1.

Automatic stabilizers act to ___ to government expenditures and __ government revenues during
recessions.
(a) Decrease; increase (b) increase; increase (c) Decrease; Decrease (d) Increase; Decrease-Correct
2. If GDP price index is 150 and nominal GDP is Rs. 9000 billion, then real GDP is
(a) Rs. 135 billion (b) Rs. 1350 billion (c) Rs. 600 billion (d) Rs. 6000 billion
3. Firms under perfect competition in the short run can earn only
(a) Economic Profit (b) Normal Profit (c) Loss (d) All of these
4. Markets reduce transaction costs
(a) Because each market uses the same set of rules for buying and selling goods and services
(b) When prices are set by the sellers and are not determined by negotiation between the buyers
and the sellers
(c) By decreasing the time spent searching for information about goods and services
(d) Only when the government can coordinate the plans of many buyers and sellers
5. Green GDP means
(a) Measuring the impact of production on air pollution, water pollution, soil depletion, and the loss
of other natural resources. Correct
(b) Measuring the value of all green vegetables and forest products.
(c) GDP of a country express in terms of USD dollar also known as green bucks informally.
(d) Measuring GDP ignoring the impact of production on air pollution, water pollution, soil
depletion, and the loss of other natural resources
6. Discretionary Fiscal Policy differs from automatic stabilizer Fiscal Policy in the sense that
(a) The former deals with government spending and the later deals with tax policy
(b) The former is chosen by Congress while the latter is chosen by the President
(c) The former is always stabilizing, while the latter is never stabilizing - Correct
(d) The former often takes years to enact while the latter takes effect automatically
7. A perfectly competitive firm producing 100 units of output per period finds that Average total cost is
$20; Average variable cost is $12; Marginal Cost is $18 and increasing; Price of the product is $15. This
firm should
(a) Produce more output
(b) Reduce production without shutting down
(c) Shut down (reduce output to zero)
(d) Do nothing (it is currently maximizing profit)

8. Statement A: The price elasticity of demand varies along a downward sloping linear demand curve.
Statement B: This is because the slope of a linear demand curve changes from point to point.
(a) Both statement A and statement B are correct. And statement B is the right explanation for
Statement A.
(b) Both statement A and statement B are correct. But statement B is not the right explanation of
statement A.
(c) Statement A is correct but statement B is not correct.
(d) Statement A is not correct but statement B is correct.

9. Statement A: an increase in the price of pizza, other things constant, increases the opportunity cost of
pizza.
Statement B: Because of higher opportunity cost of pizza consumers will reduce demand for other goods
and increase the quantity demanded of pizza.
 (a) Both statement A and statement B are correct; And statement B is the right explanation of
statement A.
(b) Both statement A and statement B are correct. But statement B is not the right explanation of
statement A.
(c) Statement A is correct but statement B is not correct.
(d) Statement A is not correct but statement B is correct.

10 What effect is working when the price of pizza falls and consumers tend to buy it instead of other goods

(a) The income effect;

(b) The diminishing marginal utility effect
(c) The substitution effect
(d) The ceteris paribus effect

11. Elasticity of production is

(a) percentage change in variable input due to percentage change in output
(b) percentage change in output due to percentage change in variable input
(c)Percentage change in output due to percentage change in price
(d)Proportionate change in quantity demanded as a result of proportionate change in price of the product

12 A person finds Rs. 2000 on the street. If he decides to use the money to go to an IPL match, his
opportunity cost of going to game is
(a) Nothing, because you found the money on the street
(b) Rs. 2000 as he could have used the money to buy other things plus the value of his time spent at the
game
(c) Rs. 2000 as he could have used the money to buy other things plus the value of his time spent at the
game. Plus the cost of snacks he purchased at the game.
(d) Rs. 2000 because he could have used the money to buy other things

13 At any given price which of the following is not going to increase real GDP demanded
(a) An increase in transfer payments
(b) An increase in net taxes - Correct
(c) An increase in government purchases
(d) All of these

14 In economics

(a) Expected total benefit and expected total costs are compared to make a choice
(b) Expected average benefit and expected average costs are compared to make a choice
(c) Expected marginal benefit and expected marginal costs are compared to make a choice
(d) Affordability of the product and availability of the product are taken into account to make a choice
15 Statement A: A higher Herfindahi Index value signifies increase in competition along with increasing
market power. Statement B: The Herfindahi Index is considered to be ratio as it takes all the firms into
account. Advantageous compared to concentration.
(a) Only statement A is true.
(b) Only statement B is true
(c) Both statement A and statement B are true
(d) Both Statement A and Statement B are false
16. If capital inputs are measured along the verticle axis and labour inputs are measured along the vertical
axis then upper ridge line denotes
(a) The points where marginal product of capital is zero
(b) The points where marginal product o capital is one
(c) The points where marginal product of labour is zero
(d) The points where marginal product of labour is one

17MC = MR and MR = AR means

(a) The equilibrium position of a firm in the long period
(b) The equilibrium position of a firm under imperfect competition
(c) The equilibrium position of a firm under perfect competition
(d) None of these

18 An increase in price from 25 paisa to 30 paisa leads to an increase in the quantity supplied from 40 units
to 44 units. The price elasticity of supply is
(a) 2 (b) 0.5 (c) -2 (d) -0.5

19 The price elasticity of supply is +4. The price increases by 15%. Sales were originally 200 units. What will
they be now?
(a) 80 units (b) 320 units (c) 60 units (d) 120 units

20 A typical demand curve cannot be

(a) A straight line (b) rising upward to right (c) concave from below (d) convex from below

21 The steeper the short-run aggregate supply curve

(a) The impace a shift of the agreggate demand curve will be more on real GDP and less on the price level
(b) The impact a shift of the aggregate demand curve will be less on nominal GDP and more on the price
level.
(c) The impact a shift of the agreggate demand curve will be less on real GDP and more on the price level
(d) None of these

22. Macroeconomics is the study of

(a) market regulation; (b) money and financial markets; (c) economy wide phenomea (d) how households
and firms make decisions and how they interact

23 if marginal benefit is greater than marginal cost for an activity, a rational choice involves;

(a) No more of the activity;

(b) More or less, depending on the benefits of other activities
(c) Less of the activity
(d) More of the activity - Correct

24 In the second stage of short run production

(a) Elasticity of production is greater than one.
(b) Elasticity of production is less than one but greater than zero.
(c) Elasticity of production is greater than one but less than infinity.
(d) Elasticity of production is less than zero.
25 Golden rule of profit maximisation says that a profit maximizing firm produces
(a) Where marginal revenue equals marginal cost, provided marginal cost cuts marginal revenue from above
(b) Where marginal revenue equals marginal cost, provided marginal cost cuts marginal revenue from
below.
(c) Where averge revenue equals average cost, provided average cost cuts average revenue from below.
(d) Where average revenue equals average cost, provided average cosst cuts average revenue from above.

26. The lerner index is defined as

(a) (price cost)/cost
(b) (cost price)/price
(c) (cost- price)/cost
(d) (price cost) / price

27 (a) Economic Information is usually scarce and costly to acquire.

(b) Economic Information is usually not require for rational decision making.

(a) Both statement (a) and (b) are true.

(b) Both statement (a) and (b) are false
(c) Statement (a) is true but statement (b) is false
(d) Statement (a) is false but statement (b) is true.

28. if Average cost (AC) is falling then

(a) Marginal Cost (MC) less than average cost (AC)

(b) Marginal Cost (MC) equals to Average Cost (AC)
(c) Marginal Cost (MC) greater than Average Cost (AC)
(d) The slope of Average Cost (AC) is increasing

29 In economics rational self interest means

(a) Blind materialism , pure selfishness or greed
(b) Individuals try to minimize the expected benefit achieved with a given cost
(c) Invididuals try to maximize the epected cost of achieving a given benefit
(d) Individuals try to maximize the expected benefit achieved with a given cost or to minimize the expected
cost of achieving a given benefit.

30 if the income elasticity of a good is greater than one but less than zero then a) it is normal good (b) it is
necessary good (c) it is an inferior good
(a) Only (a) is right
(b) Both (a) and (b) are right
(c) Both (b) and (c) are right
(d) All of these are right

31. If marginal utility is zero

(a) total utility is zero
(b) An additional unit of consumption will decrease totalutility
(c) An additonal unit of consumption will increase total utility
(d) Total Utility is maximized

32. Statement A: Firms in monopolisitic competition are not producing at minimum average cost.
Statement B:Firms in monopolistic competition have excess capacity
(a) Only statement A is true.
(b) Only statement B is true.
(c) Both Statement A and Statement B are true
(d) Both Statement A and Statement B are false

33. if an increase in the price of product X shifts the demand for product Y rightward and conversely, if a
decrease in the price of X shifts demand for Y leftward then
(a) X and Y are substitute products
(b) X and Y are complementary Products
(c) X and Y are not related
(d) X and Y both are inferior products

34. The price elasticity of demand is the

(a) Ratio of the percentage change in price to the percentage change in quantity demanded
(b) Ratio of the change in price to the change in quantity demanded
(c) Ratio of the percentage change in quantity demanded to the percentage change in price
(d) Ratio of the percentage change in quantity demanded to the percentage change in price of related good.
35 If (Mux/Px) > (MUy/Py) then
(a) The consumer will increase his consumption of X and decrease his consumption of Y.
(b) The consumer will decrease his consumption of X and increase his consumption of Y.
(c) The consumer will increase his consuption of both X and Y.
(d) The consumer will decrease his consumpiton of both X and Y.

36 A firm practising price discrimination will be

(a) Charging different prices for different qualities of product
(b) Buying in the cheapest and selling in the dearest market
(c) Charging different prices in different markets of a product
(d) Buying only from firms selling at a discount

37 In Perfect competition there is a large number of sellers:

(a) Large number of sellers means at least 1000 in the market
(b) Large number of sellers means infinite number of sellers in the market
(c) Large number of sellers means every seller is selling a small amount in relative sense.
(d) Large number of sellers means every seller is selling a small amount in absolute sense.

38 In which of the following industries do firms set prices?

(a) Competitive markets, but not monopoly markets
(b) Monopoly markets, but not competitive markets
(c) Competitive and monopoly markets
(d) Netither competitive nor monopoly markets

39 Which of the following can increase real GDP per person?

(a) A decrease in population growth
(b) Foreign investment from abroad
(c) Policies to encourage international trade
(d) All the options are correct

40 When the price of a normal good falls, more of it is purchase because of

(a) The substitution effects
(b) The income effects
(c) Either the substitution effect or the income effect
(d) Both substitution effect and income effect

41 Statement A: Money income is the amount of rupees received per period. Statement B: Change in
price level keeps the money income constant but may increase or decrease the real income
(a) Both Statement A and Statement B are correct
(b) Both Statement A and Statement B are false
(c) Statement A is correct but statement B is not correct
(d) Statement A is not correct but statement B is correct.

42 In the context of circular flow of income and expenditure which of the following statements is not
correct?
(a) Firms sell factors of production to households
(b) Households buy goods and services from business firms
(c) Firms buy factors of production from households
(d) The government taxes households and firms
43 A rational person who currently subscribes two magazines is trying to decide whether he should
subscribe to a third. What should determine his decision
(a) The total cost of the three magazines compared to the total satisfaction the individual would
receive
(b) The total amount of satisfaction the person would get from the magazines
(c) The additional cost of the third magazine compared to the additional benefit the person would
get from the third magazine.
(d) The cost of the third magazine, including the time it takes to read it.

44 Marginal Product is
(a) The prouce when all factor inputs are employed at optimum efficiency
(b) Annual output of the most efficient firm
(c) The extra output obtained from employing an additional unit of a factor
(d) None of these

45 Upward or downward shift of the demand curve shows

(a) Change in quantity demanded
(b) Change in price
(c) Change in supply
(d) Both change in quantity demanded and change in price

46 In economics market refers to

(a) Physical places, such as supermarkets, department stors, shopping mails etc.
(b) Any mechanisms by which buyers and sellers communicate to exchange goods and services
(c) Both Option 1 and Option 2 - Correct
(d) Only product market and not to resource market

47 When GDP increases budget deficit

(a) Decreases - Correct
(b) Increases
(c) Remains constant
(d) None of these

48 Statement A: the Division of tax burden depends on elasticities of demand and supply. Statement B:
More inelastic the demand curve and more elastic the supply curve, the larger is the burden on the
consumer.
(a) Both Statement A and Statement B are true.
(b) Both Statement A and statement B are false.
(c) Statement A is true but Statement B is false.
(d) Statement A is false but Statement B is true.

49 Marginal utility curve of a consumer is also his

(a) Supply curve
(b) Demand curve
(c) Total utility curve
(d) None of these
50 In the long run zero substitutability between the factor inputs is a feature of
(a) Linear isoquant
(b) Input output isoquant
(c) Smooth convex isoquant
(d) Kinked isoquant

51 Along a demand curve real income is assumed to be constant

(a) Always true
(b) Always false
(c) Sometimes true sometimes false
(d) None of these

52 Expansion and contraction of demand mean

(a) Movement to a higher demand curve
(b) Movement to a lower demand curve
(c) Movements along the same demand curve
(d) All of these

53 A monopolist has no supply curve because

(a) Monopolists have no marginal cost curve
(b) Monopolists can charge any price they want
(c) As demand changes, each output level can be consistent with more than one profit maximizing
price
(d) As demand changes, the firms profit maximizing choice of output may change

54 Opportunity cost is
(a) The additional benefit of buying an additional unit of a product
(b) That which we forgo, or give up, when we make a choice or a decision
(c) The cost incurred in the past before we make a decision about what to do in the future
(d) A cost that cannot be avoided, regardless of what is done in the future

55 For a given price level aggregate demand curve shifts if there is a change in (a) government
expenditure (b) investment expenditure
(a) Only (a)
(b) Only (b)
(c) Both (a) and (b)
(d) None of these but change in consumption expenditure

56 An Indian company owns a fast-food store in Sri Lanka. The value of the goods and services produced
in the store are included
(a) In Both Sri Lankas GDP and Indias GDP
(b) In Sri Lankas GDP, but not in Indias GDP
(c) In Indias GDP, but not in Sri Lankas GDP
(d) Partly in Sri Lankas GDP and partly in Indias GDP
57 The money demand curve slopes downward because
(a) The lower the interest rate, the higher the opportunity cost of holding money
(b) The higher the interest rate, the lower the opportunity cost of holding money result of price
increases
(c) The lower the interest rate, the lower the opportunity cost of holding money
(d) None of these

58 In 2013, Mr. X earned a salary of Rs. 25,000 and he spent Rs. 24,000, thus saving Rs. 1000. At the end
of the year, he received a bonus of Rs. 1000 and he spent Rs. 500 of it, saving the other Rs. 500.
What was his marginal propensity to consume?
(a) 0.96 (b) 0.5 (c) 0.04 (d) 0.02

59 Which of the following is least likely a feature that monopolistic competition and perfect competition
have in common?
(a) Output occurs where MR = MC
(b) Zero economic profit in the long run
(c) Extensive advertising to differentiate products
(d) Large number of buyers and sellers

60 Average product remains positive (a) as long as total product is positive (b) as long as marginal
product is positive.
(a) Both (a) and (b) are correct
(b) Only (a) is correct
(c) Only (b) is correct
(d) Both (a) and (b) are false.