CHALLENGE TEST FOR ECONOMICS Note: There are two sections, namely MICROECONOMICS and MACROECONOMICS.

Each section has 20 multiple choice questions. Attempt all questions. There is no negative marking. Encircle your answer and do not overwrite. MICROECONOMICS Q#1 Why do production possibility curves slope downwards from left to right? a. b. c. d. Q#2 Which of the following will cause the demand curve for domestically produced cars to shift to the left? a. b. c. d. Q#3 Goods X and Y are complements. What will be the effect on the equilibrium price and quantity of good X of an increase in the supply of Good Y? a. b. c. d. Q#4 The demand for a commodity is perfectly elastic. A perfectly competitive firm producing this commodity currently sells 100 units at Rs 5 each. What will be the firms total revenue? a. Zero Price of X decrease; Quantity of X decrease Price of X increase; Quantity of X increase Price of X increase; Quantity of X decrease Price of X decrease; Quantity of X increase An increase in the costs of production A reduction in the tariff on imported cars A reduction in the tax on petrol A reduction in taxes on the purchase of cars Because of existence of diminishing returns Because of existence of increasing returns to scale Because resources are finite Because resources are not equally well substitutable

b. c. d. Q#5

Rs 500 Rs 400 Rs 600

A company manufacturing TV sets found when it lowered its selling price from Rs 30,000 to Rs 20,000 per unit, the number of TV sets sold per month increased from 100,000 to 140,000. The price elasticity of demand for the companys TV sets was therefore. (Hint: Calculate % change) a. b. c. d. Q#6 A consumer allocates his expenditure between three goods, X, Y, and Z. The table shows the consumers marginal utilities of these goods and their prices. (Hint: Calculate MU/Px, MU/Py & MU/Pz) Good Marginal Utility (units) Price ($) X 50 20 Y 30 15 Z 25 10 2/5 5/6 1 1 1/5

How the consumer should maximize his utility? a. b. c. d. Q#7 In production context, the expansion path shows: a. b. c. d. Q#8 If average product is decreasing, then marginal product How input prices change as the firm's output level changes. How the marginal products change as the firm's output level changes. How the optimal input choices change as the firm's output level changes. None of the above. Increase X, increase Y, decrease Z Increase X, decrease Y, increase Z Decrease X, increase Y, decrease Z Decrease X, decrease Y, increase Z

a. b. c. d. Q#9

Must be greater than average product. Must be less than average product. Must be increasing. Cannot be decreasing.

A firm producing 500 pens has variable costs of Rs 1.50 per unit, and the total fixed costs of Rs 250. What is the firms average total cost? a. b. c. d. Q#10 A firm triples its output from 10,000 units to 30,000 units and its total costs rise from Rs 25,000 to Rs 60,000. By how much has average cost fallen? a. b. c. d. Q#11 Suppose the Blue Jeans Company uses excessive quantities of Blue Dye in the production of its new jeans. If the whole sale cost of Blue Dye increases, which cost curves will shift upward for Blue jean? a. b. c. d. Q#12 When MC is rising but still below ATC, then a. b. c. d. ATC is declining ATC is constant ATC is rising None of the above AFC MC & ATC ATC, AFC, AVC & MC ATC, AVC & MC Rs 0.50 Rs 1.00 Rs 1.50 Rs 2.00 Rs 0.50 Rs 1.50 Rs 1.70 Rs 2.00

Q#13 Average total cost: a. b. c. d. Q#14 Which of the following is a feature of monopolistic competition, but not of perfect competition? a. b. c. d. Q#15 Which characteristic of oligopoly is assumed to derive a kinked demand curve? a. b. c. d. Q#16 In order to minimize losses in the short run, a perfectly competitive firm should shut down if: a. b. c. d. Q#17 When a perfectly-competitive industry is in long-run equilibrium, a. b. c. d. Firms are able to cover all costs and earn zero economic profit. Market price is equal to minimum long-run average cost. Each firm earns a normal return. All of the above TR < TC TR < TFC TR < (TFC TVC) TR < TVC Price discrimination Price leadership Interdependence between firms Collusion between the firms A large number of buyers Product differentiation The existence of abnormal profits The existence of barriers to entry Decreases as output increases. Increases as output increases. Increases if marginal cost is increasing. Increases if marginal cost is greater than average total cost.

Q#18 Which of the following would indicate a relatively large amount of market power? a. b. c. d. Q#19 In a monopolistically competitive market: a. b. c. d. Q#20 In an Oligopoly, what is true about the price and quantity? a. b. c. d. Equilibrium price and quantity is more than perfect competition Equilibrium price and quantity is less than perfect competition Equilibrium price is more, but quantity is lesser than perfect competition None of the above MACROECONOMICS Q#1 Double counting ________ GDP. a. b. c. d. Q#2 Taxes are ________ from the personal income to obtain disposable personal income. a. b. c. d. Added Deducted Multiplied Divided Understates Truly represents Overstates None of the above A firm earns economic profits in the long run because it has market power. A firm has market power because it produces a differentiated product. There are a large number of firms. Both b and c High demand elasticity Low Lerner index Low cross-price elasticity with other products All of the above

Q#3 Net national product is obtained by ______ depreciation from GNP. a. b. c. d. Q#4 Quantitative theory of money states that with the increase in money supply, the value of money _______. a. b. c. d. Q#5 Money supply is decreased through ___________ Government securities a. b. c. d. Q#6 The incidence of indirect tax is __________ a. b. c. d. Q#7 If in a particular year, Consumer Expenditure amounted to Rs 800 billion, Investment Expenditure amounted to Rs 200 Billion, Government Expenditure to 150 Billion, Exports X amounted to Rs 250 Billion and Imports M amounted to 350 Billion, what is the value of GDP? a. b. Rs 1,000 Billion Rs 1,400 Billion Transferable Non-transferable Non-avoidable None of the above Selling Purchasing Wasting None of the above Increases Decreases Remains same None of the above Adding Multiplying Subtracting None of the Above

c. d. Q#8

Rs 1,050 Billion None of the above

Using the following data, what is the value of GDP? Compensation to Employees Rental Income Net Interest Corporate Income Proprietor's Income Indirect Taxes Subsidy Depreciation a. b. c. d. Rs 385 Billion Rs 455 Billion Rs 435 Billion None of the above PKR 200 Billion PKR 50 Billion PKR 30 Billion PKR 80 Billion PKR 25 Billion PKR 60 Billion PKR 20 Billion PKR 10 Billion

Q#9 Q#11 We have following data regarding population; calculate labor force, labor force participation rate and unemployment rate. Population Working Age Population Institutionalized (serving in jail or hospitalized) People unwilling to work (students, housewives etc) People Employed 170 Million 80 Million 10 Million 10 Million 55 Million

Answer Question 9 through 11 using the above information. Q#9 What is the size of labor force? a. b. c. d. Q#10 What is the number of unemployed people? 60 Million 55 Million 65 Million None of the above

a. b. c. d. Q#11

15 Million 5 Million 10 Million None of the above

What is the unemployment rate? a. b. c. d. 5% 8.33% 10% None of the above

Q#12 What can describe the Keynesian economist more closely? a. b. c. d. Q#13 Increase in current income has the following impact on consumption decisions: a. b. c. d. It does not affect consumption It increases the current consumption It reduces the current consumption None of the above. A government should not interfere in the market process. A government must increase its spending to end recession A government may reduce taxes to avoid recession. Both b and c

Q#14 If the central bank sells bonds to shrink the money supply and the government decreases spending, then in the short run: a. b. c. d. Investment will increase while the production may rise or fall Production will decrease, and investment may rise or fall Investment and production will definitely increase. Both will decrease

Q#15 Productivity growth comes directly from a. b. c. d. Q#16 If the central bank increases the money supply and the government raises taxes: a. b. c. d. Q#17 A combination of loose (expansionary) fiscal policy and tight (contractionary) monetary policy: a. b. c. d. Q#18 Expansionary monetary policy generally: a. b. c. d. Q#19 To bring about an appreciation in the exchange rate, a central bank will: a. b. c. d. Repay foreign loans Lower interest rates to discourage capital inflows Reflate the economy to increase the demand for imports Purchase its own currency on the foreign exchange markets Encourages investment Has no effect on investment Raises the interest rate Discourages investment Raises Y, lowers i Raises i, lowers Y Raises Y, cant predict effect on i Raises i, cant predict effect on Y The effect on output is positive and the effect on interest rates is ambiguous. The effect on output is negative and the effect on interest rates is ambiguous. The effect on output is ambiguous and the effect on interest rates is negative. The effect on output is ambiguous and the effect on interest rates is positive. Increased autonomous consumption. Increased government transfer payments. A larger fiscal multiplier. Construction of new domestic infrastructure.

Q#20 In an open economy with the flexible exchange rate, the rate of interest is increased. Other things being equal, what will be the effect of this increase? a. b. c. d. There will be capital outflow The exchange rate will appreciate The level of investment will increase Unemployment will decrease Microeconomics 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 D B D B D B C B D A D A D B C D D C D C 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Macroeconomics C B C B B A C C A B B D B D D C D A D B