UNIVERSITY OF LAGOS

SCHOOL OF POSTGRADUATE STUDIES

DEPARTMENT OF ECONOMICS
ENTRANCE EXAMINATION
2017/2018 ACADEMIC SESSION

1. Which of the following statements is/are true about the classical quantity theory of money?
a. The equation of exchange is MV = PQ
b. The classical economists assumed that V would rise when real interest rates rise
c. The classical economists concluded that increases in the money supply cause increases
in real GDP and nothing else
d. all of the above

2. With a constant money supply, if the demand for money decreases, the equilibrium interest
and quantity of money will change in the following ways:
Interest rate Quantity of money
(a) Increase Decrease
(b) Increase Not change
(c) Decrease Decrease
(d) Decrease Increase
(e) Decrease Not change

3. Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent,
the real interest rate is
(A) 0.5%
(B) 2%
(C) 5%
(D) 10%
(E) 15%

4. Assume that the economy is at full employment. Policymakers wish to maintain the price level
but want to encourage greater investment. Which of the following combinations of monetary and
fiscal policies would best achieve this goal?
Monetary Policy Fiscal Policy
(A) No change Contractionary
(B) Expansionary No change
(C) Expansionary Contractionary
(D) Expansionary Expansionary
(E) Contractionary Expansionary

5. An economy is in a short-run equilibrium at a level of output that is less than full-employment

output. If there were no fiscal or monetary policy interventions, which of the following changes
in output and the price level would occur in the longrun?
Output Price Level
(A) Increase Decrease
(B) Increase Increase
(C) Decrease Decrease
(D) Decrease Increase
(E) No change No change

6. The central bank decreases the interest rate by

(A) decreasing the reserve requirement
(B) decreasing the discount rate
(C) increasing the discount rate
(D) selling government bonds on the open market
(E) buying government bonds on the open market

7. Under capitalism, individuals are forced to make choices due to

a. scarce time, but not scarce spending power
b. scarce spending power, but not scarce time
c. neither scarce time nor scarce spending power
d. both scarce time and scarce spending power
e. a low material standard of living

8. Microeconomics deals with which of the following?

a. the total output of an economy
b. the measurement of a nation's inflation rate
c. how producers and consumers interact in individual markets
d. how tax policies influence economic growth
e. whether wage growth will outpace inflation in the coming year

9. .Suppose that the following headlines appeared in a newspaper. Which would most clearly
represent a macroeconomic issue?
a. "Central Bank Raises Interest Rates"
b. "Auto Dealership to Cut Prices"
c. "Fanny's Freeze Dried Prunes to Lay Off 50 Workers"
d. "United Workers Union to Strike April 15"
e. "Brazilian Coffee Bean Crop Falls by 10 Percent"

10. "The Consumer Price Index increased by 4.2 percent in the first quarter of this year." What
type of statement is this?
a. normative
b. negative
c. positive
d. subjective
e. biased

11. "The Consumer Price Index increased by 4.2 percent in the first quarter of this year." What
type of statement is this?
a. normative
b. negative
c. positive
d. subjective
e. biased

12. If an economy's production possibilities frontier shifted to the right, this would illustrate
a. increasing opportunity cost
b. decreasing opportunity cost
c. a fall in resource utilization
d. economic growth
e. a rise in resource utilization

13. Consider an economic model designed to analyze the purchasing decisions of households. An
assumption that a household chooses between only two goods would be an example of a
a. simplifying assumption
b. critical assumption
c. macroeconomic assumption
d. financial assumption
e. positive assumption

14. The three primary systems for allocating resources are

a. tradition, command, and central planning
b. tradition, central planning, and communal
c. command, market, and socialism
d. tradition, command, and market
e. communal, command, and capitalism

15. Opportunity costs arise in production because ( b )

a. resources are unlimited
b. resources must be shifted away from producing one good in order to produce another
c. wants are limited in society
d. monetary costs of inputs usually outweigh non-monetary costs
e. the monetary costs of only a few resources are zero

16. To counteract a recession, the central bank could

(A) buy government securities on the open market and raise the reserve requirement
(B) buy government securities on the open market and lower the reserve requirement
(C) buy government securities on the open market and raise the discount rate
(3) sell government securities on the open market and raise the discount rate
(E) raise the reserve requirement and lower the discount rate

17. To counteract a recession, the CENTRAL BANK could

(A) buy government securities on the open market and raise the reserve requirement
(B) buy government securities on the open market and lower the reserve requirement
(C) buy government securities on the open market and raise the discount rate
(D) sell government securities on the open market and raise the discount rate
(E) raise the reserve requirement and lower the discount rate

18. An increase in national saving will cause the real interest rate and investment spending to
change
in which of the following ways?

Real Interest Rate Investment

(A) Increase Increase
(B) Increase Decrease
(C) Increase Not change
(D) Decrease Increase
(E) Decrease Not change

19 With a constant money supply, an increase in the demand for money will affect interest rates
and bond prices in which of the following ways?
Interest Rates Bond Prices
(A) Increase Increase
(B) Increase Decrease
(C) Increase Not change
(D) Decrease Increase
(E) Not change Increase

20. Which of the following will lower inflationary expectations?

(A)The government's announcement that it will increase spending on infrastructure
(B) The central bank’s announcement that it will steadily raise the funds rate
(C)An increase in the value of stocks
(D)An increase in consumer and business optimism
(E) An increase in the money supply

21. According to the quantity theory of money, an increase in the money supply results in an
increase in which of the following?
(A) Interest rate
(B) Unemployment
(C) Nominal gross domestic product
(D) The government's budget deficit
(E) The value of the dollar on the foreign exchange market

22. Suppose that the economy is operating at full employment. If the government wants to
discourage consumption spending, stimulate investment spending, and maintain full employment
output, which of the following combinations of monetary and fiscal policies would most likely
achieve these goals?
Monetary Policy Fiscal Policy
(A) Increase money Increase government
supply spending
(B) Increase money Increase personal
Supply income taxes
(C) Decrease money Increase government\
supply spending
(D) Decrease money Increase personal
supply income taxes
(E) Decrease money Decrease personal
supply income taxes

23. If the nominal gross domestic product is N8 trillion and the money supply is N2 trillion, the
velocity of money is
(A) 2
(B) 4
(C) 6
(D)10
(E) 16

24. An increase in which of the following is most likely to cause demand-pull inflation?
(A)Rental price of capital
(B)Fuel costs
(C) Consumer spending
(D)Income taxes
(E) Imports of capital goods

25 An increase in which of the following will cause an increase in the demand for a certain
good?
(A) The price of the good
(B) The number of sellers of the good
(C) The price of a complementary good
(D)The cost of purchasing the good
(E) The number of buyers of the good

26. Which of the following measures might be used to reduce a federal budget deficit?
I. Increasing taxes
II.Decreasing federal spending
III.Decreasing interest rates
(A)I only
(B)II only
(C)III only
(D)I and III only
(E) I, II, and III
27. In the circular flow diagram of an economy, which of the following is true?
(A) Businesses pay wages, rent, interest, and profits to households in return for use of
factors of production.
(B) Businesses purchase goods and services from households in return for money payments.
(C) Households pay wages, rent, interest, and profits to businesses in return for use of factors of
production.
(D) The relationship between households and businesses exists only in a traditional society.
(E) The relationship between households and businesses exists only in a command economy.

28. Which of the following is an example of "investment" as used in economics?

(A) A schoolteacher purchases 10.000 shares of stock in an automobile company.
(B) Newlyweds purchase a previously owned home.
(C) One large automobile firm purchases another large automobile firm.
(D) A farmer purchases $10,000 worth of government securities.
(E) An apparel company purchases 15 new sewing machines.

29. Assume that a country with an open economy has a fixed exchange-rate system and that its
currency is currently overvalued in the foreign exchange market. Which of the following must
be true at the official exchange rate?
(A) The quantity of the country's currency supplied is less than the quantity demanded.
(B) The quantity of the country's currency supplied exceeds the quantity demanded.
(C) The demand curve for the country's currency is horizontal.
(D) The supply curve for the country's currency is horizontal.
(E) The domestic interest rate is equal to the interest rate in the rest of the world.

30. Which of the following will occur as a result of an improvement in technology?

(A) The aggregate demand curve will shift to the right.
(B) The aggregate demand curve will shift to the left.
(C) The aggregate supply curve will shift to the right.
(D) The aggregate supply curve will shift to the left.
(E) The production possibilities curve will shift inward.

31. Which of the following best describes the relationship between government budget deficits and
the national debt?
a. Budget deficits leads to a decrease in the national debt
b. Budget deficits leads to an increase in the national debt
c. A national debt makes budget deficits less likely

32. What is potential GDP?

A) It is the level of GDP at which inflation is constant.
B) It is the difference between current GDP and maximum GDP.
C) It is the level of real GDP in the long run.
D) It is the level of real GDP in the short run.

33. which of the following will most likely lead to zero economic profits?
a. price floor
b. price discrimination
c. External cost
d. Free entry and exit of firm
e. External benefit

34. The conjecture that inequality first increases with development, then decreases with further
development (known as the “inverted U hypothesis”) has been
a. strongly supported by most studies
b. supported mainly by cross-section, not time-series studies
c. supported mainly by time-series, not cross-section studies
d. generally repudiated by empirical studies

35. Suppose that in the equation above gY = .04, that gK, gL, and gR are all = .03, and wK + wL
+ wR = 1. What does this imply?
a. national income must be growing by 7% a year
b. national income must be growing by 1% a year
c. productivity must be growing by 1% a year
d. productivity must be growing by 7% a year

36. In the Harrod-Domar equation g = s/v, v is defined as

a. the value of the country’s capital stock
b. the ratio of the country’s capital stock to its output
c. the change in the country’s capital stock
d. none of the above

37. Which of the following is not viewed by the text as a major political obstacle to
development?
a. growth oriented policies may damage the short-term interests of influential groups
b. civil war
c. corruption
d. departing from strict laissez faire principles

38. By the World Bank’s classification system, Malaysia, Mexico and Brazil are
a. low-income countries
b. upper-middle-income countries
c. industrial economies
d. underdeveloped countries
39. Many countries that became independent after World War II found that the legacy of
colonialism hindered their economic development. According to the textbook, the list of
hindrances included
a. artificial political boundaries that covered diverse ethnic groups with little in common
b. inadequate access to higher education and training for nationals under the colonial
administration
c. control of domestic commerce by foreign minority groups which had been brought in by the
colonial power
d. all of the above
40. By the World Bank’s classification system, Malaysia, Mexico and Brazil are
a. low-income countries
b. upper-middle-income countries
c. industrial economies
d. underdeveloped countries

41. In 1997, the World Bank found that the fraction of the world’s population living in low and
lower-middle income countries—that is, countries with per capita incomes of $1230 or less—
was approximately
a. 25%
b. 40%
c. 55%
d. 75%

42. Of the world's population, what portion lives in developing countries?

a. approximately 35%.

b. approximately 80%.

c. nearly 10 billion people.

d. less than 1 billion people.

43. The poorest region of the world is

a. the Middle East.

b. sub-Saharan Africa.

c. Asia.

d. Latin America.

44. Which of the following is true for both a monopolistically competitive firm and a perfectly
competitive firm in long-run equilibrium?
(A) Marginal cost is greater than marginal revenue.
(B) Price is greater than marginal cost.
(C) Price is equal to average total cost.
(D) Price is equal to marginal cost.
(E) Marginal revenue is equal to average revenue.

45. Which of the following is true for both a monopolistically competitive firm and a perfectly
competitive firm in long-run equilibrium?
(A) Marginal cost is greater than marginal revenue.
(B) Price is greater than marginal cost.
(C) Price is equal to average total cost.
(D) Price is equal to marginal cost.
(E) Marginal revenue is equal to average revenue.

46. Which of the following is necessary in a well-functioning capitalist economy but not in a
command economy?
(A) Centralized decision making
(B) Scarcity of resources
(C) Monopolies
(D) Protection of property rights
(E) Positive externalities

47. Assume that good X is a normal good. Which of the following helps to explain why a
decrease in
the price of good X increases the quantity demanded of good X?
(A) Good X becomes relatively less expensive than its substitutes, so consumers buy more
of good X and fewer of the substitutes.
(B) The marginal utility of consuming good X increases as more of good X is consumed.
(C) The lower price of good X decreases the marginal utility per dollar; therefore, consumers buy
more of good X.
(D) The demand curve for good X shifts to the left.
(E) The supply curve for good X shifts to the right.

48. If the production of a good generates a negative externality, which of the following is true at
the private market equilibrium?
(A) The private market equilibrium quantity is greater than the socially optimal quantity.
(B) The private market equilibrium quantity is equal to the socially optimal quantity.
(C) The marginal private cost is greater than the marginal social cost.
(D) The marginal social benefit is greater than the marginal social cost.
(E) The price of the product equals the marginal social cost.

49. If shirts and ties are complements and if the price of shirts increases due to an increase in the
price of cotton, which of the following is most likely to occur in the market for ties in the short
run?
(A) The equilibrium price and quantity of ties will increase.
(B) The equilibrium price and quantity of ties will decrease.
(C) The equilibrium price of ties will increase and the equilibrium quantity will decrease.
(D) The supply of ties will increase.
(E) The demand for ties will increase.

50. Collusion, price leadership, and price wars are usually observed in which of the following
market
structures?
(A) Perfect competition
(B) Monopolistic competition
(C) Oligopoly
(D) Monopoly
(E) Natural monopoly

51. National defense is an example of a public good because

(A) it requires tax revenues to fund any production
(B) one person’s use of it will decrease another person’s ability to use it
(C) it is non excludable and non rival
(D) the private market typically produces the socially efficient level of output
(E) the public is protected from invasion

52. Which of the following is most likely to make a country’s income distribution more equal?
(A) Establishing a national sales tax on food and clothing
(B) Establishing a progressive income tax system
(C) Eliminating excise taxes on luxury goods
(D) Proportionally decreasing the tax rate for all income groups
(E) Reducing the subsidy to education
53. All of the following characterize both perfectly competitive and monopolistically competitive
markets EXCEPT:
(A) Price is equal to average revenue.
(B) Individual firms produce output where marginal cost equals marginal revenue.
(C) Firms can affect the selling price of their product.
(D) The market has a large number of firms.
(E) Firms can easily enter or exit the market.

54. When consumption of a good generates a positive externality, which of the following must
be true at the market equilibrium?
(A) Marginal social benefit is less than marginal private cost.
(B) Marginal social benefit is greater than marginal private benefit.
(C) Marginal social cost is greater than marginal social benefit.
(D) Marginal social cost is less than marginal private benefit.
(E) Marginal social cost is equal to marginal external benefit.

55. Suppose that price in a perfectly competitive industry decreases and it is now below
minimum
average total cost but remains above minimum average variable cost. Which of the following
will occur in the short run?
(A) New firms will enter the industry.
(B) Firms will increase output so that marginal revenue equals the new price.
(C) Firms will produce the output at which average total cost is at a minimum.
(D) Firms will produce the output at which marginal cost equals the new price.
(E) Firms will not produce at all, since they will be unable to cover all their costs.

56 Which of the following is true of an economy’s production possibilities curve?

(A) It shows the combinations of any two resources that can be used to produce an efficient level
of output.
(B) It shows the alternative combinations of goods that can be produced by fully employing
scarce resources.
(C) It must be a straight line when all resources are fully employed.
(D) It is bowed in (convex to the origin) because of changing levels of technology.
(E) It is bowed out (concave to the origin) when marginal opportunity costs are constant

57. A decrease in labor productivity will shift the

(A) aggregate demand curve to the right
(B) aggregate demand curve to the left
(C) long-run aggregate supply curve to the right
(D) short-run aggregate supply curve to the right
(E) short-run aggregate supply curve to the left

58. Which type of unemployment would increase if workers lost their jobs because of a
recession?
(A) Cyclical
(B) Frictional
(C) Seasonal
(D) Search
(E) Structural

59 Suppose that autonomous consumption is $400 and that the marginal propensity to consume
is
0.8. If disposable income increases by $1,200, consumption spending will increase by
(A) $1,600
(B) $1,360
(C) $1,200
(D) $ 960
(E) $ 400

60. Which of the following would indicate that economic growth has occurred?
(A) The production possibilities curve shifts to the left.
(B) The long-run aggregate supply curve shifts to the right.
(C) The aggregate demand curve shifts to the right.
(D) The Phillips curve becomes flatter.
(E) Business cycles no longer exist.