Q.1 Select the best option/answer and fill in the appropriate box on the Answer Sheet.
(1) Had net exports in Pakistan been reduced to “Zero” by contractionary fiscal policy through the first half of the 1980’s, the Pakistan economy would have:
(a) Been producing output will above the full employment level of GNP
(b) Been producing output slightly above the full employment level of GNP
(c) Been producing output nearly equal to the full employment level of GNP
(d) Been producing output slightly lower to the full employment level of GNP
(e) Been producing output considerably lower than the full employment level of GNP
(2) The internal rate of return of any capital good could reasonably be described as:
(a) The particular rate of interest at which the capital good would just be worth buying or building, i.e., the present value of revenue would just be matched by costs.
(b) The dollar amount of profit that would accrue if that capital good were bought or build.
(c) The same thing as the market rate of interest.
(d) The physical increase in output (as distinct from the money value) that would accrue if the capital good were bought or built.
(e) The percentage figure obtained by adding up all net revenues that would accrue from the capital good and dividing this total its cost.
(3) Consumers have budgeted a fixed money amount to buy a certain commodity. Within a certain range of prices, they will spend neither more nor less than this amount on it. Their demand in this price range would properly be designated as:
(a) In equilibrium
(b) Perfectly elastic
(c) Perfectly inelastic
(d) Highly inelastic but not perfectly so.
(e) Unit-elastic
(4) An economy operating at full employment enters a period of high anticipated inflation. Which of the following statements accurately describes the likely result?
(a) Most people increase savings to be better prepared for the higher prices that they know are coming, thereby increasing capital investment, stimulating the rate of economic growth, and supporting lower interest rates.
(b) Most people decrease savings to increase current consumption and capital investment, thereby stimulating economic growth and supporting lower interest rates.
(c) Most people decrease savings to increase current consumption, thereby slowing capital investment, slowing the rate of economic growth and supporting lower interest rate.
(d) Most people increase savings to the better prepared for the higher prices that they know are coming, thereby reducing capital investment, slowing the rate of economic growth and supporting lower interest rate.
(e) Most people decrease savings to increase current consumption, thereby slowing capital investment, slowing the rate of economic growth and supporting higher interest rate.
(5) (Statement Needed)
(a) A general reduction in the tax rate applied to corporate profits.
(b) The elimination of the investment tax credit.
(c) A reduced emphasis on accelerated depreciation applied to a wide variety of types of capital, particularly building and equipment.
(d) The inclusion of intangible capital in the corporate income tax base.
(e) A contraction of the effective interest rate deduction against taxable corporate income.
(6) An absolute “precondition for growth” is the:
(a) Development of some excess of income over consumption.
(b) Creation of a surplus labour force for employment in manufacturing.
(c) Discovery and exploitation of some internal economics.
(d) Cultural acceptance of free enterprise principles of economic behaviour.
(e) Development of manufacturing to the point where it can begin to supplant agriculture.
(7) If a commodity’s return is in the nature of pure economic rent and a tax is imposed on the commodity, then:
(a) The incidence of tax is born wholly by the suppliers, and price to the buyers will not change.
(b) The incidence is borne wholly by the buyers.
(c) The incidence will be shared between the suppliers and the buyers.
(d) The output of the commodity will fall and its price will rise.
(e) The output of the commodity will not fall but its price will rise.
(8) If a nation’s capital – output ratio gradually increases over time, this indicates that:
(a) The share of capital – owners in total output is increasing.
(b) The diminishing returns stage has not yet been reached with respect to capital.
(c) The marginal physical product of capital must have reached zero.
(d) Technological progress must be improving the productivity of capital.
(e) The law of diminishing returns is operating with respect to capital’s productivity.
(9) A general sales tax, without any exempted commodities, is considered to be:
(a) A progressive tax because it applies to luxuries as well as necessities.
(b) A regressive tax because wealthy people spend a smaller percentage of their total income on taxed commodities, and hence the proportion of payments to income is greater for people.
(c) A progressive tax because wealthy people spend more than poor people.
(d) A regressive tax because more money is collected from a poor person than from a rich one.
(e) A proportional tax because everybody pays the same tax percentage on each purchase.
(10) Given the usual downward – sloping shape of a market demand curve, what should be the effect of a tax that affects only the fixed cost of every firm remaining in a competitive market on the price received and the quantity supplied by each competitive firm?
(a) Price up and quantity up
(b) Price up and quantity down
(c) Price down and quantity up
(d) Price down and quantity down
(e) Price and quantity remain unchanged
(1) Had net exports in Pakistan been reduced to “Zero” by contractionary fiscal policy through the first half of the 1980’s, the Pakistan economy would have:
(a) Been producing output will above the full employment level of GNP
(b) Been producing output slightly above the full employment level of GNP
(c) Been producing output nearly equal to the full employment level of GNP
(d) Been producing output slightly lower to the full employment level of GNP
(e) Been producing output considerably lower than the full employment level of GNP
(2) The internal rate of return of any capital good could reasonably be described as:
(a) The particular rate of interest at which the capital good would just be worth buying or building, i.e., the present value of revenue would just be matched by costs.
(b) The dollar amount of profit that would accrue if that capital good were bought or build.
(c) The same thing as the market rate of interest.
(d) The physical increase in output (as distinct from the money value) that would accrue if the capital good were bought or built.
(e) The percentage figure obtained by adding up all net revenues that would accrue from the capital good and dividing this total its cost.
(3) Consumers have budgeted a fixed money amount to buy a certain commodity. Within a certain range of prices, they will spend neither more nor less than this amount on it. Their demand in this price range would properly be designated as:
(a) In equilibrium
(b) Perfectly elastic
(c) Perfectly inelastic
(d) Highly inelastic but not perfectly so.
(e) Unit-elastic
(4) An economy operating at full employment enters a period of high anticipated inflation. Which of the following statements accurately describes the likely result?
(a) Most people increase savings to be better prepared for the higher prices that they know are coming, thereby increasing capital investment, stimulating the rate of economic growth, and supporting lower interest rates.
(b) Most people decrease savings to increase current consumption and capital investment, thereby stimulating economic growth and supporting lower interest rates.
(c) Most people decrease savings to increase current consumption, thereby slowing capital investment, slowing the rate of economic growth and supporting lower interest rate.
(d) Most people increase savings to the better prepared for the higher prices that they know are coming, thereby reducing capital investment, slowing the rate of economic growth and supporting lower interest rate.
(e) Most people decrease savings to increase current consumption, thereby slowing capital investment, slowing the rate of economic growth and supporting higher interest rate.
(5) (Statement Needed)
(a) A general reduction in the tax rate applied to corporate profits.
(b) The elimination of the investment tax credit.
(c) A reduced emphasis on accelerated depreciation applied to a wide variety of types of capital, particularly building and equipment.
(d) The inclusion of intangible capital in the corporate income tax base.
(e) A contraction of the effective interest rate deduction against taxable corporate income.
(6) An absolute “precondition for growth” is the:
(a) Development of some excess of income over consumption.
(b) Creation of a surplus labour force for employment in manufacturing.
(c) Discovery and exploitation of some internal economics.
(d) Cultural acceptance of free enterprise principles of economic behaviour.
(e) Development of manufacturing to the point where it can begin to supplant agriculture.
(7) If a commodity’s return is in the nature of pure economic rent and a tax is imposed on the commodity, then:
(a) The incidence of tax is born wholly by the suppliers, and price to the buyers will not change.
(b) The incidence is borne wholly by the buyers.
(c) The incidence will be shared between the suppliers and the buyers.
(d) The output of the commodity will fall and its price will rise.
(e) The output of the commodity will not fall but its price will rise.
(8) If a nation’s capital – output ratio gradually increases over time, this indicates that:
(a) The share of capital – owners in total output is increasing.
(b) The diminishing returns stage has not yet been reached with respect to capital.
(c) The marginal physical product of capital must have reached zero.
(d) Technological progress must be improving the productivity of capital.
(e) The law of diminishing returns is operating with respect to capital’s productivity.
(9) A general sales tax, without any exempted commodities, is considered to be:
(a) A progressive tax because it applies to luxuries as well as necessities.
(b) A regressive tax because wealthy people spend a smaller percentage of their total income on taxed commodities, and hence the proportion of payments to income is greater for people.
(c) A progressive tax because wealthy people spend more than poor people.
(d) A regressive tax because more money is collected from a poor person than from a rich one.
(e) A proportional tax because everybody pays the same tax percentage on each purchase.
(10) Given the usual downward – sloping shape of a market demand curve, what should be the effect of a tax that affects only the fixed cost of every firm remaining in a competitive market on the price received and the quantity supplied by each competitive firm?
(a) Price up and quantity up
(b) Price up and quantity down
(c) Price down and quantity up
(d) Price down and quantity down
(e) Price and quantity remain unchanged
