Eco403 Collection of Old Papers

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ECO403 Macroeconomics
Final Term Examination – Spring 2005
Time Allowed: 150 Minutes
INSTRUCTIONS:
All questions are compulsory.

This exam consists of 5 Multiple Choice Questions (MCQ's) and 5 descriptive
questions.
Each MCQ carries 2 Marks each and Descriptive Questions carry 10 Marks each.
You should try to complete MCQ's in 10 - 15 minutes in order to give yourself 135 -
140 minutes for descriptive questions.
For each MCQ question, read the choices available and select the choice which you
consider is the correct answer, by clicking on the appropriate check box.
Save your answer before proceeding to the next question.
Do not click the "Finish button" while solving your paper. Once you clicked the
"Finish" button, you will not be able to access your paper again. Click it at the end of
your paper. That means you have submitted your complete paper.
A clock is given in the exam software. Software will automatically be closed at the end
of 90 minutes.
Remember not to spend too much time on any one MCQ. Since all MCQ's carry equal
marks, it is important to manage your time and responses to test questions effectively.
Failure to comply with the Supervisor's directions will result in your test being
cancelled. Please comply with supervisor's directions to avoid any unpleasant event.
Total Marks: 60 Total Questions: 10
Question No. 1 Marks : 02
Which of the following is neither a determinant of the slope of the IS curve

nor a determinant of the slope of the LM curve?
o the sensitivity of interest rates to investment
o the sensitivity of money demand to income
o the sensitivity of money demand to interest rates
o the sensitivity of income to investment
Why is frictional unemployment not necessarily harmful?
How do we know that calculating GDP by the expenditure approach yields

the same answer as calculating GDP by the income approach?
The increase in base money divided by the corresponding induced

increase in commercial bank deposits is the:
o bank's line of credit.

o reserve ratio.
o current ratio.
o money multiplier.
Aggregate supply is the total amount:
o of goods and services produced in an economy.

o produced by the government.
o of products produced by a given industry.
o of labor supplied by all households.
Why M2 is sometimes a more stable measures of money than M1.expalin

your own words using the definition of M1 and M2.
A bank has excess liquidity reserves to lend but is unable to find a willing
borrower. This will __________ the size of the money multiplier.
o Reduce
o Increase
o have no effect on
o double
The intersection of the IS and LM curves captures:
o the equilibrium of the demand and supply sides of the economy

o the equivalence of monetary and fiscal policy
o joint equilibrium in the goods and money markets
o all of the other options
Whenever inflation occurs, which segment of the society is badly affected?
What are the major functions of the Federal Reserve? Do you think that any
of these functions could be performed by private banks, or is the central
bank the only agent capable of filling these roles? Explain.
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ECO403
Final Term Examination – Spring 2006
Time Allowed: 150 Minutes
A simultaneous Rs.10 million increase in both taxes and govt. spending will have no net effect
on aggregate demand.
1. T
2. F
What four policies could be adopted to encourage the technological progress?

The relationship between MPL and labor unit is:
1. Positive
2. Negative
3. No relationship
4. Vertical
The _____________________is an accumulation of all past annual deficits
The consumption of individuals in the aggregate tends to vary:
1. More than income

2. Less then income
3. Equal to income
4. Unrelated to income
A recessionary gap exists when:
1. Aggregate demand exceeds aggregate supply

2. Aggregate demand exceeds potential output
3. Aggregate supply exceeds aggregate demand
4. Potential output exceeds aggregate demand.
At any given value of exchange rate ‘e’, a tariff or quota will not affect net exports.
1. T
2. F
Why the CPI may over estate inflation?
A doctrine that states that goods must sell at the same currency-adjusted price in all countries is
called_________________________.
The budget deficit or surplus:
1. Is well defined and straightforward to measure.

2. Is well defined but frequently distorted by creative but improper accounting practices.
3. Is difficult to measure and can be defined legitimately in several ways.
4. Is so arbitrarily defined that it is meaningless.
Philips curve shows the relationship between population and inflation rate.
1. T
2. F
Investment is the most volatile components of:

1. GDP
2. GNP
3. Personal income
4. Disposable income
Automatic stabilizers refer to:
1. Inherent stock market mechanisms that automatically cause stock market gains to be
cancelled out by losses, which make expected long-run returns equal to zero.
2. Invisible hand mechanisms to automatically bring the economy out of a recession.
3. Government revenue and expenditure items that change automatically in response to
changes in economic activity.
4. Discretionary monetary policy maneuvers designed to keep inflation automatically under
control.
The multiplier effect exists because:
1. Production and expenditure are interdependent.

2. when one person increases expenditure every one increases expenditure
3. Production and expenditure are independent
4. Production causes expenditures.
__________________is the stock of assets that can be readily used to make transactions.
A change in the wage rate has a substitution and an income effect associated with it. Which
of the following statements is associated with the income effect?
1. People with higher incomes will spend some of it on leisure by working less.
2. A higher wage rate makes work more attractive relative to leisure and other non market
activities.
3. When wages rise, people will tend to work more.
4. As wages rise, the opportunity cost of leisure declines.
Favorable __________________lower costs and prices.

The Solow growth model shows that lower investment leads to
1. A higher steady state

2. A lower steady state
3. Constant steady state
4. None of the given options.
How fiscal and monetary policy can affect macro economic variables, use the IS-LM model
to analyze the effects of these policies.
In the short run an increase in saving might:
1. Raise aggregate demand increasing investment

2. Raise aggregate demand by increasing consumption
3. Reduce aggregate demand by reducing investment
4. Reduce aggregate demand by reducing consumption
Policymakers can affect macroeconomic variables with
1. Fiscal policy
2. Monetary policy
3. With both monetary and fiscal policy
4. Non of the given options
How would a tax cut and budget deficit affect the economy and the economic well-being of
the country?
_______________________is the average rate of unemployment around which the economy

fluctuates.
The value of final goods and services measured at current prices is called nominal GDP.
1. True
2. False

According to the modern theory of inflation prices are flexible and market clear.
1. True
2. False
How will you define business cycles?
The Philips curve states that inflation rate depends on:
1. Expected inflation
2. Money supply
3. Employment level
4. All of the given options
Keynes conjectured that the marginal propensity to consume is:

1. Zero
2. One
3. In between zero and one
4. Negative
From where the demand for loanable funds comes, and on which thing it depends?
Each firm hires labor up to the level where:
1. MPL = W/P
2. MPL > W/P
3. MPL < W/p
4. None of the given options
Question No. 31 Marks :1
For each unit of capital a firm earns real revenue R/P and bears real cost
(PK/P)(r +δ).Firm needs your help in making decision whether to increase or decrease
capital stock? (5)
b)Explain why investment depends on the real interest rate?(5)
GDP deflator is a measure of the economy’s:
1. Rate of inflation
2. Nominal GDP
3. Stock market level
4. Real GDP
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FINALTERM EXAMINATION
SPRING 2007 Marks: 60
ECO403 - MACROECONOMICS (Session - 4 ) Time: 150min
StudentID/LoginID: ______________________________
Student Name: ______________________________
Center Name/Code: ______________________________
Exam Date: Wednesday, July 04, 2007
INSTRUCTIONS:
Please read the following instructions carefully before attempting any question:
• All questions are compulsory.
• This exam consists of 15 Multiple Choice Questions (MCQ’s) carrying 1 mark

each,5 fill in the blanks carrying 1 mark each,5 true false carrying 1 mark each, 3
Short questions carrying 5 marks each and 2 Descriptive questions carrying 10
marks.
• You are required to show all the working of short questions as well as Descriptive
question.
• This examination is closed book, closed notes, closed neighbors.
• Do not ask any question about the contents of this examination from anyone.
• You may wish to pace yourself with your own watch, but the Supervisor will be the
official timekeeper of the test.
• Failure to comply with the Supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant
event.
• Use of mobile phone is strictly prohibited. It must be "switched off" if it is in your
custody.
For Teacher's use only

Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19 20
Marks
Question 21 22 23 24 25 26 27 28 29 30
Marks
Question No: 1 ( Marks: 1 ) - Please choose one
Scarcity can best be defined as a situation in which:
► There are no buyers willing to purchase what sellers have produced.
► There is more than enough money to satisfy consumers' wants.
► Resources are limited in quantity and can be used in different ways.
► There are not enough goods to satisfy all of the buyers' demand.
In the circular flow diagram, firms _____________ inputs and households

____________ products.
► Supply; Demand
► Demand; supply
► Supply; supply
► Demand ; demand
Gross domestic product measured in terms of the prices of a fixed, or base, year is:
► Base GDP.
► Current GDP.
► Real GDP.
► Nominal GDP.
The number of people unemployed equals:
► The number of people employed minus the labor force.
► The labor force plus the number of people employed.
► The number of people employed divided by the labor force.
► The labor force minus the number of people employed.
Keeping in mind the functions of money, which one of the following is not money?
► Currency
► Checks
► Credit cards
► Time deposits
Which of the following would not be included in M2?
► Demand deposits
► Checking accounts
► Money market accounts
► None of the given options
The relationship between consumer spending and income is known as the:
► 45-degree line.
► Consumption function.
► Investment function.
► Consumer price index.
All of the following statements about the marginal product of capital MPK are true
EXCEPT:
► MPK = f(k + 1) - f(k).
► MPK tends to decline as k increases.
► When there is only a little capital, MPK is very small.
► MPK is equal to the slope of the production function y = f(k).
A rightward shift in the aggregate demand curve can be caused by:
► An increase in government spending.
► An increase in money supply.

► A decrease in taxes.
► All of the given options.
The aggregate supply curve in the short run is different from the aggregate supply
curve in the long run due to:
► The recurring nature of supply shocks.
► The existence of sticky prices in the short run.
► The wealth effect.
► The crowding out effect.
Fiscal policy shifts the:
► The short run aggregate supply curve.
► The long run aggregate supply curve.
► Full employment level of output.
► The aggregate demand curve.
If wages are sticky downward, an increase in labor:
► Demand increases the wage rate.
► Demand decreases the wage rate.

► Supply increases the wage rate.
► None of the given options.
Which of the following would a macroeconomist consider as investment?
► Julie buys a government bond.
► Fred purchases 100 shares of stock in Microsoft.
► Tom buys a new tractor for his farm.
► Jane buys a new car.
The nominal interest rate is:
► Unadjusted for the effects of inflation.
► The interest rate quoted in financial markets.
► Both unadjusted for the effects of inflation and the interest rate quoted in
financial markets.
► None of the given options.
If interest rates increase, people will most likely hold:
► More bonds and less cash.
► Less bonds and less cash.
► More bonds and more cash.

► Less bonds and more cash.
Intermediate goods are counted in the calculation of GDP.
► True
► False
Structural unemployment is the unemployment resulting from real wage rigidity and job
rationing.
► True
► False
As income rises, average propensity to consume (APC) falls.
► True
► False
Adaptive expectation is an approach that assumes that people base their expectations on
all available information, including information about current and prospective future
policies.
► True
► False
The deposits that banks have received but have not lent out are called banks
investments.
► True
► False
Question No: 21 ( Marks: 1 )
To compute the total value of different goods and services, the national income accounts
use _____________________.
Monetary policy is conducted by country’s __________________.
___________________ is a graph of all combinations of interest rate and income that

results in goods market equilibrium.
Full-employment output does not depend on the price level, so the long run aggregate
supply (LRAS) curve is ______________.
Economists decompose the impact of an increase in the real interest rate on consumption
into two effects: an income effect and a _________________.
Define hyperinflation. What causes hyperinflation? Also explain briefly why

government creates hyperinflation.
What are the advantages of floating exchange rates and fixed exchange rates?
Define budget deficit and government debt. Also write down the major components
of government debt.

Discuss the policies to promote economic growth.
Explain Milton Friedman’s permanent income hypothesis.

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MIDTERM EXAMINATION
SPRING 2007 Marks: 40
ECO403 - MACROECONOMICS (Session - 4 ) Time: 90min
StudentID/LoginID: ______________________________
Student Name: ______________________________
Center Name/Code: ______________________________
Exam Date: Monday, May 14, 2007
Please read the following instructions carefully before attempting any question:
All questions are compulsory.

This exam consists of 10 Multiple Choice Questions (MCQs) of 1 mark each, 5 fill in the
blanks of 1 mark each, 3 Short questions of 5 marks each and one Descriptive
question of 10 marks.
For each Multiple Choice Question, read the options available and select which you
consider is the correct one.
You are required to show all the working of short as well as practical question.
Use of calculator is allowed.
This examination is closed book, closed notes and closed neighbours.
Do not ask question about the contents of this examination from anyone.
You may wish to pace yourself with your own watch, but the Supervisor will be the
official timekeeper of the test.
Failure to comply with the Supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant event.
For Teacher's use only
Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19
Marks
Question
Marks
Macroeconomics is concerned with:
► Only changes in the overall price level.
► Only long-run trends in economic activity.
► Both long-run trends and short-run fluctuations in economic activity.
► Only short-run fluctuations in the business cycle.
Real GDP (gross domestic product) is measured:
► In the prices of a base year.
► In current dollars.
► At a constant output level but at current prices.
► As the difference between the current year’s GDP and last year’s GDP.
Suppose U.S. Steel sells steel to Chrysler for $3,000, and then this steel is used in a
Voyager van that is sold to a new car dealer for $12,000. The car dealer then sells
the van to a family for $14,000. In this scenario GDP has risen by:
► $29,000.
► $26,000.
► $14,000.
► $12,000.
In product markets:
► Firm supply products, which households demand.
► Households supply inputs, which firm demand.
► Households supply goods and services, which businesses demand.
► Households demand outputs, which firm supply.
The narrowest definition of money supply is:
► M2.
► M3.
► M1.
► M4.
Unemployment means that:
► At the current wage, there are people who want to work but cannot find work.
► There is excess demand in the labor market.
► There are some people who will not work at the current wage.
► People are not willing to work at the current wage.
In the circular flow diagram, firms ________ inputs and households ________
products.
► supply; demand
► demand; supply
► supply; supply
► demand; demand
While imposing tax the inflation rate is not considered. It is called:
► Progressive tax system.
► Proportional tax system.
► Unfair tax treatment.
► Sales tax.
Suppose that an individual is working at home without pay. That person would be
counted as:
► Employed.
► Unemployed.
► Not in the labor force.

► Self employed.
Economic growth is best measured as an increase in:
► Real output per person.
► Nominal GDP.
► Investment.
► Household consumption.
_________________ is the ability of a single person or firm to unduly influence market

prices.
_____________________ measures the price of output relative to its price in the base
year.
The real interest rate adjusts to equate demand with ____________.
Monetary policy is the control over the __________________.
____________________ are measured in physical units: quantities and relative prices.
Define stock and flow variables and also sort out the following stock and flow
variables.
Wealth, GDP, Income, expenditure, capital, Number of people losing their jobs, Amount of
investment, Government debt.
(Marks 1+4)

From where does the demand for loanable funds come? What is the relationship
between the demand for loanable funds and price of loanable funds?
Define purchasing power parity (PPP). Give the two reasons why purchasing power
parity (PPP) does not hold in real world?
Define quantity equation. Explain quantity theory of money.

(2+8)

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All questions are compulsory.

Total Marks: 60 Total Questions: 10

Question No. 1 Marks : 02

Which of the following is neither a determinant of the slope of the IS curve

Question No. 2 Marks : 10

Why is frictional unemployment not necessarily harmful?

Question No. 3 Marks : 10

How do we know that calculating GDP by the expenditure approach yields

Question No. 4 Marks : 02

The increase in base money divided by the corresponding induced

o bank's line of credit.

Question No. 5 Marks : 02

Aggregate supply is the total amount:

o of goods and services produced in an economy.

Question No. 6 Marks : 10

Why M2 is sometimes a more stable measures of money than M1.expalin

Question No. 7 Marks : 02

Question No. 8 Marks : 02

The intersection of the IS and LM curves captures:

o the equilibrium of the demand and supply sides of the economy

Question No. 9 Marks : 10

Whenever inflation occurs, which segment of the society is badly affected?

Question No. 10 Marks : 02

Question No. 1 Marks : 1

Question No. 2 Marks : 3

What four policies could be adopted to encourage the technological progress?

Question No. 3 Marks : 3

Question No. 4 Marks : 1

The _____________________is an accumulation of all past annual deficits

Question No. 5 Marks : 1

The consumption of individuals in the aggregate tends to vary:

1. More than income

A recessionary gap exists when:

1. Aggregate demand exceeds aggregate supply

Question No. 7 Marks : 1

Question No. 8 Marks : 1

Why the CPI may over estate inflation?

Question No. 9 Marks : 1

Question No. 10 Marks : 3

The budget deficit or surplus:

1. Is well defined and straightforward to measure.

Question No. 11 Marks : 3

Investment is the most volatile components of:

Question No. 13 Marks : 1

Automatic stabilizers refer to:

Question No. 14 Marks : 1

The multiplier effect exists because:

1. Production and expenditure are interdependent.

Question No. 15 Marks : 1

Question No. 16 Marks : 1

Favorable __________________lower costs and prices.

Question No. 18 Marks : 10

1. A higher steady state

Question No. 19 Marks : 1

Question No. 20 Marks : 1

In the short run an increase in saving might:

1. Raise aggregate demand increasing investment

Question No. 21 Marks : 1

Policymakers can affect macroeconomic variables with

Question No. 22 Marks : 1

Question No. 23 Marks : 1

_______________________is the average rate of unemployment around which the economy

Question No. 24 Marks : 1