ARTT BUSINESS SCHOOL
Important MCQs of
PRC-03
FROM THE DESK OF MISS ZAINAB ZIA
ECONOMICS PRC-03
NATURE AND SCOPE OF ECONOMICS
(CHAPTER 01)
1. Which one is the best definition of opportunity cost?
(a) all sacrificing cost
(b) the cost of next best alternative that forgone
(c) to obtain one more unit
(d) All of the above
2. Laissez faire means:
(a) Government can influence
(c) All of the above
(b) Government cannot influence “Hands off”
3. Consider the following statement about Islamic law.
(i) It allows hoarding of cash
(ii) It does not allow to become the owner of any enterprise
(a) Only I statement is correct
(b) Only ii statement is correct
(c) Both statements are incorrect
(d) Both statements are correct
4. Which of the following are the advantages of free economic system: (select 2)
(a) Exploitation of weak agents
(b) Fair distribution of wealth
(c) Capital formation
(d) Auto adjusted price mechanism
5. In a mixed economy, the decisions and choices about the allocation of resources are partly taken by
the government and partly by the market forces of demand and supply:
(a) True
(b) False
6. A kind of partnership where a financial experts offers specialist investment in which the customer and
bank share profits is called ________________________
(a) Mudarba
(b) Murabaha
(c) Musharaka
(d) Ijara
7. Government regulation in a mixed economic system may _______________ the cost of doing
business for firms.
(a) Increase
(b) Decrease
(c) Not change
(d) None
8. The state of technology when illustrating a production possibility frontier curve is assumed to be
constant.
(a) True
(b) False
9. Under Islamic economic system:
(i) Based on only Quran
(ii) Man is owner of resources
(a) Only I statement is correct
(c) Both statements are incorrect
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(b) Only ii statement is correct
(d) Both statements are correct
ECONOMICS PRC-03
10. Key economic questions arise due to ________________ of resources.
(a) Scarcity
(b) Efficiency
(c) Abundancy
(d) basic
11. Normative science deals with the factual questions.
(a) True
(b) false
12. The disadvantage of planned economic system is: (Select TWO)
(a) Encourage monopoly
(b) less advancement of technology
(c) economic freedom keep out pf economic model
(d) ignore of social security
13. What are the TWO advantages of mixed economic system?
(a) Reduction in income inequalities
(b) works for the weak agent of economy
(c) increase in income inequalities
(d) efficient due to bureaucratic control
14. The most important feature of capitalism is the _________________________
(a) Central planning
(b) Price mechanism
15. The features of Islamic economic system are similar to the system of:
(a) Mixed
(b) Capitalism
(c) socialism
(d) None
16. Select any TWO merit of capitalism/free market:
(a) Unhindered price mechanism
(b) social security
(c) An incentive to innovate
(d) Economic stability
17. Which of the following is not the advantages of mixed economic system: (select TWO)
(a) Fair distribution of goods and services especially of public interest
(b) Inefficiencies due to bureaucratic controls.
(c) Government also makes sure the care of weak agent of the economy
(d) Government regulations increasing cost of doing business for firms.
18. Production Possibility Frontier demonstrates those baskets of goods which can be produced when all
___________________ resources of an economy are employed efficiently.
(a) Complete
(b) Efficient
(c) Scarce
(d) Abundant
19. What TWO are the assumptions of production possibility frontier?
(a) Increase opportunity cost
(b) Input resources are fixed
(c) Full employment
(d) Inefficient use of resources
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ECONOMICS PRC-03
20. Which TWO are not the features of Islamic Economic system:
(a) Practicing moderation
(b) Charging interest
(c) Hoarding
(d) Redistribution of wealth
21. Which of the following is NOT a measure of income earned by a factor of production?
(a) Rent
(b) Interest
(c) Wages
(d) Taxes
22. Point C indicates ________________
(a) Unattainable
(c) Efficiently utilized
(b) Attainable
(d) Trade-off
23. Which of the following concepts is NOT illustrated by the Production Possibility Curve?
(a) Efficiency
(b) Opportunity cost
(c) Equity
(d) Trade-off
24. PPC __________________ due to advancement in technology.
(a) Move Inward
(b) Move outward
(c) Remain same
25. Another name of planned economic system is:
(a) Capitalism
(c) Mixed Capitalism
(b) Socialism
(d) Mixed socialism
26. When the fisherman catches a fish and sells in the market, his reward is called:
(a) Rent
(b) interest
(c) Wages
(d) Profit
27. Islamic mode of economics support ______________
28. Free market mechanism, competition and self interest refers to ________________
29. Which of the following is not allowed in Islamic economic system. (SELECT TWO)
(a) Hoarding
(b) Riba
(c) Equity
(d) Nationalization of property
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ECONOMICS PRC-03
30. In mixed economy, prices are determined by market forces without intervention of government.
(a) True
(b) False
31. Which of the following is not a feature of market economy (SELECT TWO)
(a) Freedom of enterprise
(b) Environment of competition
(c) Government determined prices
(d) Social security
32. What is NOT a factor of production?
(a) Land
(c) Entrepreneur
(b) money
(d) labour
33. In which of the following options consumer sovereignty is in the order of highest to lowest?
(a) market economy, mixed economy, planned economy
(b) mixed economy, market economy, planned economy
(c) market economy, planned economy, mixed economy
(d) planned economy, mixed economy, market economy
34. Three basic fundamental economic questions, what to produce, How to produce, for whom to
produce is due to _______________________
(a) Want
(b) Need
(c) Scarcity
(d) Opportunity cost
35. Which of the following statements are NOT true for the planned economic system? (Select TWO
options)
(a) Auto-adjusted price mechanism
(b) Productive resources are owned by the state
(c) Less duplication of resources
(d) Presence of consumer sovereignty
36. In which economic system, prices are auto-adjusted:
(a) Mixed Economy
(b) Capitalism
(c) socialism
(d) None
37. Point b indicates ________________
(a) Unattainable
(c) Full utilization of resources
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(b) Attainable
(d) Trade-off
ECONOMICS PRC-03
38. Which one is not the feature of mixed economic system:
(a) personal freedom
(b) Unhindered price mechanism
(c) social welfare
(d) Discourage income inequalities
39. _______________________ is a leasing agreement whereby the bank buys an item for a customer
then leases it back to them over an agreed time period.
(a) Ijara
(b) Mudaraba
(c) murabaha
(d) Musharaka
40. Linear PPF implies:
(a) Constant opportunity cost
(c) Decreasing opportunity cost
(b) Rising opportunity cost
(d) Underemployment of factor of production
41. Does planned economy provide greater stability in long run
(a) True
(b) False
42. PPC curve do not shift when:
(a) Decrease in unemployment
(c) Technological advancement
(b) Increase in age of retirement
(d) Capital formation
43. Which of the following is Prohibited under Islamic Banking System
(a) Short selling
(b) Deposit in Bank currect account
(c) Traditional Banking Funds
(d) Asset backed securities
44. Lassez faire is a philosophy which opposes government intervention
(a) true
(b) false
45. In Islamic finance, a joint enterprise where partners share profits and losses is called:
(a) Mushakrah
(b) Mudaraba
(c) Murabaha
(d) Ijara
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ECONOMICS PRC-03
46. PPC is concave due to trade-off between goods?
(a)
True
(b) False
47. Which of the following is normative statement?
(a) Water is necessity
(b) Salt demand is perfectly inelastic
(c) Unemployment should be reduced
48. Shortage is defined by
(a) Excess demand in market
(b) Expansion in demand
(c) Supply is more than demand
MCQ
Answer
NO.
1B
2B
3C
4c,d
5A
6C
MCQ
NO.
111213141516-
7-
A
17-
8910-
A
C
a
181920-
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Multiple choice answers
MCQ
MCQ
Answer
Answer
NO.
NO.
b
21d
31b,c
22a
32a,b
23c
33b
24b
34a
25b
35a,c
26d
36Riba free
37b,d
27system
C
28- Capitalism 38b,c
29a,b
39b,c
30b
40-
Answer
c,d
b
a
c
a,d
b
c
b
a
a
MCQ
NO.
41424344454647-
Answer
48-
a
a
a
a
a
a
b
c
ECONOMICS PRC-03
DEMAND, SUPPLY AND MARKET EQUILIBRIUM
CHAPTER 02
1. Demand contracts due to:
(a) Change in price of the commodity
(c) decrease in population
(b) Change in income
(d) change in price of substitute
2. If increase in the demand of good X increases the supply of good Y, then X and Y are:
(a) Complement in production
(b) substitute
(c) Complement
(d) Substitute in production
3. If price of commodity increase,
(a) Demand will expand
(c) Demand become negative
(b) Demand will contract
(d) Demand will remain constant
4. X and Y both are substitutes. Select any TWO correct statement
(a) Increase in price of X, decrease in demand of Y
(b) decrease in price of X, decrease in demand of Y
(c) Increase in price of X, increase in demand of Y
(d) decrease in price of X, increase in demand of Y
5. Increase in price of substitute in production causes __________________ in supply of other.
(a) Increase
(b) Decrease
(c) Same
(d) None
6. If supply of X decrease and supply of Y increase, then both are:
(a) Complement in production
(b) Substitute in production
(c) Inferior good
(d) Giffen good
7. Contraction of supply curve from given graph is:
(a) S1 to S2
(c) A to B
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(b) S2 to S1
(d) B to A
ECONOMICS PRC-03
8. Good which demand increase due to increase in price is called:
(a) Normal good
(b) Superior good
(c) Inferior good
(d) Giffen good
9. At price ceiling: (Select 2 options)
(a) Increase in consumer surplus
(c) Decrease in consumer surplus
(b) decrease in producer surplus
(d) Increase in producer surplus
10. If price increases, quantity demanded decreases because of income and substitution effect.
(a) True
(b) False
11. People buy more of good X when the price of good Y rises. These goods are:
(a) normal goods.
(b) complements
(c) substitutes
(d) inferior goods
12. Suppose the demand for good X rises when the price of good Y falls, these goods are:
(a) Substitutes
(b) complements
(c) complement in production
(d) substitute in production
13. Demand is the quantity of goods and services, which consumers are:
(a) Not able to buy at a given time
(b) able to buy at a given time
(c) willing to buy at a given time
(d) Willing and able to buy at a given time
14. Shift in supply curve to leftward would lead to: (SELECT TWO)
(a) Rise in prices
(b) fall in prices
(c) Fall in quantity
(d) Rise in quantity
15. If government introduces a maximum price below the market equilibrium price, it will lead to:
(a) excess supply/ Surplus
(b) market equilibrium
(c) excess demand/ shortage
(d) economies of scale
16. X and Y are substitute in consumption. If price of X increase:
(a) Demand for X decrease
(b) Demand for Y decrease
(c) Demand for X increase
(d) Demand for Y increase
17. Demand curve in case of Giffen good is:
(a) Negatively sloped
(b) Vertical
(c) Positively sloped
(d) None of these
18. Demand for factors of production is known as:
(a) Individual demand
(b) Market demand
(c) Derived demand
(d) Effective demand
19. Movement in demand curve is caused by:
(a) Change in price of own product
(b) change in population
(c) Change in price of related goods
(d) Change in future expectations
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ECONOMICS PRC-03
20. An increase in demand of good X cause by an increase in price of good Y. Then Good X and Y are:
(a) Substitutes
(b) complements
(c) Inferior goods
(d) Giffen goods
21. Supply curve is also called as:
(a) Minimum supply price curve
(c) Marginal benefit curve
(b) Maximum price curve
(d) None
22. The horizontal sum of all the individual demand is:
(a) Market demand for private goods
(b) Market demand for Substitutes
(c) Market demand for public goods
(d) Market demand for complementary goods
23. Which one is not a precondition of law of supply?
(a) Oil prices
(b) Income of the consumer
(c) Wages
(d) None of the above
24. Due to increase in price of good A. The demand of good B decreases. These goods are:
(a) Substitute goods
(b) complementary goods
(c) Inferior goods
(d) Club goods
25. A vertical sum of all individual demand curve is known as market demand of:
(a) Public goods
(b) Private goods
(c) complementary good
(d) Substitute good
26. Movement in supply curve is caused by:
(a) Change in price of own product
(b) change in government expenditures
(c) Change in wage rate
(d) Change in interest rate
27. What effect occur in Giffen good graph due to change in income?
(a) Negative
(b) Positive
(c) None
(d) both positive and negative
28. If decrease in supply of commodity X also decrease the supply of commodity Y. These goods are:
(a) Complement in production
(b) Substitute in production
(c) Independent
(d) Giffen goods
29. Demand curve is also called as:
(a) Marginal cost curve
(b) Marginal benefit curve
30. During the year, a flood destroyed significant agricultural production, what would be the effect
on supply diagram?
(a) A movement down the existing supply curve
(b) A shift to the right of the supply curve
(c) A shift to the left of the supply curve
(d) A movement up the existing supply curve
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ECONOMICS PRC-03
31. Good which demand decrease due to increase in income is called:
(a) Normal good
(b) Superior good
(c) Inferior good
(d) Giffen good
32. Which of the following are held constant along the demand curve? (SELECT TWO)
(a) Income
(b) Consumer preference
(c) Quantity
(d) Price
33. If the demand equation for a good is Qd= 20 – P and the supply equation is Qs= 6+1.5P and the
price is set equal to 2.4 below the equilibrium level, there will be an excess demand of
___________ units.
(a) 8
(b) 5
(c) 10
(d) 4
34. Due to the war petrol prices have risen, which has increased transportation costs, as a result,
the commodity's price has increased. What is the effect on the demand and supply curve?
(a) Shift in demand right
(b) Shift in demand left
(c) Shift in supply left
(d) Shift in supply right
35. ________________refers to a situation where producers are willing to supply smaller quantity
at the same price or same quantity at higher price.
(a) increase in supply
(c) contraction in supply
(b) decrease in supply
(d) Expansion in supply
36. Which one of the following assumptions confer to the law of demand
(a) the income of consumers is increasing
(b) size of population is unstable
(c) No change in future expectations regarding the price of product
MCQ
Answer
NO.
1A
2A
3B
4b,c
5B
6B
7D
8D
9a,b
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MCQ
NO.
101112131415161718-
Answer
a
c
b
d
a,c
c
d
c
c
MCQ
NO.
192021222324252627-
Answer
a
a
a
a
b
b
a
a
c
MCQ
NO.
282930313233343536-
Answer
a
b
c
c
a,b
a
c
b
c
ECONOMICS PRC-03
ELASTICITY OF DEMAND AND SUPPLY
CHAPTER 03
1. If supply is perfectly elastic then: (Select 2)
(a) Supply curve become horizontal
(b) supply curve become vertical
(c) Little change in price will cause infinite change in supply
(d) it has zero elasticity
2. When demand is inelastic or perfectly inelastic then consumer surplus will be:
(a) More than producers
(b) Less than producers
(c) Both are correct
(d) None is correct
3. If price increase from 2 to 4. Use percentage method to solve. (Calculate PED)
(a) 3/5
(c) 2/5
(b) 1/5
(d) None
4. If elasticity of demand is inelastic, then
(a) 0
(b) >1
(c) <1
(d) 1
5. If demand is perfectly inelastic then curve is: (Select TWO)
(a) Vertical
(b) parallel to x-axis
(c) Horizontal
(d) parallel to y-axis
6. ________________ measures responsiveness of supply to a change in its price.
(a) Price elasticity of supply
(b) Income elasticity of supply
(c) Cross elasticity of supply
(d) None
7. Increase in price will increase total revenue when demand is: (Select TWO)
(a) elastic
(c) perfectly elastic
(b) inelastic
(d) perfectly inelastic
8. If the income elasticity of demand for a good is positive but less than 1, then the good will be:
(a) Luxuries
(b) Necessities
(c) Inferior
(d) Substitute
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ECONOMICS PRC-03
9.
(a)
(b)
(c)
(d)
If demand if perfectly inelastic and supply is perfectly elastic, then:
Consumer surplus zero, producer surplus infinite
Consumer surplus infinite, producer surplus zero
Consumer surplus more than producer surplus
producer surplus more than Consumer surplus
10. If the income elasticity of demand for a good is positive but more than 1, then the good will be:
(a) Luxuries
(b) Necessities
(c) Inferior
(d) Substitute
11. Increase in price is more than increase in supply, then supply is:
(a) elastic
(b) inelastic
(c) perfectly elastic
(d) perfectly inelastic
12. Production and employment in which of the following industries would be least affected by
recession?
(a) Sugar
(b) Steel
(c) Garments
(d) Vehicles
13.
(a)
(b)
(c)
(d)
Suppose the demand is elastic, supply is inelastic, then decrease in supply would lead to:
increase price more than decrease in quantity
increase price less than decrease in quantity
decrease price more than decrease in quantity
decrease price more than increase in quantity
14. If total consumer expenditure decreases in response to a price fall, demand is: (Select TWO)
(a) elastic
(b) inelastic
(c) perfectly elastic
(d) perfectly inelastic
15. Over a long period of time:
(a) demand becomes more elastic and supply becomes less elastic.
(b) demand becomes less elastic and supply becomes more elastic.
(c) both demand and supply become more elastic.
(d) both demand and supply become less elastic
16. Price elasticity of a demand is is 2.0 . The graph would be
(a) Flatter
(b) Vertical
(c) Horizontal
(d) Steeper
17. An increase in the demand of good with no change in prices will cause the price elasticity of
(a) supply zero
(b) demand zero
(c) demand less than 1
(d) supply infinite
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ECONOMICS PRC-03
MCQ
Answer
NO.
1a,c
2a
3a
4c
5a,d
6a
7b,d
8b
9b
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MCQ
NO.
1011121314151617-
Answer
a
b
a
b
b,d
c
a
b
ECONOMICS PRC-03
FIRM THEORY
CHAPTER 04
1. Which of the following is not an assumption of law of variable proportion?
(a) Constant state of technology
(b) FOPs can combined
(c) FOPs are homogeneous
(d) This is for short run and long run
2. Select any two features of monopoly:
(a) Control over key inputs
(c) Non-availability of close substitutes
(b) Few sellers
(d) Homogeneous good
3. Select any two benefits of monopoly:
(a) No significant barriers to entry
(b) investment in long-term projects
(c) Differentiation increases consumer choice
(d) Prices are relatively stable
4. In perfect competition: (Select two options)
(a) Firms are price maker
(b) No legal barriers to entry
(c) Selling non-homogenous products
(d) Selling homogeneous products
5. Normal profit means where economic profit is ___________________
(a) less than 1
(b) equal to 1
(c) Greater than 1
(d) equal to 0
6. In perfect competition, if marginal revenue is greater than marginal cost?
(a) Increase in price will increase profit
(b) Decrease In price will increase profit
(c) Increase in output will increase profit
(d) Decrease in output will increase profit
7. “A” represents:
(a) TFC
(c) TC
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(b) TVC
(d) none
ECONOMICS PRC-03
8. The following diagram depicts the concept of:
(a) Super-normal profit
(c) Normal profit
(b) Sub-normal profit
(d) Loss
9. Which of the following is NOT the assumption of law of variable proportion.
(a) law operates only in short run
(b) Labour is the only variable input factor
(c) all the input factors are heterogeneous
(d) Possibility to combine the input factors
10. Demand curve is also called:
(a) MR curve
(c) TR curve
(b) AR curve
(d) TP curve
11. In kinked demand curve, if firm A increases its price when what will be the behavior of firm B?
(a) Decrease its price
(b) Increase its price
(c) Not change its price
(d) None
12. Decrease in long run average cost is called:
(a) Economies of scale
(b) Diseconomies of scale
(c) increasing return
(d) constant return to scale
13. Average cost curve is U-shaped because of:
(a) Average fixed cost is decreasing
(b) Marginal cost is increasing
(c) Law of return
(d) Average fixed cost is increasing
14. Under perfect competition:
(i) Exit of one of the existing firm can decrease per unit profit
(ii) In short run, the firms can continue his production when AR covers AVC.
(a) Only I statement is correct
(b) Only ii statement is correct
(c) Both statements are incorrect
(d) Both statements are correct
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ECONOMICS PRC-03
15. Production function is the relationship between:
(a) Input and output
(b) cost and revenue
16. In which market model, cartel can be created:
(a) Monopoly
(b) Oligopoly
(c) Perfect competition
(d) Monopolistic competition
17.
(a)
(b)
(c)
(d)
Monopolistic firms have downward sloping demand curve because of (SELECT TWO)
Producing identical products
Average revenue equals to price
It has some monopoly power
It produces close substitutes but differentiated
18. Which is not the type of oligopoly?
(a) Collusive
(c) Monopoly
(b) Non-collusive
19.
In the above diagram, firm is earning:
(a) Super-normal profit
(c) Normal profit
(b) Sub-normal profit
(d) Loss
20. Which of the following are NOT regarded as the features of perfect competition? (Select TWO)
(a) Free entry and exit of firms in the market
(b) Firms are price makers
(c) Perfect factor mobility
(d) Product differentiation
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ECONOMICS PRC-03
21.
The above diagram depicts the concept of _________________________
22. When the average cost is rising, marginal cost is higher than average cost.
(a) True
(b) False
23. Which of the following may NOT be regarded as strength of a collusive oligopoly? (Select TWO)
(a) Production techniques and costs of all the firms are similar.
(b) There are no barriers on entry of new firms
(c) Non-homogeneous products are produced by the firms
(d) Demand curve is determinate (certain)
24. A firm continue production when total revenue covers total cost.
(a) True
(b) False
25.
(a)
(b)
(c)
(d)
Which one of the following assumption is related to law of variable proportion?
Continuous improvement in techniques of production
All factors of production are proportionately varied
There is no scarcity of the factors of production
The factors are able to be combined to make a product
26. When diminishing returns begin to operate, the total variable cost curve will start to
(a) fall at an increasing rate
(b) rise at a decreasing rate
(c) fall at a decreasing rate
(d) rise at an increasing rate
27. In perfect competition, firm earns normal profit due to:
(a) Few sellers
(b) Large number of sellers
(c) High barriers
(d) single seller
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ECONOMICS PRC-03
28. The following diagram depicts the concept of:
(a) Super-normal profit
(c) Normal profit
29.
(a)
(b)
(c)
(d)
(b) Sub-normal profit
(d) Loss
Marginal cost is best defined as: (SELECT TWO)
Additional price of selling an extra unit of a given product
Average cost of producing an extra unit of a given product
Additional cost of producing an extra unit of a given product
Represents the slope of total cost function
30. A perfectly competitive firm's demand curve is
(a) perfectly inelastic.
(b) perfectly elastic
(c) Inelastic
(d) elastic
31. At what point, firm must shut down
(a) AR=MC
(c) AR>AVC
(b) AR<AVC
(d) AR>TC
32. Which of the following is a features of perfect competition (SELECT TWO)
(a) Free entry and exit
(b) Homogeneous product
(c) Inelastic demand curve
(d) Few sellers
33. Perfect competition can earn super normal profit;
(a) True
(b) False
34. Monopolist can charge high price where elasticity is:
(a) High
(b) Low
35. Firms under perfect competition and monopolistic competition are similar because products are
homogeneous.
(a) True
(b) False
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ECONOMICS PRC-03
36. FC = 100, variable cost per unit is 5. Firm produce 100 unit and sell each at 20.
Find profit ___________________
37.
(a)
(b)
(c)
(d)
Which of the following is not a feature of monopolistic competition?
Freedom of entry and exit to the industry
Downward sloping demand curve
Identical products
Many firms supplying the market
38. Which of the following industry does not operate under oligopoly?
(a) Oil sector
(b) Media industry
(c) Auto-mobile industry
(d) farming
39. Point “C” represents:
(a) TFC
(c) TC
(b) TVC
(d) none
40. Which of the following profit maximization condition is true under monopolistic competition in
long run:
(a) P = MC = MR =ATC
(b) P = MC = MR > ATC
(c) P = MC = MR < ATC
(d) P= ATC > MR = MC
41. Which of the following profit maximization condition is true under perfect competition in long
run:
(e) P = MC = MR =ATC
(f) P = MC = MR > ATC
(g) P = MC = MR < ATC
(h) P= ATC > MR = MC
19 | P a g e
ECONOMICS PRC-03
42.
(a)
(b)
(c)
Under monopoly there is excess production in long run if:
To make entry of new firms difficult due to decrease in prices
Firm behave as monopoly
Firm is producing an identical product
43. When average cost curves shift upward. (Select TWO)
(a) Increase in labour productivity
(b) Decrease in labour productivity
(c) increase in taxes
(d) Increase in subsidies
44. If total revenue exceeds variable cost but is less than total cost, then by continuing its
production firm is:
(a) Minimizing loss
(b) Maximizing loss
45. Long run average cost curve is also called:
(a) Envelop curve
(b) Plant curves
46. Shahid employed 25 labors at a wage rate of 150 per day. he intends to increase wage rate by Rs
20 per day for an additional labor. Considering all cost are constant. Will the marginal cost be Rs
500?
(a) True
(b) False
47.
48. Following is Not a characteristic of perfect competition:
(a) large number of buyer and seller
(b) no barriers to enter and exit market
(c) buyer and seller have perfect knowledge about price
(d) advertisement
49. Why does the minimum point of AC lie at a higher level of output as compare to the minimum
point of AVC?
(a) AVC is U-shaped
(b)AVC starts to widespread as output increases
(c) AC follows the VC
(d) AC follows AFC which decreases as output increases
20 | P a g e
ECONOMICS PRC-03
50. Supply curve in perfectly competitive market is same as:
(a) MC
(b) MR
(c) AC
(d) AR
51. Monopolistic firms do not earn economic profit in long run because:
(a) Demand curve tangent to AVC curve
(b) Large firms having large market share
(c) No barriers on entry and exit
52. If total cost increases from Rs. 500 to Rs. 650 and unit increase from 20 to 30. Fixed cost is Rs.
200. Which of the following is correct?
(a) VC rise by Rs. 250
(b) MC rise by Rs. 5
(c) AFC was originally Rs. 10
(d) AFC decreased by Rs 6.67
53. Marginal revenue is greater than 0 when:
(a) Elasticity is equal to 0
(b) elasticity is greater than 1
(c) Elasticity is less than 1
54. Which one is not u-shaped?
(a) AVC
(c) ATC
(b) AFC
(d) MC
55.
(a)
(b)
(c)
(d)
Which of the following is NOT the characteristic of perfect competition.
Large number of buyers and seller
Individual firms allocate budget for advertisment
Free entry and exit
buyers and sellers are fully aware of prices.
56.
(a)
(b)
(c)
The short run supply curve of monopolist is
perfectly elastic
perfectly inelastic
doesnt exist
57.
(a)
(b)
(c)
(d)
The correct case of downward sloping demand curve in imperfect competition is
2AR=MR
2MR= AR
MR greater than AR
AR = MR
58.
(a)
(b)
(c)
In log run firm expand output until
MC= MR
MC > MR
MC < MR
21 | P a g e
59.
(a)
(b)
(c)
ECONOMICS PRC-03
What is correct about constant return to scale?
If more labour is added to given amount of capital, marginal output remains constant
If labour and capital doubles, output double
If labour to capital ratio doubles, output increase more than double
60.
(a)
(b)
(c)
What decision a perfectly competitive firm take in short run?
when to enter or leave tha market
how to maximize profit by increasing output
how to change price
61.
(a)
(b)
(c)
(d)
Which of the following increase or decrease with increase or decrease of production level?
Average variable cost
Average fixed cost
Marginal cost
Financial cost
MCQ
NO.
1234567-
d
a,c
b,d
b,d
d
c
c
MCQ
NO.
14151617181920-
8-
c
21-
910111213-
c
b
c
a
b,c
2223242526-
Answer
22 | P a g e
Multiple choice answers
MCQ
MCQ
Answer
Answer
NO.
NO.
b
27b
40a
28a
41b
29c
42c,d
30b
43b
31b
4445a
32a,b
b,d
33a
46kinked
34b
47demand
curve
35b
48a
b,c
361400
4937c
50a
38d
51d
d
39a
52-
Answer
d
a
a
b,c
a
a
b
d
d
a
c
c
MCQ
NO.
5354555657585960-
Answer
61-
b
b
b
b
c
b
a
b
b
ECONOMICS PRC-03
CHAPTER 05
NATIONAL INCOME
1. Which of the following is a measure of income earned by a factor of production?
(a) indirect taxes
(b) depreciation
(c) rent
(d) corporate taxes
2. Which of the following represent withdrawals from the circular flow of national income?
(a) saving and investment
(b) import and export
(c) saving and taxation
(d) all of the above
3. Calculate GDP per capita if national income is 180,000 billion and population is 225 million.
(a) 600,000
(b) 700,000
(c) 800,000
(d) 900,000
4. GDP deflator is equal to:
5.
(a) True
(b) False
6. GDP is 120, consumer expenditure is 70, investment is 30, Government expenditure is 30, and
import is 35.Export will be __________________
7. NNP is calculated by (Select 2 options)
(a) GNP – Depreciation
(c) GDP+ Net factor payment- Depreciation
23 | P a g e
(b) NNP+ Capital consumption
(d) GDP+ depreciation
ECONOMICS PRC-03
8. In circular flow of income, outer flow is called _________________
(a) Real flow
9. Transfer payments includes: (Select 2 options)
(a) Government Subsidies
(c) wages
(b) Money flow
(b) Tax payment
(d) Pensions
10. Nominal GDP is normally _________________ than real GDP.
(a) Higher
(b) Lower
(c) unchanged
(d) Remain constant
11. National income under output method is ____________________ the national income
calculated under income method.
(a) Greater
(b) Smaller
(c) Same
(d) Difficult to tell
12. Which one is included in GDP while calculating through “value-added approach”?
(a) Price of intermediate goods
(b) income from old car sales
(c) income from resale of old furniture
(d) services for self-consumption
13. Which of the “Two” are called transfer payment?
(a) Pension fund
(c) zakat
(b) salary
(d) taxation
14. Net increases in the capital stocks of a country is called:
(i) Net investment
(iii) Net capital formation
(a) (i) & (ii)
(c) (ii) & (iii)
(ii) Net savings
(iv) Net consumption
(b) (i) & (iii)
(d) (iv)
15. Nominal GDP is calculated at:
(a) Base year price
(c) Constant market price
24 | P a g e
(b) Current market price
(d) GDP deflator
ECONOMICS PRC-03
16. Per capita income calculation shows:
National income (Billion)
Year 1
180,000
Year 2
192,100
(a) Improved
Total population (Million)
225
226
(b) Not improved
17. GDP deflator is a price index that measure ___________________ of a country.
(a) Rate of inflation
(b) rate of interest
(c) rate of GDP
(d) none
18. GDP deflator calculation does not include?
(a) Prices of goods and services
(c) fixed basket of goods
(b) Real GDP
(d) GDP of comparable to other country
19. Real GDP calculate on:
(a) Current year
(b) Base year
20. Injection less than withdrawals cause:
(a) National income to rise
(c) Inflation to rise
(b) National income to fall
(d) balance of payment to improve
21. National income is: (Select TWO)
(a) Measure for only one year
(b) only intermediate goods will be considered
(c) only final goods will be considered
(d) calculate on physical goods and services
22. Sum of all factor payment is:
(a) Factors of production
(c) market expenditure
(b) National income
(d) None of the above
23. In 2015 GDP is 20000 and deflator value is 100, in 2022 GDP value is 30000 and deflator value is
120. Calculate real GDP of 2022.
(a) 20000
(b) 24000
(c) 36000
(d) 25000
24. What will cause more withdrawals (select 2)
(a) Decrease in govt expenditure
(c) Increase in import
25 | P a g e
(b) Decrease in taxes
(d) Increase in export
ECONOMICS PRC-03
25. If total output increases and price index remains same, nominal GDP will:
(a) Rise and real GDP will rise
(b) Rise and real GDP will fall
(c) Fall and real GDP will rise
(d) Fall and real GDP will fall
26. Import= 90 million, company revenue = 400 million comprising of company sales= 250 million,
sales to government =90 million, and export = 60 million, paid salaries expense to
employees=140 million, company paid taxes on salaries paid to employees, and company’s own
taxes as 40 million and 50 million respectively. Calculate GDP (National Income) by value added
approach.
(a) 230
(b) 130
(c) 150
(d) 310
27.
(a)
(b)
(c)
What will happen if govt reduces imports
leakage will reduce
injection will reduce
Real gdp will reduce
28. Air bus sells aircraft to air force. In which of the following four will this expenditure be recorded
while calculating GDP
(a) Net exports
(b) consumption
(c) government
(d) investment
29.
(a)
(b)
(c)
(d)
Airbus sells aircraft to serene Air (Pvt) limited. While calculating GDP it is included in:
Net exports
consumption
government
investment
MCQ
Answer
NO.
1c
2c
3c
4b
5a
25
6b
7a,c
8a, d
9a
10-
26 | P a g e
MCQ
NO.
11121314151617181920-
Answer
c
a
a,c
b
b
a
a
d
b
b
MCQ
NO.
212223242526272829-
Answer
a,c
b
d
a,c
a
d
a
c
a
ECONOMICS PRC-03
CHAPTER #06
NATIONAL INCOME DETERMINATION
1. When aggregate demand increases, then unemployment ______________ and rate of inflation
______________. (Selection of 2)
(a) fall
(c) remain same
(b) Rise
(d) none of these
2.
In this graph, Ye to Yp represents
(a) Inflationary gap
(c) positive gap
(b) Deflationary gap
(d) Price level
3. A continuous or persistent rise in general price level is called:
(a) Inflation
(b) Deflation
(c) Disinflation
(d) Stagflation
4. A fall in rate of inflation is called:
(a) Inflation
(c) Disinflation
(b) Inflationary gap
(d) Deflation
5. Keynesian aggregate supply curve is always:
(a) Upward to the right
(b) Downward to the right
(c) Horizontal & vertical after full employment
(d) Vertical
6. Difference between potential G.D.P and actual G.D.P. is called:
(a) Inflation
(b) Deflation
(c) Output gap
(d) G.D.P. Deflator
27 | P a g e
ECONOMICS PRC-03
7. Which of the following cannot cause shift in short-run aggregate supply?
(a) Productivity of labour
(b) Indirect taxes
(c) Direct taxes
(d) Subsidies
8. Long-run aggregate supply represents.
(a) The productive potential of an economy
(b) Total labour supply
(c) Relationship between price and taxes
(d) Total natural resources
9. Inflationary gap represents when
(a) Aggregate demand exceeds over production potential of the economy
(b) Aggregate demand exceeds over the firm’s expectations
(c) Aggregate supply remains less than in aggregate supply in short run
(d) Aggregate supply exceeds over aggregate demand in short run
10. Actual expenditure in an economy is based on existing/ actual income, rather than if the
economy was at its productive potential is known as
(a) Individual demand
(b) Effective demand
(c) Aggregate demand
(d) None of the above
11. An increase in cost of production will:
(a) shift aggregate demand to the right (b) shift aggregate supply to the right
(c) shift aggregate supply to the left
(d) shift aggregate demand to the left
12. Long Run Aggregate Supply (LRAS) curve is a vertical line because it is:
(a) dependent on price level and signifies the upper limit of the capacity in the economy
(b) dependent on price level and signifies the lower limit of the capacity in the economy
(c) independent of price level and signifies the upper limit of the capacity in the economy
(d) independent of price level and signifies the lower limit of the capacity in the economy
MCQ
Answer
NO.
1a,b
2b
3a
4c
5c
6c
28 | P a g e
MCQ
NO.
789101112-
Answer
C
A
A
B
C
C
ECONOMICS PRC-03
CHAPTER 07
CONSUMPTION, SAVING AND INVESTMENT
1. Which of the following can create shift in MEC curve. (Select 2 options)
(a) Population growth
(b) rate of interest
(c) Tax rates
(d) Government spending
2. Postponed consumption of household and individuals is called:
(a) Saving
(b) investment
(b) income
(d) Autonomous consumption
3. If APS is 0.2 and National income is 4 billion, then consumption is:
(a) 4
(c) 3.2
(b) 0.8
(d) 1
4. Which of the following is not a determinant of consumption?
(a) Real Income
(c) Change in fiscal policy
(b) Change in interest rate
(d) GDP
5. Household saving is equal to: (Select two)
(a) Income – taxes
(c) Income – taxes- consumption
(b) income only
(d) income – consumption
6.
(a)
(b)
(c)
(d)
Autonomous investment means:
Which remains unaffected with the increase in national income
Investment is initiated by government for welfare maximization
Is independent of income
All of these
7. Which of the following does not cause shift in MEC.
(a) Population growth
(b) change in income
(c) surplus productive capacity
(d) excess demand
8.
(a)
(b)
(c)
(d)
The inverse relationship between rate of interest and level of investment is shown by:
supply curve
the marginal efficiency of capital curve
demand curve
indifference curve
9. Induced investment is the investment which is:
(a) income-inelastic
(b) income-elastic
(c) independent of profit
(d) motivated by the well-being of society
29 | P a g e
ECONOMICS PRC-03
10. Sum of MPC and MPS equals:
(a) 2
(c) More than 1
(b) Less than 1
(d) 1
11. In the consumption function “ab” refers to:
(a) MPC
(c) Autonomous consumption
(b) Induced consumption
(d) None
12.
(a)
(b)
(c)
(d)
An increase in MPC will:
shift the consumption function upwards
shift the consumption function downwards
lead to the flatter consumption function
lead to the steeper consumption function
13.
(a)
(b)
(c)
(d)
The slope of induced investment curve
vertical
horizontal
downwards towards left
upwards towards right
MCQ
Answer
NO.
1a,c
2a
3c
4d
5c,d
6d
7c
30 | P a g e
MCQ
NO.
8910111213-
Answer
b
b
d
a
b
d
ECONOMICS PRC-03
CHAPTER 08
MULTIPLIER AND ACCELERATOR
1. Which of the following factor is not used in the multiplier formula for the open economy?
(a) Marginal propensity to save
(b) Marginal propensity to import
(c) Marginal propensity to tax
(d) Marginal propensity to export
2. Which of the following does not normally happen in the recession phase of the business
cycle?
(a) a fall in the level of national output
(b) a rise in the rate of inflation
(c) a rise in the level of unemployment
(d) all of the above
3. Which of the following marks the beginning of a contraction in the business cycle?
(a) Peak
(b) Trough
(c) Expansion
(d) Recession
4. In business cycle _____________ is on Y-axis and ________________ is on X-axis.
(a) Time, economic activity
(b) economic activity, time
5. In accelerator investment is the function of ________________
(a) GDP
(b) Consumption
(c) income
(d) Growth
6. Multiplier value?
(a) Equal to one
(c) Greater than one
(b) less than one
(d) Zero
7. Which of the following increases multiplier effect?
(a) Increase in MPT
(b) Increase in MPS
(c) Increase in MPC
(d) Increase in MPM
8.
(a)
(b)
(c)
(d)
Select any two limitations of multiplier:
If sufficient amount of consumer goods is not available
No change in tax rate
Continuous spending
If full employment is achieved
9.
(a)
(b)
(c)
(d)
Which of the following is not the limitations of accelerator principle:
Availability of spare capacity
Change in capital-output ratio
Existing plants are operating at full capacity
Rise in demand for consumer durables is temporary
31 | P a g e
ECONOMICS PRC-03
10. If MPC is 80%, MPM is 30% and investment is made 50 billion. National income will increase
by:
(a) 50 billion
(b) 100 billion
(c) 166.67 Billion
(d) none of the above
11. If output is 36000 and investment is 12000 then multiplier value is:
(a) 2
(b) 3
(c) 1.66
(d) 5
12. According to accelerator principle, if there is a need of ____________ good, then the
demand of _______________ good increases.
13. The stage of business cycle which take the cycle at the stage of inflation is:
(a) Boom
(b) Trough
(c) Recession
(d) Recovery
14. Which of the following is not considered as credit instrument?
(a) IOU
(b) Draft
(c) Bond
(d) Stock
15.
(a)
(b)
(c)
(d)
Sequence of four phases of business cycle are:
Boom, trough, recession, depression
Boom, recession, recovery, depression
Boom, trough, recovery, recession
Boom, recession, depression, recovery
16. The value of multiplier fall when (Select TWO)
(a) MPC rise
(b) MPS rise
(c) MPS fall
(d) MPC fall
17. Multiplier will always _____________ 1?
(a) Less than
(c) equal to
(b) Greater than
(d) None
18. Which of the following is limitation of accelerator principle:
(a) Capital-output ratio remain same
(b) Full employment
(c) credit is elastic
(d) Spare capacity
19. In recession, business confidence is high.
(a) True
(b) False
20. The patterns of output fluctuations are known as ________________.
(a) Aggregate demand
(b) Business cycle
(c) Production function
(d) Output
32 | P a g e
ECONOMICS PRC-03
21. If marginal propensity to consume is 0.8 and tax rate is 30%. The increase in investment by
Rs 50 will increase the national income to ___________________?
(a) 100
(b) 50
(c) 500
(d) 167
22. Which of the following is the basic concept which underlies the accelerator theory of
investment?
(a) Investment depends on the level of savings
(b) Investment is inversely related to the rate of interest
(c) Investment is determined by the volume of commercial bank lending
(d) Investment rises when there is an increase in the rate of growth of demand in the economy
23. In the business cycle, following point shows:
At point E _________________ (recession, trough, downturn) and at point F ______________
(trough, downturn, recovery)
24. There is positive relationship between multiplier and:
(a) Marginal propensity to consume
(b) Marginal propensity to save
(c) Marginal efficiency of capital
(d) All of these.
25. (i) The main idea behind the acceleration principle is that the demand for capital goods is a
derived demand.
(ii) demand for capital goods is inversely proportional to increase in need of consumer
goods.
(a) statement 1 is correct
(b) statement 2 is correct
(c) both are correct
(d) none of the above
26. In view of acceleration principle, which two of the following are NOT determinants of level
of investment?
(a) Change in demand of goods and services (b) Change in income
(c) Change in sentiment
(d) Change in interest rate
33 | P a g e
ECONOMICS PRC-03
MCQ
Answer
NO.
1d
2b
34 | P a g e
MCQ
NO.
1011-
Answer
MCQ
NO.
1920-
3-
a
12-
4-
b
13-
b
b
consumer,
capital
a
5-
c
14-
d
23-
6789-
c
c
a,d
c
15161718-
b
b,d
b
a
242526-
Answer
b
b
21-
a
22-
d
recession,
trough
a
a
c,d
ECONOMICS PRC-03
CHAPTER 09: PUBLIC FINANCE
MULTIPLE CHOICE QUESTIONS
1.
(a)
(b)
(c)
(d)
In progressive taxation:
Tax rate increase along with an increase in income
Tax rate decrease along with an increase in income
Tax rate increase along with decrease in income
Tax rate remains same
2. Contractionary fiscal policy can involve:
(a) Increasing consumption and investment and taxes.
(b) Decreasing government spending and increasing taxes.
(c) Increasing government spending and increasing taxes.
(d) None of the above
3. Which of the following is not an advantage of direct tax. (select two)
(a) Equitable
(b) Economical
(c) inflation
(d) Evasion
4.
(a)
(b)
(c)
(d)
Which of the following two are correct:
Indirect tax increase cost push inflation
Indirect tax increase supply
Increase interest rate increase demand-pull inflation
Devaluation of currency increase export and decrease import
5. Increase in indirect tax cause: (Select TWO)
(a) Cost push inflation
(b) Wage price spiral inflation
(c) Demand pull inflation
(d) Disequilibrium in market
6. Canon of taxation does not include:
(a) canon of economy
(b) canon of equality
(c) Canon of equity
(d) canon of convenience
7. Excise duty and tariff are the example of:
(a) Direct tax
(b) Indirect tax
(c) progressive tax
(d) Proportional tax
8. Which of the following are limitation of fiscal policy? (Select TWO)
(a) Time lag
(b) Crowding out
(c) low inflation
(d) Run a balanced budget
35 | P a g e
ECONOMICS PRC-03
9. Expansionary fiscal policy seeks to increase economic growth, employment and export by:
(Select TWO)
(a) Increase government spending
(b) Decrease government spending
(c) decrease in taxes
(d) Increase in taxes
10. Government increase tax at:
(a) Recession
(c) Prosperity
(b) Trough
(d) Downturn
11. Indirect taxes are those taxes which are not only levied on customers by retailer.
(a) True
(b) False
12. Due to increase in direct and indirect tax, disposable income will_________
(a) Increase
(b) Decrease
(c) Remain same
(d) All of these
13. Sara pays a tax of Rs. 200 on her income of Rs. 2500 while Sana pays a tax of Rs. 108 on her
income of Rs. 1800. Identify the tax system prevailing in the country.
(a) Progressive
(b) Regressive
(c) Proportional
(d) Equitable
14. Select the appropriate for Progressive tax?
(i) tax rate increases with decrease in income (ii) tax rate decreases with decrease in income
(a) both are correct
(b) both are wrong
(c) statement 1 is correct
(d) statement 2 is correct
15. What does not happen in recession?
(a) Improvement in balance of trade
(c) Fall in inflation
(b) Rise in inflation
(d) Decrease in production
16.
(a)
(b)
(c)
(d)
Which of the following is not the effect of decrease in Direct Tax
increase in AD
increase in Consumption
Reduction in tax revenue
Reduction in Budget Deficit
17.
(a)
(b)
(c)
(d)
Which two of the following are lagging indicators?
Manufacturers’ new orders
Rate of unemployment
Per capita income
Industrial production
18. Coincident indicators are events that occur when peak or trough does not occur.
(a) true
(b) false
36 | P a g e
ECONOMICS PRC-03
19.
(a)
(b)
(c)
(d)
Which TWO of the followings are not the advantages of DIRECT TAX
inflationary
equitable
economical
inelastic
MCQ
Answer
NO.
1a
2b
3c
4a,d
5a,d
6c
7b
8a,b
9a,c
10c
37 | P a g e
MCQ
NO.
111213141516171819-
Answer
b
b
a
d
b
d
b,c
b
a,d
ECONOMICS PRC-03
CHAPTER 10: MONEY
1. According to monetarists aggregate expenditures in the economy are influenced by:
(a) Market focus
(b) Credit money
(c) Exchange rate
(d) Market rate of interest
2. Money which having no intrinsic value is called:
(a) Commodity money
(c) Full bodied money
(b) Fiat money
(d) Token money
3. Which is NOT a desirable characteristic of money?
(a) portable
(b) uniform
(c) easily recognized
(d) easily duplicated
4. What is not an example of commodity money?
(a) salt
(b) cigarettes
(c) shells
(d) paper
5. Which of the following is regarded as ‘Fiat money’?
(a) Gold
(b) Gold standard
(c) Credit card
(d) US dollar
6. Government may increase the money supply through open market operations but such
measures are likely to result in short-term interest rates to:
(a) rise and increase the demand for money
(b) rise and reduce the demand for money
(c) fall and increase the demand for money
(d) fall and reduce the demand for money
7. Broad Money refers to:
(a) M0
(c) M2
(b) M1
(d) M3
8. A central bank is likely to increase interest rates when economy is in a phase of:
(a) prosperity
(b) downturn
(c) recession
(d) trough
9. Which of the following best describes Keynesian Liquidity trap?
(a) High interest rates, low savings rates
(b) Low interest rates, high savings rates
(c) High interest rates, high savings rates
(d) Low interest rates, low savings rates
38 | P a g e
ECONOMICS PRC-03
10. What would be the velocity of circulation of money in an economy in which the average price
level is 1.8, real GDP is Rs. 260 billion and the nominal money supply is Rs. 117 billion?
(a) 4.0
(b) 3.2
(c) 4.8
(d) 0.8
11. If M=90 Million, T=600,000 and p=300 then V=?
(a) 2
(b) 3
(c) 5
(d) 10
12. Liquidity trap occur where:
(a) Interest rate closer to zero
(c) Bond price decrease
(b) money demand decrease
(d) Interest rate closer to maximum
13. If the money demand curve is negatively sloped and money supply curve is vertical then, the
rightward shift in money supply will ______________ the interest rate and a temporary
_______________ in money supply.
14. If the money demand curve is negatively sloped and money supply curve is positively sloped
then, the rightward shift of money demand curve will ______________ the interest rate and
_______________ the amount of credit.
15. Which of the following about credit money is correct. (Select TWO)
(a) Increase indirect consumption
(b) reduce inflation
(c) Inclines people to spend less
(d) Firm expand revenue and other retained earning
16. Increase in demand for credit money _________________ interest rate.
(a) Increase
(b) Decrease
17. Following two are not the motives of liquidity preference theory:
(a) Saving
(b) Transactional
(b) Interest rate
(d) precautionary
18. If market rate of interest decrease, value of bond will ________
(a) Increase
(b) Decrease
19. Function of money best described as: (Select TWO)
(a) Medium of exchange
(b) Barter system
(c) Unit of account
(d) Not a standard of deferred payment
20. According to _______________ economist, money can be used to facilitate transactions and
purchase goods and services in the future.
(a) Classical
(b) Keynesian
(c) Monetarist
(d) None of these
39 | P a g e
ECONOMICS PRC-03
21. Who believe that aggregate expenditures in the economy are influenced by the market rate of
interest?
(a) Classical economists
(b) Keynesian economists
(c) Monetarist economists
(d) None of these
22. According to quantity theory of money, money supply is directly proportional to __________
(a) Value of money
(b) Price level
(c) demand for money
(d) Income of consumer
23. Quantity theory of money states the relation that how much demand changes as price changes.
(a) True
(b) False
24. Interest rates are not affected by: (Select TWO)
(a) Lender’s debt to income ratio
(b) Maturity period
(c) Loan payoff amount
(d) Loan size
25. Select the appropriate
(i) proportional system issues note up to certain limit, without any asset back derivatives
(ii) Central bank manipulate foreign reserves and gold to balance trade deficit
(a) statement 1 is correct
(b) statement 2 is correct
(c) both are correct
(d) both are wrong
MCQ
Answer
NO.
1d
2b
3d
40 | P a g e
MCQ
NO.
101112-
4-
d
13-
5-
d
14-
6789-
c
d
a
b
15161718-
Answer
a
a
a
Decrease,
rise
Increase,
increase
a,d
a
a,b
a
MCQ
NO.
192021-
Answer
a,c
b
c
22-
b
23-
b
2425-
a,c
b
ECONOMICS PRC-03
CHAPTER 11: INFLATION AND UNEMPLOYMENT
1. The situation that occurs when the inflation rate falls is called:
(a) Deflation
(b) Disinflation
(c) Stagflation
(d) inflation
2. Country’s aggregate output is low along with inflation.
(a) Depression
(b) Recession
(c) Stagflation
(d) recovery
3.
(a)
(b)
(c)
(d)
Which one is true about Phillip curve:
Sloping downward with increase in rate of unemployment and lies in 4th quadrant
Vertical slope
Positive relation between inflation and unemployment
Sloping downward with increase in rate of unemployment and lies in 3rd quadrant
4. A retire person is:
(a) Unemployed
(c) Not in labour force
(b) employed
(d) Self-employed
5. A prolonged and deep recession is called ________________________
(a) Depression
(b) Recession
(c) Stagflation
(d) recovery
6. If price of products in 2021 is Rs 205 and Rs 215 in 2022. Calculate CPI.
(a) 7.32%
(b) 4.88%
(c) 2.88%
(d) 5%
7. In Phillip curve, higher inflation refers to __________________ unemployment.
(a) Lower
(b) Higher
(c) same
(d) no change
8. According to Phillip’s curve, the lower rate of inflation would result in ________________
(a) Unfavorable balance of payment
(b) Higher unemployment rate
(c) Lower level of investment
(d) More unequal distribution of wealth
9. According to Milton Friedman, long run Phillip curve is ___________________ at natural rate of
unemployment.
(a) Vertical
(b) Horizontal
(c) Positive
(d) Negative
10. Select two natural rate of unemployment:
(a) Frictional unemployment
(c) Structural unemployment
41 | P a g e
(b) Cyclical unemployment
(d) Seasonal unemployment
ECONOMICS PRC-03
11. Real interest rate is the difference between nominal interest rate and inflation.
(a) True
(b) False
12. Unemployment during recessions and depressions is called ________________ (Select TWO)
(a) frictional unemployment
(b) structural unemployment
(c) cyclical unemployment
(d) Demand-deficient unemployment
13. The type of unemployment that includes those persons who are unemployed for an intervening
period of change over in job for better job is known as
(a) Seasonal unemployment
(b) Voluntary unemployment
(c) Frictional unemployment
(d) Technical unemployment
14. Unemployment due to mismatch between skill possessed and present available jobs
(a) Cyclical unemployment
(b) Structural unemployment
(c) Frictional unemployment
(d) Seasonal unemployment
15. Rise in wages increases the disposable income of people, which therefore increases demand for
goods, increasing prices. The rising price cause greater demand for higher wages therefore
increasing disposable income and so on …….
This effect is known as
(a) Depression
(b) Stagflation
(c) Wage – price spiral
(d) Demand pull inflation
16. when rate of inflation remains less than 5% p.a, we will call it as _________________
(a) Creeping inflation
(b) Trotting inflation
(c) Hyperinflation
(d) Stagflation
17. Real interest rate is:
(a) Interest rate divided by prices
(c) Interest rate minus inflation
(b) Interest rate divided by inflation
(d) Interest rate plus inflation
18. If GDP is low, the type of unemployment is ________________________
(a) Demand-deficient unemployment
(b) Structural unemployment
(c) Frictional unemployment
(d) Seasonal unemployment
42 | P a g e
ECONOMICS PRC-03
19. Difference between L1 and L2 shows _____________________________
20. The short-run Phillips Curve shifts when:
(a) Aggregate demand change
(c) Inflation expectations change
(b) Aggregate supply change
(d) Actual inflation change
21. Which unemployment exists while going from expansion to recession and recession to
expansion?
(a) Demand deficient unemployment
(b) Structural unemployment
(c) Frictional unemployment
(d) Cyclical unemployment
22. Real interest rate is interest rate minus expected inflation
(a) true
(b) false
23.
(a)
(b)
(c)
(d)
A government controls (select two)
demand pull inflation by reducing interest rates
demand pull inflation by reducing spending
cost push inflation by deflationary fiscal policy
cost push inflation by increasing income tax rates
MCQ
Answer
NO.
1b
2c
43 | P a g e
MCQ
NO.
910-
A
a,c
MCQ
NO.
1718-
Answer
3-
a
11-
A
19-
45678-
c
a
b
a
b
1213141516-
c,d
C
B
c
a
20212223-
Answer
c
a
Natural rate of
unemployment
c
d
a
b,c
ECONOMICS PRC-03
CHAPTER 12
MONETARY POLICY
1. If CRR is 10%, initial deposit is 100m then the credit creation is 80m?
(a) True
(b) false
2. Central bank serves as custodian of monetary reserves such as gold and foreign currencies.
(a) True
(b) false
3. Which of the following would reduce inflation?
(a) An increase in direct taxes
(c) An increase in government spending
(b) An increase in indirect taxes
(d) Increase in income
4. The reserve ratio is 20% and the bank has no excess reserves. The central bank sell
government securities of 60 million to the commercial bank. It would:
(a) Increase money supply by Rs 75 million
(b) decrease money supply by Rs 75 million
(c) increase money supply by Rs 300 million
(d) decrease money supply by Rs 300 million
5. Increase in demand of credit money _______________ interest rate
(a) Increase
(b) Decrease
6.
(a)
(c)
(d)
Which of the following about credit money is correct. (Select TWO)
Increase indirect consumption
(b) reduce inflation
Inclines people to spend less
Firm expand revenue and other retained earning
7. Compare commercial and investment bank with each other. Which one is not a factor of
investment bank.
(a) A financial intermediary
(b) provide financial services
(c) Accept deposits
(d) provide underwriting services
8. Which one of the following is not the policy of state bank of Pakistan?
(a) Fiscal policy
(b) Monetary policy
(c) Setting interest rate
(d) Supplier of currency
9. Central bank act as custodian of monetary reserves.
(a) True
(b) False
10. Central bank carries gold and foreign reserves.
(a) True
44 | P a g e
(b) False
ECONOMICS PRC-03
11. Which of the following is not a qualitative control?
(a) Open market operation
(b) Direct action
(b) Moral persuasion
(d) Special deposit
12. Which bank provide services to its members only:
(a) Commercial bank
(c) Specialized bank
(b) Retail bank
(d) Cooperative bank
13. Reserve rate is __________________ proportional to money multiplier
(a) Inversely
(b) Directly
14. Role of investment bank is: (Select TWO)
(a) Does not accept deposits
(c) Provide underwriting securities
(b) receive deposit and give loans
(d) provide checking accounts
15.
(a)
(b)
(c)
(d)
Function of SBP includes (Select TWO)
To facilitate public
lender of the last resort
to facilitate commercial banks and other financial institutions
None of these
16.
(a)
(b)
(c)
(d)
Tools of monetary policy include:
Bank rate and reserve rate
Open market operation and credit control
Both a and b
None of these
17. If reserve ratio is 20% and initial deposit is 60 , credit creation will be ______________
18. If reserve ratio is 20% and initial deposit is 100, then total credit creation will be ________
19. Which of the following is a tool of loose/ expansionary monetary policy? (Select TWO)
(a) Increase money supply
(b) Increase government expenditures
(c) Buying securities in open market be central bank
(d) Increase in interest rate
20. Which of the following policy will not lead to inflation?
(a) Increase in tax exemptions
(b) Increase in money supply
(c) Increase in interest rate
(d) Increase in competition
21. Which of the following is not a function of commercial bank?
(a) Locker facility
(b) Discounting of bill of exchange
(c) Custodian of monetary reserves
(d) advancing loan
22. Select TWO functions of central bank:
(a) Control exchange rate
(c) Advancing loan
45 | P a g e
(b) Clearing agent
(d) Discounting bill of exchange
ECONOMICS PRC-03
23. If central bank wish to reduce aggregate demand. Which of the following policy would be
appropriate:
(a) A rise in bank rate
(b) A rise in reserve ratio
(c) Restriction in level of imports
(d) Promotion of exports
24. Which of the following is not a function of central bank?
(a) Exchange rate control
(b) Custodian of monetary reserves
(c) Clearing agent
(d) Credit creation
25. Which of the following is not a function of commercial bank?
(b) Credit creation
(b) Discounting of bill of exchange
(c) lender of last resort
(d) advancing loan
26. In order to increase money supply, central bank ________________________ in open
market and ___________________ the discount rate.
(a) Sell securities, lower
(b) buy securities, lower
(c) Sell securities, increase
(d) buy securities, increase
27. In order to decrease money supply, central bank ________________________ in open
market and ___________________ the discount rate.
(b) Sell securities, lower
(b) buy securities, lower
(c) Sell securities, increase
(d) buy securities, increase
28. How does bank create money?
(a) Lending it's excess reserves
29. Cheques are not money because:
(a) Instructions for transfer of money
(c) No or less intrinsic value
(b) Discounting bills
(b) issued by bank not government
30. Which of the following is not the function of Central bank
(a) Lender of last resort
(b) exchange rate control
(c) clearing agent
(d) credit creation
31. Which is not included in central bank monetary policy?
(a) Open market operations
(b) Reserve requirement
(c) Exchange rate
(d) Bank rate
32. Government introduces the policy and decides to increase to money supply by using :
(a) Expansionary fiscal policy
(b) Contractionary fiscal policy
(c) Expansionary monetary policy
(d) Contractionary monetary policy
33. ______________________ system allows the note issuing authority to issue currency notes
up to a certain limit without backing reserves or precious metals.
(a) Fixed fiduciary system
(b) Proportional Reserve System
46 | P a g e
34.
(a)
(b)
(c)
(d)
ECONOMICS PRC-03
Which two of the following are not traditional functions of State Bank of Pakistan?
Islamization of Banking
Institutionalization of saving and investment
Formulation and conduct of monetary and credit policy
Regulation and supervision of financial system
35. Reserve Ratio is 10%, leakage is 8% and initial deposit is 10 million, total credit creation will
be ________________
MCQ
Answer
NO.
1b
2a
3a
4d
5a
6a,d
7c
8a
9a
47 | P a g e
MCQ
NO.
101112131415161718-
Answer
a
a
d
a
a,c
b,c
c
300
500
MCQ
NO.
192021222324252627-
Answer
a,c
c
c
a,b
a,b
d
c
b
c
MCQ
NO.
2829303132333435-
Answer
a
a
d
c
c
a
a,b
55.5M
ECONOMICS PRC-03
CHAPTER: 13
BALANCE OF TRADE AND PAYMENTS
1. Which two of the following are non-monetary measures:
(a) Tariff
(b) Deflation
(c) export subsidy
(d) Exchange rate
2. A rise in the value of currency relative to other currency is called:
(a) Exchange rate
(b) Currency appreciation
(c) Currency depreciation
(d) current account deficit
3. Current account deficit means export is less than import.
(a) True
(b) false
4. Current account/ balance of payment deficit can be balanced by: (Select TWO)
(a) Selling gold and other reserves
(b) borrowing from central bank
(c) buying gold and other reserves
(d) Paying off debt
5. Running a deficit means that there is a net outflow of demand versus the income that
comes into a country. This can be thought of as a country “not paying their way”.
(a) True
(b) false
6.
(a)
(b)
(c)
(d)
Select any two advantages of floating exchange rates:
Avoids the need for government intervention in the foreign exchange markets
Avoids damaging speculation against the currency
Promotes free-trade as importers and exporters are released from exchange rate risk.
May act automatically to correct balance of payments disequilibrium.
7. Japanese import more goods from Pakistan (other things remain same):
(a) Our balance of payment will improve
(b) Our balance of payment will deteriorate
(c) Japan’s balance of payment will deteriorate
(d) both option a and c are correct
8. If Toyota Company, establishes a factory in Pakistan, this will be recorded in balance of
payments in the section:
(a) Capital account
(b) Current account
(c) invisible balance
(d) official financing
48 | P a g e
ECONOMICS PRC-03
9. The restrictive monetary policy in an open economy with flexible exchange rate is most
likely to result in:
(a) higher interest rates and an exchange rate appreciation
(b) higher interest rates and an exchange rate depreciation
(c) lower interest rates and an exchange rate appreciation
(d) lower interest rates and an exchange rate depreciation
10. A Pakistani resident makes an investment in a company resident in United States. This
transaction will be recorded in Pakistan as:
(a) credit in current account
(b) debit in current account
(c) credit in capital account
(d) debit in capital account
11. The rate of exchange of the currency of a country will tend to increase, if:
(a) the demand for the country’s goods and services increases in the foreign markets.
(b) the value of the dominant reserve/transaction currency appreciates significantly.
(c) the supply of currency of that country in foreign exchange markets increases.
(d) citizens of that country increase import of foreign goods and services.
12. Demand for imports may be price inelastic due to:
(a) high dependence on imports
(b) firmly entrenched preferences for imported goods
(c) lack of flexibility of domestic firms to replace imports
(d) all of the above
13. The protective measure of a government where only a fixed amount may be imported into a
country refers to:
(a) Import tariff
(b) Export tariff
(c) Quota
(d) Import substitution
14. Which of the following is not an advantage of floating exchange rate?
(a) It minimizes government intervention in foreign exchange markets
(b) It automatically corrects disequilibrium in balance of payments
(c) It stimulates demand for exports
(d) It frees policy instruments of government
15. A contractionary monetary policy in an open economy with a flexible exchange rate would
possibly steer the economy towards a:
(a) higher domestic interest rate and exchange rate appreciation
(b) higher domestic interest rate and exchange rate depreciation
(c) lower domestic interest rate and exchange rate appreciation
(d) lower domestic interest rate and exchange rate depreciation
16. A US resident sets up a factory in Pakistan. This transaction will be recorded in Pakistan as:
(a) credit in current account
(b) debit in current account
(c) credit in capital account
(d) debit in capital account
49 | P a g e
ECONOMICS PRC-03
17. Which exchange-rate system does not require monetary reserves for official exchange-rate
intervention?
(a) floating exchange rates
(b) fixed exchange rates
(c) managed floating exchange rates
(d) dual exchange rates
18. Under a floating exchange-rate system, if American exports increase and American imports
fall, the value of the dollar will:
(a) Appreciate
(b) depreciate
(c) revaluation
(d) devaluation
19. Select any TWO non-monetary measures:
(a) Deflation
(c) Export promotion
(b) Quota
(d) Depreciation in exchange rate
20. The given diagram depicts the concept of ___________________________
(a) Inverse J-curve
(c) Marginal cost
(b) J-curve
(d) Average cost
21. J-curve shows the impact of ___________________
(a) BOP
(b) BOT
(c) TOT
(d) None
22. What are the functions of tariff? (Select TWO)
(a) Decrease government revenue
(b) Increase price of import
(c) Improves the current account deficit
(d) provide less protection to domestic suppliers
23. If rate of inflation in abroad is less, then effect on Pakistan economy will be;
(a) Pakistani export will likely to increase
(b) Pakistani export will likely to decrease
(c) Pakistani import will likely to increase
(d) Pakistani import will likely to decrease
50 | P a g e
ECONOMICS PRC-03
24. Following are item related to balance of payment:
Trade in goods
-2902
Trade in services
1210
Dividend received
-500
Foreign direct investment
1500
Foreign reserve
-300
Foreign remittance
900
Current account deficit/ surplus by Rs ______________________
25. The _______________________ theory states that revaluation of a currency will not
immediately convert trade surplus into deficit.
(a) J-curve
(b) Inverse J-curve
26. _______________________records the transaction in goods, services, and assets between
residents of a country with the rest of the world for a specified time period.
(a) balance of trade
(b) balance of payment
(c) capital account
(d) current account
27. Import is price inelastic and export is price elastic, if domestic currency appreciates
(a) Dec in import spending and export revenue
(b) Dec in import spending and inc in export revenue
(c) Increase in both
(d) Increase in import spending and Dec in export revenue
28. What is not defined by J curve in short run(select 2)
(a) Import and export elastic
(b) Value of import increase
(c) Export volume increases
(d) Nominal trade deficit increases
29.
(a)
(b)
(c)
J curve depicts (Select TWO options)
in short run, trade balance gets improved
Firms are able to respond to rising demand for exports in long run
domestic customers reduce demand for imported goods in long run
30. Assume that pakistan has BOP surplus with an floating exchange rate which of the following
will happen?
(a) there will be no change in exchange rate
(b) import will be cheaper for domestic consumers
(c) the value of other currencies will rise relative to the PKR
(d) import will be expensive for domestic consumers
31. The difference between export merchandise and import merchandise is:
(a) Balance of trade
(b) Balance of payment
(c) Terms of trade
51 | P a g e
ECONOMICS PRC-03
32. If an individuals’ disposable income falls, what effect will this have on country’s import
demand and on the demand of foreign currency?
(a) Increase in import demand and increase in demand of foreign currency
(b) Increase in import demand and decrease in demand of foreign currency
(c) decrease in import demand and decrease in demand of foreign currency
(d) decrease in import demand and increase in demand of foreign currency
33.
(a)
(b)
(c)
(d)
Pakistan is facing BOP deficit and has floating exchange rate. Which is true?
The injections are greater than withdrawals
External value of PKR to rise
External value of PKR to fall
AD is increasing
MCQ
Answer
NO.
1a,c
2b
3a
4a,b
5a
6a,d
7d
8a
9a
52 | P a g e
MCQ
NO.
101112131415161718-
Answer
d
a
d
c
c
a
c
a
a
MCQ
NO.
192021222324252627-
Answer
b,c
b
a
b,c
c
-1292
b
b
d
MCQ
NO.
282930313233-
Answer
a,b
b,c
b
a
c
c