Question # 1

What did economist Adam Smith identity as the "invisible hand" that directs the decision making of firms and households in a market economy.

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Government

Product demand

Self interest

International trade

Given fixed change rate assume Pakistan initiates expansionary monetary and fiscal polices to combat recession these policies will also.

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Increase both imports and exports

Increase exports and reduce import

Reduce a balance of payments surplus

Reduce a balance of payment deficit

In the Keynesian model in the short run a decrease in government purchases causes output to _____ and the real interest rate to.

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fall ; rise

fall ; fall

rise ; rise

rise; fall

The MPS = 0.4 and government spending increases by 20 billion. The LM curve

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Shifts to the right by 20 billion

Shifts to the right by 50 billion

Does not shift

shifts to the left by 30 billion

According to the life cycle hypothesis consumption is related to.

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Current income

Past peak income

Expected lifetime income

Price expectations over one's life time

When total utility becomes maximum then marginal utility will be.

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Minimum

Average

Zero

Negative

Which of the following procedures is included in the process that produces a value for disposable personal income

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subtracting excies and sales taxes

Subtracting nonbusiness interest

Subtracting transfer payment from government.

subtracting income taxes

In the long run an increase in government purchases of military equipment would cause output to _________ and the aggregate price level to

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Stay constant fall

fall ; fall

fall ; stay constant

stay constant ; rise

Monetary expansion can still be effective in getting out of liquidity trap if it's combined with.

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Restrictions on bank loans

Increased taxes

Contractionary fiscal policy

Expansionary fiscal policy

The costs of disinflation would be low if

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Expected inflation falls as inflation falls

Wages and price controls were used

The Phillips curve were nearly horizontal

The Phillips curve adjusted slowly to changes in inflation

According to the efficiency wage model during a recession firms will not reduce real wages because.

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Unions would go on strike reducing profitability

This would reduce worker effort and productivity.

The equilibrium real wage has increased

Legally, they can't

Suppose there is full employment and a neoclassical aggregate supply schedule A 105 increases in the nominal money supply.

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Has no effect upon the price level

Increase the rate of interest

Increase the nominal wage 10%

Increase the real money supply 10%

When the price level increases 25% starting from a price level equal to 100, a Rs. 1000 bond will have a real value of .

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Rs. 800

Rs.1250

Rs.750

Rs.666

Suppose your company is in equilibrium will its capital stock at its desired level A permanent increase in the depreciation rate now has what effect on your desired capital stock. i

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Raises it because the future marginal productivity of capital is higher

Lowers it because the future marginal productivity of capital is lower

Raises it because the user cost of capital is now lower

Lowers it beacause the user cost of capital is now higher

Dynamic multipliers occur when

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the assumption of ceteris paribus is dropped

The economy is not in equilibrium

Consumption is unrelated to disposable income

there is lagged response between consumption and disposable income

Based on the data above , the increase in potential MI would be

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Rs.50 billion

Rs.300 billion

Rs.60 billion

Rs.100 billion

The government budget surplus equals

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Government purchases plus transfers

Net government receipts minus government purchases

Government purchases minus net receipts

Government purchases minus transfers.

A change that increase real money demand relative to the real money supply causes.

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The LM curve to shift down and to the right

The LM curve to shift up and to the left

The IS curve to shift down and to the left

The IS curve to shift up and to the right

Country A 's GNP is increasing by 3% a year in contrast to its population growth of 2.4% The rate of growth of per capita GNP is.

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3%

0.85

0.6%

2.4%

In the Keynesian model in the long run an increase in the money supply will raise

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The price level but not the level of output

The level of output but not the price level

Both the level of output and the price level

Neither the level of output nor the price level

The fact that the production function relating output to labor becomes flatter as we move from left to right means that.

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The marginal product of labor is positive

The marginal product of capital is positive

There is diminishing marginal productivity of labor

there is diminishing marginal productivity of capital

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