UNIVERSITY OF LAGOS

SCHOOL OF POSTGRADUATE STUDIES

DEPARTMENT OF FINANCE
MSc Finance

2010/2011 ADMISSION EXERCISE

ECONOMICS
TIME ALLOWED: 60 Minutes
INSTRUCTIONS:
Answer All multiple choice questions
Shade all correct answers
Write your application Number in as Your EXAMINATION NUMBER and
Course of study in the space provided
1) Which of the following does not refer
to macroeconomics?
A. The study of the cause of inflation.
B. The study of the economic behaviour of
individual decision-making units such
as consumers, resource owners, and
business firms.
C. The study of the cause of
unemployment.
D. The study of the aggregate level of
economic activity.
2) Which of the following statements is
true?
A. A peak occurs when economic activity
starts decreasing.
B. A peak occurs at the start of an
economic recovery.
C. A trough occurs when economic activity
starts decreasing.
D. A trough occurs at the start of an
economic decline
3) A positive GDP gap exists when:
A. real GDP is greater than potential GDP.
B. potential GDP is greater than real GDP.
C. nominal GDP is greater than real GDP.
D. economic activity is at its full-
employment level.
4) Suppose equilibrium output is y0 and
the price level is p0 for an
aggregate demand and a classical
aggregate supply curve. An increase in
government spending will result in:
A. an increase in the equilibrium level of
output and the price level.
B. an increase in the equilibrium level of
output and a decrease in the price level.
C. an increase in the price level and no
change in equilibrium output.
D. an increase in the equilibrium level of
output and no change in the price level.
5) Unanticipated inflation is harmful to
A. debtors
B. creditors
C. economic growth but has no effect upon
individual members of the economy
D. retirees whose retirement income is
indexed
6) Personal income
A. equals national income less indirect
taxes.
B. is income received by individuals during
a given year.
C. in the income individuals have available
for spending during a given year.
D. is the sum of wages plus interest
received by individuals in a given year.

7) Which of the following statements is
false?
A. GDP is greater than personal income.
B. GDP is greater than national income.
C. Personal disposable income is greater
than personal income.
D. National income is greater than personal
disposable income.
8) Suppose consumption is N10 million
when disposable income is N10.5
million, and consumption is N10.5 million
when disposable income is N11.5 million,
the marginal propensity to consume is
A. 0.50
B. 0.75
C. 0.80
D. 0.90
9) When the MPC is 0.80 and the APC
is 0.95, the MPS is
A. 0.20 and the APS is 0.05
B. 0.05 and the APS is 0.20
C. 0.20 and the APS is 0.20
D. 0.05 and the APS is 0.05
10) The saving function is
A. the level of planned saving at different
levels of disposable income.
B. the level of planned saving for every
change in disposable income.
C. the ratio of a change in planned saving
to a charge in disposable income.
D. the ratio of total saving two total
disposable income.
11) A recessionary gap exists when
A. aggregate supply exceeds aggregate
demand.
B. the aggregate spending line intercepts
the 45 degree line of an output level to the
right of the full employment level of output
C. the aggregate spending line intercepts
the 45 degree line of an output level to the
left of the full employment level of output
D. the aggregate spending line intersects
the aggregate supply curve at a lower price
level.
12) Which of the following are leakages
in circular flow?
A. saving and imports
B. consumption and saving
C. exports and saving
D. imports and saving
13) When the marginal propensity to
consume is 0.80, the value of the multiplier
is
A. 2
B. 3
C. 4
D. 5
14) An inflationary gap can be
eliminated by
A. an increase in government spending and
a decrease in lump-sum taxes.
B. equal increases in net tax revenues and
government spending
C. equal decreases in net tax revenue and
government spending
D. a decrease in lump-sum taxes
15) Money as a measure of value
provides
A. its older with perfect liquidity.
B. a common denominator for measuring
value.
C. a medium for exchanging final output.
D. a mechanism for allocating resources
and distributing output.
16) Which of the following will occur as
a result of an improvement in technology?
A. The aggregate demand curve will shift to
the right.
B. The aggregate demand curve will shift to
the left.
C. The aggregate supply curve will shift to
the right.
D. The aggregate supply curve will shift to
the left.
E. The production possibilities curve will
shift inward.
17) According to the monetarists,
inflation is most often the result of
A. high federal tax rates.
B. decreased production of capital goods.
C. increased production of capital goods.
D. upward shifts in the consumption
function.
E. an excessive growth of the money
supply.
18) An increase in which of the following
would cause the long-run aggregate supply
curve to shift to the right?
A. potential output
B. the price level
C. the average wage rate
D. corporate income tax rates
E. aggregate demand
19) The word economic refers to
something that
A. is limited.
B. is scarce.
C. commands a price.
D. all the above.
20) The economic problem of for whom
to produce refers to the decision of
A. how to allocate economic resources.
B. how many of the wants of various
members of society are to be satisfied.
C. how much to produce from import or
export.
D. how much saving should go on in the
economy.
21. The velocity of money is
a. the rate at which the price index for
consumer goods rises.
b. the multiple by which an increase in
government expenditures will cause output
to rise.
c. set by the Board of Governors of the
CBN.
d. the average number of times one dollar
buys final goods and services during a
year.
22. A decrease in the nominal interest rate
would
a. encourage people to hold larger money
balances.
b. encourage people to hold smaller money
balances.
c. force the CBN to increase the money
supply.
d. cause households to decrease
consumption.
23. The demand curve for money
a. shows the amount of money balances
that individuals and businesses wish to hold
at various interest rates.
b. reflects the open market operations
policy of the CBN.
c. shows the amount of money individuals
and businesses wish to hold at various
price levels.
d. reflects the discount rate policy of the
CBN.
24. If unemployment were 12 percent and
prices were rising 2 percent annually, which
of the following would be the most
appropriate policy?
a. a decrease in planned government
expenditures
b. a decrease in the CBN's reserve
requirements
c. the sale of government securities by the
CBN
d. an increase in the discount rate
25. When economies of scale are important
and an industry tends toward natural
monopoly, splitting the industry into
small, rival firms will
a. lead to lower prices in the short run.
b. cause prices to rise when demand is
inelastic but fall when it is elastic.
c. cause prices to fall because of the
decline in producer profits.
d. increase per-unit costs of production.
26. A monopolist will maximize profits by
a. setting his price as high as possible.
b. setting his price at the level that will
maximize per-unit profit.
c. producing the output where marginal
revenue equals marginal cost and charging
a price along the demand curve.
d. producing the output where price equals
marginal cost.
27. Which one of the following is the most
accurate description of a monopolist?
a. a firm that produces a single product
b. a firm that is the sole producer of a
narrowly defined product
c. a firm that is the sole producer of a
product for which there are no good
substitutes in a market with high
barriers to entry
d. a firm that is large relative to its
competitors
28. Assuming that firms maximize profits,
how will the price and output policy
of an unregulated monopolist compare
with ideal market efficiency?
a. The output of the monopolist will be too
large and its price too high.
b. The output of the monopolist will be too
large and its price too low.
c. The output of the monopolist will be too
small and its price too high.
d. The output of the monopolist will be too
small and its price too low.
29. An oligopolistic market
a. has a small number of rival firms, and
each is large relative to the market.
b. makes the demand for each firm
dependent on the actions of its rivals.
c. has high entry barriers facing firms that
could otherwise enter the market.
d. all of the above answers are correct.
30. Oligopolistic agreements on price tend
to be unstable because
 a. although the monopoly price is the best
price for all firms, oligopolists are
unaware of this.
b. although the monopoly price maximizes
the joint profits of the firms, a secret
price cut by any individual firm will
increase the profits of that firm; hence,
collusive agreements tend to break
down.
c. the demand for the products of
oligopolistic industries is inherently
unstable
relative to the demand for the products
of non-oligopolistic industries.
d. firms in oligopolistic industries have
more concern for consumers than do firms
in competitive industries.
31. The price charged by oligopolists
a. will equal the equilibrium price in a price
takers market if the oligopolists
collude.
b. will equal the monopoly price if the
oligopolists do not collude.
c. will generally lay between the monopoly
and competitive market equilibrium
prices.
d. will be the same whether the
oligopolists cooperate with one another or
not.
32. When firms use resources in an
attempt to secure and maintain grants of
market protection from the government, it
is called
a. rent-seeking.
b. collusion.
c. franchising.
d. resource investment.
33. When natural monopoly is present in an
industry, the per-unit costs of production
will be
a. lowest when there are a large number
of producers in the industry.
b. lowest when a single firm generates the
entire output of the industry.
c. lower for small firms than for large
firms.
d. minimized at the output that maximizes
the industry's profitability.
34. If the required reserve ratio is 10
percent, a bank with a new deposit of
N1,000
a. must keep N100 on reserve and can
make up to N900 in new loans.
b. must keep N200 on reserve and can
make up to N800 in new loans.
c. must keep N900 on reserve and can
make up to N100 in new loans.
d. must keep N1,000 on reserve and can
make no additional loans.
35. Which one of the following is incorrect
regarding money?
a. Money is a medium of exchange.
b. Money is a store of value.
c. Money serves as a unit of account.
d. The value of money is dependent on the
quantity of gold held by the CBN.
36. Which of the following are changes
altering the nature of money and the
usefulness of the money supply figures?
a. the widespread holding of Nigeria
currency outside the country by
foreigners
b. the increasing availability of stock and
bond mutual funds
c. the use of debit cards and electronic
money
d. all of the above
37. Which of the following is primarily
responsible for controlling the money
supply in Nigeria?
a. the National Assembly Financial
Committee
b. the Council of Federal Economic Planning
c. the Finance Minister
d. the Board of Governors of the CBN
38. If the CBN wanted to use all three of its
major monetary control tools
to decrease the money supply, it would
a. buy bonds, reduce the discount rate, and
reduce reserve requirements.
b. sell bonds, reduce the discount rate, and
reduce reserve requirements.
c. sell bonds, reduce the discount rate, and
increase reserve requirements.
d. sell bonds, increase the discount rate,
and increase reserve
requirements.
39. If a decrease in the money supply were
desired to slow inflation, the CBN might
a. increase the reserve requirements.
b. sell Nigeria securities on the open
market.
c. raise the discount rate.
d. buy Nigeria securities directly from the
Treasury.
40. The CBN's most frequently used
monetary tool is
a. the discount rate.
b. the reserve requirements.
c. moral persuasion.
d. open market operations.
41.Assume that a firm is maximizing short-
run profits and that price is greater than
average variable cost. Which of the
following must be true at the firm’s level of
output?
A . Marginal revenue is equal to
average total cost
B. marginal revenue is greater than
total variable cost
C. marginal revenue is equal price
which is greater than average total
cost
D. marginal revenue is equal to
marginal cost
E. Price is equal to average total
cost
42. A constant cost, perfectly
competitive industry is in long-run
equilibrium. If the demand for the
good increases which of the following
will occur in the long run?
A. The price will remain unchanged
B. The price will increase
C. The price will decrease
D. economics profits will increase
E. economics profits will decrease
43. In an economy with lump-sum
taxes and no international trade, the
marginal propensity to consume is
0.8, which of the following is true?
A . When consumption increases by
N5, investment increases by a
maximum of N1
B. when consumption increases by
N5, savings increases by a maximum
of N1
C. when investment increases by
N1, income increases by a maximum
of N5
D. when investment increases by
N1, consumption increases by a
maximum of N5
E. when income increases by N1,
investment increases by a maximum
of N5
 C . the required reserve ratio is low,
44. Suppose that a national and the interest rate has a large
government increased deficit effect on investment spending
spending on goods and services, D. the required reserve ratio is low,
and the marginal propensity to
increases its demand for loanable
consume is low
funds. In the long run, this policy E. the marginal propensity to
would most likely result in which of consume is high, and the interest
the following changes in this country. rate has a small effect on investment
spending.
Real Interest Rate Investment
A . Decrease Decrease 47. If the reserve requirement is
B. Decrease Increase 25 percent and banks hold no excess
C. Increase Decrease reserves, an open market sale of
D. Increase No change N400,000 of government securities
E. No change Increase
by the federal Reserve will
45. If the government
simultaneously engages in A. Increase the money supply by
up to N1.6 million
expansionary monetary fiscal
B. decrease the money supply by
policies, which of the following is the up to N1.6 million
interest rates and unemployment? C. Increase the money supply by up
to N300, 000
Interest Rate Unemployment D. increase the money supply by up
A . Increase to N100, 000
Indeterminate E. decrease the money supply by
B. Increase Decrease up to N100, 000
C. decrease Decrease
D. Indeterminate Decrease 48. Which of the following is true
E. Indeterminate Increase when the velocity of money falls?

46. The purchase of bonds by the

central bank of Nigeria (CBN) will
have the greatest effect on real gross
domestic product if which of the
following situations exists in the
economy?
A . The required reserve ratio is
high, and the interest rate has a
large effect on investment spending
B. the required reserve ratio is high,
and the interest rate has a small
effect on investment spending
A. An increase in the money
supply will have less effect on
nominal gross national product
B. a change in the money supply
will affect output only
C . The Federal Reserve will
decrease the money supply
D. output will be greater for a given
money supply
E. The public will increase its
holdings of assets other than money.
49. A simulative fiscal policy
combined with a restrictive monetary
policy will necessarily cause

A. The gross domestic product to

increase
B. Gross domestic product to
decrease
C. Interest rates to fall
D. interest rates to rise
E. the federal budget deficit to
decrease

50. When two commodity are

substitutes for each other, the cross
elasticity of demand between them is
A. Negative
B. Positive
C. Zero
D. none of the above
E. all of the above