Econs Mcq Faq.docx

ECONS MCQ FAQ 1. A firm earns supernormal profit when its profit is above that required to keep its resources in their present use 2. If a profit maximizing company believes that the market price of a good will not be affected by its own output, it will produce until MC = Price 3. Open market purchase of securities by central bank= central bank buy bond, bank’s ability to give loans increases 4. Stock to Sales Ratio is the ratio of the inventory available for sale versus the quantity actually sold.  Firms maintaining a constant ratio of stocks to sales can intensify a recession following an initial fall in AD  When AD falls, quantity sold by firms decreases. firms respond by cutting orders from suppliers (firms reduce their inventories)  Suppliers respond by cutting cost and laying off workers 5. According to accelerator theory, net investment is positive if output is rising at an increasing rate 6. S03 Q28 Real output in an economy grows by 1.5% but at the same time the level of unemployment increases Actual output has grown more slowly than potential output 7. Effectiveness of fiscal expansion in increasing the level of output may be reduced when it leads to the appreciation of the currency  ER increases causes loss in comparative advantage 8. Consumer’s real income not held constant when calculating the income effect of a change in the price of a good. 9. In a imperfect market, MRP falls as more of a factor employed because both MPP and MR both fall 10. An industry consists of a large number of firms, all of which produce an identical product. The demand curve facing each individual firm is downward sloping due to imperfect knowledge on the part of consumers. Diminishing marginal utility explains individual’s demand curve for a normal good 11. A country’s national income per head falls, but there is a rise in consumption  An increase in the trade deficit  (Use expenditure approach ) 12. divergences between private and social cost might prevent an economy in which all firms are required to equate price and marginal cost from achieving allocative efficiency 13. money supply held constant when drawing AD curve 14. expectation of an increase in inflation can cause SRPC to shift to the right (without a change in the x-intercept there is no change in the NRU) 15. what will assist a country’s potential growth in national output?  Supply side policy  Increased participation in the labour force 16. According to monetarist, full employment and price stability are in conflict in the short run but not in the long run.  LRPC

17. LRAC for a firm with EOS slopes downwards 18. What is likely to be the direction of the income and substitution effect of a wage rate increase on the number of hours workers will choose to work  YE will cause decrease in number of hours worked (backwards supply)  SE will cause  increase in number of hours worked 19. MPP max = minimize marginal cost of production 20. The price a firm obtains for its product is not affected by the volume of goods that it produces. (perfect competition where AR=MR)  To maximize profits, the firm produces until MC=MR 21. SRAS curve upward sloping due to constant money wages 22. Expansionary fiscal policy could be relatively ineffective due to a fixed MS 23. To provide incentive for a privatized firm to improve productive efficiency, control prices 24. During cyclical unemployment, voluntary resignations decreases and compulsory resignations increases 25. SR effect on the level of output pf an increase in the money supply, assuming liquidity trap doesn’t apply and increase in unanticipated  Keynesian increase  Monetarist increase 26. According to Keynesian theory, an increase in MS leaves the level of output unchanged when the liquidity trap is operative 27. Producing on a point on the LRAC means it is productive efficient 28. Rapid growth in labour productivity reduces labour cost and inflation. Improves trade balance and strengthens the currency 29. Most likely to constrain a firm’s ability to grow-increased difficulties faced by the management in coordinating production 30. MS increases when central bank buys foreign currency in the FOREX market 31. According to monetarist theory, the SR effect of an unexpected increase in the money supply Is an increase in output. 32. Deposit in central bank held by commercial banks NOT part of broad money supply 33. BOP deficit, MS decreases (leakage) 34. Best measure of economic ccost of an increase in unemployment is the goods and services unemployed workers could have produced 35. In the long run, changing MS will only influence inflation with no change in unemployment or output (LRPC) 36. In an economy no one can be made better off without making someone worse off  Economy operating on PPC 37. Real GDP = Nominal GDP/ Inflation rate Real gdp per head= Nominal GDP/ inflation rate x Population 38. Trade off gov face when they privatize a state monopoly between encouraging competition and maximsing revenue from the privatization 39. A country has a high ratio of investment to GDP and rapid economic growth If the net capital inflow from abroad is zero, the necessary cost of growth is the sacrifice of present consumption by residents of the country 40. Repayment of bank loan is a form of leakage Interest payment on gov bond is a form of injection

41. Increase in interest rates, decreases share prices because financial investors will prefer to purchase bonds 42.

Budget line shifting W03 Q3 S06Q2 S05Q3 S07 Q3

2. S04Q19 W07Q20