Quizcb2 – Actuators Education Institute

CB2000317

Question 1
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Which of the following statements below is always TRUE?

Opportunity cost is equal to total revenue minus total variable cost.
Opportunity cost is constant.
Opportunity cost is the cost in terms of the best foregone alternative.
Opportunity cost is equal to a firm's supernormal profits.

CB2000318

Question 2
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In a free-market economy the basic function of the price mechanism is to:

provide a means of allocating resources.
ensure that consumer wants are satisfied.
enable the government to control prices.
ensure the goods that society needs are produced.

CB2000358

Question 3
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Which one of the following accurately describes the opportunity cost of producing Good X?

the cost of producing Good X in money terms
the next best alternative use to which the factors of production used to produce Good X could be put
the stream of services provided by Good X over its entire lifetime
the production of Good X foregone in the previous year to enable Good X to be produced this year

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Question 4
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The main categories of economic resources are:

natural resources, labour and money.
labour, money and factories.
natural resources, capital and factories
natural resources, labour and capital.

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Question 5
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In economics the concept of scarcity means:

all resources will eventually be exhausted.
there are unlimited resources, we just have an allocation problem.
there are unlimited wants and limited resources.
all of the above.

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Question 6
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A student studying a one-year Masters degree in Actuarial Science has course fees of £12,000 and could otherwise have had a job paying an after-tax income of £20,000. The cost of her accommodation is £7,000 whether she studies or works and the food bill is £3,000 Whether she studies or works. The opportunity cost of studying for the Masters degree is:

£12,000.
£20,000.
£32,000.
£42,000.

CB2000403

Question 7
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The solution to the economic problem of deciding which goods to produce requires:

a choice between the production of consumer goods and the sacrifice of alternatives.
the establishment of freedom of entry and exit.
the establishment of a system of market prices.
a decision to be made on the degree to which capital will be used in the production process rather than labour.

CB2000423

Question 8
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A company makes economic profits of 10%. The risk premium for the company’s line of business is 5%. If the banks offer a rate of interest on savings accounts of 3%, the opportunity cost to the owners of the company is:

5%.
7%.
8%.
10%.

CB2000427

Question 9
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Scarcity exists if:

prices are too high.
human wants cannot be satisfied.
there are shortages of some goods.
markets are not perfectly competitive.

CB2000435

Question 10
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The solution to the economic problem of deciding which goods to produce requires:

the establishment of freedom of entry and exit.
the establishment of a system of market prices.
a choice between the production of consumer goods and the sacrifice of alternatives.
a decision to be made on the degree to which capital will be used in the production process rather than labour.

CB2000439

Question 11
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Opportunity cost is always:

constant.
equal to a firm's supernormal profits.
equal to total revenue minus total variable cost.
the cost in terms of the best foregone alternative.

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Question 12
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The problem of scarcity in economics:

exists only in economies which rely on the market mechanism.
could be eliminated if prices are forced to fall.
means that there are shortages of some goods.
exists because there are insufficient resources to satisfy human wants.

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Question 13
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If the government chooses to use resources to build a hospital instead of a school, this illustrates the concept of:

a market system.
macroeconomics.
competition.
opportunity cost.

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Question 14
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If an economy moves from producing 10 units of Good X and 5 units of Good Y to producing 8 units of Good X and 6 units of Good Y, the opportunity cost of the 6th unit of Good Y is:

1.33 units of Good X.
2 units of Good X.
8 units of Good X.
10 units of Good X.

CB2000474

Question 15
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The solution to the economic problem of deciding which goods to produce requires:

choice between the production of consumer goods and the sacrifice of alternatives.
the establishment of freedom of entry and exit.
the establishment of a system of market prices.
a decision to be made on the degree to which capital will be used in the production process rather than labour.

CB2000475

Question 16
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In a free-market economy, the basic function of the price mechanism is to:

provide a means of allocating resources.
ensure that all consumer wants are satisfied.
enable the government to control prices.
ensure that all the goods that society needs are produced.

CB2000477

Question 17
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A production possibility frontier illustrates the limits on output of finished goods, as imposed by a limited supply of productive inputs. On the axes of the production possibility frontier, we place the:

quantity of productive inputs.
quantity of inputs on one axis and quantity of outputs on the other axis.
quantities of finished goods.
prices of productive inputs.

CB2000478

Question 18
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If the demand and supply for a commodity both increase at each price, the market price will tend to:

rise.
be indeterminate.
fall.
remain unchanged.

CB2000479

Question 19
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Which of the following would NOT explain why, when the price of a good rises, the quantity supplied will also rise?

Firms expect future prices to rise.
At higher levels of output firms will incur higher costs.
The higher the price the more profitable it becomes to produce.
The price of a good remains high over a given time period.

CB2000482

Question 20
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Which of the following statements explains how price, demand and supply respond to a shortage?

Price rises, quantity demanded falls and quantity supplied rises.
Price rises, quantity demanded falls and quantity supplied falls.
Price rises, quantity demanded rises and quantity supplied falls.
Price rises, quantity demanded rises and quantity supplied rises.

CB2000489

Question 21
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If Goods X and Y are substitutes, an increase in the price of Good X causes the:

demand curve for Good X to shift to the left, and the demand curve for Good Y to shift to the left.
demand curve for Good X to shift to the left, and the demand curve for Good Y to shift to the right.
quantity demanded of Good X to fall, and the demand curve for Good Y to shift to the right.
quantity demanded of Good X to fall, and the demand curve for Good Y to shift to the left.

CB2000490

Question 22
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If rail travel is an inferior good, which one of the following will lead to a shift of its demand curve to the left?

an increase in incomes
a rise in car prices
an increase in petrol prices
a rise in the price of rail travel

CB2000494

Question 23
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The demand equation for Good X is $Q_d$ = 15 – 0.5P and the supply equation for Good X is $Q_s$ = 3 + 2P, where P is the price in pounds. When the price is £6 there will be a:

surplus of Good X and the price will rise.
shortage of Good X and the price will fall.
surplus of Good X and the price will fall.
shortage of Good X and the price will rise.

CB2000496

Question 24
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The demand curve for Good X, which is a normal good, will shift to the right if:

its price decreases.
the price of a substitute rises.
the price of a complement rises.
consumers' incomes fall.

CB2000499

Question 25
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Which of the following best describes an annual supply curve?

the quantity that producers would like to sell annually
the quantity that producers are willing and able to sell at each income over the next year
the quantity that producers are willing and able to produce over the next year
the quantity that producers are willing and able to sell at each price annually

CB2000501

Question 26
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Which of the following will NOT cause a shift in the demand curve for Good X?

a change in the price of Good X
a change in the price of other goods
a change in consumer incomes
a change in consumer tastes

CB2000505

Question 27
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What is the combined effect of an increase in the cost of production and a rise in consumer income on the equilibrium price and quantity of an inferior good?

the effect on price is indeterminate but quantity will fall
the effect on price is indeterminate but quantity will rise
the effect on quantity is indeterminate but price will rise
the effect on quantity is indeterminate but price will fall

CB2000511

Question 28
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Good X is an inferior good. A rise in consumer income when the supply curve for Good X is positively sloped will cause which one of the following?

the demand for Good X to fall and the price of Good X to fall
the demand for Good X to fall and the price of Good X to rise
the demand for Good X to rise and the price of Good X to fall
the demand for Good X to rise and the price of Good X to rise

CB2000523

Question 29
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What is the combined effect of a decrease in the cost of production and a rise in consumer income on the equilibrium price and quantity of a normal good?

The effect on price is indeterminate but quantity will fall.
The effect on price is indeterminate but quantity will rise.
The effect on quantity is indeterminate but price will rise.
The effect on quantity is indeterminate but price will fall.

CB2000524

Question 30
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Which of the following will NOT cause a shift in the demand curve for Good X?

a change in consumer tastes
a change in consumer incomes
a change in the price of Good X
a change in the price of other goods

CB2000526

Question 31
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If public transport is an inferior good, which of the following will cause its demand curve to shift to the left?

a rise in the price of cars
an increase in the price of petrol
an increase in consumers· incomes
an increase in the price charged to use public transport

CB2000527

Question 32
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Which of the following statements explains how price, demand and supply for a good respond to an increase in the price of a substitute good?

price rises, quantity demanded falls and quantity supplied rises
price rises, quantity demanded falls and quantity supplied falls
price falls, quantity demanded rises and quantity supplied falls
price rises, quantity demanded rises and quantity supplied rises

CB2000530

Question 33
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If the demand for Good X increases (due to a rise in income of consumers) and the supply of Good X increases (due to increased worker productivity) then the equilibrium price of Good X:

will fall and the equilibrium quantity may rise or fall.
will fall and the equilibrium quantity will rise.
may rise or fall or remain the same and the equilibrium quantity will fall.
may rise or fall or remain the same and the equilibrium quantity will rise.

CB2000531

Question 34
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Which of the following statements explains how price, demand and supply respond to a surplus?

Price rises, quantity demanded falls and quantity supplied rises.
Price rises, quantity demanded falls and quantity supplied falls.
Price falls, quantity demanded rises and quantity supplied falls.
Price falls, quantity demanded rises and quantity supplied rises.

CB2000533

Question 35
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Which one of the following will shift the supply curve for Good X to the left?

a decrease in labour productivity in Industry X
a fall in the price of raw materials used to produce Good X
a decrease in wages in Industry X
a government subsidy on the production of Good X

CB2000534

Question 36
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Good X is an inferior good. A fall in consumer income when the supply curve for Good X is positively sloped will cause which one of the following?

the demand for Good X to fall and price of Good X to fall
the demand for Good X to fall and price of Good X to rise
the demand for Good X to rise and price of Good X to fall
the demand for Good X to rise and price of Good X to rise

CB2000535

Question 37
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If public transport is an inferior good, which of the following will cause its demand curve to shift to the left?

an increase in consumers' incomes
a rise in the price of cars
an increase in the price of petroJ
an increase in the price charged to use public transport

CB2000536

Question 38
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If ice cream is a substitute for fruit sorbet and strawberries are a complement to ice-cream but not fruit sorbet then a fall in the price of ice cream will:

increase the demand for fruit sorbet and strawberries.
decrease the demand for fruit sorbet and increase the demand for strawberries.
decrease the demand for fruit sorbet and strawberries.
increase the demand for fruit sorbet and decrease the demand for strawberries.

CB2000537

Question 39
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Which one of the following will NOT shift the supply curve for Good X to the right?

an increase in labour productivity in Industry X
a fall in the price of raw materials used to produce Good X
an increase in wages in Industry X
a government subsidy on the production of Good X

CB2000538

Question 40
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If the price of Good X has risen and the quantity sold has increased, then there must have been a:

rightward shift of the supply curve for Good X.
leftward shift of the supply curve for Good X.
rightward shift of the demand curve for Good X.
leftward shift of the demand curve for Good X.

CB2000545

Question 41
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If the cost of production increases and consumer income rises, the combined effect on the equilibrium price and quantity of an inferior good is:

indeterminate on price but quantity will fall.
indeterminate on price but quantity will rise.
indeterminate on quantity but price will rise.
indeterminate on quantity but price will fall.

CB2000546

Question 42
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Wheat is an essential input in the production of pasta. An increase in the price of wheat would have an impact on the demand and supply of pasta by shifting the:

demand curve to the left.
supply curve to the left.
supply curve to the right.
demand curve to the right.

CB2000550

Question 43
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A consumer’s demand curve for Good X is represented by the equation:

$Q_{dx}$ = ${50 – 0.2P}_x$

where $Q_{dx}$ is the quantity of Good X demanded and $P_x$ is the price of Good X.

A producer’s supply curve for Good X is represented by the equation:

$O_{sx}$ = ${10 + 0.6P}_x$

where $O_{sx}$ is the quantity of Good X supplied and $P_x$ is the price of Good X. Demand and supply are in equilibrium when:

quantity is 20 and price is 150.
quantity is 30 and price is 100.
quantity is 35 and price is 75.
quantity is 40 and price is 50.

CB2000555

Question 44
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An ‘inferior good’ is defined as a good:

that will be bought by consumers only at a low price.
whose quantity purchased will decline if consumers' income rises.
that is of poor quality compared to more expensive versions of the good.
that is bought only by people on low incomes.

CB2000832

Question 45
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Despite an increase in the minimum price of admission from £15.00 to £18.00, a football club finds that attendance at home matches increased by 20%. Which of the following could most effectively explain this situation?

Demand to watch football has a high price elasticity.
Consumer preference has changed in favour of watching football.
Demand to watch football has a very low price elasticity.
The prices of alternative attractions have fallen.

CB2000833

Question 46
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If the government fixed a minimum price of bread above the equilibrium price and there was no further government intervention in the market for bread, which of the following would result?

There would be a surplus on the market and bread producers' income would fall.
There would be an equilibrium in the market but the change in bread producers' income would be uncertain.
There would be a shortage on the market and bread producers' income would rise.
There would be a surplus on the market but the change in bread producers' income would be uncertain.

CB2000834

Question 47
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If a firm increases its output and this results in an equal proportionate increase in its revenue, which of the following can be deduced about the price elasticity of demand for the firm’s product?

It is -1.
It is infinite elasticity.
It is +1.
It is zero elasticity.

CB2000835

Question 48
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A firm’s decision to reduce its expenditure on advertising is most likely to have the following impact on its demand curve:

The curve will shift to the left and become more inelastic.
The curve will shift to the right and become less elastic.
The curve will shift to the left and become more elastic.
The curve will shift to the right and become less inelastic.

CB2000836

Question 49
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Following an increase in the price of fuel there is a 20% increase in the price of air travel tickets which results in a 20% decrease in total revenue. Which of following statements is TRUE about the demand for air travel?

The demand for air travel is price-inelastic.
The demand for air travel is price-elastic.
The demand for air travel is infinitely price-elastic.
The demand for air travel has zero price inelasticity.

CB2000837

Question 50
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The demand for Good X has a price elasticity of minus unity while the supply curve has a positive slope. If the government decided to impose a tax of £10 per unit on Good X this would:

shift the supply curve for Good X up by less than £10 and increase the price by less than £10.
shift the supply curve for Good X up by less than £10 and increase the price by more than £ 1 O.
shift the supply curve for Good X up by £10 and increase the price by £10.
shift the supply curve for Good X up by £10 and increase the price by less than £10.

CB2000845

Question 51
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The demand equatron for Good Xis $Q_d$ = 15-0.5P and the supply equation for Good X is $Q_s$ = 3 + 2P , where P is the price. When the price is £6 there will be:

a surplus of Good X and price will rise.
a shortage of Good X and price will fall.
a surplus of Good X and price will fall.
a shortage of Good X and price will rise.

CB2000847

Question 52
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A demand curve which has price elasticity of minus one throughout its length will be:

vertical.
horizontal.
upward-sloping.
downward-sloping.

CB2000848

Question 53
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If the demand for Good X is price-elastic then the burden of a sales tax on Good X will be borne:

equally by buyers and sellers.
more heavily by buyers.
more heavily by sellers.
by neither buyers nor sellers.

CB2000849

Question 54
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Which of the following will result from the imposition of a 9 per cent sales tax on household fuel, the demand for which has an absolute price elasticity of demand equal to 1.5?

a rise in the price of fuel by 10.5 per cent
a rise in the price of fuel by 9 per cent
a rise in the price of fuel by 12 per cent
a rise in the price of fuel by less than 9 per cent

CB2000850

Question 55
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A minimum price is set for Good X at £10 which happens to coincide with the free-market price. An increase in the demand for Good X keeping the minimum price fixed at £10 will lead to:

no change in price and a shortage.
a rise in price and quantity sold.
a rise in price and a shortage.
a rise in price and a surplus.

CB2000851

Question 56
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If the price of a product rises from £3 to £4 and demand falls from 100 to 80 units, then using the average price elasticity of demand method the price elasticity of demand is:

-0.60
- 0.78
-1
- 0.05

CB2000852

Question 57
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Which of the following is NOT a motive for advertising by an existing firm in an industry?

to make the demand for the product more price-elastic
to shift the demand for the firm's product to the right
to increase barriers to entry
to increase sales and so help the firm exploit economies of scale

CB2000853

Question 58
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Given a linear downward-sloping demand curve, higher prices along the demand curve are associated with a:

higher absolute price elasticity.
lower absolute price elasticity.
constant price elasticity.
unitary price elasticity.

CB2000854

Question 59
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If a maximum price for Good X is fixed above the market equilibrium price there will be:

an excess supply of Good X.
an excess supply of Good X.
no tendency for the market price of Good X to change.
an upward pressure on the price of Good X.

CB2000855

Question 60
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A maximum price is set for Good X at £30 which happens to coincide with the free-market price. A downward shift in the supply of Good X keeping the maximum price fixed at £30 will lead to:

no change in price and a surplus.
no change in price and a shortage.
a fall in price and a fall in the quantity sold.
a fall in price and a rise in the quantity sold.

CB2000856

Question 61
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If the own price elasticity of demand for Good X is – 0.8 and the income elasticity of Good X is -0.3, which of the following is correct?

Demand for Good X is price-elastic.
A cut in the price of Good X will increase revenue for a firm producing Good X.
Good X is a luxury good.
Good X is an inferior good.

CB2000857

Question 62
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The demand for Good X has a price elasticity of -1. If the government decided to impose a sales tax of £3 per unit on Good X this would:

shift the supply curve for Good X up by less than £3 and increase the price by less than £3.
shift the supply curve for Good X up by less than £3 and increase the price by more than £3.
shift the supply curve for Good X up by £3 and increase the price by £3.
shift the supply curve for Good X up by £3 and increase the price by less than £3.

CB2000858

Question 63
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If the income elasticity of demand for Good X is 2, a rise in all consumers’ disposable incomes from £50 million to £52 million will increase the quantity demanded of Good X by:

2%.
4%.
6%.
8%.

CB2000860

Question 64
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If an 8% rise in the price of Good X results in a 4% fall in the quantity of Good X demanded then the approximate price elasticity of demand for Good X is:

-12
- 0.5
-2
-4

CB2000861

Question 65
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Which one of the following statements concerning advertising is FALSE?

Advertising is intended to shift the demand curve for a firm's product upwards to the right.
Advertising is intended to make the demand for a firm's product more price-elastic.
A potential feature of a successful advertising campaign is that it increases a firm's total revenue by more than it increases the firm's total costs.
Advertising can enable a firm to gain economies of scale.

CB2000862

Question 66
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Despite an increase in the price of admission from £15.00 to £18.00, a football club finds that attendance at matches increased by 20%. Which of the following could most effectively explain this situation?

The prices of alternative attractions have fallen.
Demand to watch football has a high price elasticity.
Demand to watch football has a low price elasticity.
Consumer preference has changed in favour of watching football.

CB2000864

Question 67
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Good X has a cross elasticity of demand with respect to Good Y which is equal to minus unity (ie-1). Good X is which of the following with respect to Good Y?

a perfect substitute
an imperfect substitute
a perfect complement
an imperfect complement

CB2000875

Question 68
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Which of the following is NOT a characteristic of an inferior good?

The income elasticity of demand is negative.
The income elasticity of demand is between zero and one.
The demand for the good increases as income falls.
The demand will rise if its price falls.

CB2000876

Question 69
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Which of the following is NOT a motive for advertising by an existing firm in an industry?

to make the demand for the product more price-elastic
to shift the demand for the firm's product to the right
to increase barriers to entry
to increase sales and so help the firm exploit economies of scale

CB2000885

Question 70
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Which one of the following results in a decrease in total consumer expenditure?

price elasticity of demand is minus one and price falls
demand is price elastic and price falls
demand is price inelastic and price falls
demand is price inelastic and price rises

CB2000886

Question 71
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Good X has a price elasticity of demand equal to -1 .5. In such circumstances, a per unit sales tax on Good X of £5 will lead to which of the following?

a rise in the price charged to consumers of more than £7 .50
a rise in the price charged to consumers of £7 .50
a rise in the price charged to consumers of between £5 and £7 .50
a rise in the price charged to consumers of less than £5

CB2000887

Question 72
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Good Y has a cross elasticity of demand with respect to Good X calculated using the average method of-1. Initially 100 units of Good Y are demanded
when Good X costs 20 pence. A rise in the price of Good X to 25 pence will result in a new level of demand for Good Y of:

125 units.
95 units.
80 units.
70 units

CB2000888

Question 73
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A firm’s decision to reduce its expenditure on advertising is most likely to have the following impact on its demand curve:

The curve will shift to the left and become less elastic.
The curve will shift to the right and become less elastic.
The curve will shift to the left and become more elastic.
The curve will shift to the right and become more elastic.

CB2000889

Question 74
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The total revenue from the sale of a good will fall if:

the price of the good rises and demand for the good is price-elastic.
the price of the good rises and demand for the good is price-inelastic.
consumer income falls and the good is an inferior good.
consumer income rises and the good is a normal good.

CB2000890

Question 75
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A firm’s decision to reduce its expenditure on advertising is most likely to have the following impact on its demand curve:

The curve will shift to the left and become less elastic.
The curve will shift to the right and become less elastic.
The curve will shift to the left and become more elastic.
The curve will shift to the right and become more elastic.

CB2000891

Question 76
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Following an increase in the price of fuel, there is a 20% increase in the price of air travel tickets that results in a 20% decrease in total revenue. Which of the following statements is TRUE about the demand for air travel?

It is price-inelastic.
It is price-elastic.
It is infinitely price-elastic.
It has zero price elasticity.

CB2000892

Question 77
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The demand for Good X has a price elasticity of -3 while the supply curve has a positive slope. If the government decided to impose a tax of £10 per unit on Good X, this would shift the supply curve for Good X up by:

less than £10 and increase the price by less than £10.
less than £10 and increase the price by more than £10.
£10 and increase the price by £10.
£10 and increase the price by less than £10.

CB2000893

Question 78
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If an 8% rise in the price of Good X results in a 4% fall in the quantity demanded of Good Y, then the cross elasticity of demand for Good Y is approximately:

-2 and the two goods are complements.
-0.5 and the two goods are complements.
-2 and the two goods are substitutes.
-0.5 and the two goods are substitutes.

CB2000896

Question 79
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Diminishing marginal utility of income implies:

people are risk-lovers.
people are risk-averse.
people are risk-diversifiers.
people are risk-neutral.

CB2000897

Question 80
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Which one of the following illustrates the problem of adverse selection?

A bank, by raising its interest rates, will tend to increase the proportion of borrowers in its loan portfolio who do not intend to repay their loans.
An insurance company by inserting extra clauses into an insurance contract will tend to reduce its customer base.
Bank directors will tend to act in their own interests rather than that of their shareholders.
An insurance policy with a 2-year time horizon is more likely to have a claim made against it than an insurance policy with a 1-year time horizon.

CB2000898

Question 81
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Which of the following statements defines moral hazard in relation to insurance?

Statement I: Moral hazard describes the fact that people who know that they are a particularly bad risk are more inclined to take out insurance.
Statement II: Moral hazard describes the fact that a policyholder may act in a way which makes the insured event more likely to occur.
Statement III: Moral hazard describes the fact that people who know that they are a particularly bad risk are less inclined to take out insurance.
Statement IV: Moral hazard describes the risk that an insurance company will face false insurance claims.

Only Statement II is correct
Both Statement II and IV are correct
Only Statement IV is correct
All the statements are correct

CB2000899

Question 82
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According to the law of diminishing marginal utility, the total satisfaction that a consumer gets from consuming Good X will:

rise at an increasing rate as consumption of Good X increases.
rise at a decreasing rate as consumption of Good X increases.
rise at a decreasing rate as consumption of Good X decreases.
fall at a decreasing rate as consumption of Good X increases.

CB2000901

Question 83
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Which of the following is a measure of total consumer surplus?

marginal utility minus the price of the good
the total utility consumers get from the consumption of the good
the total utility consumers get from consumption of the good less the total expenditure on the good
marginal utility times the price of the good

CB2000902

Question 84
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Which of the following is implied by the principle of diminishing marginal utility of income:

Total utility increases at a decreasing rate as income increases.
Marginal utility increases at a decreasing rate as income increases.
Marginal utility decreases at an increasing rate as income falls.
Total utility decreases at an increasing rate as income increases.

CB2000906

Question 85
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Adverse selection refers to a situation where:

having insurance makes an individual less careful.
having insurance makes an individual more careful.
the people taking out the insurance are those who have the highest risk.
the people taking out the insurance are those who have the highest risk aversion.

CB2000907

Question 86
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Consumer X has a higher income than Consumer Y but they have identical preferences and pay the same prices for the goods which they consume. If they both maximise utility then:

the marginal utility from each good consumed will be higher for X than for Y and X will have a higher total utility.
the marginal utility from each good consumed will be higher for X than for Y and X will have a lower total utility.
the marginal utility from each good consumed will be lower for X than for Y and X will have a higher total utility.
the marginal utility from each good consumed will be lower for X than for Y and X will have a lower total utility.

CB2000910

Question 87
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Consumer A has a higher income than Consumer B but they have identical preferences and pay the same prices for the goods which they consume. If they both maximise utility then the marginal utility from each good consumed will be:

higher for A than for Band A will have a higher total utility.
higher for A than for Band A will have a lower total utility.
lower for A than for Band A will have a higher total utility.
lower for A than for B and A will have a lower total utility.

CB2000912

Question 88
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Diminishing marginal utility of income implies that individuals are:

risk-lovers.
risk-averse.
risk-neutral.
risk-diversifiers.

CB2000916

Question 89
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In relation to insurance, moral hazard describes the fact that:

people who know that they are a particularly high risk are more inclined to take out insurance.
a policyholder may act in a way which makes the insured event more likely to occur.
people who know that they are a particularly high risk are less inclined to take out insurance.
an insurance company will face false insurance claims.

CB2000918

Question 90
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Which of the following statements defines adverse selection in relation to insurance?

Adverse selection describes the fact that people who know that they are a particularly bad risk are more inclined to take out insurance.
Adverse selection describes the fact that a policyholder may act in a way which makes the insured event more likely to occur.
Adverse selection describes the fact that people who know that they are a particularly bad risk are less inclined to take out insurance.
Adverse selection describes the risk that an insurance company will face false insurance claims.

CB2000921

Question 91
Flag

In relation to insurance, the term moral hazard suggests:

people who know they are a bad risk are more inclined to take out insurance.
people who know they are a bad risk are less inclined to take out insurance.
a policyholder may act in a way which makes an insured event less likely to occur.
a policyholder may act in a way which makes an insured event more likely to occur.

CB2000922

Question 92
Flag

Diminishing marginal utility of income implies that individuals are:

risk neutral.
risk lovers.
risk seekers.
None of the above

CB2000923

Question 93
Flag

Which of the following statements defines moral hazard in relation to insurance?

Moral hazard describes the fact that people who know that they are a particularly bad risk are more inclined to take out insurance.
Moral hazard describes the fact that a policyholder may act in a way which makes the insured event more likely to occur.
Moral hazard describes the fact that people who know that they are a particularly bad risk are less inclined to take out insurance.
Moral hazard describes the risk that an insurance company will face false insurance claims.

CB2000925

Question 94
Flag

A consumer uses only two goods, X and Y. Currently the marginal utility of the last unit of Good X consumed is, six times as great as the marginal utility of the last unit of Good Y consumed. The price of Good X is three times that of Good Y. To maximise utility, the consumer should:

consume more of Good X and less of Good Y.
consume more of Good Y and less of Good X.
increase consumption of both Goods X and Y.
decrease consumption of both Goods X and Y.

CB2000926

Question 95
Flag

When a consumer with a given income chooses between two goods with fixed prices, the slope of the budget line is equal to the:

ratio of the prices of the two goods.
income of the consumer divided by the price of each good.
ratio of the total utility of each good divided by the price of each good.
ratio of the total utilities of both goods.

CB2000927

Question 96
Flag

Water is generally cheaper than diamonds when consumers are in equilibrium because the:

total utility of water is less than the total utility of diamonds.
total utility of water is greater than the total utility of diamonds.
marginal utility of water is less than the marginal utility of diamonds.
marginal utility of water divided by the marginal utility of diamonds, is greater than the price of water divided by the price of diamonds.

CB2000931

Question 97
Flag

Consider the following table:

The table illustrates which one of the following:

economies of scale
constant returns to scale
diseconomies of scale
None of the above

CB2000933

Question 98
Flag

In which situation will a firm cease production in the short run?

Total revenue is less than total costs.
Total revenue is less than total fixed costs.
Average revenue is less than average fixed cost.
Average revenue is less than average variable cost.

CB2000935

Question 99
Flag

Given that a firm’s fixed costs are £1,000, the average total cost of its output is £4 and its average variable cost is £3.50, which one of the following will represent its total output per period?

2,000 units
1,750 units
250 units
None of the above

CB2000937

Question 100
Flag

Global Airways, which is a profit-maximising firm, has to decide whether or not to run an extra daily flight between London and Paris. The total daily fixed costs of the airline are £3,000, the total variable costs of the extra flight are £2,000 and the expected revenue from the extra flight is £2,500. In such circumstances Global Airways will:

not run the extra flight as it will expect to lose £2,500 from its profits.
not run the extra flight as its expected profit of £500 is insufficient to cover its fixed costs.
run the extra flight as it will add £500 to its profits.
not run the extra flight as the expected revenue of £2,500 is less than its fixed costs.

CB2000938

Question 101
Flag

Which one of the following is TRUE when economies of scale are present?

The short-run average cost declines.
The short-run average cost declines.
An increase in the variable factor of production holding the fixed factor of production constant leads to a higher increase in output.
The long-run average cost curve declines.

CB2000940

Question 102
Flag

Which of the following statements is TRUE?

Marginal physical product is equal to total physical product divided by average product.
Average physical product is always greater than marginal physical product.
Marginal physical product can never become negative.
Average physical product can never become negative.

CB2000942

Question 103
Flag

The range of output over which average variable cost falls will be the same as the range over which:

average physical product falls.
average physical product rises.
average physical product is constant.
marginal physical product rises.

CB2000943

Question 104
Flag

Which of the following statements about short-run costs of production is incorrect?

Marginal cost is equal to average variable cost when average variable cost is at a minimum.
Average fixed cost always falls as output rises.
Marginal cost cannot exceed average total cost.
Average total cost exceeds average variable cost by an amount that declines with increasing output.

CB2000945

Question 105
Flag

A profit-maximising monopolist with positive marginal costs and a downward-sloping demand curve will be able to make most profit if demand is:

price-inelastic.
price-elastic.
of unit price elasticity.
of infinite price elasticity.

CB2000946

Question 106
Flag

The following data is for a perfectly competitive firm producing Good X in the short run:

Which one of the following statements is correct?

The marginal physical product of the 8th worker is lower than the marginal physical product of the 10th worker.
The marginal physical product of the 8th worker is higher than the marginal physical product of the 9th worker.
The marginal physical product of the 9th worker is lower than that of the 10th worker.
The marginal physical product of the 10th worker is negative.

CB2000948

Question 107
Flag

Which one of the following is TRUE?

The long-run average total cost curve is derived by joining all the minimum points of the short-run average total cost curves.
The minimum efficient scale is the point at which long-run average costs must begin to fall.
In the long run a firm cannot alter its fixed costs of production.
If a firm trebles all its inputs and its output doubles then this is indicative of diseconomies of scale.

CB2000949

Question 108
Flag

Total costs of production for a firm producing 100 units of output are dollars 5,000 and fixed costs are dollars 2,000. If output is increased by 1 unit in the short run, the total costs of production are dollars 5,030. Which one of the following statements is TRUE with respect to the extra unit of output?

The marginal cost of production is less than the average fixed cost of production.
The average cost of production is rising.
The average fixed cost of production is rising.
The average cost of production exceeds the marginal cost of production.

CB2000951

Question 109
Flag

Which of the following is an example of economies of scope?

A firm doubles its inputs of capital and labour and its output more than doubles.
A firm doubles the number of products it produces and also doubles its research budget.
A firm produces a new product and in so doing lowers the average cost of producing its existing products.
A firm produces a new product and in so doing lowers the price it charges on its existing products.

CB2000952

Question 110
Flag

Which of the following is NOT a feature of the short-run average variable cost curve according to the law of diminishing returns?

The average variable cost curve is U-shaped.
The average variable cost curve cuts the marginal cost curve at the minimum of the marginal cost curve.
The average variable cost curve is an increasing proportion of average total costs as output rises.
The average variable cost curve lies below the average fixed costs of production.

CB2000953

Question 111
Flag

During the winter season, a hotel has fixed costs of £4,000 per week, total variable costs of £5,000 per week and prospective total revenue of £4,500 per week. In such circumstances a profit-maximising hotel will:

close down during the winter season since it would make a loss of £500 during the winter season.
close down during the winter season since its revenue is insufficient to cover its fixed costs.
stay open during the winter season as it will add £500 per week to its profits.
stay open during the winter season as it will add £500 per week to its profits.

CB2000954

Question 112
Flag

Consider the following table:

The price of labour is £100 per unit; the price of capital is £200 per unit.

The table illustrates which one of the following?

increasing returns to scale
constant returns to scale
decreasing returns to scale
maximizing returns to scale

CB2000956

Question 113
Flag

A perfectly competitive firm is producing at a level of output for which short-run marginal cost exceeds marginal revenue. What should the firm do to maximise its short-run profits?

raise its price
reduce its price
raise its output
reduce its output

CB2000957

Question 114
Flag

A firm’s total costs are £150 when 10 units are produced and the marginal cost of the 10th unit is £40. The marginal cost of the 11th unit is £15. Which of the following is TRUE?

The average cost for 11 units is greater than that for 10 units.
The total fixed costs for 11 units are £165.
The average fixed cost for 11 units is the same as the marginal cost of the 11th unit.
The average fixed cost for 11 units is less than the marginal cost of the 11th unit.

CB2000958

Question 115
Flag

The total output and the average physical product of the variable factor of production both always increase as long as the marginal physical product of the variable factor is:

positive.
above its average physical product.
negative.
falling.

CB2000961

Question 116
Flag

Which of the following statements regarding the productivity of labour is correct?

Average physical product is maximised when average physical product equals marginal physical product.
Average physical product is maximised when marginal physical product is maximised.
Marginal physical product increases when average physical product is above marginal physical product.
Average physical product increases when marginal physical product is below average physical product.

CB2000963

Question 117
Flag

Increasing long-run average costs are associated with:

constant returns to scale.
increasing returns to scale.
decreasing returns to scale.
the law of diminishing returns.

CB2000964

Question 118
Flag

In the short run, the range of output over which average total cost falls will be the same as the range over which:

average physical product falls.
average physical product rises.
marginal physical product falls.
marginal physical product rises.

CB2000965

Question 119
Flag

Which one of the following reveals constant returns to scale?

If more labour is added to a given amount of capital, the marginal product of labour remains unchanged.
If both the input of capital and labour doubles, output remains constant.
If the input of capital and labour doubles, the ratio of output to inputs is unchanged.
None of the above

CB2000968

Question 120
Flag

Which of the following is an example of economies of scope?

A firm doubles its inputs of capital and labour and its output more than doubles.
A firm doubles the number of products it produces and also doubles its research budget.
A firm produces a new product and in so doing lowers the average cost of producing its existing products.
A firm produces a new product and in so doing lowers the price it charges on its existing products.

CB2000970

Question 121
Flag

In which situation will a firm cease production in the short run?

Total revenue is less than total costs.
Total revenue is less than total fixed costs.
Average revenue is less than average fixed cost.
Average revenue is less than average variable cost.

CB2000971

Question 122
Flag

Which of the following statements about short-run costs of production is FALSE?

Marginal cost cannot exceed average total cost.
Marginal cost is equal to average variable cost when average variable cost is at a minimum.
Average fixed cost always falls as output rises.
Average total cost exceeds average variable cost by an amount that declines with increasing output.

CB2000973

Question 123
Flag

Diseconomies of scale means:

short-run average total cost falls as output rises.
long-run average total cost falls as output rises.
long-run average total cost rises as output rises.
long-run average total cost rises as output rises.

CB2000975

Question 124
Flag

Which one of the following is TRUE?

The long-run average total cost curve passes through the minimum point of all the short-run average total cost curves.
The minimum efficient scale is the point at which long-run average costs must begin to fall.
In the long run a firm cannot alter its fixed costs of production.
If a firm doubles all its inputs and its output rises by 50 per cent then this is indicative of diseconomies of scale.

CB2000976

Question 125
Flag

A firm with fixed costs of £400 per week and constant average variable costs of £8 per unit of output, has the following information about its weekly sales:

Which of the following levels of output yields the highest profit?

20
30
40
50

CB2000977

Question 126
Flag

Which of the following does NOT contribute to economies of scale?

spreading of indivisibilities
spreading of overheads
dilution of ownership
specialisation

CB2000978

Question 127
Flag

Assume that a firm has a fixed capital stock and variable units of labour as the only inputs into its production process. If increasing amounts of the variable labour input are added to the fixed factor, then according to the law of diminishing returns which of the following is FALSE?

The marginal physical product of labour reaches a maximum before the total physical product of labour.
The average physical product of labour continues rising as long as the marginal physical product is greater than the average physical product of labour.
The total physical product of labour is at a minimum when the marginal physical product of labour is zero.
The average physical product of labour is at a maximum when the marginal physical product of labour is zero.

CB2000981

Question 128
Flag

In the short run, a loss-making firm that seeks to maximise profits will continue to produce if:

its marginal revenue is greater than its marginal cost of production.
its marginal revenue is greater than its average fixed cost.
it can charge a price greater than its average fixed cost.
it can charge a price greater than its average variable cost.

CB2000982

Question 129
Flag

In the short run, a firm’s average fixed costs of production will:

increase as its output increases.
decrease as its output increases.
remain constant as its output increases.
always be greater than its average variable costs of production.

CB2000983

Question 130
Flag

What will be the impact of an increase in a firm’s fixed costs of production on the firm’s marginal cost?

Marginal cost will increase by more than fixed cost.
Marginal cost will increase by the same amount as fixed cost.
Marginal cost will increase but by less than fixed cost.
Marginal cost will remain unchanged.

CB2000984

Question 131
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A perfectly competitive firm is currently producing 2,000 units of Good X per week that are sold at £3 per unit. The firm’s total cost is currently £12,000 per week of which £4,000 is the fixed cost per week. The marginal cost of production is £3 per unit. To maximise profits or minimise losses, the firm should:

expand its output in order to increase its total revenue.
shutdown and produce no units of Good X in order to minimise its losses.
reduce its output to 1,000 units of Good X in order to reduce its total cost of production by £6,000.
continue producing 2,000 units of Good X in the short run but not in the long run.

CB2000985

Question 132
Flag

Which of the following is an example of economies of scope?

A firm doubles its inputs of capital and labour and its output more than doubles.
A firm doubles the number of products it produces and also doubles its research budget.
A firm produces a new product and in so doing lowers the average cost of producing its existing products.
A firm produces a new product and lowers the price it charges on its existing products.

CB2000988

Question 133
Flag

Which one of the following reveals decreasing returns to scale?

If more labour is added to a given amount of capital, the marginal product of labour falls.
If the ratio of labour to capital increases by 100%, the output of the firm increases by less than 100%.
If the input of both capital and labour increases by 120%, the output of the firm increases by 100%.
If more labour is added to a given amount of capital, the marginal product of labour rises.

CB2000989

Question 134
Flag

Which assumption is essential for a market to be contestable?

Firms are free to enter and leave the market.
Firms produce differentiated products.
Firms cannot earn abnormal profits in the short run.
There must be a large number of small firms.

CB2000990

Question 135
Flag

If firms in a perfectly competitive industry are making a loss in the short run then in the long run firms will:

increase their price and increase output.
lower their price and increase output.
increase their price and lower output.
lower their price and lower output.

CB2000991

Question 136
Flag

Which one of the following is NOT a barrier to entry into a monopoly market?

significant economies of scale
heavy potential advertising costs
large capital requirements
constant returns to scale

CB2000992

Question 137
Flag

The managing director of a monopoly firm is given the following data:

Marginal revenue = £9, Marginal cost = £10
Average cost = £11, Average revenue = £15

To maximise profits the firm should:

reduce price and increase output.
reduce price and reduce output.
increase price and increase output.
increase price and reduce output.

CB2000993

Question 138
Flag

A perfectly contestable market is a market where the:

costs of entry and exit are zero and potential entrants can enter the market quickly.
existing companies charge identical prices.
the barriers to entry are substantial but the existing firms compete so hard that industry profits are kept to the normal level over both the short and long run.
existing firms compete on price and quality so as to maximise industry abnormal profits in the long run.

CB2000994

Question 139
Flag

A monopolist facing a downward-sloping demand curve for its product will set its price in the region of the demand curve where the demand:

has price elasticity equal to minus unity.
is price inelastic.
is price elastic.
has price elasticity equal to zero.

CB2000995

Question 140
Flag

A perfectly competitive firm is producing at a level of output where short-run marginal cost is rising and exceeds marginal revenue. What should the firm do to maximise its short-run profits?

reduce its output
raise its output
raise its price
reduce its price

CB2000997

Question 141
Flag

For a monopoly, price exceeds marginal revenue because:

the firm has to charge a price higher than the marginal cost of producing the last unit.
any decision by the monopolist to sell an additional unit of output does not affect price.
the firm has to reduce price on all units sold in order to sell an additional unit.
of the law of diminishing returns.

CB2001000

Question 142
Flag

For a monopoly, price exceeds marginal revenue because:

the firm has to charge a price higher than the marginal cost of producing the last unit.
any decision by the monopolist to sell an additional unit of output does not affect product price.
the firm has to reduce the price on all units sold in order to sell an additional unit.
of the law of diminishing returns.

CB2001003

Question 143
Flag

Which of the following does NOT necessarily apply to a perfectly competitive firm producing in both the short run and the long run?

The firm will equate its marginal costs to its average revenue.
The firm will equate its marginal costs to its marginal revenue.
The firm's average revenue exceeds its average variable costs of production.
The firm will make only normal profits.

CB2001006

Question 144
Flag

Under perfect competition:

short-run excess profits are competed away by firms leaving the industry.
short-run excess profits are competed away by new firms entering the industry.
short-run excess profits lead to price rises.
short-run excess profits are caused by barriers to entry and exit.

CB2001010

Question 145
Flag

The short-run supply curve for a firm in a perfectly competitive industry is its:

average total cost curve.
average variable cost curve.
marginal cost curve above the lowest point of the average variable cost curve.
marginal cost curve above the lowest point of the average total cost curve.

CB2001011

Question 146
Flag

A market is defined as perfectly contestable if entry to it:

and exit from it are both costless.
is costly, but exit from it is costless.
is costless, but exit from it is costly.
and exit from it are both costly.

CB2001012

Question 147
Flag

The managing director of a monopoly firm is given the following data:

Marginal revenue = £11, Marginal cost = £10
Average cost = £13, Average revenue = £15

To maximise profits the firm should:

reduce price and increase output.
reduce price and reduce output.
increase price and increase output.
increase price and reduce output.

CB2001013

Question 148
Flag

The short-run supply curve for a firm in a perfectly competitive industry is its:

average total cost curve.
average variable cost curve.
marginal cost curve above the lowest point of the average total cost curve.
marginal cost curve above the lowest point of the average variable cost curve.

CB2001014

Question 149
Flag

A perfectly competitive firm has fixed and variable costs of production. It produces output at the long-run profit-maximizing leveI. Which of the following statements is correct?

Marginal cost exceeds average total cost.
Marginal cost equals average variable cost.
Marginal cost exceeds average variable cost.
Marginal cost is less than average variable cost.

CB2001015

Question 150
Flag

Which one of the following characteristics does NOT apply to a firm in an industry characterised by perfect competition?

The firm can make only normal profits in the long run.
There are no barriers to entry into the market.
The firm can make only normal profits in the short run.
Marginal revenue is equal to average revenue.

CB2001016

Question 151
Flag

A monopoly firm faces a linear demand schedule and has positive but constant marginal costs which are currently below its marginal revenue. If the firm wishes to maximise profits then it should:

lower its price and increase output.
raise its price and increase output.
lower its price and decrease output.
raise its price and decrease output.

CB2001017

Question 152
Flag

A perfectly contestable market is a market where the:

costs of entry and exit are zero and potential entrants can enter the market quickly.
existing companies charge identical prices.
the barriers to entry are substantial but the existing firms compete so hard that industry profits are kept to the normal level over both the short and long run.
existing firms compete on price and quality so as to maximise industry supernormal profits in the long run.

CB2001018

Question 153
Flag

When a monopolist maximises profits, price exceeds marginal revenue. The difference between price and marginal revenue occurs because:

the firm has to charge a price higher than the marginal cost of producing the last unit.
any decision by the monopolist to sell an additional unit of output does not affect price.
the firm has to reduce the price on all units sold in order to sell the additional unit.
the law of diminishing returns directly affects the price of an imperfectly competitive firm's product.

CB2001019

Question 154
Flag

Assumi·ng that the marginal and average cost curves are unchanged then, following a shift in the demand curve to the right, firms in a perfectly competitive industry will:

raise their price in the short run but restore the price back to its original level in the long run.
keep their price constant in both the short run and the long run.
raise their price in both the short run and the long run.
keep their price constant in the short run but raise their price in the long run.

CB2001020

Question 155
Flag

The profit-maximising output for a monopoly is at the point where the:

marginal cost curve cuts the demand curve.
marginal cost curve cuts the marginal revenue curve.
average cost curve cuts the marginal revenue curve.
average cost curve cuts the demand curve.

CB2001021

Question 156
Flag

Which one of the following is NOT a barrier to entry into a monopoly market?

significant economies of scale
heavy potential advertising costs
large capital requirements
constant returns to scale

CB2001022

Question 157
Flag

A perfectly competitive firm has fixed and variable costs of production. It produces at the long-run profit-maximising level. Which of the following statements is correct?

Marginal cost exceeds average variable cost.
Marginal cost equals average variable cost.
Marginal cost is less than average variable cost.
Marginal cost exceeds average total cost.

CB2001023

Question 158
Flag

When a monopolist maximises profits, price exceeds marginal revenue. The difference between price and marginal revenue occurs because:

the firm has to charge a price higher than the marginal cost of producing the last unit.
any decision by the monopolist to sell an additional unit of output does not affect price.
the firm has to reduce the price on all previous units sold in order to sell the addiUonal unit.
the law of diminishing returns directly affects the price of an imperfectly competitive firm's product.

CB2001024

Question 159
Flag

A profit-maximising monopoly facing a linear demand schedule and having positive marginal costs will s.et its price in the region of the demand curve where the absolute price elasticity of demand is:

greater than one.
equal to zero.
between zero and one.
one.

CB2001025

Question 160
Flag

Which one of the following is NOT a feature of perfect competition?

Equilibrium price will be equal to marginal cost.
There are no barriers to entry.
The average revenue curve is greater than the marginal revenue curve.
Only normal profits are made in the long run.

CB2001026

Question 161
Flag

A managing director of a monopoly firm with constant marginal costs has the following data:

\begin{array}{ll}
Average \,revenue & £ 15 \\
Marginal \,revenue & £ 10 \\
Marginal \,cost & £ 11 \\
Average \,variable \,cost & £ 11 \\
Average \,total \,cost & £ 13
\end{array}

To maximise profits / minimise losses in the short run the firm should:

increase price and reduce output.
reduce price and reduce output.
increase price and increase output.
cl:ose down.

CB2001027

Question 162
Flag

Which one of the following conditions indicates that a firm is operating in a perfectly competitive industry rather than a monopolistic industry?

Output of the firm is where marginal revenue equals marginal cost.
The cost curves of the firm are U-shaped.
Marginal revenue equals average revenue.
The marginal cost curve cuts the average cost curve at its minimum point.

CB2001028

Question 163
Flag

A profit maximising monopoly facing a linear demand schedule and with positive marginal costs will set its price in the region of the demand curve where the absolute price elasticity of demand is:

greater than unity.
equal to zero.
between zero and unity.
unity.

CB2001029

Question 164
Flag

Which one of the following characteristics does NOT apply to a firm in an industry characterised by perfect competition?

The firm can make losses in the short run.
There are barriers to entry into the market.
The firm can make only normal profits in the long run.
Marginal revenue is equal to average revenue.

CB2001030

Question 165
Flag

The short-run supply curve for a firm in a perfectly competitive industry is its:

average cost curve.
average variable cost curve.
marginal cost curve above the lowest point of the average total cost curve.
marginal cost curve above the lowest point of the average variable cost curve.

CB2001031

Question 166
Flag

In an industry characterised by perfect competition:

the average revenue is equal to marginal cost.
the average revenue is equal to marginal cost.
there may be difficulty for some firms in exiting the industry.
there are no supernormal profits in the short run.

CB2001032

Question 167
Flag

A monopoly firm faces a linear demand schedule, has positive but constant marginal costs and is currently producing why its marginal cost is below its marginal revenue. If the firm wishes to maximise profits then it should:

raise its price and increase output.
lower its price and decrease output.
lower its price and increase output.
raise its price and decrease output.

CB2001033

Question 168
Flag

Other things being equal, a fall in a monopolist’s fixed costs of production, which does not lead to new entrants, causes:

the market price to fall and the quantity supplied to rise.
the market price to fall and the quantity supplied to fall.
both market price and quantity supplied to fall.
no change to the market price or output.

CB2001038

Question 169
Flag

A profit-maximising oligopolistic firm has marginal cost of £3 at all levels of output and operates under the belief that the demand curve for its output is kinked at a price of £10. Provided its marginal costs are between £2 and £4, it sells its commodity at a price of £10. If new technology reduces its marginal cost to £1 .50 at all levels of output the firm should:

lower the price and raise output.
maintain the existing price and output.
lower the price but maintain existing output.
maintain the existing price and raise output.

CB2001040

Question 170
Flag

Which of the following is NOT a feature of an industry characterised by monopolistic competition?

There are many firms.
Firms sell differentiated products
In the long run monopolistic powers enable firms to make excess profits.
A firm can raise its price without losing all its customers.

CB2001042

Question 171
Flag

The idea that an oligopolistic firm faces a kinked demand curve is based upon the assumption that:

a firm's competitors match both its price increases and price decreases.
one firm in the industry sets the price for all other firms.
a firm's competitors match its price decreases but ignore its price increases.
prices can either rise or fall; it depends on what happens to a firm's competitors' prices.

CB2001043

Question 172
Flag

Which of the following statements regarding the productivity of labour is correct?

Average physical product is maximised when average physical product equals marginal physical product.
Average physical product is maximised when marginal physical product is maximised.
Marginal physical product increases when average physical product is above marginal physical product.
Average physical product increases when marginal physical product is below average physical product.

CB2001044

Question 173
Flag

The profit payoffs to Firm X from various strategies 1 to 4 and the presumed responses of the other firm in a duopoly industry is given below:

Which one of the following represents the maximin strategy of Firm X?

Strategy 1
Strategy 2
Strategy 3
Strategy 4

CB2001045

Question 174
Flag

Which of the following is NOT a prediction of the theory of monopolistic competition?

When the monopolistically competitive industry achieves a long-run equilibrium, price is greater than marginal cost.
Monopolistically competitive firms offer differentiated products and face a downward-sloping demand curve.
Under monopolistic competition, the price charged to the consumer is equal to the average revenue of the firm.
Monopolistically competitive firms can earn supernormal profits in the long run.

CB2001046

Question 175
Flag

The kinked demand curve model of oligopoly is based upon the assumption that:

a firm's competitors match both its price increases and price reductions.
one firm in the industry sets the price for all other firms.
a firm's competitors match its price reductions but not its price increases.
the price charged by a firm can either rise or fall depending on what happens to its competitors' prices.

CB2001047

Question 176
Flag

The profit payoffs to Firm X from combining the various strategies of X (1,2,3,4) and the presumed response of the other firm (S,P,Q,R) in a duopoly industry is given below:

Which one of the following represents the maximin strategy of Firm X?

Strategy 1
Strategy 2
Strategy 3
Strategy 4

CB2001048

Question 177
Flag

The prisoners’ dilemma, applied to a situation involving the only two firms in an oligopoly industry, illustrates that:

each firm will not take account of its rival's reactions when making its decision.
the price set by one firm will not influence the price of the other firm.
in avoiding the worst possible outcome the firms will fail to reach the best possible outcome.
in avoiding the worst possible outcome the firms will succeed in reaching the best possible outcome.

CB2001049

Question 178
Flag

Which of the following is NOT a prediction of the theory of monopolistic competition?

When the monopolistically competitive industry achieves a long-run equilibrium, price is greater than marginal cost.
Monopolistically competitive firms offer differentiated products and face a downward-sloping demand curve.
Under monopolistic competition, the price charged to the consumer is equal to the average revenue of the firm.
Monopolistically competitive firms can earn supernormal profits in the long run.

CB2001050

Question 179
Flag

In the long run, profit-maximising firms operating under conditions of monopolistic competition will produce at a level of output where price equals:

marginal cost.
average total cost.
average fixed cost.
average variable cost.

CB2001051

Question 180
Flag

Which one of the following is NOT a feature of an industry characterised by monopolistic competition?

Some degree of monopoly power ensures that in the long run firms can make supernormal profits.
There is freedom of entry and exit into the industry in the long run
Firms in the industry produce differentiated products.
Firms in the industry charge prices above their marginal costs of production.

CB2001052

Question 181
Flag

Which of the following is NOT a barrier to entry in an oligopolistic industry?

product proliferation
constant returns to scale
investment in spare capacity
high advertising expenditure

CB2001053

Question 182
Flag

Which one of the following characteristics applies to an oligopolistic market structure?

There is a large number of firms.
There is an absence of barriers to entry into the market.
There is an absence of barriers to entry into the market.
The output decisions of one firm may exert a significant influence on other firms in the industry.

CB2001054

Question 183
Flag

An implicit or explicit agreement amongst firms in an industry NOT to compete with each other is known as:

the dominant firm hypothesis.
collusion.
non-cooperative oligopoly.
product differentiation.

CB2001055

Question 184
Flag

Under the Cournot model of duopoly, a firm:

attempts to maximise sales after assuming that the other firm will attempt to maximise sales.
assumes the other firm will produce a given output and then chooses its profit-maximising output.
assumes the other firm's price is given and then chooses its profit-maximising price.
will attempt to collude with the other firm so as to set a price and output level which will maximise industry level profits.

CB2001056

Question 185
Flag

Which one of the following statements about market structure is FALSE?

Under perfect competition, in the long run all firms make only normal profits.
Firms under monopolistic competition produce homogeneous products.
Under oligopoly, firms make decisions taking into account the possible reactions of their competitors.
A profit-maximising monopoly wm equate its marginal costs to its marginal revenue.

CB2001057

Question 186
Flag

In the kinked-demand curve theory of oligopoly the:

marginal revenue curve and the average revenue curve both have a vertical section (discontinuity).
marginal revenue curve has a vertical section (discontinuity).
average revenue curve has a vertical section (discontinuity).
marginal cost curve has a vertical section (discontinuity).

CB2001058

Question 187
Flag

In the long run, a firm in a monopolistic competition market structure will produce at:

the lowest point on its average total cost curve.
a point where average total cost is rising.
a point where average total cost is falling.
a point where average total cost is equal to marginal cost.

CB2001060

Question 188
Flag

Which of the following is NOT a feature of monopolistic competition?

Equilibrium price will be equal to marginal cost.
There are no barriers to entry.
There are no barriers to entry.
Only normal profits are made in the long run.

CB2001061

Question 189
Flag

Which of the following features is NOT a typical characteristic of oligopoly?

a firm's fear that if it raises its price then the rise will be matched by competitors, but if iit cuts its price then the cut will not be matched by competitors
supernormal profits
a belief that one firm's actions has an influence on the actions of other firms
advertising and other non-price competition

CB2001062

Question 190
Flag

In the Cournot model of duopoly, when the two firms are at the equilibrium level of output, the:

joint output of the two firms is greater than the monopoly output, but less than the perfect competition output.
joint output of the two firms is identical to the monopoly output.
joint output of the two firms is identical to the perfect competition output.
output of the two firms will always be identical.

CB2001063

Question 191
Flag

Two firms operate in a duopoly but do not collude. Given the profit pay-off matrix of output options to firms A and B below, what is the dominant strategy for the firms?

Note: Profit pay-offs are (Profit A, Profit B) and ‘high’ and ‘low’ refer to the output decision.

Firm A - High; Firm B - Low
Firm A - High; Firm B - High
Firm A - Low; Firm B - Low
Firm A - Low; Firm B - High

CB2001081

Question 192
Flag

First-degree price discrimination refers to the situation where:

a firm charges customers different prices according to how much they purchase.
consumers are grouped into independent markets and a separate price is charged in each market.
a firm charges each customer the maximum price he/she is prepared to pay.
different firms charge different prices for the same product.

CB2001083

Question 193
Flag

Second-degree price discrimination refers to a situation where:

A firm charges customers different prices according to how much they purchase.
Consumers are grouped into independent markets and a separate price is charged in each market.
A firm charges each customer the maximum price he/she is prepared to pay.
Different firms charge different prices for the same product.

CB2001084

Question 194
Flag

Third-degree price discrimination refers to the situation where:

a firm charges customers different prices according to how much they purchase.
consumers are grouped into independent markets and a separate price is charged in each market.
a firm charges each customer the maximum price he/she is prepared to pay.
different firms charge different prices for the -same product.

CB2001085

Question 195
Flag

A necessary condition for a firm being able to engage in price discrimination is that:

it faces a perfectly elastic demand curve.
it faces a perfectly inelastic demand curve.
it faces a downward-sloping demand curve.
it is a price taker.

CB2001087

Question 196
Flag

A firm that produces a main product and a by-product will maximise profits if it

uses cost-based pricing for the main and the by-product.
selects the combined output where the combined marginal cost equals the combined marginal revenue.
decides on the viability of producing the by-product after it has made the decision to produce the main product.
selects the level of output of the by-product where the marginal cost of the by-product equals its marginal revenue.

CB2001089

Question 197
Flag

A firm that produces a main product and a by-product will maximise profits if it:

decides on the viability of producing the by-product after it has made the decision to produce the main product.
selects the level of output of the by-product where marginal cost of the by-product equals its marginal revenue.
selects the combined output where the combined marginal cost equals the combined marginal revenue.
uses cost-based pricing for the main product and the by-product.

CB2001090

Question 198
Flag

Which one of the following is NOT one of the four phases associated with the product life cycle theory?

the launch phase
the growth phase
the innovation phase
the decline phase

CB2001091

Question 199
Flag

In the circular flow of income model which of the following is TRUE?

Savings, taxes and investment are withdrawals.
Exports, imports and government expenditure are withdrawals.
Investment, government expenditure and exports are injections.
Investment, exports and consumption are injections.

CB2001099

Question 200
Flag

Which of the fonowing could explain why a country’s aggregate demand curve might shift inwards to the left?

a decrease in interest rates
a rise in exchange rates
a rise in government expenditure
an increase in business confidence

CB2001100

Question 201
Flag

Given the following macroeconomic data:

What is the value of the gross domestic product?

£150 million
£130 million
£120 million
£110 million

CB2001101

Question 202
Flag

In the circular flow of income model:

savings, taxes and investment are withdrawals.
savings, imports and taxes are withdrawals.
investment, government expenditure and imports are injections.
investment, exports and consumption are injections.

CB2001102

Question 203
Flag

Which of the following does NOT form part of a country’s gross domestic product?

salaries of school teachers
net income from abroad
company profits
investment expenditure

CB2001103

Question 204
Flag

Which one of the following statements about real variables in the economy is FALSE?

If nominal gross domestic product (GDP) rises by 5 per cent then the real GDP may have risen, fallen or remained unchanged.
A nominal depreciation of a country's exchange rate represents a real depreciation if the domestic inflation rate is less than the foreign inflation rate.
An increase in real income will lead to a rise in the demand for real money balances.
Real interest rates are positive if the expected rate of inflation is greater than the nominal rate of interest.

CB2001104

Question 205
Flag

The aggregate demand schedule slopes downwards because at higher price levels the real money supply:

decreases and national income is lower.
decreases and national income is higher.
increases and national income is lower.
increases and national income is higher.

CB2001105

Question 206
Flag

To obtain a measure of net national income from gross domestic product it is necessary to:

add net income from abroad and deduct transfer payments.
deduct net income from abroad and add capital depreciation.
add net income from abroad.
add net income from abroad and deduct capital depreciation.

CB2001107

Question 207
Flag

Which of the following is a possible explanation for an increase in the average price level and a decrease in real national income?

an increase in short-run aggregate supply
a decrease in short-run aggregate supply
an increase in aggregate demand
a decrease in aggregate demand

CB2001108

Question 208
Flag

In a country with a population of 25 million people there are 16 million in the total workforce and 2 million unemployed. What is the rate of unemployment?

8%
11.1%
12.5%
44%

CB2001109

Question 209
Flag

If a country has a negative net income from abroad then:

gross domestic product is greater than gross national income.
gross domestic product is less than gross national income.
gross domestic product is the same as gross national income.
we cannot say whether gross domestic product differs from gross national income from this information.

CB2001110

Question 210
Flag

Which of the following are the three injections into the circular flow of income?

investment, government expenditure and exports
consumption, government expenditure and investment
consumption, investment and exports
investment, government expenditure and imports

CB2001111

Question 211
Flag

Which of the following will result in a decrease in aggregate demand, other things being equal?

a rise in imports
a fall in savings
a fall in interest rates
a fall in economic and business uncertainty

CB2001112

Question 212
Flag

The unemployment rate is given by:

the number of unemployed divided by the population expressed as a percentage.
the number of unemployed divided by the total labour force expressed as a percentage.
the number of unemployed divided by the number of employed expressed as a percentage.
the number of unemployed divided by all in the population of working age expressed as a percentage.

CB2001113

Question 213
Flag

Which ONE of the following is NOT part of the calculation for the gross national income?

net income from abroad
gross capital formation
capital depreciation
imports of goods and services

CB2001114

Question 214
Flag

The short-run aggregate supply curves tell us that an increase in the average price level will encourage firms to:

reduce output and increase employment.
reduce output and employment.
increase output and reduce employment.
increase output and employment.

CB2001115

Question 215
Flag

In the circular flow of income model of an economy with no government and no international trade, the flow of money is from:

firms to households in return for goods and services provided and from households to firms in return for the factor services provided.
households to firms in return for the factor services provided.
firms to households in return for the factor services provided and from households to firms in return for the goods and services provided.
firms to households in return for goods and services provided.

CB2001116

Question 216
Flag

In Country A the level of government expenditure is £275 billion, tax revenue is £310 billion, aggregate investment is £180 billion and aggregate savings is £150 billion. The level of net exports in Country A is a:

deficit of £5 billion.
surplus of £5 billion.
deficit of £35 billion.
surplus of £35 billion.

CB2001117

Question 217
Flag

Which one of the following would count as investment in the national income accounts for Country X?

The purchase of a £1 ,000 Country X Government bond.
A museum purchases an 18th century work of art.
A firm increases the quantity of cars it holds as stock.
A firm places £1 million of its surplus funds with a Country X bank in a high interest account.

CB2001118

Question 218
Flag

Which of the following could explain why a country’s aggregate demand curve might shift inwards to the left?

a decrease in interest rates
a rise in exchange rates
a rise in government expenditure
an increase in business confidence

CB2001119

Question 219
Flag

Which of the following statements about real variables in the economy is FALSE?

If nominal gross domestic product (GDP) rises by 5 per cent with no inflation then the real GDP will have risen by 5 per cent.
A nominal depreciation of a country's exchange rate represents a real depreciation if the domestic inflation rate is less than the foreign inflation rate.
An increase in real income will lead to a rise in the demand for real money balances.
Real interest rates are positive if the expected rate of inflation is greater than the nominal rate of interest.

CB2001121

Question 220
Flag

If a country has a positive balance of net income from abroad then:

gross domestic product is greater than gross national income.
gross domestic product is less than gross national income.
gross domestic product is the same as gross national income.
we cannot say whether gross domestic product differs from gross national income from this information.

CB2001123

Question 221
Flag

You are given the following information for an economy:

What is the value of this economy’s gross domestic product?

£130 million
£140 million
£150 million
£160 million

CB2001125

Question 222
Flag

Assuming all other variables remain constant, a decrease in the average price level will result in a:

rise in the real wage rate.
fall in the real wage rate.
rise in the nominal wage rate.
rise in the nominal interest rate.

CB2001126

Question 223
Flag

Which one of the following will have net exports directly measured in the method used to calculate gross domestic product (GDP)?

the income method
the expenditure method
value added method
the investment method

CB2001127

Question 224
Flag

You are given the following data for an economy:

The value of the economy’s gross national income at market prices is:

£250 million.
£260 million.
£270 million.
£280 million.

CB2001128

Question 225
Flag

To obtain a measure of net national income from gross domestic product it is necessary to:

add net income from abroad and add capital depreciation.
add net income from abroad and deduct capital depreciation.
add net income from abroad and deduct capital depreciation.
deduct net income from abroad and deduct capital depreciation.

CB2001129

Question 226
Flag

If the gross domestic product (GDP) in an economy rises and the unemployment rate falls then:

the GDP per capita must rise.
the GDP per capita must fall.
the GDP per capita remains constant.
there is insufficient information to determine what has happened to GDP per capita.

CB2001130

Question 227
Flag

Which of the following could explain why a country’s aggregate demand curve might shift inwards to the left?

an appreciation of the domestic currency
a decrease in interest rates
a rise in government expenditure
an increase in business confidence

CB2001131

Question 228
Flag

The short-run aggregate supply curves show that an increase in the average price level will encourage firms to:

reduce both output and employment.
increase both output and employment.
increase output and reduce employment.
reduce output and increase employment.

CB2001133

Question 229
Flag

The aggregate demand curve slopes downwards because at higher price levels the real money supply:

decreases and national income is lower.
decreases and national income is higher.
increases and national income is lower.
increases and national income is lower.

CB2001134

Question 230
Flag

If the total output of goods and services increases and the price index falls then the nominal gross domestic product (GDP):

may rise or fall and real GDP will fall.
will stay the same and real GDP will rise.
will rise and real GDP will rise.
may rise or fall and real GDP will rise.

CB2001135

Question 231
Flag

If a country has a current account deficit then:

gross domestic product is greater than gross national income.
gross domestic product is less than gross national income.
gross domestic product is the same as gross national income.
we cannot say whether gross domestic product differs from gross national income.

CB2001136

Question 232
Flag

The nominal rate of interest is 2% and the rate of inflation is negative at -3%. Which one of the following is TRUE?

The real rate of interest is greater than the nominal rate of interest.
The reai rate of interest is negative.
The rate of inflation is greater than the real rate of interest.
The real rate of interest is -1 %.

CB2001137

Question 233
Flag

The nominal rate of interest is 2% and the expected rate of inflation is positive at 3%. Which one of the following is TRUE?

The real rate of interest is positive.
The expected rate of inflation is less than the real rate of interest.
The real rate of interest is greater than the nominal rate of interest.
The real rate of interest is -1 %.

CB2001138

Question 234
Flag

The unemployment rate, expressed as a percentage, is given by the number of unemployed divided by:

the total population.
the total labour force.
the number of employed.
the number in the population who are of working age.

CB2001140

Question 235
Flag

If a country has a current account surplus then:

gross domestic product is greater than gross national income.
gross domestic product is less than gross national income.
gross domestic product is the same as gross national income.
we cannot say whether gross domestic product differs from gross national income from this information.

CB2001141

Question 236
Flag

A country with a population of 20 million has 15 million in employment and 1 million unemployed. What is the unemployment rate?

4.76%
5.0%
6.25%
6.67%

CB2001142

Question 237
Flag

A country with a population of 38 million has 32 million in employment and 2 million unemployed. What is the unemployment rate rounded up to one decimal point?

5.9%
5.3%
5.0%
6.3%

CB2001143

Question 238
Flag

To calculate gross national income, you need to know all of the following EXCEPT:

investment expenditure.
gross fixed capital formation.
consumption expenditure.
net income from abroad.

CB2001144

Question 239
Flag

The following data is available on an economy:

What is the value of its gross national income?

£110 million
£130 million
£170 million
£120 million

CB2001147

Question 240
Flag

Which of the following might explain why a country’s aggregate demand curve might shift inwards to the left?

a decrease in interest rates
an appreciation of the domestic currency
a fall in government expenditure
a rise in government expenditure

CB2001148

Question 241
Flag

The short-run aggregate supply curve shows that an increase in the average price level will encourage firms to:

reduce output and increase employment.
reduce both output and employment.
increase output and reduce employment.
increase both output and employment.

CB2001149

Question 242
Flag

Which of the following statements helps explain why the aggregate demand curve has a negative slope? As the price level falls:

an increase in shareholders' dividends causes them to increase their expenditure.
the central bank will have to increase the supply of money, which will lead to an increase in the amount purchased.
the government will have to reduce taxes, which will lead to an increase in the amount purchased.
the real income of people earning a fixed quantity of money increases causing them to expand their purchases.

CB2001151

Question 243
Flag

Given the gross domestic product (GDP) at basic prices cost we can calculate the GDP at market prices by:

adding indirect taxes and adding subsidies.
adding indirect taxes and subtracting subsidies.
subtracting indirect taxes and subtracting subsidies.
subtracting indirect taxes and subtracting subsidies.

CB2001152

Question 244
Flag

The nominal rate of interest is 7% and the expected rate of inflation is 4%. Which one of the following is TRUE?

The real rate of interest is negative.
The rate of inflation is less than the real rate of interest.
The real rate of interest is 11 %.
The real rate of interest is 3 %.

CB2001153

Question 245
Flag

If planned injections are less than planned withdrawals:

unemployment will fall.
the balance of trade will tend to improve.
the balance of trade will tend to deteriorate.
inflation will tend to rise.

CB2001154

Question 246
Flag

In a simple economy, consumption is given by the relationship:

C = 0.8Y

where: C is consumption expenditure
Y is gross domestic product.
If government expenditure is £150 million, investment is £50 million and there is no taxation or international trade, what will be the equilibrium value of gross domestic product of the economy?

$£ 200$ million
$£ 312.5$ million
$£ 800$ million
$£ 1,000$ million

CB2001155

Question 247
Flag

In a closed economy with no taxation, the marginal propensity to save is 0.25 and the level of income is €800m. What is the likely level of consumption expenditure resulting from a rise in government expenditure of €100 million?

€700 million
€800 million
€900 million
€1,000 million

CB2001156

Question 248
Flag

The accelerator theory states that:

investment is increased when interest rates fall.
an increase in consumer demand leads to a more than proportionate increase in the level of investment.
an increase in consumer demand leads to a less than proportionate increase in the level of investment.
an increase in investment will lead to a more than proportionate increase in output.

CB2001157

Question 249
Flag

Which of the following will increase the size of the multiplier?

an increase in government expenditure
a decrease in the marginal propensity to save
an increase in the marginal propensity to save
an increase in autonomous investment

CB2001158

Question 250
Flag

In a closed economy with no government sector, if the amount people plan to save exceeds the amount they plan to invest then there will be:

a rise in national income.
an unplanned rise in stocks.
inflationary pressures.
a rise in the amount people plan to invest.

CB2001159

Question 251
Flag

The quantity theory of money in its simplest form assumes that the:

velocity of circulation and nominal output are both fixed.
ratio of the velocity of circulation to the price level is fixed.
ratio of the money supply to the velocity of circulation is fixed.
velocity of circulation and real output are both fixed.

CB2001160

Question 252
Flag

In the Keynesian 45° line diagram showing the equilibrium level of GDP in a country, the marginal propensity to consume domestically produced goods is:

the intercept of the line representing the part of income spent on goods produced in the country.
the proportion of any rise in GDP withdrawn from the circular flow of income.
the slope of the aggregate expenditure line.
the slope of the line representing the part of income spent on goods produced in the country.

CB2001161

Question 253
Flag

According to the accelerator theory the level of investment depends on the:

level of national income.
rate of change of national income.
rate of change of the level of investment.
level of the interest rate.

CB2001163

Question 254
Flag

According to the equation of exchange, an increase in the money supply is most likely to lead to inflation if the:

velocity of circulation decreases.
real national income increases.
velocity of circulation and nominal national income are constant.
velocity of circulation and the real national income are constant.

CB2001164

Question 255
Flag

If private savings exceed private investment by £300 million and government expenditure on goods and services exceeds government tax revenue by £200 million then net exports will be:

zero.
£100 million.
-£100 million.
£500 million.

CB2001165

Question 256
Flag

The following data on an economy is provided for 2005 and 2013:

According to the equation of exchange, what would be the value of the price level in 2013 assuming that the velocity of circulation remains unchanged?

50
15
10
none of the above

CB2001166

Question 257
Flag

In the model of the circular flow of income if injections are greater than withdrawals:

national income will tend to increase.
national income will tend to decrease.
unemployment and production will tend to fall.
the general level of prices will tend to fall.

CB2001167

Question 258
Flag

Assume that the marginal propensity to consume domestically produced goods is 0.7 and there are no taxes. The government decides to increase public spending by £100 million. According to simple Keynesian multiplier analysis, what is likely to be the total change in national income resulting from this increase in government expenditure (to the nearest million)?

£70 million
£143 million
£170 million
£333 million

CB2001169

Question 259
Flag

In Country A, government expenditure is £250 billion, tax revenue is £275 billion, aggregate saving is £300 billion and aggregate investment is £250 billion. The net exports of Country A are equal to a:

surplus of £25 billion.
deficit of £75 billion.
surplus of £75 billion.
deficit of £25 billion.

CB2001174

Question 260
Flag

If an increase in the level of the money supply results in no change in either the nominal or real value of national income, then which of the following is TRUE?

Interest rates must have risen.
The velocity of circulation must have fallen.
The price level must have risen by the same proportion as the increase in the money supply.
Taxes must have risen.

CB2001175

Question 261
Flag

‘Supply creates its own demand’ is also known as:

Gold's law.
Austrian law.
Say's law.
Quantity law.

CB2001176

Question 262
Flag

According to the quantity theory of money, a 10 per cent increase in the nominal money supply will lead to an increase in the real output level of the economy of:

0 per cent.
10 per cent.
10 per cent multiplied by the velocity of circulation.
10 per cent divided by the velocity of circulation.

CB2001177

Question 263
Flag

‘Crowding out’ describes the:

extent to which government expansionary policy is counteracted by lower private spending resulting from higher interest rates.
extent to which government contractionary policy is counteracted by lower private spending resulting from lower interest rates.
increase in interest rates caused by contractionary monetary policy.
increase in consumption expenditure caused by lower taxes.

CB2001178

Question 264
Flag

The accelerator principle· states that:

investment is increased when interest rates fall.
an increase in national income can lead to a more than proportionate increase in the level of investment.
an increase in investment can lead to a more than proportionate increase in national income.
the rate of change of investment affects the rate of change of output.

CB2001179

Question 265
Flag

According to Keynesian analysis, once a closed economy is in macroeconomic equilibrium such that planned savings equals planned investment, then:

there will be no unemployment in the economy.
the marginal propensity to consume must be greater than the marginal propensity to save.
consumption will be equal to or greater than income.
there may or may not be unemployment.

CB2001181

Question 266
Flag

In Country A, government expenditure is £350 billion, tax revenue is £275 bUlion, aggregate saving is £300 billion and aggregate investment is £250 billlion. The net exports of Country A are equal to a:

surplus of £125 billion.
deficit of £125 billion.
surplus of £25 billion.
deficit of £25 billion.

CB2001182

Question 267
Flag

Which of the following statements is NOT correct in relation to Say’s Law?

There will be demand-deficient unemployment.
The production of goods will generate sufficient demand to ensure they are sold.
There may be structural unemployment or frictional unemployment if markets do not work efficiently.
Aggregate demand and aggregate supply will always be equal.

CB2001183

Question 268
Flag

If the rate of income tax is cut from 30% to 25% while the marginal propensity to import falls from 20% to 15%, the effect on the open economy fiscal multiplier will be:

a rise.
a fall.
no change.
uncertain.

CB2001184

Question 269
Flag

A short-run fall in real gross domestic product (GDP) would result from an increase in all of the following with the exception of:

autonomous saving.
the marginal propensity to consume.
the marginal propensity to import.
the marginal rate of taxation.

CB2001185

Question 270
Flag

Assume that the actual rate of unemployment is above the natural rate of unemployment because the expected rate of inflation is above the actual rate of inflation. If the expected rate of inflation falls to equal the actual rate of inflation then real wage growth will:

fall and real output will rise.
fall and real output will fall.
rise and real output will rise.
rise and real output will fall.

CB2001186

Question 271
Flag

If unemployment is above the natural level, the long-run Phillips curve would suggest that, other things remaining the same, real wages would:

fall and unemployment would rise.
fall and unemployment would fall.
rise and unemployment would fall.
rise and unemployment would rise.

CB2001187

Question 272
Flag

An increase in the natural rate of unemployment will cause the long-run Phillips curve to:

shift to the right.
shift to the left.
remain unchanged.
become upward sloping.

CB2001188

Question 273
Flag

Other things being equal, if there is an unexpected fall in money supply, there is no change in the expected rate of inflation and the unemployment rate is above the natural rate of unemployment, then the long-run Phillips curve would suggest that the inflation rate will eventually:

fall and the unemployment rate would rise.
fall and the unemployment rate would fall.
rise and the unemployment rate would fall.
rise and the unemployment rate would rise.

CB2001189

Question 274
Flag

The use of debit cards and cash withdrawal machines will have the following effect on a bank:

lower the bank's liquidity ratio and increase the bank deposits multiplier
increase the bank's liquidity ratio and lower the bank deposits multiplier
lower the bank's liquidity ratio and leave the bank deposits multiplier unchanged
the effect on the bank's liquidity ratio and the bank deposits multiplier will be uncertain

CB2001191

Question 275
Flag

The overall money multiplier effect might be smaller than the full bank deposits multiplier because:

governments are pursuing an expansionary monetary policy.
high rates of interest are discouraging borrowing.
banks are not holding excess cash reserves.
all proceeds of loans are re-deposited with banks

CB2001192

Question 276
Flag

Which one of the following definitions is most compatible with the Basel Ill definition of capital adequacy?

Tier 1 plus Tier 2 capital divided by total assets
Tier 1 plus Tier 2 capital divided by risk weighted assets
Tier 1 capital divided by total assets
Tier 1 capital divided by risk weighted assets

CB2001193

Question 277
Flag

Which of the following policies undertaken by the central bank will have an expansionary effect on the broad money supply measure other things being equal?

the sale of treasury bills in the financial markets
a demand for special deposits from the commercial banks to be placed with the central bank
a rise in the central bank lending rate
a lowering of the reserve requirements on commercial banks

CB2001194

Question 278
Flag

Capital adequacy for banks is a measure of a bank’s:

liquidity relative to its assets.
liquidity relative to its capital.
assets relative to its capital.
capital relative to its assets.

CB2001195

Question 279
Flag

The proportion of deposits held by the public as cash is 0.5 and the proportion of deposits held by the banks for reserves is 0.5. If the broad money supply is £300 million, what is the value of the narrow money supply?

£150 million
£200 million
£450 million
none of the above

CB2001196

Question 280
Flag

Which of the following would cause the demand for money curve to shift inwards to the left?

an increase in the frequency of payments to individuals
an increase in real gross domestic product
a decrease in the rate of interest
an increase in prices

CB2001197

Question 281
Flag

If the money supply increases due to an expansionary open market operation by the central bank then the price of Treasury bills will:

rise as the short-term interest rate rises.
rise as the short-term interest rate falls.
fall as the short-term interest rate rises.
fall as the short-term interest rate falls.

CB2001198

Question 282
Flag

Which of the following statements about the demand for money is FALSE?

The demand for money is negatively related to the interest rate.
The demand for money is positively related to the level of national income.
The demand for money is negatively related to the price level.
The demand for money can be divided into speculative, precautionary and transactions motives.

CB2001200

Question 283
Flag

Which of the following wm increase the demand to hold money?

a fall in the national income
a rise in the rate of interest
a rise in the expectation of a stock market crash
an increase in the frequency with which people are paid, for example, a switch from monthly to weekly payments

CB2001201

Question 284
Flag

Which ONE of the following would be observed following a contractionary open market operation by the central bank?

a fall in the money supply, a fall in the short-term rate of interest and a fall in the price of Treasury bills
a fall in the money supply, a fall in the short-term rate of interest and a rise in the price of Treasury bills
a fall in the money supply, a rise in the short-term rate of interest and a fall in the price of Treasury bills
a fall in the money supply, a rise in the short-term rate of interest and a rise in the price of Treasury bills

CB2001203

Question 285
Flag

Other things being equal, an increase in the level of real output in an economy will result in:

an increase in the money supply.
a decrease in the demand for money.
a rise in the rate of interest.
an increase in the speculative demand for money.

CB2001204

Question 286
Flag

The monetary base is increased when:

the government spends more money.
the government buys Treasury bills from the public.
a citizen buys a newly issued corporate bond.
a firm obtains an overdraft from a bank.

CB2001206

Question 287
Flag

The direct impact of open market operations, where the central bank purchases government securities, is to:

reduce the cash reserves of commercial banks and reduce the monetary base.
reduce the cash reserves of commercial banks and increase the monetary base.
increase the cash reserves of commercial banks and reduce the monetary base.
increase the cash reserves of commercial banks and increase the monetary base.

CB2001207

Question 288
Flag

Which of the following would cause the demand for money curve to shift inwards to the left?

an increase in prices
a decrease in the rate of interest
an increase in real gross domestic product
an increase in the frequency of payments to individuals

CB2001208

Question 289
Flag

Which one of the following will have a negative impact upon money demand?

a fall in the rate of interest
a rise in the real gross dome.stic product
the rise in the frequency with which people are paid
a higher expectation that stock prices will fall

CB2001209

Question 290
Flag

Which one of the following statements about the demand for money is TRUE?

The demand for money is positively related to the interest rate.
The demand for money is negatively related to wealth.
The demand for money is negatively related to the general price level.
The demand for money is positively related to real income.

CB2001210

Question 291
Flag

Which one of the following statements about the demand for money is TRUE?

The demand for money is negatively related to the interest rate.
The demand for money is negatively related to wealth.
The demand for money is negatively related to the general price level.
The demand for money is negatively related to real income.

CB2001211

Question 292
Flag

The direct impact of open market operations, where the central bank purchases government securities, is to:

reduce the cash reserves of commercial banks and reduce the monetary base.
reduce the cash reserves of commercial banks and increase the monetary base.
increase the cash reserves of commercial banks and reduce the monetary base.
increase the cash reserves of commercial banks and increase the monetary base.

CB2001212

Question 293
Flag

A government’s attempts to increase the monetary base (narrow money supply) through open market operations are likely to cause short-term interest rates to:

fall and reduce money demand.
fall and raise money demand.
rise and reduce money demand.
rise and raise money demand.

CB2001213

Question 294
Flag

Other things being equal, an increase in the level of real output in an economy will result in:

a rise in the value of the fiscal multiplier.
a decrease in the transactions demand for money.
a rise in the rate of interest.
an increase in the speculative demand for money.

CB2001214

Question 295
Flag

Money that is held because of possible unforeseen events is held because of the:

speculative motive for holding money.
transactions motive for holding money.
precautionary motive for holding money.
asset motive for holding money.

CB2001215

Question 296
Flag

If the money supply increases due to an expansionary open market operation by the central bank, then the price of treasury bill.swill:

rise as the short-term interest rate falls.
rise as the short-term interest rate rises.
fall as the short-term interest rate rises.
fall as the short-term interest rate falls.

CB2001216

Question 297
Flag

The narrow money supply (monetary base) is increased when:

the government spends more money.
the government buys treasury bills from the public.
a citizen buys a newly issued corporate bond.
a firm obtains an overdraft from a bank.

CB2001217

Question 298
Flag

Other things being equal, an increase in the level of real output in an economy will result in:

an increase in the money supply.
a decrease in the money demand.
a rise in the rate of interest.
an increase in the speculative demand for money.

CB2001219

Question 299
Flag

An increase in the general price level with no change in the money supply will:

increase the demand for money and increase aggregate demand.
decrease the demand for money and increase aggregate demand.
increase the demand for money and decrease aggregate demand.
decrease the demand for money and decrease aggregate demand.

CB2001222

Question 300
Flag

Which of the following statements about the demand for money is FALSE?

The demand for money is negatively related to the interest rate.
The demand for money is positively related to nominal income.
The demand for money is negatively related to the general price level.
The demand to hold money is positively related to real income.

CB2001223

Question 301
Flag

A tightening of monetary policy in an open economy operating with a flexible exchange rate would most likely lead to:

higher domestic interest rates and an exchange rate appreciation.
higher domestic interest rates and an exchange rate depreciation.
lower domestic interest rates and an exchange rate appreciation.
lower domestic interest rates and an exchange rate depreciation.

CB2001224

Question 302
Flag

An increase in the money supply will have a bigger impact on real output the more:

interest-elastic is the demand for money and the more interest-elastic is the level of investment.
interest-inelastic is the demand for money and the less interest-elastic is the level of investment.
interest-elastic is the demand for money and the less interest-elastic is the level of investment.
interest-inelastic is the demand for money and the more interest-elastic is the level of investment.

CB2001225

Question 303
Flag

Other things remaining the same, the effect of an increase in the budget deficit is to:

lower short-term interest rates because the aggregate demand curve shifts to the left.
raise short-term interest rates because the aggregate demand curve shifts to the left.
lower short-term interest rates because the aggregate demand curve shifts to the right.
raise short-term interest rates because the aggregate demand curve shifts to the right.

CB2001226

Question 304
Flag

As a result of an economic policy change, interest rates and consumption rise but investment falls. The new policy was:

an expansionary fiscal policy.
an expansionary monetary policy.
a contractionary fiscal policy.
a contractionary monetary policy.

CB2001227

Question 305
Flag

Consider an economy where the demand for real money balances is interest-elastic and the demand for investment is interest-inelastic. A change in the money supply will result in a relatively:

small change in the rate of interest and the level of investment.
large change in the rate of interest and the level of investment.
small change in the rate of interest and a relatively large change in the level of investment.
large change in the rate of interest and a relatively small change in the level of investment.

CB2001228

Question 306
Flag

The introduction of a restrictive monetary policy in an open economy operating with a flexible exchange rate would most likely lead to:

lower domestic interest rates and an exchange rate appreciation.
lower domestic interest rates and an exchange rate depreciation.
higher domestic interest rates and an exchange rate appreciation.
higher domestic interest rates and an exchange rate depreciation.

CB2001229

Question 307
Flag

‘Crowding out’ describes the:

increase in consumption expenditure caused by lower taxes.
increase in interest rates caused by contractionary monetary policy.
extent to which government expansionary policy is counteracted by lower private spending resulting from higher interest rates.
extent to which government contractionary policy is counteracted by lower private spending resulting from lower interest rates.

CB2001230

Question 308
Flag

If the money supply rises as a result of central bank policy, this will normally result in:

a depreciation of the domestic currency as the short-term domestic interest rate falls.
a depreciation of the domestic currency as the short-term domestic interest rate rises.
an appreciation of the domestic currency as the short-term domestic interest rate rises.
an appreciation of the domestic currency as the short-term domestic interest rate falls.

CB2001231

Question 309
Flag

Consider an economy where the demand for real money balances and the demand for investment are both highly interest-elastic. A change in the money supply will give:

a relatively small change in both the rate of interest and the level of investment.
a relatively large change in both the rate of interest and the level of investment.
a relatively large change in the rate of interest and a relatively small change in the level of investment.
a relatively small change in the rate of interest and a relatively large change in the level of investment.

CB2001232

Question 310
Flag

An increase in government expenditure financed by government borrowing from the non-bank private sector is most likely to:

reduce the demand for money, reduce interest rates and cause investment to rise.
increase the demand for money, reduce interest rates and cause investment to rise.
reduce the demand for money, increase interest rates and cause investment to fall.
increase the demand for money, increase interest rates and cause investment to fall.

CB2001233

Question 311
Flag

Consider an economy where the demand for real money balances is interest-inelastic and the demand for investment is interest-elastic. A change in the money supply will result in a relatively:

small change in the rate of interest and the level of investment.
large change in the rate of interest and the level of investment.
small change in the rate of interest and a relatively large change in the level of investment.
large change in the rate of interest and a relatively small change in the level of investment.

CB2001234

Question 312
Flag

The introduction of a restrictive monetary policy in an open economy operating with a flexible exchange rate would most likely lead to:

higher domestic interest rates and an exchange rate appreciation.
higher domestic interest rates and an exchange rate depreciation.
lower domestic interest rates and an exchange rate appreciation.
lower domestic interest rates and an exchange rate depreciation.

CB2001235

Question 313
Flag

Which one of the following will occur, assuming spare capacity within the economy, if both government spending and the money supply are increased?

National income and interest rates will both rise.
National income and interest rates will both fall.
The effect on both national income and interest rates is uncertain.
National income will rise but the effect on interest rates is uncertain.

CB2001236

Question 314
Flag

A government’s attempts to increase the monetary base (narrow money supply) through open market operations are likely to cause short-term interest rates to:

rise and reduce money demand.
rise and raise money demand.
fall and reduce money demand.
fall and raise money demand.

CB2001237

Question 315
Flag

The ‘crowding out’ effect associated with an increase in government borrowing could be reduced or eliminated by an accommodating increase in:

government expenditure.
taxation.
money supply.
transfer payments.

CB2001238

Question 316
Flag

Which one of the following statements about real variables in the economy is FALSE?

If nominal gross domestic product (GDP) rises by 5%, then the real GDP may have risen, fallen or remained unchanged.
If the money supply falls by 20% and the price level falls by less than 20%, then the real money supply falls.
An increase in real income will lead to a rise in the demand for real money balances.
Real interest rates are positive if the expected rate of inflation is greater than the nominal rate of interest.

CB2001239

Question 317
Flag

Which one of the following is NOT a ·crowding out’ effect resulting from a fiscal expansion?

a fall in investment due to the associated rise in interest rates
a fall in consumer demand due to fear of higher future taxes
a fall in demand for exports due to an exchange rate appreciation caused by the associated rise in interest rates
reduced import expenditure due to increased government demand for domestically produced goods

CB2001240

Question 318
Flag

An increase in the money supply will have a stronger impact on real output the more:

elastic is the demand for money and the more interest-elastic is the level of investment.
inelastic is the demand for money and the less interest-elastic is the level of investment.
elastic is the demand for money and the less interest-elastic is the level of investment.
inelastic is the demand for money and the more interest-elastic is the level of investment.

CB2001241

Question 319
Flag

If both government spending and the money supply are increased, and the economy has a high degree of unemployment, then:

the national income and interest rates will both rise.
the national income and interest rates will both fall.
the effect on both national income and interest rates is uncertain.
the national income will rise but the effect on interest rates is uncertain.

CB2001242

Question 320
Flag

The ‘crowding out’ effect associated with an increase in government borrowing could be reduced or eliminated by an accommodating increase in:

government expenditure.
taxation.
money supply.
none of the above.

CB2001243

Question 321
Flag

If the average price of exports has risen by 50% since the base year and the average price of imports has risen by 25% since the base year, what is the current figure for the terms of trade?

75
120
125
150

CB2001245

Question 322
Flag

Where would interest payments on short-term foreign deposits in banks be entered on the balance of payments account?

visible payments
income flows
portfolio investment
direct investment

CB2001246

Question 323
Flag

Given the following labour hours required to produce 1 unit of each of Goods X and Y, which one of the statements below is TRUE?

Country A has a comparative advantage and an absolute advantage in producing Good Y.
Country B has a comparative advantage in producing Good X and an absolute advantage in producing Good Y.
Country A has a comparative advantage in producing Good X and an absolute advantage in producing Good Y.
Country B has a comparative advantage in producing Good Y and an absolute advantage in producing Good X.

CB2001248

Question 324
Flag

Given the following labour hours to produce 1 unit of Goods X and Y, which of the statements below is TRUE?

Country A has a comparative advantage and an absolute advantage in producing Good Y.
Country B has a comparative advantage in producing Good X and an absolute advantage in producing Good Y.
Country A has a comparative advantage in producing Good Y and an absolute advantage in producing Good X.
Country B has a comparative advantage in producing Good Y and an absolute advantage in producing Good X.

CB2001249

Question 325
Flag

Country A exports Good X and imports Good Y from Country 8. The price of Good X rises by 20 per cent and the price of Good Y falls by 40 per cent.
Which of the following statements is correct about Country A’s terms of trade?

It has improved by 100 per cent.
It has improved by 60 per cent.
It has deteriorated by 100 per cent.
It has deteriorated by 60 per cent.

CB2001250

Question 326
Flag

Which of the following would NOT be included in the current account of a country’s balance of payments?

migrant remittances
interest, profits and dividends paid to the rest of the world
exports of services
the purchase of foreign shares by a domestic pension fund

CB2001251

Question 327
Flag

The law of comparative advantage states that countries should specialise in producing and exporting the goods that they produce at a lower:

marginal cost than other countries.
labour cost than other countries.
absolute cost than other countries.
opportunity cost than other countries.

CB2001254

Question 328
Flag

For a small open economy the imposition of a tariff on its imports of a good will normally:

reduce the domestic price of the imported good.
increase domestic consumption of the imported good.
increase domestic production of the imported good.
increase the quantity imported of the good.

CB2001255

Question 329
Flag

Which one of the following will result in an improvement in a country’s terms of trade?

a fall in the price of its imports combined with a rise in the price of its exports
a fall in the price of its imports combined with a fall in the price of its exports
a rise in the price of its imports combined with a rise in the price of its exports
a rise in the price of its imports combined with a fall in the price of its exports

CB2001256

Question 330
Flag

Given an initial terms of trade price index of 100, if the average price of exports has risen by 50% since the base year and the average price of imports has risen by 25% since the base year, what is the current figure for the terms of trade?

75
120
125
150

CB2001257

Question 331
Flag

Firms can benefit through specialisation and international trade due to:

comparative advantage.
absolute advantage.
different factor endowments.
all of the above.

CB2001258

Question 332
Flag

Assume two countries, with the same level of technology and resources, do not presently trade. In Country X one unit of labour and one unit of capital can produce 20 units of Good A or 15 units of Good B. In Country Y one unit of labour and one unit of capital can produce 50 units of Good A or 25 units of Good B.

Which of the following is TRUE?

Country X has an absolute advantage in the production of Good A.
Country X has an absolute advantage in the production of Good B.
Country Y has a comparative advantage in the production of Good A.
Country Y has a comparative advantage in the production of Good B.

CB2001260

Question 333
Flag

If a resident of a country purchases a foreign company’s shares, the value of the transaction is entered in which of the domestic country’s balance of payments accounts?

trade account
current account
capital account
financial account

CB2001261

Question 334
Flag

The terms of trade index is initially set at 100. If the average price of exports has risen by 50% since the base year and the average price of imports has risen by 2:0% since the base year, what is the current figure for the terms of trade index to the nearest whole number?

83
125
250
80

CB2001263

Question 335
Flag

All other things being equal, which of the following events would cause the value of Country A’s currency to appreciate against the value of Country B’s currency?

a fall in the interest rate of Country A with an even bigger fall in Country B's interest rate
a fall in the interest rate of Country A with constant interest rate iin Country B
a rise in the interest rate of Country A with an even bigger rise in Country B's interest rate
a fall in the interest rate of Country A with a rise in the interest rate of Country B

CB2001264

Question 336
Flag

Which of the following will result in a deterioration in the domestic country’s terms of trade?

a rise in the average price of exports relative to the average price of imports
a rise in the average price of imports relative to the average price of exports
an appreciation of the domestic currency
a rise in the domestic country's terms of trade index from 100 to 120

CB2001266

Question 337
Flag

The US has been running a large current account deficit, and China has a large current account surplus. If thetr exchange rates were both flexible, how could such imbalances be eliminated?

The US dollar could appreciate and the Chinese renminbi depreciate.
The US dollar could depreciate and the Chinese renminbi depreciate.
The US dollar could appreciate and the Chinese renminbi appreciate.
The US dollar could depreciate and the Chinese renminbi appreciate.

CB2001267

Question 338
Flag

If the central bank has to intervene in the foreign exchange market to prevent the home currency from depreciating, then its foreign exchange reserves will:

increase and the domestic money supply will fall.
increase and the domestic money supply will rise.
decrease and the domestic money supply will rise.
decrease and the domestic money supply will fall.

CB2001268

Question 339
Flag

Which of the following will result in an improvement in the domestic country’s terms of trade?

a rise in the average price of imports relative to the average price of exports
a fall in the quantity of imports relative to the quantity of exports
a rise in the quantity of exports while imports remain the same
a rise in the average price of exports relative to the average price of imports

CB2001269

Question 340
Flag

An economy with a floating exchange rate has a deficit on the current account of its balance of payments. Which policy combination would be most likely to solve this problem?

decrease interest rates and increase income tax rates
increase interest rates and leave income tax rates unchanged
decrease interest rates and decrease income tax rates
increase interest rates and increase income tax rates

CB2001270

Question 341
Flag

If the central bank has to intervene in the foreign exchange markets to prevent the home currency from appreciating, then its foreign exchange reserves will:

decrease and the domestic money supply will rise.
decrease and the domestic money supply will fall.
increase and the domestic money supply will rise.
increase and the domestic money supply will fall.

CB2001271

Question 342
Flag

If a central bank decides to reduce the money supply to fight inflation, then if the country has a floating exchange rate this will assist in the process because the exchange rate of the domestic currency will tend to:

appreciate and reduce the price of exports.
appreciate and reduce the price of imports.
depreciate and reduce the price of exports.
depreciate and reduce the price of imports.

CB2001272

Question 343
Flag

With a floating exchange rate system, monetary policy is:

very effective.
not effective.
equally effective as fiscal policy.
less effective than fiscal policy.

CB2001273

Question 344
Flag

If the central bank has to intervene in the foreign exchange markets to prevent the home currency from appreciating, then its foreign exchange reserves will:

decrease and the domestic money supply will rise.
decrease and the domestic money supply will fall.
increase and the domestic money supply will rise.
increase and the domestic money supply will fall.

CB2001274

Question 345
Flag

To prevent the value of the euro from depreciating against the US dollar, the European Central Bank might:

buy the euro in the foreign exchange market and increase its foreign exchange reserves.
buy the euro in the foreign exchange market and decrease its foreign exchange reserves.
sell the euro in the foreign exchange market and increase its foreign exchange reserves.
sell the euro in the foreign exchange market and decrease its foreign exchange reserves.

CB2001275

Question 346
Flag

Under a floating exchange rate system:

domestic inflation rates are unavoidably linked across national boundaries.
domestic inflation in one country can lead to inflation in another.
domestic inflation is dictated outside the bounds that would have constrained prices in a fixed rate regime.
none of the above.

CB2001276

Question 347
Flag

Under a fixed exchange rate system, the following approaches might be considered by governments to correct a balance of payments deficit:
I discouraging imports

II support for exporters

III increasing the level of aggregate demand

Which of the following is most likely to achieve this objective?

I only
II only
I and II only
I, II and Ill

CB2001277

Question 348
Flag

If a country experiences high domestic inflation compared to its trading partners with a fixed exchange rate then the effect of the inflation will be to:

decrease the country's imports.
increase the country's exports.
shift the country's currency supply curve in the foreign exchange market to the right requiring central bank purchases of the domestic currency to maintain the fixed exchange rate.
shift the demand curve for the country's foreign exchange to the right requiring central bank purchases of the domestic currency to maintain the fixed exchange rate.

CB2001278

Question 349
Flag

The introduction of a restrictive monetary policy in an open economy operating with a flexible exchange rate would most likely lead to:

higher domestic interest rates and an exchange rate appreciation.
higher domestic interest rates and an exchange rate depreciation.
lower domestic interest rates and an exchange rate appreciation.
lower domestic interest rates and an exchange rate depreciation.

CB2001279

Question 350
Flag

Which one of the following will NOT happen following a devaluation of the domestic currency on the foreign exchange market?

Import volumes will increase.
Export volumes will increase.
Exports become less expensive when measured in the foreign currency.
Imports become more expensive when measured in the domestic currency.

CB2001280

Question 351
Flag

If the central bank has to intervene in the foreign exchange markets to prevent the home currency from appreciating, then its foreign exchange reserves will:

increase and the domestic money supply fall.
increase and the domestic money supply rise.
decrease and the domestic money supply fall.
decrease and the domestic money supply rise.

CB2001281

Question 352
Flag

Devaluation of a country’s currency will lead to the greatest improvement in the current account of a country’s balance of payments when the demand for:

imports is price-elastic and the demand for exports is price-inelastic.
imports is price-inelastic and the demand for exports is price-elastic.
both imports and exports is price-inelastic.
both imports and exports is price-elastic.

CB2001282

Question 353
Flag

All other things being equal, which one of the following statements is always TRUE?

An appreciation of a country's exchange rate will increase its import expenditure and decrease its export revenues.
An appreciation of a country's exchange rate will increase its import volumes and decrease its export volumes.
A depreciation of a country's exchange rate will decrease its import volumes and decrease its export volumes.
A depreciation of a country's exchange rate will decrease its import expenditure and increase its export revenues.

CB2001283

Question 354
Flag

If the central bank has to intervene in the foreign exchange markets to prevent the domestic currency from appreciating, then its foreign exchange reserves will:

decrease and the domestic money supply will rise.
decrease and the domestic money supply will fall.
increase and the domestic money supply will rise.
increase and the domestic money supply will fall.

CB2001284

Question 355
Flag

The introduction of an expansionary monetary policy in an open economy operating with a flexible exchange rate would most likely lead to:

higher domestic interest rates and an appreciation of the domestic currency.
higher domestic interest rates and a depreciation of the domestic currency.
lower domestic interest rates and an appreciation of the domestic currency.
lower domestic interest rates and a depreciation of the domestic currency.

CB2001285

Question 356
Flag

Which one of the following will NOT happen following a devaluation of the domestic currency on the foreign exchange market?

Exports become cheaper when measured in the foreign currency.
Imports become more expensive when measured in the domestic currency.
Export volumes will decrease.
Import volumes will decrease.

CB2001286

Question 357
Flag

Under a fixed exchange rate system the following approaches might be considered by governments to correct a balance of payments deficit.
I discouragement of imports

II support for exporters

Ill increase the level of aggregate demand

Which of the following is most likely to achieve this objective?

I only
II only
I and II only
I, II and Ill

CB2001287

Question 358
Flag

An economy with a floating exchange rate has a large deficit on the current account of its balance of payments. Which policy combination would be most likely to reduce this deficit?

decrease interest rates and increase income tax rates
increase interest rates and decrease income tax rates
decrease interest rates and decrease income tax rates
increase interest rates and increase income tax rates

CB2001288

Question 359
Flag

Which one of the following is NOT likely to happen following a devaluation of the domestic currency on the foreign exchange market?

Exports become less expensive when measured in the foreign currency.
Imports become cheaper when measured in the domestic currency.
Export volumes will increase.
Import volumes will decrease.

CB2001290

Question 360
Flag

The socially efficient output for a monopoly is at the point where the:

marginal cost curve cuts the marginal revenue curve.
marginal cost curve Guts the demand curve.
average cost curve cuts the marginal revenue curve.
average cost curve cuts the demand curve.

CB2001291

Question 361
Flag

A welfare loss occurs in a monopoly industry because the price is greater than the:

marginal cost of production.
marginal benefit to consumers.
average revenue of the monopolist.
average cost of the monopolist.

CB2001292

Question 362
Flag

The socially efficient output for a monopoly is at the point where:

the marginal cost curve cuts the marginal revenue curve.
the marginal cost curve cuts the demand curve.
the average cost curve cuts the marginal revenue curve.
the average cost curve cuts the demand curve.

CB2001293

Question 363
Flag

The socially efficient output for a monopoly is at the point where:

the marginal cost curve cuts the marginal revenue curve.
the marginal cost curve cuts the demand curve.
the average cost curve cuts the marginal revenue curve.
the average cost curve cuts the demand curve.

CB2001294

Question 364
Flag

Which of the following is an example of disequilibrium unemployment?

frictional unemployment
cyclical unemployment
seasonal unemployment
structural unemployment

CB2001296

Question 365
Flag

Which of the following is least likely to lead to an increase in long-run economic growth?

an increase in the money supply
an increase in capital investment expenditure
an increase in education expenditure
an increase in research and development expenditure

CB2001297

Question 366
Flag

If the rate of inflation is lower than the anticipated rate used for negotiating interest rates and wages:

lenders will gain at the expense of borrowers and employers will gain at the expense of workers.
borrowers will gain at the expense of lenders and employers will gain at the expense of workers.
borrowers will gain at the expense of lenders and workers will gain at the expense of employers.
lenders will gain at the expense of borrowers and workers will gain at the expense of employers.

CB2001298

Question 367
Flag

Which of the following is best suited to reducing the level of .structural unemployment?

lowering the rate of interest
raising the rate of unemp.loyment benefit
higher voluntary redundancy payments for workers in declining industries
more government funds for retraining of the unemployed

CB2001301

Question 368
Flag

Which one of the following is NOT a cause of cost-push inflation?

an increase in the price of raw materials
an increase in wages above increases in labour productivity
an increase in profit margins applied by firms
an appreciation of the exchange rate

CB2001302

Question 369
Flag

Which one of the following is likely to lead to cost-push inflation?

a decrease in trade union powers
an appreciation of the domestic currency's exchange rate
a fall in labour productivity
a decrease in the profit margins applied by firms

CB2001303

Question 370
Flag

Structural unemployment is unemployment that:

increases in a recession and falls in a boom.
arises when the unemployed lack the skills needed by existing and newly created jobs.
arises when those seeking work give up hope of finding a job.
occurs as the result of a transition from one job to another.

CB2001305

Question 371
Flag

Which of the following is likely to be the most effective method of reducing the natural rate of unemployment?

increase unemployment benefit
increase government expenditure
increase the money supply
increase information flows on job availability

CB2001306

Question 372
Flag

If, due to pollution concerns, consumers switch from travelling to work by car to travelling by public transport, the resulting unemployment in the car
industry is:

frictional unemployment.
seasonal unemployment.
structural unemployment.
technical unemployment.

CB2001307

Question 373
Flag

Which one of the following is NOT likely to lead to cost-push inflation?

an increase in trade union powers
an appreciation of the domestic currency's exchange rate
an increased budget deficit which causes interest rates to rise
an increase in the profit margins applied by firms

CB2001310

Question 374
Flag

Which one of the following is NOT a cause of cost-push inflation?

an appreciation of the exchange rate
an increase in the price of raw materials
an increase in profit margins applied by firms
an increase in wages above increases in labour productivity

CB2001312

Question 375
Flag

The need to employ workers with certain skills may decline even if the industry as a whole is not in decline. This form of unemployment is called:

regional.
structural.
technological.
demand-deficient.

CB2001314

Question 376
Flag

The business cycle is defined as:

the long-run trend path of output after removing short-run variations.
the periodic fluctuations of output around the long-run trend.
the annual cycle of output.
none of the above.

CB2001317

Question 377
Flag

Which of the following is least likely to lead to an increase in long-run economic growth?

an increase in the money supply
an increase in capital investment expenditure
an increase in education expenditure
an increase in research and development expenditure

CB2001318

Question 378
Flag

Unanticipated inflation:

increases the opportunity cost of holding money and redistributes wealth from fixed-rate borrowers to lenders.
increases the opportunity cost of holding money and redistributes wealth from fixed-rate lenders to borrowers.
reduces the opportunity cost of holding money and redistributes wealth from fixed-rate borrowers to lenders.
reduces the opportunity cost of holding money and redistributes wealth from fixed-rate lenders to borrowers.

CB2001320

Question 379
Flag

Which one of the following is most likely to be the best method of reducing long-term structural unemployment?

expansionary fiscal policy
expansionary monetary policy
better education and training
a reduction in trade union powers

CB2001321

Question 380
Flag

Which of the following could explain why a country’s aggregate demand curve might shift outwards to the right?

an increase in interest rates
a depreciation in its exchange rate
a fall in government expenditure
a decrease in business confidence

CB2001322

Question 381
Flag

The business cycle is defined as:

the annual cycle of output.
the long-run trend path of output after removing short-run variations.
the periodic fluctuations of output around the long-run trend.
none of the above.

CB2001323

Question 382
Flag

If the rate of inflation is higher than the anticipated rate used for negotiating interest rates and wages:

lenders will gain at the expense of borrowers and employers Will gain at the expense of workers.
lenders will gain at the expense of borrowers and workers will gain at the expense of employers.
borrowers will gain at the expense of lenders and employers will gain at the expense of workers.
borrowers will gain at the expense of lenders and workers will gain at the expense of employers.

CB2001324

Question 383
Flag

An unexpected fall in the price level which causes a temporary rise in the real wage rate may:

give an actual rate of unemployment which is temporarily greater than the natural rate.
give an actual rate of unemployment which is temporarily lower than the natural rate.
increase the natural rate of unemployment.
decrease the natural rate of unemployment.

CB2001325

Question 384
Flag

Structural unemployment is unemployment that:

increases in a recession and falls in a boom.
arises when the unemployed lack the skills needed by newly created jobs.
arises when those seeking work give up hope of finding a job.
occurs as the result of a transition from one job to another.

CB2001326

Question 385
Flag

The aggregate demand curve slopes downwards because at higher price levels the real money supply:

decreases and national income is lower.
decreases and national income is higher.
increases and national income is lower.
increases and national income is higher.

CB2001327

Question 386
Flag

Which of the following is NOT a cost of inflation?

menu costs
cost of employing extra resources
arbitrary redistribution of wealth from lenders to borrowers
arbitrary redistribution of wealth from borrowers to lenders

CB2001328

Question 387
Flag

The short-run Phillips curve shows:

the influence of fiscal policy on the level of inflation and unemployment.
the influence of monetary policy on the level of inflation and unemployment.
a negative relationship between inflation and unemployment.
a positive relationship between inflation and unemployment.

CB2001329

Question 388
Flag

If the government imposes a minimum wage that is above the market equilibrium wage we would expect:

an increase in the quantity of labour demanded.
the labour supply curve to shift to the left.
an increase in the quantity of labour supplied.
the demand for the labour curve to shift to the left.

CB2001330

Question 389
Flag

One way of reducing the natural rate of unemployment would be to increase:

unemployment benefit.
government expenditure.
information on job availability.
the money supply.

CB2001331

Question 390
Flag

Which of the following is an example of disequilibrium unemployment?

frictional unemployment
cyclical unemployment
seasonal unemployment
structural unemployment

CB2001332

Question 391
Flag

Which of the following is a potential source of cost push inflation?

a depreciation of the domestic currency
a decrease in imported commodity prices
an increase in consumer expenditure
a decrease in direct taxes

CB2001333

Question 392
Flag

Unanticipated inflation:

increases the opportunity cost of holding money and redistributes wealth from fixed-rate borrowers to lenders.
increases the opportunity cost of holding money and redistributes wealth from fixed-rate lenders to borrowers.
reduces the opportunity cost of holding money and redistributes wealth from fixed-rate borrowers to lenders.
reduces the opportunity cost of holding money and redistributes wealth from fixed-rate lenders to borrowers.

CB2001334

Question 393
Flag

Which of the following types of unemployment would exist even in a well- functioning free-market economy?

classical (real-wage)
frictional
technological
structural

CB2001335

Question 394
Flag

The business cycle is defined as:

the annual cycle of output.
the long-run trend path of output after removing short run variations.
the periodic fluctuations of output around the long-run trend.
none of the above.

CB2001336

Question 395
Flag

Which of the following is a potential source of demand-pull inflation?

a fall in wages
an increase in imported commodity prices
an increase in consumer expenditure
an increase in direct taxes

CB2001340

Question 396
Flag

Which of the following costs of inflation occurs because of the possibility of unanticipated extra-high inflation?

fixed interest rate borrowers lose
menu costs
shoe-leather costs
fixed interest rate lenders lose

CB2001341

Question 397
Flag

An unexpected increase in the price level, which causes a temporary reduction in the real wage rate, may:

lead to an actual rate of unemployment that is temporarily greater than the natural rate.
lead to an actual rate of unemployment that is temporarily lower than the natural rate.
increase the natural rate of unemployment.
decrease the natural rate of unemployment.

CB2001342

Question 398
Flag

Which of the following is NOT a supply-side economic policy aimed at promoting economic growth?

cuts in social security benefits designed to encourage more workers to take work
measures designed to reduce trade union pow
deregulation
tariffs designed to increase production of domestic goods

CB2001343

Question 399
Flag

Which of the following would constitute a supply-side economic policy for reducing unemployment?

increasing social security benefits
increasing the money supply
reducing corporate and personal taxation
increasing government expenditure aimed at exploiting the multiplier effect

CB2001344

Question 400
Flag

Which of the following would constitute a supply-side economic policy for raising employment?

decreasing social security benefits
decreasing the money supply
increasing corporate and personal taxation
increasing government expenditure aimed at exploiting the multiplier effect

CB2001345

Question 401
Flag

Which of the following would constitute a supply-side economic policy for reducing unemployment?

increasing social security benefits
increasing the money supply
reducing corporate and personal taxation
increasing government expenditure aimed at exploiting the multiplier effect

CB2001346

Question 402
Flag

Which of the following is a supply-side economic policy aimed at promoting economic growth?

increases in social security benefits designed to increase expenditures of unemployed workers
measures designed to increase trade union powers so that real wage rises can increase expenditures of employed workers
increases in tariffs designed to increase production of domestic goods
reduction in corporate taxation

CB2001347

Question 403
Flag

Which of the following is NOT a supply side economic policy aimed at promoting economic growth?

cuts in social security benefits designed to encourage more people to work
measures designed to reduce trade union powers
deregulation
tariffs designed to increase production of domestic goods

CB2001348

Question 404
Flag

Which of the following is least likely to lead to an increase in long-run economic growth?

an increase in the money supply
an increase in capital investment expenditure
an increase in education expenditure
an increase in research and development expenditure

CB2001349

Question 405
Flag

Which one of the following is likely to be the most effective method of reducing the natural rate of unemployment?

increase unemployment benefit
increase taxes
increase the money supply
increase information flows on job availability

CB2001350

Question 406
Flag

Which of the following would constitute a supply-side economic policy for reducing unemployment?

increasing social security benefits
increasing the money supply
reducing corporate and personal taxation
increasing government expenditure aimed at exploiting the multiplier effect

CB2001351

Question 407
Flag

The Bank of England’s use of the ‘Taylor Rule’ attempts to take which of the following two macroeconomic objectives into account?

inflation and the exchange rate
economic growth and unemployment
inflation and economic growth
unemployment and the exchange rate

CB2001352

Question 408
Flag

Which one of the following would NOT constitute a demand-side economic policy for reducing unemployment?

increased government expenditure on domestically produced goods
increased money supply
reduced corporate and personal taxation
a privatisation programme

CB2001353

Question 409
Flag

The adoption of a policy to reduce the government’s budget deficit will involve:

an increase in aggregate demand and a reduction in real output.
an increase in aggregate demand and an increase in real output.
a reduction in aggregate demand and a reduction in real output.
a reduction in aggregate demand and an increase in real output.

CB2001354

Question 410
Flag

According to Keynesian analysis, the adoption of an expansionary fiscal policy will result in:

an increase in aggregate demand and a reduction in real output and unemployment.
an increase in aggregate demand, real output and unemployment.
an increase in aggregate demand and real output and a reduction in unemployment.
a reduction in aggregate demand and real output and an increase in unemployment.

CB2001355

Question 411
Flag

According to Keynesian analysis, the adoption of a policy to reduce the government’s budget deficit will involve:

an increase in aggregate demand and a reduction in real output.
an increase in aggregate demand and an increase in real output.
a reduction in aggregate demand and a reduction in real output.
a reduction in aggregate demand and an increase in real output.

CB2001356

Question 412
Flag

The adoption of an expansionary fiscal policy will result in:

an increase in aggregate demand and a reduction in real output and unemployment.
an increase in aggregate demand, real output and unemployment.
an increase in aggregate demand and real output and a reduction in unemployment.
a reduction in aggregate demand and real output and an increase in unemployment.

CB2001357

Question 413
Flag

Which of the following are the correct responses for the missing words (i) and (ii) in the following statement?
Automatic stabilisers act to _____(i)_____ government expenditures and _____(ii)_____ government revenues during an expansionary period.

(i) increase, (ii) decrease
(i) increase, (ii) increase
(i) decrease, (ii) increase
(i) decrease, (ii) decrease

CB2001358

Question 414
Flag

The budget deficit tends to decrease when:

national income falls.
national income rises.
governments decrease the personal income tax rate.
government expenditure increases.

CB2001359

Question 415
Flag

The adoption of an expansionary fiscal policy will result in:

an increase in aggregate demand and a reduction in real output and unemployment.
an increase in aggregate demand, real output and unemployment.
an increase in aggregate demand and real output and a reduction in unemployment.
a reduction in aggregate demand and real output and an increase in unemployment.

CB2001360

Question 416
Flag

The ‘Taylor Rule’ attempts to take which of the following two macroeconomic objectives into account?

inflation and the exchange rate
economic growth and unemployment
inflation and economic growth
unemployment and the exchange rate

CB2001361

Question 417
Flag

The adoption of an expansionary fiscal policy will result in:

an increase in aggregate demand, real output and unemployment.
an increase in aggregate demand and a reduction in real output and unemployment.
an increase in aggregate demand and real output and a reduction in unemployment.
a reduction in aggregate demand and real output and an increase in unemployment.

CB2001362

Question 418
Flag

A central bank’s use of the ‘Taylor Rule’ attempts to take which of the following two macroeconomic objectives into account?

inflation and the exchange rate
economic growth and unemployment
inflation and economic growth
unemployment and the exchange rate

CB2001363

Question 419
Flag

As a result of a change in economic policy, interest rates and consumption rise but investment falls. The new policy is most likely to have been:

an expansionary fiscal policy.
an expansionary monetary policy.
a contractionary fiscal policy.
a contractionary monetary policy.

CB2001364

Question 420
Flag

Which of the following is NOT a problem associated with the active management of fiscal policy?

time lags
uncertainty
crowding out
the accelerator

CB2001365

Question 421
Flag

The adoption of an expansionary fiscal policy will result in:

an increase in aggregate demand and a reduction in real output and unemployment.
an increase in aggregate demand, real output and unemployment.
an increase in aggregate demand and real output and a reduction in unemployment.
a reduction in aggregate demand and real output and an increase in unemployment.

CB2001366

Question 422
Flag

Which of the following are the correct responses for the missing words (i) and (ii) in the following statement?
Automatic stabilisers act to (i) ____ government expenditures and (ii)_ ___ government revenues during a recessionary period.

(i) increase, (ii) decrease
(i) increase, (ii) increase
(i) decrease, (ii) increase
(i) decrease, (ii) decrease

CB2001367

Question 423
Flag

Which one, of the following would NOT constitute a demand-side economic policy for reducing unemployment?

increased government expenditure on domestically produced goods
increasing the money supply
reducing the general level of interest rates to increase the supply of loans
a privatisation programme

CB2001368

Question 424
Flag

In the event of a recession in the economy, automatic fiscal stabilisers:

raise government expenditure and reduce tax revenue.
raise government expenditure and raise tax revenue.
reduce government expenditure and raise tax revenue.
reduce government expenditure and reduce tax revenue.

CB2001369

Question 425
Flag

Which of the following is NOT a problem associated with the active management of fiscal policy?

time lags
uncertainty
crowding out
the accelerator

CB2001370

Question 426
Flag

In the event of a recession in the economy, automatic fiscal stabilisers:

raise government expenditure and reduce tax revenue.
raise government expenditure and raise tax revenue.
reduce government expenditure and raise tax revenue.
reduce government expenditure and reduce tax revenue.

CB2001679

Question 427
Flag

According to the Classical model, Disequilibrium Unemployment……

Could not persist because wages would fall to eliminate the excess supply of labour.
Could persist for long periods of time because wages are not flexible.
Could be eliminated only through Government intervention.
Could never exist.

CB2001680

Question 428
Flag

Say’s law states that:

Supply creates its own demand.
Demand creates its own supply.
There is no such thing as a free lunch
Macroeconomic policy activism is essential to ensure full-employment.

CB2001681

Question 429
Flag

In the equation C = a + bY, which describes the aggregate consumption function, ‘a’ stands for

The amount of consumption when income is zero.
The marginal propensity to consume.
The amount of consumption when income is Maximum.
The average consumption level.

CB2001682

Question 430
Flag

Assuming there is no foreign sector, if the multiplier is 3, and the net income tax rate is 20%, the MPC is

3/4
4/5
5/6
6/7

CB2001683

Question 431
Flag

If injections are less than withdrawals at the full-employment level of national income, there is

An inflationary gap.
Equilibrium.
A deflationary gap.
Hyperinflation.

CB2001684

Question 432
Flag

Which of the following is likely to result from a rapid rise in aggregate demand?

Increased unemployment
Static living standards
Rising prices.
Surplus on the balance of payments

CB2001685

Question 433
Flag

Consider the following statements with respect to WTO :
I. The current set of governing rules stems from the Geneva Round of GATT negotiations
II. It has its headquarters in Uruguay.
III. It was formed in 1995
IV. Highest Level decision making body is the WTO General Council
Which of the above statements are true?

I & II
III & IV
I,II & IV
All of the above

CB2001686

Question 434
Flag

As per the accelerationist hypothesis of inflation, which of the following statements is FALSE?

A decrease in the aggregate demand in the short run will cause a rightward movement along the expectations -augmented Phillips Curve.
If the actual rate of unemployment is lower than the natural rate of unemployment because the Government has increased the rate of growth of money supply, then the expectations -augmented Phillips Curve will shift downwards.
If inflation is temporarily above its expected level, then unemployment will be below its natural level.
None of the above.

CB2001687

Question 435
Flag

Which of the following best describes the distinction between real GDP and nominal GDP?

Nominal GDP is calculated by deflating real GDP; real GDP is unadjusted for inflation
Nominal GDP is adjusted for changes in prices; real GDP is not adjusted for changes in prices
Nominal GDP is calculated every year; real GDP is calculated only occasionally
Nominal GDP uses current prices; real GDP uses constant prices

CB2001688

Question 436
Flag

What does the term “crowding out” refer to?

When there is an increase in unemployment, spending on automatic stabilizers increases
When private sector borrowing increases, Government borrowing decreases
When there is a decrease in tax revenue, revenue from automatic stabilizers decrease
When Government borrowing increases, private sector investment spending decreases

CB2001689

Question 437
Flag

Which of the following does not constitute investment in the economic sense?
I. Depositing money in bank account
II. The purchase of new debentures issued by a company
III. The purchase of house by a person previously owned by the other person
IV. Production of stocks which will be sold next year

II, III and IV
I, II and III
II and III only
IV only

CB2001690

Question 438
Flag

The problem of scarcity in economies:

Means there are shortages of some goods
Could be tackled if we produce more goods and services
Exits in command economies
Could be tackled if full potential output is achieved

CB2001691

Question 439
Flag

Following an increase in the price of flour, there is a 10% increase in price of bread which results in a 5% decrease in total revenue. How would you describe the demand for bread?

The demand for bread is price inelastic
The demand for bread is price elastic
The demand for bread is perfectly price inelastic
The demand for bread is perfectly price elastic

CB2001692

Question 440
Flag

Which of the following is NOT a feature of monopolistic competition?

The firm faces a downward sloping demand curve
The marginal revenue curve (MR) is a straight line that is above the average revenue curve (AR)
Only normal profits are made in long run
A firm can raise its price without losing all its customers

CB2001693

Question 441
Flag

The business cycle is defined as:

the annual cycle of output.
the long run trend path of output after removing short run variations.
the periodic fluctuations of output around the long run trend.
none of the above

CB2001694

Question 442
Flag

If bus travel is an inferior good, which of the following will cause its demand curve to shift to the left?

A rise in price of petrol
A rise in income of consumer
A rise in price of a car
An increase in bus fare

CB2001695

Question 443
Flag

Third degree price discrimination refers to the situation where:
I. Consumers are grouped into independent markets and a separate price is charged in each market.
II. The firm charges different prices in foreign and domestic markets
III. The firm charges each customer the maximum price he / she is prepared to pay
IV. The firm offers different pricing options in same market

Option I and IV
Option IV
Option I and II
Option III

CB2001696

Question 444
Flag

Which of the following schools of thought believes that supply – side shocks are a key influence on economic growth

Classical
New classical
Austrian
Keynesian

CB2001697

Question 445
Flag

Consider two goods X and Y. The shape of a consumer’s indifference curves are convex to the origin in the following circumstances:

X and Y are perfect complements
X and Y are perfect substitutes
The consumer exhibits higher marginal utility for Y than X
The consumer exhibits diminishing marginal utility for X and Y

CB2001698

Question 446
Flag

A merit good:

Provides benefits that are fully appreciated by user.
Has strong negative externalities
Is rival and excludable.
Cannot be supplied by the market.

CB2001699

Question 447
Flag

Country X has a comparative advantage over country Y in producing a good when:

Country X has a lower opportunity cost of producing the good than country Y
Country X has a lower labour cost of producing the good than country Y
Country X has a lower marginal cost of producing the good than country Y
Country X has a lower absolute cost of producing the good than country Y

CB2001703

Question 448
Flag

The kinked demand theory of oligopolists assume that

Relatively elastic demand curve at prices higher than current price
Relatively elastic demand curve at prices lower than current price
One firm in the industry sets price for all other firms
Prices can either rise or fall depends upon on what happens to firm’s competitor’s prices

CB2001706

Question 449
Flag

Rational Decision making requires that:

One’s choice be arrived at logically and without error
One’s choice be consistent with one’s goals
One’s choices never vary
One makes choices that do not involve trade-offs

CB2001707

Question 450
Flag

Which of the following would not result in a rightward shift of the Production Possibility curve?

An increase in investment in Capital Stock.
A reduction in the labour unemployment rate.
The discovery of new oil deposits in India.
An increase in the number of people taking management training courses.

CB2001709

Question 451
Flag

Which of the following issue relates to micro-economics?

Impact of crude price hike on inflation
Impact of change in bank rate on bank saving and investment
Impact of shortage of wheat production on wheat prices
Impact of Information technology on economic growth

CB2001710

Question 452
Flag

What is the difference between the term ‘customer’ and the term ‘consumer’?

There is no difference.
The term consumer refers only to people who buy food and drink products.
Customers buy products but it is consumers who use them.
Customers make organisational rather than personal purchases.

CB2001714

Question 453
Flag

The classical economists believed that

The Government should intervene in order to reach full employment.
Wages and salaries suffer from certain rigidities and would thus not move in a direction that would ensure full employment.
A competitive economy free of Government intervention would result in full employment.
An economy in equilibrium could also be an economy with high unemployment.

CB2001716

Question 454
Flag

Which of the following is not an argument against Government intervention in a market?

If the Government reduces output below the free market level, consumer surplus will fall.
If the Government reduces output below the free market level, producer surplus will fall.
If the Government raises output above the free market level, consumers will get no benefit from the extra units of output.
If the Government raises output above the free market level, some units of output will cost more to produce than the value placed on them by consumers.

CB2001717

Question 455
Flag

Suppose the Government introduces a specific tax of Rs 5 a unit on a product which has sloping supply and demand curves. Which of the following statements about the resulting curve S+tax is true?

The gap between S+tax and S will be higher at high quantities than at low quantities.
The gap between S+tax and S will be higher at low quantities than at high quantities.
The gap between S+tax and S will be Rs 5 at each quantity.
The gap between S+tax and S will be whatever is needed to show that the equilibrium price for consumers increases by Rs 5.

CB2001719

Question 456
Flag

Which of the following is NOT TRUE of a risk averse person?

risk averse person chooses a course of action designed to maximise expected utility.
A risk averse person will tend to reject a fair gamble.
A risk averse person will be unwilling to pay more for insurance than the long run average value of claims which will be made.
A risk averse person will be willing to pay more for insurance than the long run average value of claims which will be made.

CB2001720

Question 457
Flag

According to the Phillips curve, unemployment will return to the natural rate when:

Nominal wages are equal to expected wages
Real wages are back at long-run equilibrium level
Nominal wages are growing faster than inflation
Inflation is higher than growth of nominal wages

CB2001721

Question 458
Flag

Overshooting models of the exchange rate are an attempt to explain:

Why purchasing power parity plays no role in determining the value of a currency
Difference in inflation rates between the countries
Why foreign exchange market is never in equilibrium
Why exchange rates are so volatile

CB2001722

Question 459
Flag

If the exchange rate is below the equilibrium level then in a floating exchange rate system:

There is excess demand and the exchange rate should fall.
There is excess supply and the exchange rate should fall.
There is excess demand and the exchange rate should rise.
There is excess supply and the exchange rate should rise.

CB2001723

Question 460
Flag

In the European Union:

All member countries have a single exchange rate
All member countries have set their own tariff
There is a common tariff against non-members
All taxes are set the same

CB2001724

Question 461
Flag

The IS curve illustrates that when real national income increases, the

Interest rate must fall to restore equilibrium in the money market.
Interest rate must rise to restore equilibrium in the money market.
Interest rate must rise to restore equilibrium in the goods market.
Interest rate must fall to restore equilibrium in the goods market.

CB2001725

Question 462
Flag

Suppose a central bank is concerned about inflation and wishes to raise interest rates. Which of the following instruments would it be inappropriate to use?

Open market operations
Interest rate control
Reserve ratio controls
Quantitative easing

CB2001726

Question 463
Flag

What is the main reason that led classical economists to believe that the Government need not respond to a demand shock which led to unemployment?

Government always act very late
Demand shocks are always very small
Real wages are highly flexible
Economies never displayed demand-deficient unemployment

CB2001727

Question 464
Flag

If private investment increased by $150 billion while GDP remained the same, which of the following could have occurred, all else being the same?

Consumption spending decreased by $150 billion
Exports increased by $150 billion
Imports decreased by $150 billion
Net exports increased by $150 billion

CB2001728

Question 465
Flag

When there is unemployment caused by a lack of consumer spending, we classify this type of unemployment as?

Seasonal
Structural
Cyclical
Regional

CB2001729

Question 466
Flag

An example of an automatic stabilizers within the economy is

Changes in Government spending
Tariff on imports
A subsidiary approved by the Government
Changes in spending for unemployment compensation

CB2001730

Question 467
Flag

The trough of a business cycle occurs when _____ hits its lowest point.

Aggregate economic activity
Inflation
The unemployment rate
National income

CB2001732

Question 468
Flag

An increase in (i) the price level and (ii) the rate of inflation:

Cause the demand for money (i) to rise; (ii) to fall
Cause the demand for money (i) to fall; (ii) to rise
Both cause demand of money to fall
Both cause demand of money to rise

CB2001736

Question 469
Flag

Which of the following statements is correct in relation to the Classical Approach?
Economists following the classical approach of thought:
I. Believe in an automatic self-regulating mechanism that would return the economy to a full
employment level of output
II. Focus on consumers’ wants and needs for determining prices
III. Believe in a centrally planned economic system

(I) only
(I) and (II) only
(I) and (III) only
(I), (II) and (III) only

CB2001739

Question 470
Flag

Which of the following statements about market structure is False?

Oligopoly always show collusive behaviour
Monopolistic firm show a downward sloping demand curve
A perfectly competitive firm show optimum output level
Monopoly competition show steeper demand curve

CB2001740

Question 471
Flag

Mrs. X runs a bookshop. She would have earned Rs. 62,000/- as a teacher’s salary if she had not
been running a book shop. She put Rs. 50,000/- from her own money into the business. The
money would have earned Rs. 2,500/- in interest if she had left it in the bank account. What is
the opportunity cost of Mrs. X for running a bookshop?

Rs. 114, 500/-
Rs. 64,500/-
Rs. 62,000/-
Rs. 1,12,000/-

CB2001742

Question 472
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Which of the following would be included in the social costs of the industry?
I. The cost of raising capital for the investment purpose of the business
II. The cost of premium for Mediclaim insurance borne by employees
III. The traffic congestion caused by employees of the industry

(I) only
(I) and (II) only
(I) and (III) only
(I), (II) and (III) only

CB2001743

Question 473
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A business practice that limits or restricts effective competition from either actual or potential
rivals represents:

Exploitative abuse
Restrictive Practices
Exclusionary abuses
Bid rigging

CB2001746

Question 474
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There are more substitutes available for XYZ Ltd. in the market:

The larger is its price elasticity of demand
The smaller is its price elasticity of demand
The larger is its income elasticity of demand
The smaller is its income elasticity of demand

CB2001748

Question 475
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When the marginal product of labour is greater than the average product of labour

The marginal product of labour is increasing
The average product of labour is increasing
The firm is experiencing diminishing marginal returns
The firm is experiencing increasing returns to scale

CB2001751

Question 476
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Which of the following statements is correct in relation to the third degree of price
discrimination?
I. The firm must face a downward sloping demand curve.
II. The elasticity of demand for the good must differ within a group of consumers.
III. The firm charges different price to consumers within a group.

(II) only
(II) and (III) only
(I) only
(I), (II) and (III) only

CB2001754

Question 477
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Which of the following statements is true about an inferior good?

The substitution effect will increase the quantity of an inferior good demanded if its price increases
The income effect always acts in the opposite direction to substitution effect
They are related to positive income elasticity
The quantity consumed falls when economy contracts

CB2001755

Question 478
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A supermarket sells three different versions of television sets. The versions are “premium brand”
with highest price, “domestic brand” with a range of prices and “own brand” with lowest price.
This is an example of:

Price discrimination
Advertising
Market segmentation
Perfect Competition

CB2001756

Question 479
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In the long run, a perfectly competitive firm will produce at an output at which:

Average total cost is less than average total revenue
Average total cost is at its minimum
Marginal cost is equal to average total cost
Average total cost equals to average total revenue

CB2001758

Question 480
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The diagram below indicates the market for a product which generates negative externalities:

To achieve an optimum allocation of resources from society’s point of view requires-

A subsidy of RT and quantity of 0V.
A subsidy of RT and quantity of 0U.
A tax of ST and quantity of 0V.
A tax of RT and quantity of 0U.

CB2001760

Question 481
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Which one of the following represents a withdrawal from the circular flow of income?

Private funding for a national arts center.
The extension, by the Government, of the existing highway network.
The commissioning of a domestic firm of consultant engineers by a foreign oil company to investigate suspected defects in some pipelines.
The purchase by a domestic department store of designer clothes produced abroad.

CB2001763

Question 482
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The diagram below shows two aggregate demand curves:

Which one of the following is most likely to have caused the shift from AD1 to AD2?

A reduction in interest rates.
An increase in taxes.
Lower Government spending.
Increased unemployment.

CB2001765

Question 483
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“C” is a consumption function in the diagram given below:

Which one of the following statements is correct?

The average propensity to consume is zero at point X.
The marginal propensity to consume rises as GNP rises.
The average propensity to save is equal to 1 at point X.
The marginal propensity to save rises as GNP rises.

CB2001768

Question 484
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The Keynesian approach to fiscal policy calls for

A balanced budget despite the state of the economy.
Budget surpluses during periods of high unemployment.
Tax cuts during recession.
Spending increases during inflation.

CB2001771

Question 485
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The diagram below shows a Philips curve

A diagram like this is generally used to show that

It is impossible to reduce unemployment in long run.
There is a “trade-off” between inflation and unemployment in the short run.
Unemployment may be negative, but inflation is always positive.
Higher levels of unemployment result in higher level of inflation.

CB2001773

Question 486
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Which one of the following transactions would be recorded in the balance of payments accounts
as a positive item of Alpha, but a negative item for Beta?

An oil company from Alpha develops an oil field in Beta.
Oil executives from Alpha stay in hotels in Beta.
Petrol (Gasoline) from a refinery in Alpha is sold in Beta.
Petrol (Gasoline) from Alpha is taxed by the Beta Government.

CB2001777

Question 487
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A deterioration in the terms of trade means

a fall in the average price of exports relative to the average price of imports.
a fall in the average price of raw materials relative to the average price of manufactured goods.
a higher volume of imports relative to the volume of exports.
a fall in the average price of imports relative to the average price of exports.

CB2001779

Question 488
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The following diagram shows two production possibility frontiers for the same country at
different points in time

Which one of the four lines shows that growth and development have occurred over time?

1
2
3
4

CB2001782

Question 489
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Sustainable development is concerned with development which

meets the needs of present and future generations.
sustains existing growth and consumption patterns.
favours “appropriate technology” methods of production.
promotes agriculture growth so as to sustain food production.

CB2001783

Question 490
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Which of the following would cause a rightward shift in the long run aggregate supply curve?

An increase in consumption
An increase in imports
An increase in investment
An increase in exports

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