Due to the various requests
to consolidate the multiple choice questions from various posts into one post,
I have decided to consolidate them:
1) Equilibrium in the goods market requires that:
A) consumption equals income.
B) production equals demand.
C) government spending equals taxes minus transfers.
D) production equals income.
E) consumption equals saving.
2) Which of the following generally occurs when a central bank pursues expansionary monetary policy?
A) the central bank sells bonds and the interest rate increases
B) the central bank sells bonds and the interest rate decreases
C) the central bank purchases bonds and the interest rate increases
D) the central bank purchases bonds and the interest rate decreases
3) Which of
the following is the correct definition of the IS curve?
A) The IS
curve represents the combinations of output and the interest rate where the
goods market is in equilibrium.
B) The IS curve represents the single level of output where financial markets are in equilibrium.
C) The IS curve represents the combinations of output and the interest rate where the money market is in
equilibrium.
D) The IS curve represents the single level of output where the goods market is in equilibrium.
E) none of the above
4) Which of the following will cause a shift in the LM curve?
A) an increase in output
B) a reduction in taxes
C) an open market purchase of bonds
D) an increase in consumer confidence
E) all of the above
5) Which of the following will occur if there is an increase in taxes?
A) The IS curve shifts and the economy moves along the LM curve.
B) The LM curve shifts and the economy moves along the IS curve.
C) Both the IS and LM curves shift.
D) Output will change causing a change in money demand and a shift of the LM curve.
E) Neither the IS nor the LM curve shifts.
6) Suppose investment spending is NOT very sensitive to the interest rate.
Given this information, we know that:
A) the LM curve should be relatively flat.
B) the IS curve should be relatively flat.
C) neither the IS nor the LM curve will be affected.
D) the IS curve should be relatively steep.
E) the LM curve should be relatively steep.
7) Based on our understanding of the IS-LM model that takes into account dynamics, we know that a reduction
in the money supply will cause:
A) an immediate drop in Y and immediate increase in i.
B) a gradual increase in i and gradual reduction in Y.
C) an immediate increase in i and no initial change in Y.
D) none of the above
8) Which of the following events will NOT cause an increase in the aggregate price level?
A) an increase in Pe
B) a reduction in output
C) an increase in the markup
D) an increase in unemployment benefits
E) none of the above
9) Assume a country is closed. Given this information, which of the following must occur?
A) Demand for domestic goods will be greater than the domestic demand for goods.
B) S = I
C) A budget surplus exists.
D) S + T = I + G
E) Demand for domestic goods will be less than the domestic demand for goods.
10)
Assume the interest parity condition holds and that initially i =
i*. A reduction in the domestic interest rate will cause:
A) a reduction in E.
B) an increase in the demand for the domestic currency.
C) an expected depreciation of the domestic currency.
D) all of the above
Answers:
1) B
2) D
3) A
4) C
5) A
6) D
7) A
8) B
9) D
10) C
UOL SAMPLE MCQ
On MICRO ECONOMICS - Monopoly
1) Unregulated monopolies
A) cannot change the market
quantity.
B) can influence the market
quantity and price.
C) cannot incorporate.
D) take the market price as
given.
2) The following are key
features of a monopoly EXCEPT
A) diseconomies of scale.
B) no close substitutes.
C) influence over price.
D) barriers to entry
3) A patent grants
A) a guarantee of quality to
consumers.
B) an exclusive right to an
inventor of a product.
C) the right to practice a
profession.
D) control over a unique
source or supply of raw materials.
4) Monopolists
A) face downward sloping
demand curves.
B) are price takers.
C) have no short-run fixed
costs.
D) maximize revenue, not
profits.
5) If the price elasticity
of demand is less than 1, a monopoly's
A) marginal revenue is
undefined.
B) total revenue decreases
when the firm lowers its price.
C) total revenue increases
when the firm lowers its price.
D) marginal revenue is zero.
6) Which of the following
statements is true?
A) A perfectly competitive
industry produces more output and charges the same price as a single-price
monopoly.
B) A perfectly competitive
industry produces less output but charges a lower price than a single-price
monopoly.
C) A perfectly competitive
industry produces less output and charges the same price as a single-price
monopoly.
D) A perfectly competitive
industry produces more output and charges a lower price than a single-price
monopoly.
7) When an increase in the
range of goods produced brings a decrease in the average total cost of
production, the firm is experiencing
A) diminishing returns.
B) economies of scale.
C) economies of scope.
D) diseconomies of scale
8) Which of the following is
NOT a possible gain to society from a monopoly?
A) The monopoly may induce
innovation.
B) The monopoly may achieve
economies of scope.
C) The monopoly may create
rent seeking.
D) The monopoly may achieve
economies of scale
9) Which of the following
statements regarding a marginal-cost pricing rule is incorrect?
A) It is efficient.
B) It allows the firm to
earn a normal profit.
C) It maximizes total
surplus in a regulated industry.
D) It sets price equal to
marginal cost.
10) Which of the following
may be a gain to society from monopoly?
A) Monopolies may be able to
generate economies of scale.
B) Monopolies may earn an
economic profit in the long run.
C) Monopolies may be able to
price discriminate, thereby boosting consumer surplus.
D) Monopolists do not waste
resources trying to innovate.
1. Increasing returns to scale for a firm are shown graphically by
A) returns to scale have nothing to do with the shape of the long-run average cost curve.
B) a horizontal long-run
average cost curve.
C) a vertical long-run average cost curve.
D) an upward-sloping long-run average cost curve.
C) a vertical long-run average cost curve.
D) an upward-sloping long-run average cost curve.
E) a downward-sloping
long-run average cost curve.
2. When cost curves are
drawn for a firm, all of the following are generally assumed EXCEPT
A) average fixed costs are constant.
B) firm is too small to influence factor prices.
C) average variable cost initially declines, then rises at higher output levels.
D) total fixed costs are
constant.
E) marginal product of the variable factor eventually declines.
E) marginal product of the variable factor eventually declines.
3. Consumer surplus
A) is the difference between what the consumer is willing to pay for all the units consumed and what he/she actually paid.
B) is the total value that a consumer receives from a purchase of a particular good.
C) is a measure of the gains a consumer receives in the market.
D) is the sum of the marginal values to the consumer.
E) is the consumption of a commodity above and beyond the amount required by the consumer.
A) is the difference between what the consumer is willing to pay for all the units consumed and what he/she actually paid.
B) is the total value that a consumer receives from a purchase of a particular good.
C) is a measure of the gains a consumer receives in the market.
D) is the sum of the marginal values to the consumer.
E) is the consumption of a commodity above and beyond the amount required by the consumer.
4. The supply curve remains the same if there is a change in:
A) the number of suppliers of the commodity
B) technology.
C) the price of the good
D) the price of a commodity
that is a substitute or complement in production.
E) factor costs.
5. Short-run cost curves
rise eventually because of the effects of
A) the increasing price of variable inputs.
B) increasing marginal productivity of the variable inputs.
C) increasing fixed costs.
D) diminishing marginal
product.
E) decreasing average
product.
6. A normal good is a good
A) that everyone normally consumes.
B) that normal people consume.
C) whose demand varies directly with household income.
D) whose demand does not
vary with household income.
E) whose demand varies
inversely with household income.
7. In defining a long-run average cost curve,
A) factor prices are varied and the quantity of factors of production is held constant.
B) factor prices are held constant and technology is assumed to change.
C) the time period must be longer than one year.
D) factor prices are held constant and the quantity of factors of production used is varied.
E) technology, factor
prices, and the quantity of factors of production are all varied.
8. In the short run, the firm's product curves show
A) TP is at
its maximum when MP = O.
B) TP begins to decrease when AP begins to decrease.
C) when MP > AP, AP is decreasing.
D) when the MP curve cuts the AP curve from below, the AP curve begins to fall.
B) TP begins to decrease when AP begins to decrease.
C) when MP > AP, AP is decreasing.
D) when the MP curve cuts the AP curve from below, the AP curve begins to fall.
E) AP is at
its minimum when MP = AP.
9. In the long run, decreasing returns can be caused by
A) specialization.
B) management diseconomies.
C) a decrease in factor prices.
C) a decrease in factor prices.
D) decreasing costs.
E) diminishing returns to the variable factor.
E) diminishing returns to the variable factor.
10. The point of tangency
between the short-run average total cost (SRATC) curve and the long-run average
cost (LRAC) curve occurs
A) at the output level where the fixed factors are at the optimum quantity.
B) at the point of minimum SRATC.
C) at a point where average
total cost is falling but the marginal cost is rising.
D) at a point where both the
average total cost and the marginal cost is rising.
E) only when the LRAC curve
is at its minimum.
1. What would happen to the IS-LM model when there is an increase in autonomous consumption and contractionary monetary policy was sought to prevent inflation?
A. The
IS curve would shift to the left and the LM curve would shift to the left
B. The
IS curve would shift to the right and the LM curve would shift to the left
C. The
IS curve would shift to the left and the LM curve would shift to the right
D. The
IS curve would shift to the right and the LM curve would shift to the right
2. If the multiplier effect
in an economy is 5 times, what will happen to the national income when the
government spending decrease by $200
A. income
will increase by $1000
B. income
will increase by more than $1000 because a reduction in interest rates will
increase investment spending
C. income
will increase by less than $1000 because an increase in interest rates will
reduce investment spending
D. income
will increase by less than $1000 because an increase in inflation will reduce
consumption spending
3. The expansionary policy
in an economy cannot be fully experienced by the economy when
A. money
demand is not affected by interest rate changes
B. the
LM curve is vertical
C. government
spending changes do not affect output
D. all
of the above
4. When the government sells
bond in the open market
A. LM
will shift to the right
B. National
income will return back to equilibrium when there is flexible prices and wages
C. Interest
rate will fall
D. None
of the above
5. Monetary policy is more
effective when
A. investment
is less sensitive to the interest rate
B. the
IS curve is flatter
C. the
LM curve is flatter
D. all
of the above
6. In order for liquidity
trap to happen,
A. the
LM curve is horizontal
B. the
LM curve is vertical
C. monetary
policy is very effective
D. all
of the above
7. The government aims to
reduce interest rate and boost national income through policy. As a governor,
you will choose to
A. increase
government expenditures
B. increase
government expenditures
C. buy
Treasury bonds.
D. sell
Treasury bonds
8. Consider two economies
that are identical, except that one has a high marginal propensity to consume
(MPC) and one has a low MPC. If the money supply is increased by the same
amount in each economy, the high MPC economy will experience
A. A
larger increase in output and a smaller decrease in the interest rate.
B. A
smaller increase in output and a smaller decrease in the interest rate.
C. A
larger increase in output and a larger decrease in the interest rate.
D. None
of the above.
9. Suppose an economy is
running a government budget surplus. Assume that C = c0 + c1(Y-tY). Which one
of the following will cause this surplus to become larger?
A. Expansionary
monetary policy.
B. An
increase in exports.
C. An
increase in equilibrium GDP.
D. A
decrease in taxes.
10. If investment in the
goods market is not interest sensitive,
A. IS
curve is a vertical line and monetary policy is very effective in raising
output.
B. IS
curve is a horizontal line and monetary policy is very effective in raising
output.
C. The
IS curve is a vertical line and monetary policy does not affect output in the
IS-LM model.
D. The
IS curve is a horizontal line and monetary policy does not affect output in the
IS-LM model.
1. Perfect competition is an
industry with
A) a few firms selling
differentiated goods
B) many firms selling goods
that are different in product range.
C) a few firms selling goods
that are different in quality.
D) many firms selling
homogeneous goods.
2. In a perfectly
competitive industry, there are
A) many buyers and many
sellers.
B) many sellers, but there
might be only one or two buyers.
C) many buyers, but there
might be only one or two sellers.
D) one firm that sets the
price for the others to follow.
3) In perfectly competitive
market, the product has
A) differentiated cost and
same marginal price
B) many perfect complements
produced by other firms.
C) many perfect substitutes
produced by other firms.
D) different average price
and marginal cost.
4) In perfect competition,
restrictions on entry into an industry
A) do not exist.
B) apply to labor but not to
capital.
C) apply to both capital and
labor.
D) apply to capital but not
to labor.
5) The price elasticity of
demand for any particular perfectly competitive firm's output is
A) zero.
B) one.
C) infinite.
D) more than zero.
6) In perfect competition,
the market demand
A) has a price elasticity of
supply equal to one.
B) faces downward sloping
curve.
C) has a price elasticity of
supply equal to infinity.
D) faces horizontal curve.
7) In perfect competition,
the price of the product is determined when the
A) elasticity of market
demand equals to elasticity of market supply.
B) summation of marginal
cost and industry demand curve intersect.
C) fixed cost is minimized.
D) average variable cost
equals the industry average total cost
8) Perfectly competitive
firms are
A)
Allocative inefficient
B)
Productive efficient
C)
Marginal cost inefficiency
D)
Economically efficient
9) In perfect competition, a
firm that maximizes its economic profit will sell its good
A) below the market price.
B) above the market price.
C) below the market price if
its supply curve is inelastic and above the market price if its supply curve is
elastic.
D) at the market price.
10) For a perfectly competitive
firm, it will make normal profit when
A) marginal revenue equals
its minimum average fixed cost.
B) marginal revenue equals
its minimum average cost.
C) total revenue equals its
total opportunity cost.
D) marginal revenue exceeds
its marginal cost
1. An economy will necessarily be productively
efficient:
(a) When all means of
production are fully employed regardless of the production technology;
(b) When labour alone is
fully employed;
(c) When capital alone is
fully employed;
(d) When at least one means
of production is a fully employed and all means of production are needed in
fixed proportion for the production process.
2. If agent I can produce
with a unit of his labour twice as many units of x as agent II and four times
more units of y as agent II:
(a) The two agents should
not specialise and trade as agent II has nothing to offer agent I;
(b) The two agents should
not specialise and trade because agent I has nothing to offer agent II;
(c) The two agents should
specialise and trade by I specialising in x and II in y;
(d) The two agents should
specialise and trade by I specialising in y and II
specialising in x.
3. If an agent has a utility
function of the form u(x,y)=xy then:
(a) S/he will be indifferent
between (6,4) and (3,8);
(b) S/he will prefer (6,4)
over (5,5);
(c) S/he will be indifferent
between (6,4) and (5,5)
(d) None of the above.
4. There are two bundles: A
and B and two individuals 1 and 2. We know that:
(a) Society should give bundle
A to individual 1 and B to individual 2 because
total utility will be
maximised;
(b) Society should give
bundle B to individual 1 and A to individual 2 because
total utility will be
maximised;
(c) Society should give
bundle A to individual 1 and B to individual 2 so that
total utility will be
minimised;
(d) Society cannot choose as
both agents prefer bundle A over bundle B.
5. When price elasticity of
demand is greater than unity (in absolute value):
(a) Revenue will increase
with an increase in price;
(b) Revenue will decrease
with a fall in price;
(c) Revenue will decrease
with an increase in price;
(d) Revenue will remain
unchanged with any change in price;
6. An estimation of
demand facing a particular firm produced the following
information with regard to
the elasticities of the demand function for x:
6. Where x, y and M are
goods and I is income. Therefore:
(a) If price of x rose, your
sales will fall but your total revenues will increase.
(b) If price of x fell, your
sales will increase and so will your total revenues.
(c) If price of x fell, your
sales will increase but your revenues will fall.
(d) If price of x rose, your
sales will increase and so will your revenues.
7. With reference to the
same information as in 6:
(a) Commodities x and M are
complements while x and y are gross substitutes.
(b) Commodities x and M are
complements and so are x and y.
(c) Commodities x and M are
gross substitutes and so are x and y.
(d) Commodities x and M are
gross substitutes but x and y are complements.
8. Whenever average costs
are falling:
(a) Marginal costs must be
rising;
(b) Marginal costs will be
above average costs;
(c) Marginal costs must be
falling too;
(d) Marginal costs will be
below average costs.
9. The contribution to
output per worker is maximised when:
(a) Average and Marginal
products are the same;
(b) Average product is
greater than marginal product;
(c) Average product is
smaller than marginal product;
(d) Average cost is falling
and so is marginal cost.
10. A decrease in demand
facing a perfectly competitive industry will:
(a) Cause a fall in price in
the short run and no change in the long run;
(b) Cause a fall in the
price in the short run and necessarily return to the original price in the long
run;
(c) Cause a fall in the price
in the short run and will affect the long run according to whether an expansion
in the industry affects factor prices;
(d) Cause a fall in the
price in the short run and a fall in the long run equilibrium price if the
expansion of the industry raises factor prices.
11. A monopolist maximises
profits when:
(a) Average revenue equals
average cost;
(b) Average revenue equals
marginal cost; (c) Marginal revenue equals average cost;
(d) Marginal revenue equals
marginal cost.
12. The degree of monopolistic
power will:
(a) Increase when price
elasticity is greater than unity but falling;
(b) Increase when
price elasticity is greater than unity but rising;
(c) Increase when
price elasticity is less than unity but rising;
(d) Increase when
price elasticity is less than unity but falling.
13. When there are
diminishing returns to scale:
(a) The minimum short run
average cost is always at a higher level of output
than that at which the
long-run and the short run average costs are the
same.
(b) The minimum short run
average cost is always at a lower level of output
than that at which the
long-run and the short run average costs are the
same.
(c) The minimum short run
average cost is always at the same level of output
as that at which the
long-run and the short run average costs are the same.
(d) None of the above.
14. In the furniture
industry the output elasticity of labour is 0.6; the output elasticity of capital
is 0.2 and the output elasticity of management is 0.3.
(a) There are increasing
returns to scale in the furniture industry which suggests
that the industry is not in
perfectly competitive.
(b) There are increasing
returns to scale in the furniture industry which suggests
that the industry is
perfectly competitive.
(c) There are diminishing
returns to scale in the furniture industry which
suggests that the industry
is perfectly competitive.
(d) There is constant
returns to scale in the furniture industry which suggests
that the industry must be a
monopoly.
15. Perfect competition is
an efficient market structure:
(a) Only in the long run
when price equal the minimum average cost.
(b) As long as price equals
marginal cost which happens both in the long run
and the short run.
(c) When price equals
marginal cost but this only happens in the long run.
(d) Both in the long run and
the short run because price equals the average
cost in both cases.
16. Effective advertising in
monopolistic competition with product differentiation will lead, in the long
run, to:
(a) An efficient equilibrium
where there are no profits above the normal.
(b) An inefficient
equilibrium where there are profits above the normal.
(c) An efficient equilibrium
where there are profits above the normal.
(d) An inefficient
equilibrium where there are no profits above the normal.
17. We face a Prisoner’s
Dilemma when:
(a) Agents fail to achieve
their objectives as there is no equilibrium when agents behave strategically.
(b) The outcome of the
interaction is such where both agents would have preferred to reach the same,
different, outcome.
(c) The equilibrium is every
agent’s best response to the other agent’s choice.
(d) Every agent’s choice is
not the best response to the other agent’s choice.
18. A government considers
whether to build a tunnel connecting two parts of the country which have been
hitherto unconnected. The cost of the building and running the tunnel is
£25000000 a year (we ignore time factors). The smallest tunnel can accommodate
10000 trips per year and the demand for its usage is given by the following
inverse demand schedule: p= 6000-x (where x is the number of trips per year).
(a) The tunnel will not be
built as there is no equilibrium price;
(b) The tunnel will be built
because this is a clear case of market failure;
(c) The tunnel will not be
built as the cost exceed the benefits;
(d) The tunnel will be built
as the benefits exceed the costs.
19. With full (perfect)
price discrimination, equilibrium output of the monopolist:
(a) The same as in a
non-discriminating monopolist;
(b) Less than in a
non-discriminating monopolist;
(c) The same as perfect
competition;
(d) The same as in
monopolistic competition.
20. The long-run demand for
labour is flatter than the short-run because:
(a) The demand for labour is
a function of labour’s marginal product and this
will increase in the long
run because of the experience workers gain;
(b) The demand for labour is
a function of labour’s marginal product and this
will decreases in the long
run because workers become frustrated;
(c) The demand for labour is
a function of labour’s marginal product and this
will increase in the long
run because of the increase in the stock of capital;
(d) None of the above.
21. There are two firms in
the market and the general demand they face is given by: ( ) While each firm
has the following cost functions: ()
(a) If firm 2 produced 100,
firm 1’s best response would be to sell 250;
(b) If firm 2 produced 200,
firm 1’s best response would be to sell 200;
(c) If firm 2 produced 300,
firm 1’s best response would be to sell 100 (d) If firm 2 produced 300, firm
1’s best response would be to sell 75.
22. Supply of labour is
backward bending. Therefore,
(a) An increase in demand
for labour would lead to either an increase in
equilibrium wages or a
decrease depending on where the equilibrium lies;
(b) An increase in demand
for labour will only lead to an increase in wages as
only one of the
intersections between demand and supply constitute an
equilibrium;
(c) An increase in demand
for labour will only lead to a decrease in wages as
only one of the
intersections between demand and supply constitutes an
equilibrium;
(d) An increase in demand
for labour will not lead to any change in wages
given the backward bending
nature of the supply of labour.
23. In a world of two goods
(which are gross substitutes) which are produced by labour alone, an exogenous
decrease in the demand for y accompanied by a technological innovation in the
production of x will lead to:
(a) Relative price of x
necessarily falling and therefore, an increase in the
production of x and a
decrease in the production of y;
(b) Could lead to a fall in
the relative price of x without a change in the
production of y;
(c) Could lead to a rise in
the relative price of x without a change in the
production of x;
(d) Could lead to no change in
the relative price of x without an increase in the
production of x.
24. In an economy where
there are three markets (for x, for y and for L):
(a) Market price will reveal
the true social costs only if all markets are perfectly competitive;
(b) Market price will reveal
the rue social costs even if one of the three markets were not competitive,
(c) Market price will not
reveal the true social costs if one market is not competitive but the benefits
of competition will still be accrued;
(d) Market prices will not
reveal the true social costs under any circumstances.
25. In the case of missing
markets the competitive nature of all existing markets will:
(a) Ensure that market
prices reflect the true social costs and the benefits of competition can be
fully materialise;
(b) Ensure that market
prices reflect the true social costs but prevent the benefits of competition to
be accrued;
(c) Ensure the benefits of
competition although market prices do not reflect social costs;
(d) Produce an allocation
which will be as efficient as in the case where none of the industries is
competitive.
26. The allocation of
property rights will resolve the problem of missing markets:
(a) Irrespective of their
distribution and the presence of transaction costs;
(b) Irrespective of their
distribution provided that there are no transaction
costs;
(c) The distribution of
property rights matters for efficiency even in the
absence of transaction
costs;
(d) None of the above.
27. The contract curve is a
locus of points where:
(a) All indifference curves
of one agent are tangent to those of the other;
(b) The
Price-Consumption-Curves (PCC) of both agents intersect;
(c) There will be
competitive equilibrium;
(d) There will be equitable
distribution of goods.
28. The efficient provision
of public good requires that:
(a) The marginal cost of its
provision should be the same as everyone’s marginal utility;
(b) The marginal cost of its
provision should be the same as everyone’s average utility;
(c) The marginal cost of its
provision should be same as the sum of average willingness to pay;
(d) The marginal cost of its
provision should be the same as the sum of everyone’s marginal utility.
1. Consider the following
information on an economy (in billion dollars):
GNP 340; Private Consumption
150; Public Consumption 90; Exports 120; Transfer payments 20; Imports 170;
Depreciation 40; Taxes 60
(a) Private savings =90,
disposable income =260 and Net imports =50;
(b) Net investment =11,
Private savings = 110, disposable income = 260
(c) Net Investment =150,
disposable income = 260 Savings=110;
(d) Net domestic investment
=110, disposable income =240, private savings =110
2. Consider two economies with zero net domestic
investment. In economy A imports are comprised of consumption goods while in
economy B imports are comprised entirely of investment goods. Assuming
unchanged technologies,
(a) economy A will grow
while economy B will shrink; (b) economy A will shrink while economy B will
grow;
(c) both economies will
grow;
(d) economy A will neither
grow nor shrink but economy B will grow;
(e) both economies will
neither grow nor shrink.
3. The marginal propensity to save is 0.2 and the
proportional rate of tax is 0.4. The multiplier of the economy will be:
(a) 1.88;
(b) 1.92;
(c) 1.90;
(d) 6.
4. When the marginal propensity to spend is greater than
the marginal propensity to consume:
(a) the balanced budget
multiplier will be less than 1;
(b) the balanced budget
multiplier will be equal to 1;
(c) the balanced budget
multiplier will be greater than 1;
(d) it will not be possible
to maintain a balanced budget.
5. In Tragiland, the pensioners have no income. Everyone
has the same marginal propensity to consume (0.5) and there is a marginal
propensity to invest of 0.15. Proportional tax is at 30%. If the government
announced that donations to pensioners will be tax-free (to both donor and
recipient), the equilibrium level of output with a transfer of 100 will rise:
(a) by 15;
(b) by 30;
(c) nil;
(d) by 100;
6. Consider two identical economies with the same
proportional tax. The only difference between the two is that in economy A, the
proportional tax is fixed at 25% and the government adjusts its expenditure to
keep a balanced budget while in B, the government adjusts the tax rate to be
equal to the expenditure.
(a) the multiplier of A will
be greater than B;
(b) the multiplier of A will
be smaller than B;
(c) A and B will have the
same multiplier;
(d) the two economies will
never have the same equilibrium level of output and thus, cannot be considered
as identical.
7. Consider a closed economy in Keynesian unemployment
with fixed demand for investment and government expenditures. A fall in the
rate of the proportional tax will bring about:
(a) an increase in output
and an increase in tax receipts;
(b) an increase in output
and a fall in tax receipts;
(c) an increase in output
and no change in tax receipts;
(d) none of the above.
8. In a closed economy with fixed prices and wages and
where the marginal propensity to consume of the rich is smaller than that of
the poor, a transfer of income from the rich to the poor will:
(a) Increase equilibrium
level of output but reduce private savings;
(b) Decrease equilibrium
level of output but increase private savings;
(c) Increase in output and
an increase private savings;
(d) Decrease in output and a
decrease in private savings.
9. When the demand for investment is an increasing
function of income:
(a) a decrease in the
autonomous component of consumption will bring about a fall in equilibrium
level of output and a fall in the equilibrium levels of savings and investment;
(b) an increase in the
autonomous component of consumption will bring about a fall in equilibrium
level of output and a fall in the equilibrium levels of savings
and investment;
(c) a decrease in the
autonomous component of consumption will bring about a fall in equilibrium
level of output and an increase in the equilibrium levels of savings and
investment;
(d) an increase in the
autonomous component of consumption will bring about an increase in equilibrium
level of output and a fall in the equilibrium levels of savings and investment.
10. An increase in government spending which is funded by
borrowing from the public will bring about:
(a) an increase in
equilibrium level of output and a fall in interest rates if the
economy is in Keynesian
unemployment;
(b) an increase in prices,
wages and a fall in interest rates if the economy is in
full-employment;
(c) an increase in prices,
wages and a fall in investment if the economy is in full employment;
(d) a fall in prices and an
increase in wages and interest rates.
11. Distribution of dividends by firms when the economy
is in Keynesian unemployment equilibrium will cause:
(a) crowding out of
investment by public consumption;
(b) crowding out of
investment by private consumption;
(c) increase the equilibrium
level of output and investment;
(d) increase in equilibrium
level of output and decrease investment.
12. If the reserve ratio is 40% and the banks decide to
pay interest on current accounts (as well as charging interest on loans) then:
(a) if the current account
interest is 6% and the interest on loans is 10%, the bank will make no profits
at all;
(b) the bank will make
profits as long as the interest rates on current accounts is smaller than on
loans;
(c) the deposit multiplier
will be 2.5 and the banks will make profits even if the
interest on current accounts
is greater than the interest on loans;
(d) none of the above;
13. In a closed economy, the move from paying salaries
once a month to every week will cause:
(a) a fall in planned
investment;
(b) a rise in planned
investment;
(c) no change at all;
(d) increase in consumption.
14. When the reserve ratio is 25% and individuals choose
to reduce the amount of cash they hold in their pocket by 100 million dollars:
(a) due to the deposit
multiplier, the public will become richer;
(b) the provision of loans
will increase by 400 million dollars;
(c) the provision of
deposits and loans will rise by 400 million dollars;
(d) the provision of loans
will rise by 300 million dollars.
15. Which of the following will cause (eventually) a fall
in real balances:
(a) increase in public
expenditure which is financed by a loan from the Central
bank when the economy is in
full-employment equilibrium;
(b) reduction in the reserve
ratio when the economy is in full employment
equilibrium;
(c) reduction in the reserve
ratio when the economy is in Keynesian
unemployment;
(d) an increase in the
demand for liquid assets when the economy is in full
employment.
16. Which of the following would have justified an upward
sloping supply of real balances:
(a) at higher interest
rates, the public needs less liquid assets;
(b) at lower interest rates,
the demand for loans is rising;
(c) an increase in the price
level reduces the supply of real balances;
(d) at lower interest rates,
the banks would rather not lend and maintain excess liquidity.
17. An increase in the marginal propensity to import
will:
(a) cause a recession if the
exchange rate and wages are flexible;
(b) cause an expansion of
output if the exchange rate and wages are flexible;
(c) cause a recession if the
exchange rate and wages are fixed;
(d) none of the above.
18. Which of the following policy-mixes can best help an
economy to recover from a recession:
(a) a fiscal expansion
financed by borrowing from the Central bank;
(b) a fiscal expansion
financed by borrowing from the public;
(c) a monetary expansion;
(d) a fiscal expansion and a
monetary contraction.
19. Which of the following can cause stagflation:
(a) a one-off increase in
money supply;
(b) a one-off decrease in
money supply;
(c) an increase in fiscal
policy;
(d) an increase in the rate
at which money supply increases.
20. An increase in government spending in an open economy
with a flexible exchange rate will:
(a) cause an appreciation of
the currency and an increase in net export;
(b) cause a depreciation of
the currency and an increase in output;
(c) cause a depreciation of
the currency and a fall in net export;
(d) cause an appreciation of
the currency and a rise in output.
21.Technological development
will cause:
(a) a rise in real wages and
an increase in investment;
(b) a rise in real wages and
a decrease in investment;
(c) no change in output but
a fall in prices and wages;
(d) no change in output but
an increase in prices and wages..
21. Which of the following will shift the aggregate
demand to the right:
(a) an increase in reserve
ratio;
(b) a cut in taxation;
(c) an appreciation;
(d) a decrease in
population.
22. If nominal wages are flexible in the short run:
(a) depreciation of the
currency will cause a fall in consumption;
(b) depreciation of the
currency will cause an increase in investment;
(c) monetary expansion will
cause an increase in investment;
(d) appreciation of the
currency will increase investment;
23. An expansionary monetary policy is ineffective. This
means:
(a) prices are rigid;
(b) exchange rate is
flexible;
(c) demand for money is
horizontal;
(d) demand for money is
vertical;
24. When the government announces that it will privatise
many of the public enterprise, this may lead to:
(a) a fall in investment;
(b) an increase in
investment;
(c) a fall in the supply of
money;
(d) a fall in interest
rates.
25. Which of the following will have the greatest impact
on the supply of real balances:
(a) an increase in interest
rates;
(b) a decrease in interest
rates;
(c) consumers increase their
deposits in the bank;
(d) the government borrows
from the Central Bank.
26. When the domestic interest rate is below the
international interest rate:
(a) the currency will
depreciate if exchange rate is flexible;
(b) the currency will
appreciate if exchange rate is flexible;
(c) there will be a decrease
in money supply if exchange rate is fixed;
(d) there will be an
increase in money supply if exchange rate is fixed.
27. A chronic surplus in the capital account, when
exchange rate is flexible, means that:
(a) there is a surplus in
the current account which suggests higher domestic
investment;
(b) there is a deficit in
the current account which suggests higher investment;
(c) there is a surplus in
the current account which suggests lower domestic
investment;
(d) there is a deficit in
the current account which suggests lower domestic
investment.
