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

1. Why is equality of Marginal Revenue and Marginal Cost essential for profit maximization in all market structures? Examine the significance of this equality in the theory of the firms.

2. “Planned Investment is equal to Savings at all levels of NNP; actual investment equals savings only at the equilibrium NNP. Do you agree? Explain.

3. What role can the Central Bank play in promoting economic growth with stability? Illustrate your answer with reference to Pakistan.

4. “The Modern tendency in economic thinking is to discard the old notion of the quantity of money as the sole determinant of the value of money.” Elucidate.

5. Do you agree that indirect rather than direct taxation will provide large public revenue needed in a developing economy? Explain.

6. Explain the concept of Terms of Trade. How do you account for the deterioration of terms of trade of a developing country like Pakistan?

7. Evaluate the following statements:
(a) If a product improves in quality from one year to the next year and its price reflects this improvement, Real GNP and GNP deflator both will increase.
(b) If a Pakistani firm decides to build a plant in Japan rather than in Pakistan. GNP of Pakistan will exceed to GDP.



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

(1) Two commodities are considered to be perfect substitutes for each other if the elasticity of substitution is:
(a) Positive
(b) Negative
(c) Infinite
(d) None of these

(2) A straight – line downward sloping demand curve implies that, as price falls, the elasticity of demand:
(a) Increases
(b) Decreases
(c) Remains the same
(d) None of these

(3) Which of the following is often considered to be inconsistent with the notion of perfect competition?
(a) Large number of firms
(b) Free entry
(c) Complete mobility
(d) None of these

(4) Currently total investment as percentage of GDP in Pakistan is:
(a) 12.9
(b) 14.9
(c) 16.9
(d) None of these

(5) A purely monetary explanation of the business cycle is proposed by:
(a) Hawtrey
(b) Schumpeter
(c) Hansen
(d) None of these

(6) The exogenous variable in the income equation C + I + G = Y is:
(a) C
(b) I
(c) G
(d) None of these

(7) The Lorenz curve describes:
(a) Income distribution
(b) The interest rate
(c) The marginal efficiency of capital
(d) None of these

(8) A stable equilibrium requires that the marginal propensity to consume is:
(a) Less than zero
(b) Zero
(c) One
(d) None of these

(9) International trade during the 19th century was characterized by:
(a) Extensive barriers to trade
(b) Operation of the gold standard
(c) A small volume of international trade
(d) None of these

(10) The type of business in which an individual has unlimited responsibility for the debts of the organization is:
(a) Partnership
(b) Corporation
(c) Monopoly
(d) None of these

(11) Which one of the following types of taxes is the most regressive?
(a) Income taxes
(b) Sales taxes
(c) Excise taxes
(d) None of these

(12) An Engel curve is based on which one of the following assumptions?
(a) Constant prices, varying incomes
(b) Constant prices, Constant incomes
(c) Constant incomes, varying prices
(d) None of these

(13) The largest trading partner of Pakistan is:
(a) Italy
(b) Hong Kong
(c) Germany
(d) None of these

(14) Of the following which one is a characteristic of monopolistic competition?
(a) Standardized product
(b) Comparatively easy entry
(c) Little non-price competition
(d) None of these

(15) In the long run:
(a) Fixed costs will be greater than variable costs
(b) Variable costs will be greater than fixed costs
(c) All costs are variable costs
(d) None of these

(16) Currently the total export value of Pakistan is:
(a) $ 10 billions
(b) $ 9 billions
(c) $ 8 billions
(d) None of these

(17) A competitive firm will maximize profits at the output where:
(a) The difference between price and marginal cost is highest
(b) Price is higher than the average total cost by the largest amount
(c) Total revenues and total costs are exactly equal
(d) None of these

(18) Structural unemployment can be eliminated by:
(a) Training the technologically unemployed
(b) Increased federal expenditures
(c) An increase in the general credit level
(d) None of these

(19) Public utilities tend to be:
(a) Inefficient
(b) Natural monopolies
(c) Subject to increasing costs
(d) None of these

(20) Which one of the following is incorrectly matched?
(a) Joan Robinson --- Imperfect Competition
(b) Edward Chamberlain --- Monopolistic Competition
(c) Vilfredo Pareto --- Welfare Economics
(d) None of these