NOTE: Attempt FIVE questions in all, including question No. 8 which is COMPULSORY. All questions carry EQUAL marks.

1. What is the most important determinant of consumer spending? Are there other determinants other than the one mentioned above? If so, explain.

2. “GNP is a monetary measure.” Explain. In what way is GNP different from GDP? Describe two important methods of measuring GDP.

3. What is the Multiplier Effect? What relationship does the marginal propensity to consume (MPC) bear to the Multipliers and the marginal propensity to save (MPS)? What will the size of Multiplier be when the MPS is 0: 04: 0.6 and 1?

4. What items constitute money supply in Pakistan? What determines value of money and why is it important for money supply to be elastic .i.e. capable of increasing / decreasing in size?

5. “When commercial bank makes loan, it creates money: when loans are retired, money is destroyed.” Explain.

6. What is deficit financing? Why is it resorted to in developing countries like Pakistan?

7. Import tariff protection was used as a forceful policy instrument in the past to establish investment priorities in the developing countries. Discuss the economic implications of reducing import tariff to the minimum globally under auspices of WTO Conventions to which Pakistan is signatory?



8. Write only the correct answer in the Answer Book. Do not reproduce the questions.

(1) Budgetary Deficit refers to:
(a) Total Revenue Receipts minus Total Expenditures
(b) Fiscal Deficit minus Interest Payments
(c) Total Receipts (Revenue Account + Capital Account) Minus Total Expenditure (Revenue + Capital)
(d) None of the above

(2) Increase in the number of buyers in the market would lead to a shift of the demand curve to:
(a) The right
(b) The left
(c) Upwards along the curve
(d) None of the above

(3) Balance of Trade Deficit refers to:
(a) Excess of payments for import of goods and services over receipts from exports of goods and services.
(b) Excess of receipts from commodity exports minus payments of imports of goods
(c) Payments for commodity imports minus receipts from commodity exports
(d) None of the above

(4) A monopolist gains more if:
(a) Elasticity of demand for his product is low comparatively
(b) Elasticity of demand for his product is high comparatively
(c) Demand elasticity does not change
(d) None of the above

(5) Devaluation of Pak. Rupee in the 1990’s led to:
(a) Increase in exports
(b) Increase in imports
(c) Increase in both exports and imports
(d) None of the above

(6) Most sophisticated models of economics growth are based on:
(a) Realistic assumption
(b) Unrealistic assumptions
(c) On assumptions, at least some of which are extremely difficult to be proved as valid.
(d) None of the above

(7) Real GDP refers to:
(a) GDP, at constant prices
(b) GDP, at current prices over time
(c) GDP, at nominal prices over time
(d) None of the above

(8) Terms of trade refer to:
(a) Unit price of commodity import
(b) Value of exports vs. Value of imports.
(c) Exchange rate applicable to foreign trade of a country
(d) None of the above

(9) Cost-push inflation is the result of:
(a) Increase in the production cost
(b) Increase in the price of industrial production
(c) Escalation of international prices
(d) None of the above

(10) Competitive market comprises:
(a) Large number of buyers
(b) Large number of firms
(c) Large number of both buyers and producers
(d) None of the above

(11) A monopolist maximizes his profit at a point where:
(a) His average cost curve meets the marginal revenue curve.
(b) His marginal cost = marginal revenue
(c) His average cost = market price of market
(d) None of the above

(12) Under perfect competition, a firm would maximize profit at a point where:
(a) Average revenue = average cost
(b) Marginal cost = average revenue
(c) Marginal cost = marginal revenue
(d) None of the above

(13) Foreign trade differs from domestic trade:
(a) Because of terms of trade
(b) Due to differences in production costs
(c) Because of territorial differences
(d) None of the above

(14) World Trade Organization is:
(a) The same thing as UNCTAD
(b) The same as WHO
(c) A replacement of UNCTAD
(d) None of the above

(15) Major sources of revenue in Pakistan’s Budget:
(a) Have not changed in the 1990’s
(b) Have drastically changed in the nineties
(c) Have changed slightly in the nineties
(d) None of the above

(16) Main heads of expenditure in Pakistan's Budget (in ascending order) are:
(a) Foreign debt, Development, Defence.
(b) Defence, foreign debt, development
(c) Development, defence and foreign debt
(d) None of the above

(17) Increase in foreign exchange reserves causes:
(a) Inflation
(b) Deflation
(c) No increase in price level
(d) None of the above

(18) Pakistan’s Budget deficit is financed by:
(a) Revenue Budget surplus
(b) Borrowing (both bank and non-bank)
(c) Foreign resource inflow
(d) None of the above

(19) Most important economic indicator of the health of an economy is:
(a) Income per capita
(b) National output
(c) Literacy rate
(d) None of the above

(20) Most important catalyst in economic growth is:
(a) Savings and investments
(b) Technology and skills
(c) Both at (a) and (b)
(d) None of the above