ECONOMICS PRACTICE QUESTIONS FOR FINAL EXAM

DEADLINE: JUNE 15, 2023

True or false

1. In perfectly competitive market the price is determined by the industry through the forces of
demand and supply
2. Average revenue (AR) and price of the product (P) have the same meaning
3. A firm is said to be in equilibrium at that level of output at which it earns maximum profits but
also shows a tendency either to expand or contract its output.
4. A firm under perfect competition will be in equilibrium in the long run when it earns only normal
profits
5. The profit of a monopoly firm is maximum at the level of output at which MR = MC and MC is
rising.
6. GDP includes the value of output produced in the “new” current accounting year only
7. In Gross Domestic Product, we include only the goods and services produced within the
domestic territory of a country
8. when net factor income from abroad is negative, domestic product is less than the national
product.
9. In the Final product approach we include the market value of all final goods and services
produced in a country
10. Value added approach measures the contribution of each producing unit in the domestic
economy without any possibility of double counting.
11. national income is not the sum total of personal incomes
12. The relationship between money income and consumption expenditure is positive and direct
13. equal distribution of a nation’s income reduces consumption expenditure, and inequality in
distribution of income increases it
14. A higher level of direct taxes leads to a lower level of personal disposable income, and thus to a
decrease in consumption expenditure
15. If prices are expected to rise in the future, present consumption will be less
16. Increases in the rate of interest lead to a reduction of consumption expenditure and an increase
in saving
17. A lower wealth level leads to higher consumption expenditure
18. even when income is zero, consumption is always positive
19. consumption function is that it is stable in the long run
20. Saving decreases when income inequality increases
21. If prices are expected to fall in the future, present consumption is less, and hence saving is more
22. A lower rate of interest induces greater saving
23. A higher wealth level leads to a lower saving level
24. A higher level of direct taxes produces a lower level of personal disposable income and hence
reduced savings
25. Saving is directly related to the nature of the individual.
 26. The relationship between disposable income and consumption is known as propensity to
consume.
27. Investment is the part of income which is used for the creation of new capital assets.
28. The value of APC can be greater than 1.
29. In the Theory of absolute advantage the fundamental basis of international trade is the
difference in absolute cost
30. According to the theory of comparative cost, a country tends to specialize in the production of
those goods for which it has lower comparative costs

Choice

1. In a total revenue and total cost approaches a firm is in an equilibrium

A. At the level of output where the sum of TR and TC is maximum
B. At the level of output where the difference of TR and TC is maximum
C. At the level of output where TR is equal to TC
D. At the level of output where TR is less TC
2. In a Marginal Revenue and Marginal Cost Approach the firm will have profit under the condition:
A. MR = MC and MR is rising
B. MR = TR and MR is rising
C. MR = MC and MC is decreasing
D. MR = MC and MC is rising
3. Which of the following are the main features of Monopoly market
A. Single Producer
B. No Close Substitutes
C. Barriers to the Entry
D. Independent Price Policy
E. All
4. Which of the following are the main features of a monopolistically competitive market
A. Many Sellers
B. Product Differentiation
C. Free Entry and Exit of Firms
D. Non-Price Competition
E. All
5. Which of the following phase of economic activity is characterized by rising demand, rising
prices, rising investment, rising employment, rising incomes, rising purchasing power and so on
A. Contraction or Recession
B. Recovery
C. Peak or boom
D. Depression
6. unemployment which arises due to inadequate overall demand associated with the downswing,
recession or depression period of a trade cycle
A. Frictional unemployment
B. Structural Unemployment
C. Under unemployment
 D. Cyclical unemployment
7. Which of the following is not a causes for demand-pull inflation
A. An increase in government expenditure
B. A decrease in wages
C. Black money
D. An increase in money supply
8. Which of the following is not the favorable effect of inflation
A. Rising prices bring in higher profits to the capitalists. In turn, a greater part of these profits is
reinvested with a view to earning further profits.
B. employment of labour increases
C. increase in the growth rate of national income and raise the tempo of economic
development
D. Reduces the level of savings out of a given level of income.

9. Which of the following is the objective of a government budget

A. Economic growth
B. Price stability
C. Management of Public Enterprises
D. Reallocation of Resources
E. All
10. Which of the following is not the main feature of national income
A. National income is a measure of the flow of goods and services during a year
B. National income is expressed in terms of monetary value of goods and services.
C. National income is counted for a period of five accounting year
D. National income is expressed in terms of monetary value of goods and services.

11. national income accounts are important for all except;

A. It is important In making business policies
B. Great use to trade unions and labor organizations
C. National income accounts are used to measure the rate of economic growth
D. Study of national income accounts is not used to identify interrelationships between
different sectors of an economy
12. Which of the following is false about GDP;
A. GDP measures the value of goods and services at their Market Price
B. It measures gross value of the products.
C. GDP includes the value of output produced in for the past five years
D. It does not take into account the value of intermediate goods
13. What is the main problem we face when we calculate GDP using the final product approach
A. Limitation of data
B. Miscalculation
C. Double counting
D. All
14. Which of the following are precautions that need to be taken to compute national income by
the income method except ;
 A. Only factor incomes which are earned by rendering productive services are included
B. The value of self-consumed services is not included
C. Income from illegal activities are not included.
D. the value of production for self-consumption are not included
15. Which of the following are precautions need to be taken to correctly estimate national income
by the expenditure method except;
A. Expenditure on all intermediate goods and services is included.
B. Government expenditure on all transfer payments is excluded.
C. Expenditure on purchase of second-hand goods is excluded from national income.
D. Expenditure on purchase of old shares/bonds or new shares/bonds is excluded.
16. Which of the following true about real and Nominal GDP
A. In nominal GDP service and goods are valued at constant price but in real GDP at current
market price.
B. Real GDP truly reflects the performance and level of economic growth in an economy,
whereas Nominal GDP does not
C. Nominal GDP is a better tool for making a year-to-year comparison of changes in the
physical output of goods and services
D. Real GDP is affected by two factors change in physical output and change in price whereas
nominal GDP is only affected change in physical out put
17. Which of the following is false
A. Consumption increases with increase in income
B. Consumption can never be zero, even if income is zero
C. Above the 45° line, consumption spending is less than income
D. The 45° line Yd = C + S is called the expenditure equals income line
18. Which of the following is false about the property of MPC
A. MPC is greater than zero but less than one This is because, with an increase in income,
consumption expenditure decreases
B. MPC falls with increase in income
C. MPC of the poor class is higher than those of other classes
D. MPC is stable in the short run: This is because it depends upon psychological factors which
do not change in the short run
19. Which of the following is true about saving except;
A. saving depends directly upon income
B. As income increases, savings also increase
C. rate of increase in savings is less than the rate of increase in income
D. At low income levels, savings is negative
20. Which of the following is false about the main properties of MPS
A. Value of MPS lies between 0 and 1.
B. MPS increases with increase in income
C. The MPS of the poor is lower than that of the rich
D. MPS decreases with increase in income
21. Which one is false about induced investment
A. Induced investment depends directly upon profit expectations
B. It is income-elastic
 C. If national income goes up, induced investment also goes down
D. Induced investment takes place when levels of income and demand in the economy go up
22. Which one is false about Autonomous investment
A. Autonomous investment is income inelastic
B. The volume of autonomous investment is the same at all levels of income
C. it is affected by changes in income level.
D. Autonomous investment is generally affected by autonomous factors
23.

Matching

1.Full Employment
2.Involuntary
Unemployment
3. Disguised
Unemployment
4. Seasonal Unemployment
5.Demand-Pull Inflation
6. Cost – Push Inflation
7. Private final
consumption expenditure
8. Change in stocks
9. Net exports
A. It measures the money value of goods and services purchased by
households for current use during a time period
B. When the demand for goods and services exceeds the available
supply at current prices
C. refers to the physical change in stocks of inventories like raw
material, semi-finished goods and finished goods
D. This refers to a situation in which the workers are willing to work
under any conditions and at any wage rate but they fail to get
employment
E. This refers to a situation where all those workers who are able and
willing to work get employment
F. When more workers are engaged in a type of work than actually are
required to do that work
G. the difference between the value of exports and value of imports
H. When employment and unemployment levels vary with different
seasons in many sectors of the economy
i. Inflation resulting from rising costs of production and slack resource
utilisation

1. Value of trade A. When imports are more than exports

2. Volume of trade B. When the value of exports is more than that of import
3. Trade surplus C. transactions which affect the assets and liabilities of individuals,
businesses, and other non-government entities.
4. Trade deficit D transactions affecting the assets and liabilities of the government and its
agencies.
5. Trade balance E. in the form of taxes on the import of goods, called custom duty or import
duty
6. Quantitative F. It means purchasing an asset and, at the same time, acquiring control of it
Restriction
 7.Traffic restrictions G. The difference between the amount of foreign currency received on
account of export of goods and the payment made for import of goods
8. current account H. take the shape of fixing the maximum quantity of goods that is permitted
balance to be imported.
9. net service i. It is the acquisition of an asset that does not give the purchaser control over
the asset
10. balance of trade j. The sum total of the above mentioned three components-trade balance,
net services, and net transfers
11. Private k. value of exports plus the value of imports during a given year
Transactions
12. Official L. the physical quantities of goods exported plus those imported in a year
Transactions
13. Direct Investment M. difference between the export and import of services
14. Portfolio N. When the value of exports equals the value of imports
Investment:

Fill in the blanks

1. --------------------------a market structure in which there are a large number of producers (firms)
producing a homogeneous product so that no individual firm can influence the price of the
commodity.
2. ----------------------- are products that are identical in all respects, including quality, colour, size,
weight, design, etc.
3. --------------------------are the receipts that it obtains from selling its product
4. -------------------------- is the curve depicting the amounts of revenue that it receives by selling the
various quantities of a commodity.
5. ------------------------------is the total amount of money that the firm receives from the sale of a
given amount of its output.
6. ------------------------------is the total revenue (TR) divided by the quantity sold (Q), or it is the per-
unit revenue.
7. ------------------------ is the change in total revenue resulting from one unit increase in the sales.
8. ------------------------- is In economics, if a firm covers all the economic costs of production — that
is, if it covers the opportunity cost of all the resources used in production, it is said to earn
normal profit (or zero profit).
9. --------------------------------- is a market structure in which there exists only a single seller of a
product, who is the sole producer of the product, and that product has no close substitutes.
10. ------------------------------ refers to a situation where there are many sellers of a differentiated
product. There is competition which is keen, though not perfect, between many firms making
very similar products, which are close but not perfect substitutes
11. ---------------------- Market situation where a few large firms compete against each other and
there is an element of interdependence in the decision-making of these firms.
12. ---------------------------- refers to the regularly occurring fluctuations in economic activity in market
economies
13. ------------------------------ refers to any arrangement by which a person earns income or a means of
livelihood
14. --------------------------- consists of all those who are fit for work and are willing and available to
work
15. ---------------------------- is the ratio of this labour force to the total population
16. -------------------------- refers to a situation where the persons who are able to work and willing to
work, at the current market wage rate, fail to secure work or activity which gives them income
or a means of livelihood.
17. --------------------------- is temporary unemployment which exists during a period of the transfer of
labour from one occupation to another.
18. ---------------------------------- unemployment which arises due to change in the pattern of demand,
leading to changes in the structure of production in the economy
19. -----------------------happens when the prices go up much more than what they should have on
account of development activities, it is a cause of concern for the country and its economic
planners
20. ------------------------- measures the extent of the increase in the general price level over time.
21. When the receipts of the government are less than the expenditure, the government is said to
have a -------------------------------
22. ---------------------------- shows the details of the planned expenditures of the government program
and the expected revenues from tax and non-tax sources for a year
23. ----------------------------------- the aggregate monetary value of all the final goods and services
produced in a country during a year
24. ---------------------------------- a method of preparing and presenting national income accounts
based on the principle of double entry system of business accounting.
25. ------------------------------- is the market value of all the final goods and services produced within
the domestic territory of a country during a year.
26. ---------------------------- – Goods which are used for further production by passing through some
production process as secondary inputs
27. ----------------------------- Goods which are used either for final consumption by the consumers or
for investment by the producers
28. ------------------------ is the money value of all final goods and services produced in the domestic
territory of a country during a year plus net-factor income from abroad minus factor income of
non residents in domestic territories.
29. --------------------------- is the difference between factor income flowing out of the country and
flowing into the country
30. -------------------------------- Counting the value of a commodity more than once in the
measurement of national income
31. ---------------- ------------ is defined as the difference between total value of the output of a firm
and the value of inputs bought from other firms
32. --------------------------- is loss of the value of fixed capital assets during production
33. ----------------------------- Is defined as Current expenditure on goods and services incurred in
providing services of government administrative departments less sales.
34. ---------------------------- the net market value of all the final goods and services produced in the
domestic territory of a country during a year.
 35. ---------------------------- is the sum of earned income and transfer income received by persons
(households) from all sources within and outside the country.
36. -----------------------------is that part of personal income which is available to the households for
disposal as they like.
37. --------------------------- “GDP which would help attain a sustainable use of natural environment and
equitable distribution of benefits development
38. ---------------------------the expenditure by households on final goods and services.
39. ---------------------------when a minimum level of consumption must be maintained for survival, and
it is independent of income level
40. --------------------------------With an increase in income, consumption also increases, but usually less
than the income increased, which varies with income
41. ------------------------------It shows the relationship between level of consumption and level of
income
42. --------------------------------refers to the whole of a schedule that shows consumption expenditure
at various levels of income
43. -------------------------------the point at which the consumption function curve intersects the 45° line
44. ----------------------------------is the ratio of total consumption expenditure (C) to total income (Yd )
at a given level of income in an economy
45. ----------------------------------The ratio of change in consumption (∆C) to change in income (∆Yd )
46. ----------------------------------The part of income which is not spent on consumption
47. ----------------------------------The functional relationship between saving and income
48. ---------------------------------the ratio of total savings (S) to total income (Y)
49. -----------------------------------It is the ratio of the change in saving (ΔS) to the change in income
(ΔYd ).
50. --------------------------------- an addition, during a predefined ‘current period’, to a national
resource
51. ----------------------------------is an investment which is made with the motive of earning a profit as
in the private sector
52. ---------------------------------Is an investment which is made irrespective of income level? This
approach is generally taken in the government sector.
53. -------------------------------- Any investment made for the purpose of compensating for depreciation
caused by production in a current year
54. -------------------------------- an increase in the total output of a nation over time
55. ------------------------------- is a systematic record of all international economic transactions, visible
and invisible, of a country during a given period, usually a year.
56. ------------------------------- is the rate which is officially fixed (or pegged) in terms of gold or any
other currency by the government and adjusted only infrequently.
57. -------------------------------- is the rate which is determined by forces of supply and demand in the
foreign exchange market.

Short answer

1. State the main features of a perfectly competitive market

2. What is the difference between perfect competition and pure competition
3. Explain what a price line means in a perfectly competitive market
4. Explain how free entry and free exit of firms in a long run of perfectly competitive market affect
the profit
5. What are the conditions for the long-run profit maximization in a perfectly competitive firm
6. State the two factors that Monopoly market depends on
7. State the reasons for the existence of pure monopoly
8. State the characteristics of Oligopoly markets
9. What are the three methods of collusion (coordination) among oligopoly firms
10. State the fundamental concerns of Macroeconomics
11. State the general objectives of a macroeconomic policy
12. What are the problems in macroeconomics
13. State the characteristic features of Business cycle
14. What are the two conditions that must be full filled for a person to be unemployed
15. State the impact of unemployment in economic growth
16. What is the difference between the surplus and deficit budget
17. What is the difference between revenue and expenditure budget
18. Explain the difference between recurrent and capital expenditure with examples
19. Explain the tree ways in which the government gets revenue budget
20. What are the 3 methods of measuring national income
21. State the conceptual and Statistical problems in measuring GDP
22. State the major determinants of consumption expenditure at individual and national levels
23. State the major determinants of saving at the individual and national levels
24. State the determinants of an investment
25. State the roles of public investment in economic growth
26. State the advantages of International Trade
27. State the Factors Determining International Trade
28. Explain an absolute cost difference
29. Explain comparative difference in costs