ECO401 Economics Solved MCQ's By MMA(Awi)
ECO401 Question No:
1
To calculate the price elasticity of demand, you need to
know ____________________ point(s) on the ____________________ demand
curve.
► One, same.
► Two, same.
► One, opposite.
► Two, opposite.
ECO401 Question No: 2
Governments protect domestic industries from foreign
competition by _____________.
► Encouraging
agreements like NAFTA.
► Using tariff and non-tariff barriers.
► Discouraging union
membership.
► keeping the minimum
wage low.
ECO401 Question No: 3
To make the equation of
exchange in the quantity theory of money:
► V and Q are
assumed to be constant.
► The money supply is assumed to be produced by the banking system and not exclusively
in currency.
► The quantity of money is assumed to determine the amount of Real GDP.
► M and P are considered
constant.
ECO401 Question No: 4
In the equation MV = PQ,
according to the crude quantity theory of money:
► M has no effect on the price level.
► V is the number of times each
dollar is spent per year.
► Q is the real price level.
► P rises as V falls, other things constant.
ECO401 Question No: 5
What would result from a depreciation of the pound on the
foreign exchange market?
► An increase in the price of
imported computers.
► A fall in the purchasing power of US tourists in London.
► A fall in the price of imported computers.
► An increase in the purchasing power of UK tourists overseas.
ECO401 Question No: 6
Disposable income is:
► Total income plus transfer payments.
► Total income minus saving.
► Total income plus net taxes.
► Total income minus net taxes.
ECO401 Question No: 7
How should monetary
policy be used during recessions?
► Decrease money supply to increase interest rate and increase aggregate
demand.
► Increase
money supply to increase interest rate and increase aggregate demand.
► Decrease money supply to
decrease interest rate and increase aggregate demand.
► Increase money
supply to decrease interest rate and increase aggregate demand.
ECO401 Question No: 8
Which of the following policy options would simultaneously
increase interest rates and decrease output?
► The central bank sells bonds
through open market operations.
► The federal government
increases its defense purchases.
► The central bank expands
the money supply.
► The federal government
increases the tax rate.
ECO401 Question No:
9
An increase in the money
supply will cause interest rates to:
► Rise.
► Fall.
► Remain unchanged.
► None of the given options.
ECO401 Question No:
10
Commercial banks in
Pakistan are supervised by:
► State bank.
► National bank.
► Finance minister.
► World bank.
ECO401 Question No:
11
Fiscal policy is the government program with respect to its:
► Expenditure and tax revenue.
► Increase in unemployment.
► Steel Mill Privatization.
► Unemployment reduction.
ECO401 Question No:
12
An expansionary fiscal
policy can:
► Raise the
national debt.
► Decrease
the national debt.
► Have no effect on national debt.
► None of the given options.
ECO401 Question No:
13
If a war destroys a large portion of a country's capital
stock but the saving rate is unchanged, the exogenous model predicts that
output will grow and the new steady state will approach:
► A higher output level than before.
► The same output level as before.
► A lower output
level than before.
► The
Golden Rule output level.
Lesson 39
ECO401 Question No:
14
If the prices of all goods and services rise
during the year:
► Real GDP may fall.
► Nominal GDP must fall.
► Nominal GDP may increase.
► Real GDP must rise.
ECO401 Question No:
15
Is Grosss Domestic Product (GDP) an accurate measure of a
country’s well being?
► Yes, it is
the best measure of national well being.
► Yes, provided we use real GDP and not nominal
GDP.
► Uncertain,
depending on whether GDP is rising or falling.
► No, it is not.
ECO401 Question No:
16
Economic activity moves from a trough into a period of
--------------- until it reaches a ------------------ and then into a period of
------------------.
► Expansion; trough;
recession
► Recession; trough;
expansion
► Expansion; peak; recession
► Recession; peak; expansion
ECO401 Question No:
17
The Phillips curve will shift to the right:
► If there is a decrease in
the expected inflation rate.
► If there is an increase in the expected
inflation rate.
► If there is a decrease in
the natural rate of unemployment.
► If there
is a favorable supply shock.
ECO401 Question No:
18
A decrease in the natural
rate of unemployment will:
► Shift the Phillips curve to
the left.
► Result in a decrease in the
inflation rate along the Phillips curve.
► Shift the Phillips curve to the right.
► Result in an increase in the inflation rate
along the Phillips curve.
ECO401 Question No:
19
The unemployment rate is
equal to:
► Number of employed / labour force x 100.
► Number of unemployed / labour force.
► (Number of unemployed / labour
force) x 100.
► None of the given options.
ECO401 Question No:
20
Suppose that your income increases from $100,000 to $150,000
and your consumption increases from $80,000 to $120,000. Your Marginal
Propensity to Save (MPS) is:
► 0.2.
► 0.4.
► 0.6.
► 0.8.
ECO401 Question No:
21
Which of the following is
NOT a stock variable?
► Government debt.
► Capital.
► The amount of money held by the public.
► Inventory investment.
ECO401 Question No: 22
Which of the following is
a flow variable?
► The value of the house in which you live.
► The balance in your savings account.
► Your monthly consumption
on food items.
► The number of carrots in your refrigerator at the beginning of the month.
ECO401 Question No:
23
Real Gross Domestic
Product (GDP) is measured:
► At base year
prices.
► At current year prices.
► At a constant output level but at current prices.
► As
the difference between the current year's GDP and last year's GDP.
ECO401 Question No:
24
According to the model of aggregate supply
and aggregate demand, in the long run, an increase in the money supply
should cause:
► Both prices and
output to rise.
► Prices to fall and output to remain unchanged.
► Both prices and output to fall.
► Prices
to rise and output to remain unchanged.
ECO401 Question No:
25
According to classical economics, the economy was unlikely
to experience:
► Full employment.
► Flexible wages and prices.
► Equality
between saving and investment.
► High rates of unemployment.
ECO401 Question No:
26
A primary implication of
Keynesian economics is:
► The best government is the least government.
► Flexible
wages and prices ensure full employment.
► Monetary policy is far superior to fiscal policy.
► Business-cycle
instability is best corrected through government policies.
ECO401 Question No:
27
Keynesian economics was
the predominant economic theory:
► Prior to the late 1700s.
► From the late 1700s to the early 1900s.
► From 1930s to 1970s.
► Since 1970s.
ECO401 Question No:
28
According to Keynes, the
economy does not self correct quickly because:
► With less consumption and more savings the interest rate will drop.
► In the short run workers
are fully employed and cannot produce enough to get to long run equilibrium.
► Wages and prices are flexible in the short run.
► Wages and prices are sticky in
the short run.
ECO401 Question No:
29
Which of the following
will lead to an increase in aggregate demand?
► An increase in government tax revenues.
► An increase in household savings.
► An increase in business
capital investment.
► An increase in demand for imports.
ECO401 Question No:
30
The aggregate supply curve is the relationship between:
► The price level and the real domestic output purchased.
► The price level and the real
domestic output produced.
► The price level which producers are willing to
accept and the price level purchasers are willing to pay.
► The real domestic output purchased and the real domestic output produced.
ECO401 Question No:
31
The marginal revenue
product is:
► Upward sloping due to the law of demand.
► Upward sloping due to the law of marginal utility.
► Downward sloping due to the
law of diminishing returns.
► Downward sloping due to the law of supply.
ECO401 Question No:
32
Cartels are:
► Organizations of independent
firms, producing similar products, that work together to raise prices and
restrict output.
► Organizations of interdependent firms, producing similar products, that work
together to raise prices and restrict output.
► Organizations of independent firms, producing different products, that work
together to raise prices and restrict output.
► Considered as part of monopolistic competition.
ECO401 Question No:
33
"The situation in which two or more firms set their
prices and output according to a plan agreed upon between them in order to
divide the market among themselves". Which of the following best desribes
this situation?
► Strategic interaction.
► Monopolistic competition.
► Oligopoly.
► Collusion.
ECO401 Question No:
34
Which of the following market situation is much like a pure
monopoly except that its member firms tend to cheat on agreed upon price and
output strategies?
► Duopoly.
► Cartel.
► Market sharing monopoly.
► Natural monopoly.
ECO401 Question No: 35
Under the kinked demand
curve model, an increase in marginal cost will lead to:
► An increase in output level and a decrease in price.
► A decrease in output level and
an increase in price.
► A decrease in output level and no change in price.
► Neither a change
in output level nor a change in price.
ECO401 Question No:
36
Welfare economics is the
branch of economics which deals with:
► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
ECO401 Question No:
37
A welfare loss occurs in
monopoly where:
► The price is
greater than the marginal cost.
► The price is greater than the marginal benefit.
► The price is greater than the average revenue.
► The price is greater than the
marginal revenue.
ECO401 Question No:
38
In monopoly, which of the
following is NOT true?
► Products are differentiated.
► There is freedom
of entry and exit into the industry in the long run.
► The firm is a price maker.
► There is one main seller.
ECO401 Question No:
39
Graphically, the Marginal
Cost curve cuts through the Average Total Cost curve at:
► The lowest point on the MC curve.
► The highest point on the MC curve.
► The lowest point on the
ATC curve.
► The middle of the upward-sloping portion of the total cost curve.
ECO401 Question No:
40
If current output is less than the profit-maximizing output then
which of the following must be TRUE?
► Total revenue is less than total cost.
► Average revenue is less than average cost.
► Marginal revenue is less
than marginal cost.
► Marginal revenue is greater than marginal cost.
ECO401 Question No:
41
A production function:
► Relates inputs with output.
► Generates a curve that is
upward sloping.
► Shows diminishing marginal
product of an input, since it gets flatter as output rises.
► All of the given options.
ECO401 Question No:
42
A normal good can be defined as one which consumers purchase
more of as:
► Prices fall.
► Prices rise.
► Incomes fall.
► Incomes increase.
ECO401 Question No:
43
If a market basket is changed by adding more to at least one
of the goods, then every consumer will:
► Rank the market basket more highly after the
change.
► Rank the market basket more
highly before the change.
► Rank the market
basket just as desirable after the change.
► Be unable to decide whether
he prefers the first market basket to the second or the second to the first.
ECO401 Question No:
44
The concept of a risk premium applies to a person that is:
► All of the given options.
► Risk
neutral.
► Risk loving.
ECO401 Question No:
45
Law of diminishing marginal utility indicates that the slope
of the marginal utility curve is:
► Horizontal.
► Vertical.
► Negative.
► Positive.
ECO401 Question No:
46
The extra value that consumers receive above what they pay
for that good is called:
► Producer surplus.
► Utility.
► Marginal utility.
► Consumer surplus.
ECO401 Question No:
47
If a decrease in price
increases the total revenue then:
► Demand is elastic.
► Demand is inelastic.
► Supply is elastic.
► Supply is inelastic.
ECO401 Question No:
48
The concave shape of the production possibilities curve for
two goods X and Y illustrates:
► Increasing opportunity
cost for both goods.
► Increasing opportunity cost for good X but not for good Y.
► Increasing opportunity cost for good Y but not for good X.
► Constant opportunity cost for both goods.
ECO401 Question No:
49
While moving from left to right, the typical production
possibilities curve has:
► An increasingly steep negative
slope.
► A decreasingly steep negative slope.
► An increasingly steep positive slope.
► A constant and negative slope.
ECO401 Question No:
50
Our economy is
characterized by:
► Unlimited wants and needs.
► Unlimited material resources.
► No energy resources.
► Abundant productive labor.
ECO401 Question No: 51
If firms in a competitive industry are
experiencing losses in the short run, then:
a. The firms will try to raise
prices.
b. Some firms will
choose to shut down.
c. The
industry will cease to exist.
d. New firms will
enter the industry.
ECO401 Question No: 52
In a classical model, a rightward shift in aggregate supply
keeping aggregate demand
constant will:
a. Increase the price
level only.
b. Increase the
level of output only.
c. Increase both the
price level and the level of output.
d. Decrease the price
level and increase the level of output.
ECO401 Question No: 53
A monopolistically competitive firm in short run
equilibrium:
a. Will
make negative profit (lose money).
b. Will
make zero profit (break-even).
c. Will
make positive profit.
d. Any
of the given s possible.
ECO401 Question No: 54
WAPDA is the only power supplier in all over
Pakistan. If it earns supernormal profits in the short run, it will make:
a. Losses in the long run.
b. Supernormal
losses in the long run.
c. Only
normal profits in the long run.
d. Supernormal
profits in the long run also.
ECO401 Question No: 55
Firms in monopolistic competition advertise their products to
increase sales and thus the level of profits. From society’s point of view,
which of the following is the advantage of advertising?
a. It
increases human wants.
b. It
uses economic resources.
c. It
encourages price competition among firms.
d. It
misleads consumers into buying a low quality product.
ECO401 Question No: 56
An important difference between the approaches of the Classical
and Keynesian economists uses to achieve a macroeconomic equilibrium is that:
a. Keynesian
economists actively promote the use of fiscal policy; the Classical economists
do not
b. Keynesian
economists actively promote the use of fiscal policy; the Classical economists
do not
c. Classical
economists believe that monetary policy will certainly affect the level of
output; Keynesians believe that money growth affects only prices
d. Classical
economists believe that fiscal policy is an effective tool for achieving
economic stability; Keynesians do not
ECO401 Question No: 57
Which of the following factors would shift aggregate demand curve
to the right?
a. Increase
in consumption expenditures
b. Decrease
in business investment
c. Increase
in taxes
d. Decrease
in government expenditures
ECO401 Question No: 58
A Natural Monopoly is most likely to exist when
there are:
a. Long
term patents.
b. Large
barriers to entry.
c. Government
regulations.
d. Large
economies of scale.
ECO401 Question No: 59
The oligopoly model that predicts that oligopoly prices will tend
to be very rigid is the ______________ model.
a. Cournot
b. Stackelberg
c. Dominant
firm
d. kinked demand curve
ECO401 Question No: 60
WAPDA is the only power supply company in Pakistan. It maximizes
its profits at a point where:
a. Marginal
Cost < Marginal Revenue.
b. Marginal Cost = Marginal Revenue.
c. Marginal
Cost = Average Revenue.
d. Marginal cost< Average Revenue
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