequentl$.
8. :*ry q/ic+!y.
*0. "ccording to He$nesian economists1 those who are not working
". have given up looking for a 2o#1 #ut would accept a 2o# at the current wage if one were offered to
them.
/. are too productive to #e hired at the current wage.
C. have chosen not to work at the market wage.
8. ar* /(ab!* to 1i(2 a Bob at th* c/rr*(t 6a4* rat*.
INFLATION
**. The inde' used most often to measure inflation is the
A. co(s/m*r 3ric* i(2*=.
/. wholesale price inde'.
C. student price inde'.
!. producer price inde'.
*6. If $ou were the owner of a c$cle manufacturing firm1 would $ou #e particularl$ worried if wage
inflation were higher than price inflationS
". No. /ecause $ou would still #e a#le to sell $our goods at the higher price.
B. Y*s. B*ca/s* th* cost o1 yo/r i(3/t is 4ro6i(4 1ast*r tha( th* r*:*(/* obtai(*2 1rom
yo/r o/t3/t
C. ;es. /ecause #oth price and wage inflation are #ad.
!. No. /ecause an$ loss to the firm will #e offset #$ the gain to the workers.
*9. 3hich of the following is not a ma2or cost of inflationM
". .esource wastageM as people spend time and mone$ to guard against the ]purchasing power
erosion^ effects of inflation1 while firms suffer menu costs Ii.e. the costs of frequentl$ issuing
]revised^ price listsJ.
/. -ncertaint$M firms defer investment when inflation is high and volatile as the latter complicates
predicting future cashflows.
C. 3orsened income inequalit$M inflation is a regressive ta' on the people that does not take into
account the ta'pa$ers? ]a#ilit$ to pa$^. "s such1 there is a redistri#ution of wealth from the poor
to the rich.
8. Mo(*y 3ri(ti(4 costs: i(1!atio( r*q/ir*s mor* c/rr*(cy (ot*s to b* 3ri(t*2 a(2 this
rais*s th* 4o:*r(m*(tNs 3ri(ti(4 costs.
*8. In the long run1 the +hillips curve will #e vertical at the natural rate of unemplo$ment if
". the long(run suppl$ curve is hori0ontal at the natural rate of inflation.
/. the long(run aggregate demand curve is vertical at potential G!+.
C. the long(run aggregate demand curve is hori0ontal at the natural rate of inflation.
8. th* !o(4'r/( a44r*4at* s/33!y c/r:* is :*rtica! at 3ot*(tia! F80.
*5. "ccording to the monetarists1 the measured unemplo$ment rate can
A. b* r*2/c*2 b*!o6 th* (at/ra! rat* o(!y i( th* short r/(5 a(2 (ot 6itho/t i(1!atio(.
/. #e reduced #elow the natural rate onl$ in the long run1 and onl$ if the price level is constant.
C. #e reduced #elow the natural rate onl$ in the short run1 and onl$ if the price level is constant.
!. #e reduced #elow the natural rate onl$ in the long run1 and not without inflation.
*F. If the prices of all inputs seem to #e rising1 can $ou #e a#solutel$ sure that it is cost(push inflationS
". No1 #ecause cost(push inflation is caused #$ an increase in the cost of onl$ one input.
/. ;es1 #ecause that is e'actl$ the definition of cost(push inflation.
%. No5 b*ca/s* s/ch a sit/atio( ca( a!so b* ca/s*2 by 3artic/!ar 2*ma(2 3r*ss/r*s i( th*
*co(omy.
!. ;es1 #ecause this is e'actl$ what happens in stagflation.
*G. The quantit$ theor$ of mone$ implies that1 provided velocit$ of mone$ is constant1 a given
percentage change in the mone$ suppl$ will cause
A. a( *q/a! 3*rc*(ta4* cha(4* i( (omi(a! F80.
/. a larger percentage change in nominal G!+.
C. an equal percentage change in real G!+.
!. a smaller percentage change in nominal G!+.
*E. If input prices ad2usted ver$ slowl$ to output prices1 the +hillips curve would #e
". downward sloping.
/. vertical or nearl$ vertical.
C. upward sloping.
8. horiOo(ta! or (*ar!y horiOo(ta!.
*<. If inflationar$ e'pectations increase1 the short(run +hillips curve will
". #ecome vertical.
/. #ecome upwarding sloping.
%. shi1t to th* ri4ht.
!. shift to the left.
BALAN%E OF 0AYMENT)
60. The record of a countr$>s transactions in goods1 services1 and assets with the rest of the world is its
RRRRRRRRRRRRR while the difference #etween a countr$>s merchandise e'ports and its merchandise
imports is the RRRRRRRRRRRR.
". current account trade #alance.
/. capital account #alance of pa$ments.
C. #alance of trade capital account.
8. ba!a(c* o1 3aym*(ts; ba!a(c* o1 tra2*.
6*. "ssuming there is no government intervention in the foreign e'change market1 which of the following
statements must clearl$ #e &"L,E1 given thatS
". If the capital account is in surplus1 then the current account is likel$ to #e in deficit.
/. If the current account is in deficit1 then the capital account is likel$ to #e in surplus.
C. If the current account is in #alance1 the capital account is also likel$ to #e in #alance.
8. No(* o1 th* abo:*.
66. 3hich of the following statements is necessaril$ T.-ES
". " countr$ runs a current account deficit if it imports more goods and services than it e'ports.
/. The sum of the current and capital accounts must #e 0ero.
C. If #oth the current and capital accounts are in surplus1 the e'change rate must appreciate.
8. No(* o1 th* abo:*.
69. "ll currencies other than the domestic currenc$ of a given countr$ are referred to as
". reserve currencies.
/. near monies.
C. 1or*i4( *=cha(4*.
!. hard currenc$.
68. E'change rates that are determined #$ the unregulated forces of suppl$ and demand are
A. 1!oati(4 *=cha(4* rat*s.
/. pegged e'change rates.
C. fi'ed e'change rates.
!. managed e'change rates.
65. If the ,tate /ank of +akistan reduces the mone$ suppl$1 a floating e'change rate will help in
reducing inflation #ecause
". as the mone$ suppl$ is decreased1 the interest rate will increase1 and the price of #oth +akistani
e'ports and +akistani imports will rise.
/. as the mone$ suppl$ is decreased1 the interest rate will increase1 and the price of +akistani
e'ports will rise and the price of +akistani imports will fall.
%. as th* mo(*y s/33!y is 2*cr*as*25 th* i(t*r*st rat* 6i!! i(cr*as*5 a(2 th* 3ric* o1
0a+ista(i *=3orts 6i!! 1a!! a(2 th* 3ric* o1 0a+ista(i im3orts 6i!! ris*.
!. as the mone$ suppl$ is decreased1 the interest rate will increase1 and the price of +akistani
e'ports and +akistani imports will fall.
6F. The fall IriseJ in value of one currenc$ relative to another is
". a floating Ifi'ingJ of the currenc$.
B. a( a33r*ciatio( (2*3r*ciatio( o1 a c/rr*(cy.
C. a depreciation IappreciationJ of a currenc$.
!. a strengthening IweakeningJ of a currenc$.
6G. If purchasing power parit$ prevails a#solutel$ in a two countr$ world1 the real e'change rate
#etween the two countries should #eM
". 1.
/. constantl$ changing.
C. relativel$ sta#le1 #ut not constant
!. none of the a#ove
6E. The interest parit$ equation implies that there is a general tendenc$ forM
". e'change rates to #e insensitive to the differential rates of interest #etween countries.
B. th* c/rr*(ci*s o1 r*!ati:*!y !o6'i(t*r*st co/(tri*s to a33r*ciat*.
C. the currencies of relativel$ high(interest countries to appreciate.
!. the currencies of relativel$ low(interest countries to depreciate.
Note that currencies with low rates of interest also t$picall$ have low inflation rates. This follows from the
&ischer equation which maintains that the nominal interest rate 7 real interest rate 4 e'pected inflation.
6<. 3hich of the following is IareJ correct statementIsJ a#out the current account deficitS
". " current account deficit is #ad1 if it is #eing caused #$ e'cessive consumer spending
/. " current account deficit is #ad1 if it is fuelled #$ high fiscal deficits
C. " current account deficit is good1 if it is caused #$ the e'cess of productive domestic investment
over domestic savings
8. A!! o1 th* abo:*
90. The P(curve effect refers to the o#servation that
". G!+ usuall$ decreases #efore it increases after a currenc$ depreciation.
/. G!+ usuall$ decreases #efore it increases after a currenc$ appreciation.
C. the trade #alance usuall$ gets worse #efore it improves after a currenc$ appreciation.
8. th* tra2* ba!a(c* /s/a!!y 4*ts 6ors* b*1or* it im3ro:*s a1t*r a c/rr*(cy 2*3r*ciatio(.
9*. If Papan e'ports more direct investment capital a#road than e'pected1 then the $en will tend to
". appreciate.
/. fluctuate more than if e'ports were lower.
%. 2*3r*ciat*.
!. not #e affected.
96. Toda$ is Tuesda$ morning. If currenc$ dealers e'pect the value of the dollar to fall #$ *0A on
3ednesda$1 then1 ceteris pari#us1 what will happen #$ the end of toda$ to the .s.:dollar e'change rateS
It willM
". .ise #$ more than *0A.
B. Ris* by *=act!y 1#P.
C. &all #$ less than *0A.
!. .emain constant.
@intM -se $our common sense. Think of ]$ourself^ as a currenc$ trader and then answer the question1
#ased on $our future e'pectation and the incentive it creates.
FRO?TE
99. "ccording to traditional thinking on the su#2ect1 which of the following would not generate economic
growth in an econom$S
". an increase in the si0e of the la#our force.
/. an increase in the productivit$ of capital.
%. a mo:* to mor* ca3ita! i(t*(si:* 3ro2/ctio( m*tho2s
!. discover$ of a ma2or mineral resource in the countr$
98. 3hen referring to economic growth1 we normall$ refer toM
A. 4ro6th i( act/a! r*a! 3*r ca3ita o/t3/t
/. growth in potential real per capita output
C. growth in actual nominal per capita output
!. growth in potential real per capita output
95. " varia#le whose value is determined #$ the model of which it is a part is termed RRRRRRRRRRR.
A. *(2o4*(o/s
/. e'ogenous
C. independent
!. constant
9F. "n e'ample of capital deepening1 given an increasing L1 would #eM
". H increases so as to maintain a constant H:L
B. G i(cr*as*s so m/ch that GSL i(cr*as*s
C. H remains constant so that L:H increases
!. H falls1 so as to reduce H:L
9G. The neo(classical growth model sa$s thatM
". poor countries should catch(up Ior converge toJ with richer countries
/. higher savings Ior rates of capital accumulationJ cannot raise a countr$?s stead$ state growth
rate
C. the stead$ state growth rate of real output depends on the sum of the Ie'ogenousJ growth rates
in population and technical progress.
8. A!! o1 th* abo:*.
RELATION)EI0) BET?EEN TEE BIF FOCR
9E. The length of a #usiness c$cle would #e measured from
". peak to trough.
/. trough to peak.
%. 3*a+ to 3*a+.
!. the slump to the e'pansion.
9<. If the econom$ is in the e'pansionar$ phase of the #usiness c$cle1 aggregate demand is likel$ to #e
RRRRRR 1 unemplo$ment is likel$ to #e RRRRRR 1 inflation is likel$ to #e RRRRRR 1 and the current account
of the #alance of pa$ments is likel$ to #e moving towards RRRRRR.
A. risi(4; 1a!!i(4; risi(4; 2*1icit
/. static low rising deficit
C. falling falling falling surplus
!. falling rising falling surplus
80. If the econom$ is at the peak of the #usiness c$cle1 aggregate demand is likel$ to #e RRRRRR 1
unemplo$ment is likel$ to #e RRRRRR 1 inflation is likel$ to #e RRRRRR 1 and the current account of the
#alance of pa$ments is likel$ to #e moving towards RRRRRR.
". rising falling rising deficit
B. static; !o6; risi(4; 2*1icit
!. falling rising falling surplus
8*. If the econom$ is approaching the trough phase of the #usiness c$cle1 aggregate demand is likel$ to
#e RRRRRR 1 unemplo$ment is likel$ to #e RRRRRR 1 inflation is likel$ to #e RRRRRR1 and the current
account of the #alance of pa$ments is likel$ to #e moving towards RRRRRR.
". rising falling rising deficit
/. static low rising deficit
8. 1a!!i(4; risi(4; 1a!!i(4; s/r3!/s
86. 3hich of the following is not true regarding the effects of growth on the #alance of pa$ments and vice
versaS
A. Generall$1 growth raises incomes which will translate into higher consumption and higher
imports1 causing the current account of the /D+s to deteriorate.
B. If growth is ]e'port(led^1 it will #oost the current account surplus of the /D+s.
%. I1 th* c/rr*(t acco/(t 2*1icit r*1!*cts a( /(2*r!yi(4 3ri:at* s*ctor r*so/rc* 2*1icit5 it
is !i+*!y to b* ba2 1or 1/t/r* 4ro6th.
8. If the current account reflects rising imports of militar$ equipment #$ the government1 it might
not #e #eneficial for economic growth.
89. " countr$ has high inflation and is running a current account deficit. 3hat should it do in the conte't
of the ,alter(,wan diagramS
". .educe government spending and revalue the e'change rate
/. Increase government spending and devalue the e'change rate
%. R*2/c* th* mo(*y s/33!y a(2 2*:a!/* th* *=cha(4* rat*
!. Increase government spending and revalue the e'change rate
1 ''''''''''''''''' is th* *(tir* satis1actio( o(* 2*ri:*s 1rom co(s/mi(4 4oo2s or s*r:ic*s:
A. Tota! /ti!ity
/. ,carcit$
C. %arginal utilit$
!. .ationing
" Th* !a6 o1 2imi(ishi(4 mar4i(a! /ti!ity stat*s that:
A. As co(s/m*r co(s/m*s mor* a(2 mor* /(its o1 a(y commo2ity5 th* /ti!ity that
co(s/m*r 2*ri:*s 1rom *ach a22itio(a! /(it 1a!!s
/. "s consumer consumes more and more units of an$ commodit$1 the utilit$ that
consumer derives from each additional unit rises
C. "s consumer consumes more and more units of an$ commodit$1 the utilit$ that
consumer derives from each additional unit remains the same
!. "s consumer consumes less and less units of an$ commodit$1 the utilit$ that consumer
derives from each additional unit falls
7 Th* *q/i mar4i(a! 3ri(ci3!* stat*s that:
A. MCa J MCb J MCc J '''''''''''''''''''''''''''JMC(
0a 0b 0c 0(
/. %-a O %-# O %-c O (((((((((((((((((((((((((((O%-n
+a +# +c +n
C. %-a ) %-# ) %-c ) ((((((((((((((((((((((((((()%-n
+a +# +c +n
!. None of the given options
& Mar4i(a! /ti!ity m*as/r*s:
". The slope of the indifference curve
B. Th* a22itio(a! satis1actio( 1rom co(s/mi(4 o(* mor* /(it o1 a 4oo2
C. The slope of the #udget line
!. The marginal rate of su#stitution
< ''''''''''''''''' is th* 2i11*r*(c* b*t6**( 6i!!i(4(*ss to 3ay a(2 6hat th* co(s/m*r act/a!!y
has to 3ay:
". Total -tilit$
B. %o(s/m*r s/r3!/s
C. +roducer surplus
!. Total product
> '''''''''''''' is th* ratio o1 th* 3robabi!ity o1 s/cc*ss to th*
3robabi!ity o1 1ai!/r*:
". Input output ratio
B. O22s ratio
C. +rice earning ratio
!. +rice sales ratio
- ''''''''''''''''''' o3*rat* /(2*r th* 3ri(ci3!* o1 !a6 o1 !ar4*
(/mb*rs:
". /anks
B. I(s/ra(c* com3a(i*s
C. Government sponsored enterprises
!. None of the given options

, Th* o3tim/m co(s/m3tio( 3oi(t 1or th* co(s/m*r is a 3oi(t 6h*r*:
A. Th* s!o3*s o1 th* i(2i11*r*(c* c/r:* a(2 b/24*t !i(* ar* *q/a!
/. The slopes of the indifference curve and total product are equal
C. The slopes of the total utilit$ curve and #udget line are equal
!. The slopes of the total product curve and total utilit$ curve are equal
$ A c/r:* that r*3r*s*(ts a!! combi(atio(s o1 mar+*t bas+*ts that 3ro:i2* th* sam* !*:*! o1
/ti!ity to a co(s/m*r is ca!!*2:
". " #udget line
/. "n isoquant
%. A( i(2i11*r*(c* c/r:*
!. " demand curve
1# Th* s!o3* o1 a( i(2i11*r*(c* c/r:* r*:*a!s that:
". The preferences are complete
B. Th* mar4i(a! rat* o1 s/bstit/tio( o1 o(* 4oo2 1or a(oth*r 4oo2
C. The ratio of market prices
!. That preferences are transitive
11 Th* !a6 o1 2imi(ishi(4 r*t/r(s a33!i*s to
A. Th* short r/( o(!y
/. The long run onl$
C. /oth the short and the long run
!. Neither the short nor the long run
1" I( th* !o(4 r/(:
"."ll inputs are fi'ed
B. A!! i(3/ts ar* :ariab!*
C."t least one input is varia#le and one input is fi'ed
!. "t most one input is varia#le and one input is fi'ed
17 Accor2i(4 to th* !a6 o1 2imi(ishi(4 r*t/r(s
". The total product of an input will eventuall$ #e negative
/. The total product of an input will eventuall$ decline
C. The marginal product of an input will eventuall$ #e negative
8. Th* mar4i(a! 3ro2/ct o1 a( i(3/t 6i!! *:*(t/a!!y 2*c!i(*
1& Th* s!o3* o1 th* tota! 3ro2/ct c/r:* is th*
". "verage product
/. ,lope of a line from the origin to the point
%. Mar4i(a! 3ro2/ct
!. %arginal rate of technical su#stitution
1< Th* short r/( is
". Less than a $ear
/. Three $ears
C. @owever long it takes to produce the planned output
8. A tim* 3*rio2 i( 6hich at !*ast o(* i(3/t is 1i=*2
1> Th* mar4i(a! 3ro2/ct o1 a( i(3/t is
". Total product divided #$ the amount of the input used to produce this amount of output
/. The addition to total output that adds nothing to profit
C. The addition to total output due to the addition of one unit of all other inputs
8. Th* a22itio( to tota! o/t3/t 2/* to th* a22itio( o1 th* !ast /(it o1 a( i(3/t5
ho!2i(4 a!! oth*r i(3/ts co(sta(t
1- A:*ra4* 3ro2/ct is 2*1i(*2 as:
".Total product divided #$ the total cost
/.Total product divided #$ marginal product
%.Tota! 3ro2/ct 2i:i2*2 by th* :ariab!* i(3/t
!. %arginal product divided #$ the varia#le input
1, Mar4i(a! 3ro2/ct cross*s th* horiOo(ta! a=is (is *q/a! to O*ro at th* 3oi(t 6h*r*:
". "verage product is ma'imi0ed
B. Tota! 3ro2/ct is ma=imiO*2
C. !iminishing returns set in
!. Dutput per worker reaches a ma'imum
1$ Th* !a6 o1 2imi(ishi(4 r*t/r(s r*1*rs to 2imi(ishi(4
". Total returns
B. Mar4i(a! r*t/r(s
C. "verage returns
!. "ll of the given options
"# Th* !a6 o1 2imi(ishi(4 r*t/r(s ass/m*s that
A. Th*r* is at !*ast o(* 1i=*2 i(3/t
/. "ll inputs are changed #$ the same percentage
C. "dditional inputs are added in smaller and smaller increments
!. "ll inputs are held constant
1' )i(c* TRJ 0\.5 s/33os* a 3*r1*ct!y com3*titi:* 1irm i(cr*as*s its
3ro2/ctio( 1rom 1# /(its to 11 /(its. I1 th* mar+*t 3ric* is H"# 3*r /(it5 tota!
r*:*(/* 1or 11 /(its is:
". W60
/. W600
C. W6*0
!. H""#
"' Th* 3ro1it'ma=imiOi(4 !*:*! o1 o/t3/t 1or a 3*r1*ct!y com3*titi:* 1irm
occ/rs 6h*r*:
". Mar4i(a! r*:*(/* *q/a!s mar4i(a! cost
/. Total revenue equals total cost
C. "verage revenue equals average total cost
!. "verage revenue equals average varia#le cost
7' A 2o6(6ar2's!o3i(4 2*ma(2 c/r:* *=ists 1or:
". A mo(o3o!y5 b/t (ot 1or a 3*r1*ct!y com3*titi:* 1irm
/. " perfectl$ competitive firm1 #ut not for a monopol$
C. /oth a monopol$ and a perfectl$ competitive firm
!. Neither a monopol$ nor a perfectl$ competitive firm
&' A:*ra4* r*:*(/* 1or a mo(o3o!ist is:
". Greater than price
/. Less than price
C. Less than marginal revenue
!. Fr*at*r tha( mar4i(a! r*:*(/*
<' Foo2 chai(s ar* o3*rati(4 i( 0a+ista( !i+* Mc 8o(a!25 GF% a(2 0iOOa E/t
*tc. Th*s* 1oo2 chai(s s*!! th*ir 3ro2/cts i( 2i11*r*(t co/(tri*s at 2i11*r*(t
3ric*s. This is a( *=am3!* o1:
". &irst(degree price discrimination
/. ,econd(degree price discrimination
C. Thir2'2*4r** 3ric* 2iscrimi(atio(
!. %onopolistic competition
>' Yo/ 4o to th* mar+*t to 3/rchas* ma(4o*s. )/33os* 1 GF o1 ma(4o*s J
Rs. &<. I1 yo/ 3/rchas* 1 GF o1 ma(4o*s5 s*!!*r 6i!! (ot 2isco/(t th* rat*.
B/t i1 yo/ 3/rchas* ma(4o*s i( b/!+ amo/(t th*( h* 6i!! s*!! yo/ at !o6*r
3ric*. This is a( *=am3!* o1:
". &irst(degree price discrimination
/. )*co(2'2*4r** 3ric* 2iscrimi(atio(
C. Third(degree price discrimination
!. %onopolistic competition
-' ?hich o1 th* 1o!!o6i(4 is tr/* 1or both 3*r1*ct a(2 mo(o3o!istic
com3*titio(@
". &irms produce a differentiated product
/. &irms face a downward sloping demand curve
C. &irms produce a homogeneous product
!. Th*r* is 1r**2om o1 *(try a(2 *=it i( th* !o(4 r/(
,' A 1*at/r* o1 mo(o3o!istic com3*titio( that ma+*s it simi!ar to mo(o3o!y
is th*:
". Ina#ilit$ to influence the price
/. 8o6(6ar2 s!o3i(4 2*ma(2 c/r:*
C. Ease of entr$ into the industr$
!. @ori0ontal marginal revenue curve
$' Mo(o3o!istic com3*titio( is a mar+*t str/ct/r* charact*riO*2 by:
". " single #u$er and several sellers
/. " product with no close su#stitutes
C. /arriers to entr$ and e'it
!. 8i11*r*(tiat*2 3ro2/cts
1#' A 1*at/r* o1 o!i4o3o!y that ma+*s it simi!ar to mo(o3o!y is th*:
". Ina#ilit$ to influence the price
/. 8o6(6ar2's!o3i(4 2*ma(2 c/r:*
C. &reedom of entr$ into the industr$
!. @ori0ontal marginal revenue curve
Quiz # 02 ECO40
!emester "all 200# $%
11' Th* mar+*t str/ct/r* i( 6hich *ach 1irm is i(2*3*(2*(t i( 2*cisio(s is
+(o6( as:
". %onopolistic competition
/. Dligopol$
C. +erfect competition
!. Mo(o3o!y
1"' I( th* +i(+*2 2*ma(2 c/r:* mo2*!5 i1 o(* 1irm r*2/c*s its 3ric*:
". Oth*r 1irms 6i!! a!so r*2/c* th*ir 3ric*
/. Dther firms will compete on a non(price #asis
C. Dther firms will raise their price
!. "ll of the given options
17' Th* ori4i(s o1 c!assica! *co(omics ca( b* trac*2 to th* 6or+ o1:
". Harl %ar'
/. %ilton &riedman
C. Pohn %a$nard He$nes
!. A2am )mith
1&' )ayNs La6 is a 3ro3ositio( /(2*r!yi(4 c!assica! *co(omics stati(4 that:
". )/33!y cr*at*s its o6( 2*ma(2
/. Leakages are greater than in2ections
C. -nemplo$ment is a common condition
!. Consumption e'penditures are a function of disposa#le income
1<' Accor2i(4 to c!assica! *co(omics5 th* *co(omy 6as /(!i+*!y to
*=3*ri*(c*:
". &ull emplo$ment
/. &le'i#le wages and prices
C. Equalit$ #etween saving and investment
!. Ei4h rat*s o1 /(*m3!oym*(t
1>' %!assica! *co(omics 6as r*3!ac*2 as th* 2omi(a(t th*ory o1
macro*co(omic a(a!ysis by:
". %onetarism
/. .ational e'pectations
C. G*y(*sia( *co(omics
!. Neoclassical economics
1-' G*y(*sia( *co(omics 6as !ar4*!y 2*:*!o3*2 to a22r*ss th* *co(omic
3rob!*ms o1 th*:
". ,tagflation of the *<G0s
/. Fr*at 8*3r*ssio( o1 th* 1$7#s
C. English industrial revolution of the late *G00s
!. "merican industrial revolution of the late *E00s
1,' G*y(*sia( *co(omics 6as th* 3r*2omi(a(t *co(omic th*ory:
". +rior to the late *G00s
/. &rom the late *G00s to the earl$ *<00s
C. From th* 1$7#s to th* 1$-#s
!. ,ince the *<G0s
1$' G*y(*sia( *co(omics r*B*ct*2 th* c!assica! ass/m3tio( that:
". )/33!y cr*at*s its o6( 2*ma(2
/. +rices and wages are infle'i#le
C. ,elf(correction takes a long time
!. Consumption e'penditures depend on disposa#le income
"#' A44r*4at* 2*ma(2 c/r:* is 2o6(6ar2 s!o3i(4 2/* to th*:
". Interest rate effect
/. 3ealth effect
C. International purchasing power effect
!. A!! o1 th* 4i:*( o3tio(
"1' A 3rimary im3!icatio( o1 G*y(*sia( *co(omics is:
". The #est government is the least government
/. &le'i#le wages and prices ensure full emplo$ment
C. ,elf(correction is the #est wa$ to eliminate unemplo$ment
!. Eco(omic i(stabi!ity is b*st corr*ct*2 thro/4h th* i(t*r1*r*(c* o1
4o:*r(m*(t
""' 8*ma(2'ma(a4*m*(t 3o!ici*s ar* 2*si4(*2 to shi1t th*:
". A44r*4at* 8*ma(2 c/r:*
/. "ggregate ,uppl$ curve
C. +hilips curve
!. +roduction possi#ilities curve
"7' A44r*4at* s/33!y is th* r*!atio( b*t6**( r*a! 3ro2/ctio( a(2:
A. )carcity
/. The price level
C. "ggregate e'penditures
!. &oreign trade
"&' Th* !o(4'r/( a44r*4at* s/33!y c/r:* is:
". !ownward sloping
/. -pward sloping
%. Q*rtica! at th* 1/!!'*m3!oym*(t !*:*!
!. @ori0ontal at the full(emplo$ment level
"<' A !*1t6ar2 shi1t o1 th* )RA) c/r:* is a ((:
". Increase in long(run aggregate suppl$
/. !ecrease in long(run aggregate suppl$
C. Increase in short(run aggregate suppl$
8. 8*cr*as* i( short'r/( a44r*4at* s/33!y
1 NTh* !a6 o1 2imi(ishi(4 r*t/r(s r*1*rs to 2imi(ishi(4:
* o Total returns.
6 o %".GIN"L .ET-.N,
9 o "verage returns.
8 o "ll of the given options.
1 NI( a 3*r1*ct!y com3*titi:* mar+*t:
* o There are a few #u$ers.
6 o There is a single seller.
9 o There is a cartel.
8 o No single #u$er or seller can significantl$ affect the market price.
1 N?hich o1 th* 1o!!o6i(4 is a 3ositi:* stat*m*(t@
* o The +resident of the -nited ,tates ought to #e elected #$ a direct vote of
the "merican people rather than the Electoral College.
6 o " fundamental assumption of the economic theor$ of consumer #ehavior is
that consumers alwa$s prefer having more of an$ good to having less of it.
9 o /ecause man$ adults cannot afford to go to college1 ta' credits for tuition
should #e introduced.
8 o "ll of the given options.
1 N?hich o1 th* 1o!!o6i(4 stat*m*(ts abo/t th* 2ia4ram b*!o6 is tr/*@
0 o !emand is infinitel$ elastic.
* o !emand is completel$ inelastic..
6 o !emand #ecomes more inelastic the lower the price.
9 o !emand #ecomes more elastic the lower the price.
1 NEco(omics is abo/t th* a!!ocatio( o1 scarc* r*so/rc*s. ?hich o1 th* 1o!!o6i(4 is NOT
a( *=am3!* o1 *co(omic scarcity@
* o If ,teve goes to see the movie %aster and Commander on ,aturda$1 he will not #e
a#le to afford #u$ing ice cream.
6 o If Penn$ studies for her economics qui0 this evening1 she will not have time to walk her
dog.
9 o If General %otors increases its production of ,-L?s this $ear1 it will have to spend
more on advertising.
8 o If /orders /ooks increases the num#er of titles it carries1 it will have to reallocate shelf
space to accommodate the new titles.
1 NI1 a "#P i(cr*as* i( 3ric* ca/s*s q/a(tity s/33!i*2 to i(cr*as* by <#P5 th* 3ric*
*!asticity o1 s/33!y is:
* o 5:6.
6 o 6:5.
9 o 5:8.
8 o 8:5.
1 NTh* i(com* *!asticity o1 2*ma(2 is th*:
* o "#solute change in quantit$ demanded resulting from a one unit increase in income.
6 o +ercent change in quantit$ demanded resulting from the a#solute increase in income.
9 o +ercent change in quantit$ demanded resulting from a one percent increase in income.
8 o +ercent change in income resulting from a one percent increase in quantit$ demanded.
1 NTh* s/33!y c/r:* 1or a mo(o3o!ist:
* o Is its marginal cost curve a#ove average varia#le cost.
6 o Is its marginal revenue curve.
9 o Is the same as the demand curve.
Good Y
45
Good X
A
* o !oes not e'ist.
1 N%o11** a(2 cr*am:
* o "re #oth lu'ur$ goods.
6 o "re complements.
9 o "re #oth more inelastic in demand in the long run than in the short run.
8 o @ave a positive cross price elasticit$ of demand.
1 NTh* 99999999999999999999 o1 a choic* is th* :a!/* o1 th* 1or*4o(* a!t*r(ati:* that
6as (ot chos*(:
* o fi'ed cost
6 o varia#le cost
9 o opportunit$ cost
8 o sunk cost
1. Th* s!o3* o1 a( i(2i11*r*(c* c/r:* r*:*a!s:
a. That preferences are complete.
b. Th* mar4i(a! rat* o1 s/bstit/tio( o1 o(* 4oo2 1or a(oth*r 4oo2.
c. The ratio of market prices.
d. That preferences are transitive.
". A!:i(Rs 3r*1*r*(c*s 1or 4oo2 X a(2 4oo2 Y ar* sho6( i( th*
2ia4ram b*!o6.
Bas*2 o( Fi4/r* it ca( b* i(1*rr*2 that:
a. "lvin does not consider
good C as Xgood.X
#. "lvin will never purchase an$ of good ;.
c. "lvin regards good C and good ; as perfect su#stitutes.
2. A!:i( r*4ar2s 4oo2 X a(2 4oo2 Y as 3*r1*ct com3!*m*(ts.
7. A( i(cr*as* i( i(com*5 ho!2i(4 3ric*s co(sta(t5 ca( b* r*3r*s*(t*2 as:
a. " change in the slope of the #udget line.
b. A 3ara!!*! o/t6ar2 shi1t i( th* b/24*t !i(*.
c. "n outward shift in the #udget line with its slope #ecoming flatter.
d. " parallel inward shift in the #udget line.
&. I1 3ric*s a(2 i(com* i( a t6o'4oo2 soci*ty 2o/b!*5 6hat 6i!! ha33*( to th* b/24*t !i(*@
a. The intercepts of the #udget line will increase.
#. The intercepts of the #udget line will decrease.
c. The slope of the #udget line ma$ either increase or decrease.
2. Th*r* 6i!! b* (o *11*ct o( th* b/24*t !i(*.
<. A( i(2i:i2/a! co(s/m*s o(!y t6o 4oo2s5 X a(2 Y. ?hich o1 th* 1o!!o6i(4 *=3r*ssio(s
r*3r*s*(ts th* /ti!ity ma=imiOi(4 mar+*t bas+*t@
a. %.,'$ is at a ma'imum.
#. +':+$ 7 mone$ income.
c. %.,'$ 7 mone$ income.
2. MR)=y J 0=S0y.
>. ?hich o1 th* 1o!!o6i(4 is tr/* r*4ar2i(4 i(com* a!o(4 a 3ric* co(s/m3tio( c/r:*@
a. Income is increasing.
#. Income is decreasing.
c. I(com* is co(sta(t.
d. The level of income depends on the level of utilit$.
-. A( i(2i:i2/a! 6ith a co(sta(t mar4i(a! /ti!ity o1 i(com* 6i!! b*
a. .isk averse.
b. Ris+ (*/tra!.
c. .isk loving.
d. Insufficient information for a decision.
,. A 1/(ctio( that i(2icat*s th* ma=im/m o/t3/t 3*r /(it o1 tim* that a 1irm ca( 3ro2/c*5 1or
*:*ry combi(atio( o1 i(3/ts 6ith a 4i:*( t*ch(o!o4y5 is ca!!*2:
a. "n isoquant.
#. " production possi#ilit$ curve.
c. A 3ro2/ctio( 1/(ctio(.
d. "n isocost function.
$. Th* short r/( is:
a. Less than a $ear.
#. Three $ears.
c. @owever long it takes to produce the planned output.
2. A tim* 3*rio2 i( 6hich at !*ast o(* i(3/t is 1i=*2.
1#. Th* rat* at 6hich o(* i(3/t ca( b* r*2/c*2 3*r a22itio(a! /(it o1 th* oth*r i(3/t5 6hi!*
ho!2i(4 o/t3/t co(sta(t5 is m*as/r*2 by th*:
a. %arginal rate of su#stitution.
b. Mar4i(a! rat* o1 t*ch(ica! s/bstit/tio(.
c. ,lope of the isocost curve.
d. "verage product of the input.
1. I15 i( a 1/!!y *m3!oy*25 c!os*2 *co(omy5 th* s/33!y o1 mo(*y a(2 th* :*!ocity o1 circ/!atio(
o1 mo(*y both i(cr*as*5 th*( i( th* short'r/(.
a. -nemplo$ment of factors will result
#. .eal national output will e'pand
c. The volume of transactions will increase
2. Th* a:*ra4* !*:*! o1 3ric*s 6i!! ris*
". A( i(cr*as* i( th* rat* o1 i(1!atio( 6hich is (ot accom3a(i*2 by a(y cha(4* i( th* :o!/m*
o1 co(s/m*r 4oo2s so!2 6i!! a/tomatica!!y i(cr*as* th*:
a. R*:*(/* 1rom Qa!/* A22*2 Ta=
#. Level of compan$ profits
c. Level of unemplo$ment
d. "verage level of wages
7. Th* i(cr*as* i( th* 0/b!ic )*ctor Borro6i(4 R*q/ir*m*(t (0)BR to a!most ]<# bi!!io( this
y*ar 6i!! a/tomatica!!y !*a2 to:
a. " higher rate of inflation
#. " fall in the rate of unemplo$ment
c. A( i(cr*as* i( th* Natio(a! 8*bt
d. " deterioration in the /alance of +a$ments
&. Th* i(:*stm*(t 2*ma(2 c/r:* sho6s th* r*!atio(shi3 b*t6**( th* !*:*!s o1:

a. Investment and Consumption
#. Consumption and Interest .ate
c. I(:*stm*(t a(2 I(t*r*st Rat*
d. None
<. Accor2i(4 to %!assica! mo2*!s5 th* !*:*! o1 *m3!oym*(t is 2*t*rmi(*2 3rimari!y by:
a. The level of aggregate demand for goods and services.
#. +rices and wages.
c. Fo:*r(m*(t ta=atio(.
d. Government spending.
>. ?hich o1 th* 1o!!o6i(4 is (ot a( im3orta(t :ariab!* i( 4ro6th acco/(ti(4 ca!c/!atio(s@
a. +roductivit$ growth
b. Mo(*y s/33!y 4ro6th
c. La#or growth
d. Capital growth
-. Th* 3*r'6or+*r 3ro2/ctio( 1/(ctio( r*!at*s:
a. O/t3/t 3*r 6or+*r to ca3ita! 3*r 6or+*r.
#. Dutput per worker to production per worker.
c. Dutput per worker to factors of production per worker.
d. +roduction per worker to the si0e of the work force.
,. I( a st*a2y'stat* *co(omy:
a. Net investment equals depreciation rate.
#. +er capita capital stock grows at the rate of la#our growth.
c. 0*r ca3ita ca3ita! stoc+ r*mai(s co(sta(t.
d. Net investment equals the consumption.
$. Th* 6ar i( Iraq s*(t oi! 3ric*s s3ira!i(4 /36ar2s5 r*s/!ti(4 i( a( i(cr*as* i( th* o:*ra!!
3ric* !*:*!. This is a( *=am3!* o1 6hich ty3* o1 i(1!atio(@

a. Cost(pull
b. %ost'3/sh
c. !emand(pull
d. !emand(push
1#. Th* IMF is a( a4*(cy char4*2 6ith 3ro:i2i(4:
a. Technical assistance to stock market and financial market pro#lems.
#. Loans for post(3orld 3ar II reconstruction.
c. )hort't*rm cr*2it 1or i(t*r(atio(a! ba!a(c* o1 3aym*(ts 2*1icits.
d. /onds denominated in -.,. dollars as a loan to L!Cs.
11. I( a 3ort1o!io i(:*stm*(t:
a. Investors are directl$ involved in managing the operations.
#. "s in direct investment1 investors e'port goods and services a#road.
c. Investors transfer the technolog$ to local investors.
2. I(:*stors ha:* (o co(tro! o:*r o3*ratio(s.
1". I(1!atio(:

a. .educes #oth the purchasing power of the dollar and one>s real income
#. reduces the purchasing power of the dollar and increases one>s real income
c. R*2/c*s th* 3/rchasi(4 3o6*r o1 th* 2o!!ar b/t may ha:* (o im3act o( o(*Rs r*a!
i(com*
d. Increases the purchasing power of the dollar and reduces one>s real income
17. O(* o1 th* t*(*ts o1 th* c!assica! :i*6 o1 th* !abo/r mar+*t is that th* 6a4* a2B/stm*(ts
that ar* (*c*ssary to c!*ar th* !abo/r mar+*t occ/r:
a. ,lowl$.
b. ./ic+!y.
c. Ler$ infrequentl$.
d. Instantl$.
1&. Thos* that ho!2 th* c!assica! :i*6 o1 th* !abo/r mar+*t ar* !i+*!y to b*!i*:* that:
a. %onetar$1 #ut not fiscal polic$ will have an effect on output and emplo$ment.
#. /oth monetar$ and fiscal polic$ will have an effect on output and emplo$ment.
c. &iscal1 #ut not monetar$ polic$ will have an effect on output and emplo$ment.
2. N*ith*r mo(*tary (or 1isca! 3o!icy 6i!! ha:* a( *11*ct o( o/t3/t a(2 *m3!oym*(t.
1<. 0ot*(tia! F80 is th* !*:*! o1 a44r*4at* o/t3/t:
a. That can #e produced if structural unemplo$ment is 0ero.
#. That can #e produced at a 0ero unemplo$ment rate.
c. That can #e sustained in the long run1 if the inflation rate is 0ero.
2. That ca( b* s/stai(*2 i( th* !o(4 r/( 6itho/t i(1!atio(.
1>. ?hich schoo! o1 *co(omic tho/4ht s/44*st*2 that o(* 3ossib!* ca/s* o1 i(1!atio( 6as a
R3/shR 1rom th* cost si2*@
a. New classical economists.
#. %onetarists.
c. %ar'ists.
2. G*y(*sia(s.
1-. A( /(s3o+*( a4r**m*(t b*t6**( 6or+*rs a(2 1irms that th* 1irm 6i!! (ot c/t 6a4*s is
+(o6( as:
a. "n e'plicit contract.
b. A( im3!icit or socia! co(tract.
c. Emplo$ment(at(will.
d. " relative(wage contract.
1,. To o11s*t th* 2o6(s6i(4 i( th* b/si(*ss cyc!*5 th* 4o:*r(m*(t a((o/(c*s a maBor i(cr*as*
i( 3/b!ic *=3*(2it/r*.
a. Technological -nemplo$ment
b. 8*ma(2 8*1ici*(t C(*m3!oym*(t
c. .eal 3age -nemplo$ment
d. .egional -nemplo$ment
1$. Th* 4o:*r(m*(t 3/ts 3r*ss/r* o( tra2* /(io(s to ma+* 3ay c!aims 6hich ar* b*!o6 th*
i(cr*as* i( 3ro2/cti:ity o:*r th* 3ast y*ar.
a. &rictional -nemplo$ment
#. Technological -nemplo$ment
c. ,tructural -nemplo$ment
2. R*a! ?a4* C(*m3!oym*(t
"#. I( 6hich cas* is tota! *=3*(2it/r* i( a( *co(omy (ot *q/a! to tota! i(com*@
a. If total saving is larger than total investment
#. If net e'ports are not 0ero
c. If inventor$ investment is negative
2. No(* o1 th* abo:*''th*y ar* a!6ays *q/a!
.1:
a. )/33os* a( *co(omyRs r*a! F80 is H<#5### i( y*ar 1 a(2 H<15"## i( y*ar ". ?hat is th*
4ro6th rat* o1 its r*a! F80@
b. Ass/m* that 3o3/!atio( 6as "## i( y*ar 1 a(2 "#" i( y*ar " a(2 r*a! F80 is H<#5### i(
y*ar 1 a(2 H<15"## i( y*ar ". ?hat is th* 4ro6th rat* o1 F80 3*r ca3ita@
("I>
.".
Th* 1o!!o6i(4 tab!* sho6s (omi(a! F80 a(2 a( a33ro3riat* 3ric* i(2*= 1or a 4ro/3 o1 s*!*ct*2
y*ars. %om3/t* r*a! F80.
Y*ar Nomi(a! F805 Bi!!io(s 0ric* i(2*=
(1$$>J1##
R*a! F805 Bi!!io(s
*<E< 56G.8 66.*< W
*<<0 <**.5 6F.6< W
*<<* 66<5.< 8E.66 W
*<<6 8G86.5 E0.66 W
*<<9 EG<0.6 *09.66 W
(Mar+sJ<
.7:
?hat is th* m/!ti3!i*r *11*ct@ ?hat r*!atio(shi3 2o*s th* M0% b*ar to th* siO* o1 th* m/!ti3!i*r@
(Mar+sJ"
AN)?ER1:
a. Fro6th rat* o1 r*a! F80 J R*a! F80 i( y*ar " V R*a! F80 i( y*ar 1S R*a! F80 i( y*ar 1
W5*1600 ( W501000:W501000 76.8A
b. F80 3*r ca3ita i( y*ar 1 J Tota! F80 i( y*ar 1STota! 3o3/!atio( i( y*ar 1
W501000:600 7 W650
F80 3*r ca3ita i( y*ar " J Tota! F80 i( y*ar 1STota! 3o3/!atio( i( y*ar 1
W5*1600:6067 W659.8F

Fro6th rat* o1 F80 3*r ca3itaJ
F80 3*r ca3ita i( y*ar " V F80 3*r ca3ita i( y*ar 1S F80 3*r ca3ita i( y*ar 1
7 659.8F ( W650:650 7 *.9E percent
AN)?ER":
R*a! F80 y*ar a J Nomi(a! F80 y*ar a X (0ric* I(2*= bas* y*ar S 0ric* I(2*= i( y*ar a
A m*a(s c/rr*(t y*ar
Y*ar Nomi(a! F805
Bi!!io(s
0ric* i(2*=
(1$$>J1##
R*a! F805 Bi!!io(s
*<F0 56G.8 66.*< <"-.& ^1##S"".1$7 W619GF.G
*<FE <**.5 6F.6< $11.<^1##S">."$ 7 W918FG.*
*<GE 66<5.< 8E.66 ""$<.$^1##S&,.""7W81GF*.9
*<EE 8G86.5 E0.66 &-&".<^1##S,#.""7W51<**.<
*<<E EG<0.6 *09.66 ,-$#."^1##S1#7.""7 WE15*F
AN)?ER7:
a. M/!ti3!i*r *11*ct:
"n effect in economics in which an increase in spending produces an increase in national income and
consumption greater than the initial amount spent.
The multiplier effect descri#es how an initial change in spending ripples through the econom$ to generate
a larger change in real G!+. It occurs #ecause of the interconnectedness of the econom$1 where a change
in @aslett>s spending will generate more income for !avidic1 who will in turn spend more1 generating
additional income for Grimes.
#. The %+C is directl$ Ipositivel$J related to the si0e of the multiplier.
Tota! /ti!ity:
]Total utilit$ is the satisfaction achieved #$ consuming all the units of the commodit$
considered at a time. &or e'ample1 if we are considering four units of commodit$ at present1 the total
satisfaction derived #$ the consumption of all the four units will #e called total utilit$^.
Mar4i(a! /ti!ity:
]%arginal utilit$ is the change in total utilit$1 when an additional unit of the commodit$
will #e consumed^.
Th* !a6 o1 2imi(ishi(4 mar4i(a! /ti!ity:
The law of diminishing marginal utilit$ is #ased on o#servations from dail$ life.
The more a person consumes the commodit$1 the less is the commodit$ important for him #ecause the
desire to consume the commodit$ ma$ graduall$ #e fulfilled. This o#servation ma$ #e stated as a law1 i.e.
8*1i(itio(:
]The additional #enefit which a person derives from an increase of his stock of a thing diminishes with
ever$ increase in the stock he alread$ has^.
In simple words1 ]the marginal utilit$ of a commodit$ diminishes as a consumer consumes greater amount
of that commodit$^.
E=am3!*:
,uppose that a person is considering purchasing small packs of +epsi. The first pack gives the
*0 utils of utilit$. @is desire up to the e'tent of one pack of +epsi has #een fulfilled. Now he ma$ like to
drink the second pack1 #ut1 naturall$1 the desire will #e less than #efore. The second pack ma$ give him
onl$ E utils. 3hen two packs of +epsi are consumed1 the total satisfaction derived is *04E7*Eutils. In
other words when a person consumed the second IadditionalJ unit of +epsi1 there was a change of Eutils in
total utilit$ I*E(*07EJ. This is called marginal utilit$. 3hen the person drinks the third pack of +epsi1 the
satisfaction must #e less than the second pack1 which ma$ #e onl$ F utils. The satisfaction will continue to
decrease and when the point of saturation will comeIwhere there is no desireJ1 than an additional
unitIsi'thJ unit of +epsi will not add to the level of satisfaction and there will #e no change in total utilit$1
i.e. marginal utilit$ will #e 0ero. If he takes seventh pack of +epsi the pleasure the consumer was having
after consuming si' pack of +epsi ma$ decrease1. Total utilit$ ma$ actuall$ decrease1 i.e. marginal utilit$
ma$ #e negative as shown in ta#le.
Tab!*:
C(its o1 0*3si Tota! /ti!ity(MC Mar4i(a! /ti!ity(MC
C(its
L*:*! o1 2*sir*
* *0 *0 +ositive
6 *E E +ositive
9 68 F +ositive
8 6E 8 +ositive
5 90 6 +ositive
F 90 0 No desire Ipoint of
saturationJ
G 6E (6 Negative
Fra3hs:
Law of diminishing marginal utility
1 2 3 4 5 6 7
Quantity of pepsi
T
o
t
a
l

u
t
i
l
i
t
y
Total utility

Diminishing marginal utility
-4
-2
0
2
4
6
8
10
12
1 2 3 4 5 6 7
Quantity of pepsi
M
a
r
g
i
n
a
l

u
t
i
l
i
t
y
Marginal utility
E=3!a(atio(:
Ta#le shows that total utilit$ is ma'imum I90 utilsJ when marginal utilit$ is 0ero. "ccording to this ta#le
consumer has a desire to drink more packs of +epsi until she has consumed 5 units of +epsi1 after which
the consumer does not actuall$ desire to drink the si'th pack of +epsi. This is the point of saturation1
#ecause when the consumer consumes or drinks the si'th unit of +epsi. It does not add the total level of
satisfaction. The change in satisfaction I%-J is 0ero. @ere the total utilit$ will #e ma'imum. &urther
consumption ma$ decrease the total utilit$ which means a negative change in total utilit$ Inegative %-J.
Assi4(m*(t q/*stio(:
0art (a:
Th* C.). 8*3artm*(t o1 A4ric/!t/r* is i(t*r*st*2 i( a(a!yOi(4 th* 2om*stic mar+*t 1or cor(.
Th* C)8ARs sta11 *co(omists *stimat* th* 1o!!o6i(4 *q/atio(s 1or th* 2*ma(2 a(2 s/33!y
c/r:*s:
.2 J 15>## ' 1"<0
.s J &&# I 1><0
./a(titi*s ar* m*as/r*2 i( mi!!io(s o1 b/sh*!s; 3ric*s ar* m*as/r*2 i( 2o!!ars 3*r b/sh*!.
a. %a!c/!at* th* *q/i!ibri/m 3ric* a(2 q/a(tity that 6i!! 3r*:ai! /(2*r a com3!*t*!y 1r**
mar+*t.
b. Th* 4o:*r(m*(t c/rr*(t!y has a H&.<# b/sh*! s/33ort 3ric* i( 3!ac*. ?hat im3act 6i!!
this s/33ort 3ric* ha:* o( th* mar+*t@ ?i!! th* 4o:*r(m*(t b* 1orc*2 to 3/rchas* cor(
/(2*r a 3ro4ram that r*q/ir*s th*m to b/y /3 a(y s/r3!/s*s@ I1 so5 ho6 m/ch@
0art (b:
I1 th* 2*ma(2 1or b/tt*r ris*s by &P 6hi!* th* 3ric* o1 mar4ari(* ris*s by ,P5 th*( ca!c/!at*
th* cross 3ric* *!asticity o1 2*ma(2 o1 b/tt*r 6ith r*s3*ct to th* 3ric* o1 mar4ari(*.
)o!/tio(:
)o!/tio( 0art (a:
a. In equili#rium1
.2 J .s
Therefore
15>## ' 1"<0 J &&# I 1><0
*F5+ 4 *65+ 7 *F00 K 880
6<0+ 7 **F0
+ 7 **F0:6<0
0 J &
+utting the value of price in an$ of demand and suppl$ equation1
B 7 *1F00 K *65'8 Ior 880 4 *F5'8J
. J 11##
The equili#rium price is H& 3*r b/sh*!s whereas the equili#rium quantit$ is 11## mi!!io(s o1
b/sh*!s.
#. If the government currentl$ has a W8.50 #ushel support price in place1 then
+utting + 7 W8.50 in demand equation1
Bd 7 *F00 ( *65I8.5J
Bd 7 *09G.5
Now1 putting + 7 W8.50 in suppl$ equation1
Bs 7 880 4 *F5I8.5J
Bs 7 **E6.5
,urplus 7 Bs ( Bd 7 **E6.5 ( *09G.5 7 *85
The support price would create an e'cess suppl$ of 1&< mi!!io( b/sh*!s that the government would #e
forced to #u$.
)o!/tio( 0art (b:
.ise in demand for #utter 7 8A
.ise in price of margarine 7 EA
%ross'3ric* *!asticity o1 2*ma(2 J0*rc*(ta4* cha(4* i( 2*ma(2 1or 4oo2 a
0*rc*(ta4* cha(4* i( 3ric* o1 4oo2 b
7 8A
EA
7 0.5
The positive sign with cross(price elasticit$ of demand shows that these two goods are su#stitute.
A. 8*1i(* th* !a6 o1 2imi(ishi(4 mar4i(a! /ti!ity.
B. Th* 1o!!o6i(4 tab!* sho6s th* tota! /ti!ity that a( i(2i:i2/a! r*c*i:*s 1rom co(s/mi(4
:ario/s /(its o1 a commo2ity X.
.= TC=
1 <>
" 1#&
7 1&&
& 1->
< "##
> "1>
- ""&
, ""&
a. %a!c/!at* mar4i(a! /ti!ity at *ach !*:*!.
b. ?h*r* is th* i(2i:i2/a!Ns sat/ratio( 3oi(t 1or commo2ity X@
c. I1 0ric* is 0JH,5 ca!c/!at* co(s/m*r s/r3!/s at *ach !*:*!.
)o!/tio( 0art A:
8*1i(itio(:
The law of diminishing marginal utilit$ states that as $ou consume more and more of a particular good1
the satisfaction or utilit$ that $ou derive from each additional unit falls.

)o!/tio( 0art B:
a. "s marginal utilit$ is calculated #$ the formula1
%-' 7 = T-'
=B'
%-' 7 5F1 8E1 801 961 681 *F1 E1 0.
#. The saturation point is reached when this individual increases consumption of C from G to E units.
"t that point total utilit$ of C is ma'imum Ii.e. 668J and marginal utilit$ of C is 0ero.
c. "s consumer surplus is calculated #$ the formula1
Consumer surplus 7 %-' K +'
Consumer surplus 7 8E1 801 961 681 *F1 E1 01 (E.
I1 th* 2is3osab!* i(com* (Y2 a(2 co(s/m3tio( 1or a hy3oth*tica! *co(omy is:
8is3osab!
* i(com*
(Y2
%o(s/m3tio(
(%
900 900
950 980
800 9E0
850 860
500 8F0
550 500
A. ?ith th* h*!3 o1 abo:* i(1ormatio(5 ca!c/!at*:
aJ ,aving I,J
#J "verage propensit$ to consume I"+CJ
cJ "verage propensit$ to save I"+,J and
dJ %arginal propensit$ to consume I%+CJ
at each point.
B. ?hat is th* r*!atio(shi3 b*t6**( A0% a(2 A0)@
,olutionM
a. ,avingI,J 7 01 *0160190180 and 50.
"verage propensit$ to consume I"+CJ 7 *.01 0.<G1 0.<51 0.<91 0.<6 and 0.<0.
"verage propensit$ to save I"+,J 7 01 0.091 0.051 0.0G1 0.0E and 0.*0.
%arginal propensit$ to consume I%+CJ is 0.E at each point.
b. ,ince disposa#le income is either consumed or saved1 the average propensit$ to consume plus average
propensit$ to save must equal *. i.e.
"+, 4 "+C 7 *
D.
"+C 7 * K "+,.
Assi4(m*(t ./*stio(:
A. 8i11*r*(tiat* b*t6**( short r/( a(2 !o(4 r/(.
B. I1 th* :a!/*s o1 short r/( q/a(tity (.5 3ric* (0 a(2 tota! cost (T% ar* 4i:*(5 th*(
com3!*t* th* tab!* 4i:*( b*!o6:
0ric*
(0
./a(tity(. Tota!
cost(T%
Tota!
r*:*(/*
(TR
0ro1it (_J Mar4i(a!
cost(M%
Mar4i(a!
r*:*(/*(MR
, 7 "&
, & "<
, < ",
, > 7"
, - &"
, , >&
)o!/tio( 0art (A:
8i11*r*(c* b*t6**( )hort'R/( a(2 Lo(4'R/(:
,hort run is a period of time in which at least one of the factors of production is fi'ed or unchangea#le
long run is a period of time in which all the factors of production used in the production are fle'i#le. The
actual length of the short run and long(run can var$ considera#l$ from industr$ to industr$.
)o!/tio( 0art (B:
0ric*
(0
./a(tity(. Tota!
cost(T%
Tota!
r*:*(/*
(TR J0..
0ro1it
(_J
TR'T%
Mar4i(a!
cost(M%J
MT%SM.
Mar4i(a!
r*:*(/*(MRJ
MTRSM.
, 7 "& 68 0 ( (
, & "< 96 G * E
, < ", 80 *6 9 E
, > 7" 8E *F 8 E
, - &" 5F *8 *0 E
, , >& F8 0 66 E
,olution of "ssignment U G ECD80*
"ssignment questionM
(a ?hat 6*r* th* %!assica! :i*6s abo/t sa:i(4@
(b ?hat is th* m*a(i(4 o1 0ara2o= o1 thri1t@ I!!/strat* 0ara2o= o1 thri1t /si(4 a 2ia4ram.
(Mar+s 1#
,DL-TIDNM
Classical views a#out saving
%!assica! *co(omist co(si2*r*2 sa:i(4 as a bi4 :irt/* o1 soci*ty. Th*y sai2 it is :*ry im3orta(t
1or th* 3*o3!* to sa:* b*ca/s* mor* th*y sa:*5 sa:i(4 c/r:* 6i!! shi1t to6ar2s ri4ht. This 6i!!
!o6*r i(t*r*st rat* a(2 6i!! i(cr*as* i(:*stm*(t. 8/* to mor* i(:*stm*(t i( th* *co(omy5
hi4h*r 6i!! b* th* 4ro6th rat*. )o th* sa:i(4 6as *(4i(* o1 4ro6th 1or c!assica! *co(omists.
%eanings of +arado' of Thrift
Th* r*:*rs* m/!ti3!i*r *11*ct ca( b* i!!/strat*2 i( th* co(t*=t o1 G*y(*sNs parado& of thrift5
6hich hi4h!i4hts th* (*4ati:* im3act o1 hi4h*r sa:i(4 i( a( *co(omy i( r*c*ssio(. G*y(*s sai2
that s/ch thrift (or co(s*r:ati:* sa:i(4 b*ha:ior 6o/!2 acc*(t/at* th* r*c*ssio(. As 3*o3!*
sa:* mor*5 th*y 6i!! s3*(2 !*ss. Firms 6i!! th*r*1or* 3ro2/c* !*ss5 a(2 !abor hiri(4 6i!!5 as a
r*s/!t5 1a!!5 !*a2i(4 to a 2*c!i(* i( i(com*s. This 2*c!i(* 6o/!2 a!so ha33*( i( a m/!ti3!i*2
1ashio(5 ca/si(4 a h/4* 2*c!i(* i( (atio(a! i(com*. Th* 3ara2o= !i*s i( th* 1act that sa:i(45
6hi!* /s/a!!y co(si2*r*2 4oo2 1or a(y o(* i(2i:i2/a!5 ca( act/a!!y b* harmful to th* o:*ra!!
*co(omy i1 *:*ryo(* start*2 sa:i(4.
Illustration of +arado' of Thrift using a diagram
0ara2o= o1 thri1t ca( b* i!!/strat*2 /si(4 6ith2ra6a!s a(2 i(B*ctio(s a33roach to o/t3/t
2*t*rmi(atio(. ?ith2ra6a!s a(2 i(B*ctio(s ar* ta+*( o( :*rtica! a=is a(2 th* o/t3/t is ta+*( o(
horiOo(ta! a=is.
I1 3*o3!* start sa:i(4 mor* 1or a rai(y 2ay or som*thi(4 *!s*5 th* 6ith2ra6a! 1/(ctio( 6i!! shi1t
/36ar2s b*ca/s* sa:i(4 is a 1orm o1 6ith2ra6a!s. Th* 6ith2ra6a! 1/(ctio( 6i!! ris* 1rom 61to
6".Eo6*:*r i1 th* 3*o3!* sa:* mor*5 th*y 6i!! (at/ra!!y b* ab!* to s3*(2 !*ss. I1 th* s3*(2i(4
is !*ss5 th* 1irms 6i!! b* ab!* to 3ro2/c* !*ss. Th*r* 6i!! th/s b* a m/!ti3!i*2 1a!! i( i(com*. Th*
3h*(om*(o( o1 hi4h*r sa:i(4s !*a2i(4 to !o6*r (atio(a! i(com* is +(o6( as 0ara2o= o1 Thri1t
i.*.5 th* mo:*m*(t o1 3oi(t c to 3oi(t a i( this 2ia4ram that is 1rom o/t3/t !*:*! Y*1 to Y*"
sho6s th* 3ara2o= o1 thri1t that is th* 2isa2:a(ta4* o1 b*i(4 o:*r!y 3r/2*(t.
B/t this is (ot a!!. Far 1rom th* *=tra sa:i(4 *(co/ra4i(4 mor* i(:*stm*(t5 th* !o6*r
co(s/m3tio( 6i!! 2isco/ra4* 1irms 1rom i(:*sti(4. )o i1 i(:*stm*(t 1a!!s5 th* X !i(* 6i!! shi1t
1rom X to XN. )o th*r* 6i!! a4ai( b* a 1/rth*r m/!ti3!i*2 1a!! i( i(com* 1rom Y*" to Y*7.)o that
6as a(oth*r 2im*(sio( o1 G*y(*s ar4/m*(t. Thro/4h a!! th*s* 2i11*r*(t ar4/m*(ts5 G*y(*s
6as a2:ocati(4 th* cas* o1 1isca! 3o!icy *=3a(sio( i( sit/atio( o1 r*c*ssio(.
!iscuss the three core rules of elasticit$.
(Mar+s: #<
R/!* W #1
If elasticit$ is #etween 0ero and one I0 ) e ) *J1 it is said to #e inelastic1 if elasticit$ is greater than one
Ie O *J1 it is said to #e elastic1 if elasticit$ is equal to 0ero Ie 7 0J1 it is said to #e unitar$ elastic and if
elasticit$ is equal to infinit$ Ie 7 _J1 it is said to #e infinitel$ elastic.
R/!* W #"
If sign of income elasticit$ of demand is positive then good is normal and if sign is negative then good is
inferior.
R/!* W #7
If sign of cross price elasticit$ of demand is positive then goods are su#stitutes of each other and if the
sign is negative then goods are compliments.
Y O
W, J
W
2
W
!
a
Y
e2
Y
e
Paradox of thrift
"W
"Y
How highr !a"ing!
#ad
$o lowr national in%o&
J
J#
Y
e$
%
"&
Tota! Mar+s J1#
1. Mar4i(a! /ti!ity m*as/r*s:
". The slope of the indifference curve.
B. Th* a22itio(a! satis1actio( 1rom co(s/mi(4 o(* mor* /(it o1 a 4oo2.
C. The slope of the #udget line.
!. The marginal rate of su#stitution.
". ?hich o1 th* 1o!!o6i(4 b*st *=3r*ss*s th* !a6 o1 2imi(ishi(4 mar4i(a! /ti!ity@
". The more a person consumes of a product1 the smaller #ecomes the utilit$ which he receives
from its consumption.
/. Th* mor* a 3*rso( co(s/m*s o1 a 3ro2/ct5 th* sma!!*r b*com*s th* a22itio(a! /ti!ity
6hich sh* r*c*i:*s as a r*s/!t o1 co(s/mi(4 a( a22itio(a! /(it o1 th* 3ro2/ct.
C. The less a person consumes of a product1 the smaller #ecomes the utilit$ which she receives from
its consumption.
!. The less a person consumes of a product1 the smaller #ecomes the additional utilit$ which he
receives as a result of consuming an additional unit of the product.
7. A c/r:* that r*3r*s*(ts a!! combi(atio(s o1 mar+*t bas+*ts that 3ro:i2* th* sam* !*:*! o1
/ti!ity to a co(s/m*r is ca!!*2:
". " #udget line.
/. "n isoquant.
%. A( i(2i11*r*(c* c/r:*.
!. " demand curve.
&. Th* mar4i(a! rat* o1 s/bstit/tio(:
". %a$ rise or fall1 depending on the slope of the #udget line.
/. .ises as $ou move downward along an indifference curve.
%. Fa!!s as yo/ mo:* 2o6(6ar2 a!o(4 a( i(2i11*r*(c* c/r:*.
!. .emains the same along a #udget line.
<. ?hich o1 th* 1o!!o6i(4 is a charact*ristic o1 th* i(2i11*r*(c* c/r:*s@
". The$ are concave to the origin.
B. Th*y ar* co(:*= to th* ori4i(.
C. Curves closer to the origin have the highest level of total utilit$.
!. Curves closer to the origin have the highest level of marginal utilit$.
>. I( th* 2ia4ram 4i:*( b*!o65 th* b/24*t !i(* is b*st r*3r*s*(t*2 by th* !i(*:
". "/
/. "!
%. FF
!. !G
-. Th* *(23oi(ts (horiOo(ta! a(2 :*rtica! i(t*rc*3ts o1 th* b/24*t !i(*:
". %easure its slope.
/. %easure the rate at which one good can #e su#stituted for another.
C. %easure the rate at which a consumer is willing to trade one good for another.
8. R*3r*s*(t th* q/a(tity o1 *ach 4oo2 that co/!2 b* 3/rchas*2 i1 a!! o1 th* b/24*t 6*r*
a!!ocat*2 to that 4oo2.
,. I1 3ric*s a(2 i(com* i( a t6o'4oo2 soci*ty 2o/b!*5 6hat 6i!! ha33*( to th* b/24*t !i(*@
". The intercepts of the #udget line will increase.
/. The intercepts of the #udget line will decrease.
C. The slope of the #udget line ma$ either increase or decrease.
8. Th*r* 6i!! b* (o *11*ct o( th* b/24*t !i(*.
$. I1 0= J 0y5 th*( 6h*( th* co(s/m*r ma=imiO*s /ti!ity5
". C must equal ;.
B. MC(X m/st *q/a! MC(Y.
C. %-ICJ ma$ equal %-I;J1 #ut it is not necessaril$ so.
!. C and ; must #e su#stitutes.
1#. Th* 2i11*r*(c* b*t6**( 6hat a co(s/m*r is 6i!!i(4 to 3ay 1or a /(it o1 a 4oo2 a(2 6hat
m/st b* 3ai2 6h*( act/a!!y b/yi(4 it is ca!!*2:
". +roducer surplus.
B. %o(s/m*r s/r3!/s.
C. Cost(#enefit anal$sis.
!. Net utilit$.
Tota! Mar+s J 1#
1. ?hich o1 1o!!o6i(4 is a +*y ass/m3tio( o1 a 3*r1*ct!y com3*titi:* mar+*t@
E. &irms can influence market price.
&. Commodities have few sellers.
G. It is difficult for new sellers to enter the market.
E. Each s*!!*r has a :*ry sma!! shar* o1 th* mar+*t.
". A 1irm ma=imiO*s 3ro1it by o3*rati(4 at th* !*:*! o1 o/t3/t 6h*r*:
E. "verage revenue equals average cost.
&. "verage revenue equals average varia#le cost.
G. Total costs are minimi0ed.
E. Mar4i(a! r*:*(/* *q/a!s mar4i(a! cost.
7. Th* 2*ma(2 c/r:* 1aci(4 a 3*r1*ct!y com3*titi:* 1irm is:
E. !ownward(sloping and less flat than the market demand curve.
&. !ownward(sloping and more flat than the market demand curve.
F. 0*r1*ct!y horiOo(ta!.
@. +erfectl$ vertical.
&. Th* mo(o3o!ist has (o s/33!y c/r:* b*ca/s*:
E. Th* q/a(tity s/33!i*2 at a(y 3artic/!ar 3ric* 2*3*(2s o( th* mo(o3o!istRs 2*ma(2
c/r:*.
&. The monopolist>s marginal cost curve changes considera#l$ over time.
G. The relationship #etween price and quantit$ depends on #oth marginal cost and average cost.
@. There is a single seller in the market.
<. A 2octor siO*s /3 3ati*(tsR i(com* a(2 char4*s 6*a!thy 3ati*(ts mor* tha( 3oor*r o(*s.
This 3rici(4 sch*m* r*3r*s*(ts a 1orm o1:
E. First'2*4r** 3ric* 2iscrimi(atio(.
&. ,econd(degree price discrimination.
G. Third(degree price discrimination.
@. +ricing at each consumer?s reservation price.
>. For 6hich o1 th* 1o!!o6i(4 mar+*t str/ct/r*s is it ass/m*2 that th*r* ar* barri*rs to *(try@
E. +erfect competition
&. %onopolistic competition
F. Mo(o3o!y
@. "ll of the a#ove
-. A mar+*t 6ith 1*6 *(try barri*rs a(2 6ith ma(y 1irms that s*!! 2i11*r*(tiat*2 3ro2/cts is:
E. +urel$ competitive.
&. " monopol$.
F. Mo(o3o!istica!!y com3*titi:*.
@. Dligopolistic.
,. ?*!1ar* *co(omics is a bra(ch o1 *co(omics 2*a!i(4 6ith:
". ,ocial issues.
B. Normati:* iss/*s.
C. +olitical issues.
!. None of the given options.
$. 9999999999999999999 ar* 4oo2s that 3*o3!* m/st 4*t a 1!a:or o1 b*1or* th*y ca( co(si2*r
b/yi(4 th*m.
A. E=3*ri*(c* 4oo2s.
/. Giffen goods.
C. Normal goods.
!. None of the given options.
1#. ?hich o1 th* 1o!!o6i(4 2o*s (ot r*1*r to macro*co(omics@
E. The stud$ of aggregate level of economic activit$.
&. The stud$ of causes of unemplo$ment.
G. The stud$ of causes of inflation.
E. Th* st/2y o1 th* *co(omic b*ha:ior o1 i(2i:i2/a! 2*cisio('ma+i(4 /(its s/ch as
co(s/m*rs5 r*so/rc* o6(*rs a(2 b/si(*ss 1irms.
Tota! Mar+s J 1#
Fi!! i( th* b!a(+s 6ith a33ro3riat* 6or2s.
*. Th* ba!a(c* o1 3aym*(ts (BO0s is an accounting record of a countr$?s transactions with the
rest of the world.
6. "n$ transaction which causes the suppl$ curve of dollars to shift to the right is recorded with a
3ositi:* sign on the /D+s.
9. " growth rate of #etween "'7P is considered normal for mature developed countries.
8. &iscal deficits and de#t are often reported as a ratio of F80.
5. There are two dimensions to the de#ate over ta'ationM equit$ and *11ici*(cy.
F. The relationship #etween ta' rate and ta' revenue collection can #e summari0ed in the La11*r
c/r:* 2ia4ram.
G. 8is3osab!* i(com* is o#tained #$ su#tracting income ta' from total income.
E. %one$ or paper currenc$ serves at least three functionsM it is a medium of e'change1 a store of
value and a /(it o1 acco/(t.
<. Mo(*tary 3o!icy can #e defined as the central #ank?s programme1 often changing on a dail$
#asis1 regarding the direct or indirect control Ithrough interest ratesJ of monetar$ conditions in
the econom$ with a view to managing aggregate demand and inflation.
*0. "n$ #alance sheet has two sidesM ass*ts and lia#ilities.
111 NCosts that var$ with the level of activit$ Ior outputJ are called :ariab!* costs
111 NConsumer surplus is the 2i11*r*(c* #etween willingness to pa$ and what the consumer
actuall$ has to pa$.
111 NMar4i(a! /ti!ity is the additional utilit$ derived from the consumption of one or more unit of
the good.
111 NN*3otism means doing unfair favors for near ones when in power.
111 N-nit elasticit$ means that a *A change in price will result in an e'act *A change in q/a(tity
2*ma(2*2 .
Tota! Mar+s J 1#
Fi!! i( th* b!a(+s 6ith a33ro3riat* 6or2s.
*. The unemplo$ment rate is defined as the ratio of the (o. o1 /(*m3!oy*2 3*o3!* divided #$ the
sum of the emplo$ed and unemplo$ed people.
6. C(2*r*m3!oym*(t refers to the situation when a person is reported as emplo$ed #ut is actuall$
onl$ doing a part(time 2o#.
9. There are essentiall$ three schools of thought regarding the causes of unemplo$mentM the
Classicist1 He$nesian and Mo(*tarist schoo!s.
8. He$nes located the origins of unemplo$ment in deficient a44r*4at* 2*ma(2.
5. Frictio(a! /(*m3!oym*(t was defined as unemplo$ment caused #$ dela$s in matching 2o#(
seekers to 2o#s.
F. !eflation is the opposite of i(1!atio( and occurs when the general level of prices falls.
G. Th* 3ro2/c*r 3ric* i(2*= (00I is the price inde' of goods and raw materials sold at the
wholesale level to producers.
E. The /D+s can #e divided into three partsM current account1 ca3ita! acco/(t and changes to
reserves.
<. Eq/i!ibri/m in the market for foreign e'change occurs at the point of intersection of the suppl$
and demand curves.
*0. The capital account generall$ provides a direct picture of the (*t ass*t 3ositio( of a countr$
vis(`(vis the rest of the world.
s/bB*cti:*
)3ri(4 "##$
./*stio( No: <1 ( Mar+s: <
Bri*1!y 2isc/ss th* co(c*3t o1 com3arati:* a2:a(ta4* 6ith th* h*!3 o1 *=am3!*.

./*stio( No: <" ( Mar+s: 1#
A. 8i11*r*(tiat* b*t6**( Mar4i(a! 0ro3*(sity to %o(s/m* (M0% a(2 Mar4i(a! 0ro3*(sity
to )a:* (M0).
B. )/33os* a ho/s*ho!2 has th* co(s/m3tio( 1/(ctio( (% 3r*s*(t*2 i( th* 1i4/r*
4i:*( b*!o6:
a. Fi(2 co(s/m3tio( 6h*( 2is3osab!* i(com* is H,5### a(2 H1#5###.
b. Fi(2 co(s/m3tio( 6h*( 2is3osab!* i(com* is H >5###. Eo6 ca( a ho/s*ho!2
co(s/m* mor* tha( its 2is3osab!* i(com*@
c. ?hat is tr/* 1or *:*ry 3oi(t o( th* &<
#
!i(*@
(Mar+s: &I>

./*stio( No: <7 ( Mar+s: 1#
8*1i(* M# a(2 M1. Bri*1!y 2isc/ss th* thr** broa2 moti:*s o1 ho!2i(4 mo(*y.
(Mar+s:&I>

./*stio( No: <& ( Mar+s: 1#
R*ca!! th* Eq/atio( o1 ./a(tity th*ory o1 mo(*y a(2 ca!c/!at* th* missi(4 1i4/r* i( *ach o1 th*
1o!!o6i(4 cas*s:
a. %one$ suppl$ I%J 7*001 +rice I+J 7 9 and real output IBJ 7 600. Calculate the missing
figure.
#. Lelocit$ of mone$ ILJ 7 81 +rice I+J 7 5 and output IBJ 7*00. Calculate the missing
figure.
c. %one$ suppl$ I%J 7 6001 velocit$ of mone$ ILJ 7 G and output IBJ 7 G00. Calculate the
missing figure.
d. %one$ suppl$ I%J 7*501 velocit$ of mone$ ILJ 7 E1 +rice level I+J 7 9. Calculate the
missing value.

(Mar+s: ".< *ach

)3ri(4 "##$
./*stio( No: <1 ( Mar+s: <
Bri*1!y 2isc/ss th* 3ri:at* cost o1 a2:*rtisi(4. Eo6 6* ca( ca!c/!at* th* mar4i(a! socia! cost@
AN)?ER: 0ri:at* %ost O1 A2:*rtisi(4: The private cost of advertising is the cost incurred #$ firm in
making the advertisement i.e newspaper adds1 tv commercials etc. The firms do not take into account the
nuisance faced #$ people due to these advertisements otherwise the firms would do less advertisement.
Mar4i(a! )ocia! %ost: %arginal social cost is not a monetar$ #ased cost. It is the cost #orne #$ the
societ$ as a whole. It is the cost of consumption of one ne't unit.

./*stio( No: <" ( Mar+s: 1#
A. ?hat co(c!/sio(s ar* 2*ri:*2 1rom *=o4*(o/s 4ro6th th*ory@
AN)?ER: E=o4*(o/s Fro6th Th*ory: The ma2or conclusions derived from the e'ogenous growth are
as followsM
[ The stead$ growth rate of real G!+ depends on e'ogenous rates of growth of population
InJ and technolog$ ItJ. There are no policies for government for how to affect the stead$ growth
rate of a countr$. @igher savings can onl$ have a little effect on income it cannot cause long term
growth #ecause savings cause diminishing returns to investment and capital accumulation.
[ If one countr$ started with lower income and capital than another countr$1 the poorer
countr$ will grow faster to catch up the richer countr$ and then #oth the countries will grow
together.

B. ?hat is m*a(t by co(:*r4*(c* th*ory@ E=3!ai( th* co(:*r4*(c* th*ory i( th*
4i:*( 4ra3h.
(Mar+s: &I>

./*stio( No: <7 ( Mar+s: 1#
A(s6*r: Fisca! 0o!icy: &iscal polic$ is the government?s a#out the
e'penditure in form of purchases1 su#sidies and interest pa$ments on de#t etc.
revenue in form of ta'es etc.

8i11*r*(c* b*t6**( %o(tractio(ary a(2 E=3a(sio(ary Fisca! 0o!icy:
%o(tactio(ary Fisca! 0o!icy E=3a(sio(ary Fisca! 0o!icy
In conactionar$ fiscal polic$ government decreases its
e'penditure.
In e'pansionar$ fiscal polic$ government increases its
e'penditure.

B/24*t 8*1icit a(2 B/24*t )/r3!/s: /udget deficit e'ists if government e'penditure increases
the revenue earned. In this case government needs to finance its e'penditure through
#orrowing.
/udget surplus e'ists when revenue e'ceeds the government e'penditure. In this condition
government can easil$ pa$ off its de#t #orrowings.

(Mar+s: "I&I&

./*stio( No: <& ( Mar+s: 1#
8isc/ss th* basic th*ori*s r*4ar2i(4 IMFNs stabi!iOatio( 3ro4ram. Ar* th*s* th*ori*s
s/cc*ss1/!@ I1 (ot5 4i:* r*aso(s.
A(s6*r: IMFNs )tabi!iOatio( Th*ori*s:
[ Ti4ht Fisca! 0o!icy: It works through higher revenues and reduced government
e'penditure.
[ 8*:a!/atio(: ,witching from imports to home produced goods. It increases
competitiveness1 e'ports and increase investors confidence in local currenc$.
[ Ti4ht Mo(*tary 0o!icy: @igher interest rates resulting in reduced private sector
consumption and investment demand. It reduces inflation and increases savings. @igh interest
rates also results in higher capital inflow.
Theses theories are generall$ not successful in lower income countries ILICsJ. /ecause the$ caused the
pro#lems ofM
8*:a!/atio(: It raises the price of imports and also increased the inflation while the real wage
rate could not increase.
)tabi!iOatio( h/rts 3oorM decrease in e'penditure alwa$s #adl$ effects the poor which can
then cause political insta#ilit$.
.
MI8TERM EXAMINATION
Fa!! "##$
E%O&#1' Eco(omics ()*ssio( ' &
"nswers M "J
.isk and -ncertaint$ M .isk is when an outcome ma$ or ma$ not occur #ut its pro#a#ilit$ is known while
uncertaint$ is when an outcome ma$ or ma$ not occur #ut its pro#a#ilit$ is not known.
"nswers M /J
*J &or risk neutral person
o If Ddds .atio O *1 then he will definitel$ #u$
o If Ddds .atio 7 *1 then he will #e indifferent
o If Ddds .atio ) *1 then he might not #u$ as D. ) *
6J &or risk averse person
o If Ddds .atio O *1 then in this case as well he might decide not to #u$.
o If Ddds .atio 7 *1 then he will definitel$ not #u$
o If Ddds .atio ) *1 then he will definitel$ not #u$
9J &or risk loving person
o If Ddds .atio O *1 then he will definitel$ #u$
o If Ddds .atio 7 *1 then he will definitel$ #u$
o If Ddds .atio ) *1 then in this case as well he might decide to #u$.

"nswers M CJ
The tossing of a coin and the pro#a#ilit$ of a head appearing is 50A i.e. the odds of success are fair. ,o
the option of D. ) * and D. O * is not there. The onl$ possi#ilit$ is D. 7 * which means that the chances
are not that #ad. Now it depends on the fact that whether I am a risk averse1 risk neutral or risk loving
person. In case of fair odds #oth risk loving and risk neutral person might decide to pla$. ,o I will pla$ this
game as the amount of mone$ involved is not that much and as far as m$ perception of it is concerned
the marginal #enefit of gaining 600 .s is perceived #$ me as more than the marginal cost of losing the
600 .s. ,o I would definitel$ pla$ this game. %oreover the e'citement of winning might overshadow m$
rational 2udgement and I would definitel$ decide to pla$ #$ #eing carried awa$ #$ e'citement.

%I!TE.% EC"%IN"TIDN
&all 600<
ECD80*( Economics I,ession ( 6J
./*stio( No: &1 ( Mar+s: 1#
Fo!!o6i(4 tab!* sho6s th* 3ric* a(2 q/a(tity 2*ma(2*2 o1 a 4oo2.
+rice Buantit$ demanded
6.5 800
5 600
*0 *00
60 50
80 65
aJ Calculate the total revenue from this ta#le.
#J Interpret whether the demand is elastic1 inelastic or unitar$ elastic and wh$S
cJ 3hat will #e the shape of demand curve according to the a#ove ta#leS !raw the graph.

MI8TERM EXAMINATION
)3ri(4 "##$
./*stio( No: &1 ( Mar+s: 1#
A. 8*1i(* KLa6 o1 s/33!yL a(2 *=3!ai( it 6ith a sch*2/!* a(2 2ia4ram.
B. ?hat ar* th* 1actors 6hich ca/s* th* shi1t i( mar+*t s/33!y c/r:*@
(Mar+s: >I&
"N,3E.M LA? OF )C00LY: It states that as the price goes up the quantit$ supplied also goes up and
when price falls quantit$ supplied also falls.
)ch*2/!* 1or )/33!y:
0ric* (Rs. ./a(tity s/33!i*2
< 1##
& $<
7 ,#
" >#
1 &#

Factors %a/si(4 )hi1t i( )/33!y %/r:*:
There are various factors causing shift in market suppl$ curve which are as followsM
Factors cha(4i(4
s/33!y
E11*ct o(
s/33!y
8ir*ctio( o1 )hi1t i(
s/33!y
Eq/i!ibri/m
0ric*
Eq/i!ibri/m
q/a(tity
Increase in num#er of
suppliers
Increase .ightward shift !ecrease Increase
!ecrease in num#er of
suppliers
!ecrease Leftward shift Increase !ecrease
Improved technolog$ Increase .ightward shift !ecrease Increase
!eclined technolog$ !ecrease Leftward shift Increase !ecrease
Increase in future price !ecrease Leftward shift Increase !ecrease
!ecrease in future price Increase .ightward shift !ecrease Increase
Increase in resources>
price
!ecrease Leftward shift Increase !ecrease
!ecrease in resources>
price
Increase .ightward shift !ecrease Increase

Fa!! "##,
./*stio( No: <1 ( Mar+s: <
8*1i(* 1or*i4( *=cha(4* mar+*ts. A!so 4i:* som* *=am3!*s o1 1or*i4( *=cha(4* mar+*ts.

&oreign e'change marketsM
The foreign e'change market is a specific s$stem of a countr$ for a foreign trade and currenc$ e'change.
&or e'ample1 if +akistan imports a product from -,"1 +akistan will #u$ dollars from rupees1 so +akistan
e'changed its currenc$ in foreign market.
&oreign markets depend on imports1 e'ports and currenc$ e'changed process. /$ these wa$s two
countries e'change their markets.
./*stio( No: <" ( Mar+s: 1#
?hat 6i!! b* th* ro!* o1 4o:*r(m*(t i( th* 1or*i4( *=cha(4* mar+*t i( th* 1o!!o6i(4 cas*s@
a. I1 th* s/33!y c/r:* o1 2o!!ars shi1ts to th* ri4ht 2/* to ris* i( *=3orts.

if the suppl$ curve of dollars shifts to the right due to rise in e'ports1 the government role in foreign
markets will #e ver$ good. /ecause due to rise in e'ports government will e'change mone$ and the$ will
gain high price against its currenc$. The government will increase its e'ports so it raises the price of its
currenc$ in foreign e'change.

b. I1 th* 2*ma(2 c/r:* 1or 2o!!ars shi1ts to ri4ht 2/* to ris* i( im3orts.

If the demand curves for dollars shifts to right due to rise in imports1 the government should decrease the
imports rate to save the currenc$ from falling its price. /asicall$ rise in imports decreases the price of
currenc$ in foreign e'change markets. ,o government will slow down the imports and will tr$ to increase
its own products to complete the necessar$ requirement of the countr$.
(Mar+s:<I<

./*stio( No: <7 ( Mar+s: 1#
Fisca! 3o!icy:
&iscal polic$ is #asicall$ a government polic$ for e'penses1 imports1 e'ports of goods1 #enefits from
unemplo$ment1 interest on de#ts etc.
E=3a(sio(ary 1isca! 3o!icy:
3hen there is an increase in government spending1 there will #e more interest rate of #ank loan which
government has #orrowed for spending.
%o(tractio(ary 1isca! 3o!icy:
In this polic$ the aggregate demand rises due to increase in unemplo$ment rate of countr$.
-nemplo$ment rise the government e'penditures.
(Mar+s: "I&I&

./*stio( No: <& ( Mar+s: 1#
A. I1 th*r* is a 4ra2/a! i(cr*as* i( th* sa:i(4 rat* o:*r tim*5 6o/!2 this !*a2 to s/stai(*2
*co(omic 4ro6th@ Fi:* yo/r a(s6*r 6ith bri*1 *=3!a(atio(.
!ifinetl$1 it will increase economic growth rate. "s we save more and more mone$ or goods from
spendings. Dur economical position #ecomes good. If we have much more savings we can inverst it in a
good #usiness or production. This savings will produce more goods and and ma$ #e more people will #e
emplo$ed in this proccess. ,o our counrt$ will develop graduall$. /$ this wa$ we will #e a#le top increase
our growth rate economicall$.
B. I1 this is tr/*5 6hy 2o 3*o3!* (ot i(cr*as* th*ir rat* o1 sa:i(4@

,ome times +eople are afraid #ecause of decrease in saving rate and from low e'change rate. The$ don?t
put their mone$ in #anks. "nd the$ sometimes don?t invest. &or a good economical grwoth e'tra time is
required which more people don?t want to wait. ,ometimes the savings rate from #anks is too low.
%. I1 th*r* is a hi4h*r 3artici3atio( rat* a(2 F80 3*r ca3ita ris*s5 6o/!2 o/t3/t 3*r
6or+*r a!so ris*@ Fi:* yo/r a(s6*r 6ith bri*1 *=3!a(atio(.

;es1 #ecause when the rate of G!+ per capita rises1 there will #e more and more chances for emplo$ment
and the life of people will #ecome standard. The$ will increase the salaries and wages of workers. /$ this
wa$ the workers will #e motivated and the$ will produce more output.
(Mar+s:&I7I7

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