ECO403 Spring 2006 Final Term Paper

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ECO403
Final Term Examination – Spring 2006
Time Allowed: 150 Minutes
Q uestion No. 1 Marks : 1
A simultaneous Rs.10 million increase in both taxes and govt. spending will have no net
on aggregate
effect
demand.
1. T
2. F
W hat four policies could be adopted to encourage the technological

progress?
Question No. 3 Marks : 3

The relationship between MPL and labor unit is:
1. Positive
2. Negative
3. No relationship
4. Vertical
T he _____________________is an accumulation of all past annual deficits
T he consumption of individuals in the aggregate tends to

vary:
1. More than income
2. Less then income
3. Equal to income
4. Unrelated to
income
A recessionary gap exists

when:
1. Aggregate demand exceeds aggregate
2. Aggregate
supply demand exceeds potential
3. Aggregate
output supply exceeds aggregate
4. Potential
demand output exceeds aggregate .
demand
At any given value of exchange rate ‘e’, a tariff or quota will not affect net exports.
1. T
2. F
W hy the CPI may over estate inflation?
A doctrine that states that goods mustell at the same currency-adjusted price in all countries
scalled_________________________. is
T he budget deficit or surplus:
1. Is well defined and straightforward to

2. measure.
Is well defined but frequently distorted by creative but improper ting practices.
3. accoun
Is difficult to measure and can be defined mately in several ways.
4. legiti
Is so arbitrarily defined that it is meaningless.
Philips curve shows the relationship between population and inflation

1. T rate.
2. F
Investment is the most volatile components

of:
1. GDP
2. GNP
3. Personal income
4. Disposable income
A utomatic stabilizers refer to:
1. Inherent stock market mechanisms that automatically cause stock market s to be

cancelled out by losses, which make expected long-run returns equal to
gain
zero.
2. Invisible hand mechanisms to automatically bring the economy out of a
3. recession.
Government revenue and diture items that change automatically in response
changes
expen in economic to
activity.
4. Discretio nary monetary policy maneuvers designed to keep inflation automatically
control. under
The multiplier effect exists

because:
1. Production and expenditure are
interdependent.
2. when one person increases expenditure one increases
every
3. Production and expenditure are dependen expenditure
4. in
Production causes t
expenditures.
__________________is the stock of assets that can be readily used to make

transactions.
A change in the wage rate has a substitution and an income t associated with it. Which
of the following statements is associated with the income
effec
effect?
1. People with higher incomes will spend some of it on leisure by working

2. less.
A higher wage rate makes work more attractive relative to leisure and other non
activities. market
3. When wages rise, people will tend to work
4. more.
As wages rise, the opportunity cost of leisure
declines.
Favorable __________________lower costs and prices.

T he Solow growth model shows that lower investment leads
to
1. A higher steady
state
2. A lower steady state
3. Constant steady
4. state
None of the given
options.
How fiscal and monetary policy can ct macro economic variables, use the IS-LM model
to analyze the effects of these
affe
policies.
In the short run an increase in saving might:
1. Raise aggregate demand increasing

2. investment
Raise aggregate demand by increasing
3. consumption
Reduce aggregate demand by reducing
4. investment
Reduce aggregate demand by reducing
consumption
Policymakers can affect macroeconomic variables

with
1. Fiscal policy
2. Monetary policy
3. With both monetary and scal policy
4. fiNon of the given
options
How would a tax cut and budget deficit affect the economy and the economic well-
the country? being of
_______________________is the average rate of unemployment around which the

fl uctuates. economy
The value of final goods and services measured at current prices is called nominal GDP.
1. True
2. False

According to the modern theory of inflation prices are flexible and market clear.
1. True
2. False
H ow will you define business ?

cycles
T he Philips curve states that inflation rate depends

on:
1. Expected inflation
2. Money supply
3. Employment level
4. All of the given options
Key nes conjectured that the inal propensity to consume is:

marg
1. Zero
2. One
3. In betweenzero and one
4. Negative
F rom where the demand for loanable funds comes, and on which thing it
depends?
E ach firm hires labor up to the level where:
1. MPL = W/P
2. MPL > W/P
3. MPL < W/p
4. None of the given
options
Q uestion No. 31 Marks :1
For each unit of capital a firm earns real revenue R/P and bears real cost
(PK/P)(r + ).Firm needs your help in making decision whether to increase or
capital stock? (5) decrease
b)Explain why investment depends on the real interest rate?
(5)
GDP deflator is a measure of the economy’s:
1. Rate of inflation
2. Nominal GD P
3. Stock market level
4. Real GDP

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Q uestion No. 1 Marks : 1

Q uestion No. 2 Marks : 3

W hat four policies could be adopted to encourage the technological

Question No. 3 Marks : 3

Q uestion No. 4 Marks : 1

T he _____________________is an accumulation of all past annual deficits

Q uestion No. 5 Marks : 1

T he consumption of individuals in the aggregate tends to

A recessionary gap exists

Q uestion No. 8 Marks : 1

W hy the CPI may over estate inflation?

Q uestion No. 9 Marks : 1

Q uestion No. 10 Marks : 3

T he budget deficit or surplus:

1. Is well defined and straightforward to

Q uestion No. 11 Marks : 3

Philips curve shows the relationship between population and inflation

Investment is the most volatile components

Q uestion No. 13 Marks : 1

A utomatic stabilizers refer to:

1. Inherent stock market mechanisms that automatically cause stock market s to be

Q uestion No. 14 Marks : 1

The multiplier effect exists

__________________is the stock of assets that can be readily used to make

Q uestion No. 16 Marks : 1

1. People with higher incomes will spend some of it on leisure by working

Favorable __________________lower costs and prices.

Q uestion No. 18 Marks : 10

In the short run an increase in saving might:

1. Raise aggregate demand increasing

Q uestion No. 21 Marks : 1

Policymakers can affect macroeconomic variables

Q uestion No. 22 Marks : 1

Question No. 23 Marks : 1

_______________________is the average rate of unemployment around which the

Q uestion No. 24 Marks : 1

Q uestion No. 25 Marks : 3

Q uestion No. 26 Marks : 1

H ow will you define business ?

T he Philips curve states that inflation rate depends

Key nes conjectured that the inal propensity to consume is:

E ach firm hires labor up to the level where:

GDP deflator is a measure of the economy’s:

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