Economics and Globalisation

Undergraduate Framework Examination
Module Name: Economics and Globalisation
Module Code: BM405-20 Level: 4
Day and Date: June 9, 2022
Start time: 10 AM Duration: 24 hours
Instructions to candidates:

1.    Write your answers in the answer sheet provided separately

2.    Submit just the answer sheet to the portal.

3.   Multiple choice Questions (2 marks each; 100 marks in total)

4.   Choose the one alternative that best completes the statement or answers the question

 

  • When the price of a good falls and customers tend to buy more of it instead of other goods, economists call this the ________ effect.
  1. A) diminishing marginal utility B) substitution
  2. C) income D) ceteris paribus
  • When a decrease in the price of good A causes an increase in demand for good B, the goods are
  1. A) substitutes. B) complements. C) inferior.       D) normal.

 

  • Inferior goods are best defined as
  1. A) goods whose supply falls as people’s income rises.
  2. B) goods that only those who are relatively poor purchase.
  3. C) goods whose demand falls as people’s income rises.
  4. D) goods that have higher-quality alternatives.

 

  • Expectations about price changes will affect
  1. A) both the demand and supply curves. B) the demand curve only.
  2. C) neither curve.                                     D) the supply curve only.

 

5) Which of the following correctly describes how price adjustments eliminate a shortage?

  1. A) As the price rises, the quantity demanded will increase while the quantity supplied will decrease.
  2. B) As the price falls, the quantity demanded will decrease while the quantity supplied will increase.
  3. C) As the price rises, the quantity demanded will decrease while the quantity supplied will increase.
  4. D) As the price falls, the quantity demanded will increase and the quantity supplied will also increase

 

6) A movement upward along the demand curve to the left could be caused by

  1. A) a rise in income.     B) a decrease in supply.
  2. C) a rise in inflation. D) a fall in the price of substitutes.

 

7) Which of the following is the most likely cause of a decrease in demand for petrol?

  1. A) An increase in bus fares
  2. B) A decrease in the price of cars
  3. C) A decrease in the price of petrol
  4. D) The imposition of road charging in most major cities

 

8) Reasons for supply curves being positively sloped include:

  1. A) the higher the demand for a good the more firms can charge.
  2. B) typically, as output rises, unit costs rise, so price must also rise.
  3. C) firms always want to raise prices to boost profits.
  4. D) all of the above.

9) Which one of the following correctly describes how price adjustments eliminate a surplus?

  1. A) As the price rises, the quantity demanded will increase while the quantity supplied will decrease.
  2. B) As the price rises, the quantity demanded will decrease while the quantity supplied will increase.
  3. C) As the price falls, the quantity demanded will increase while the quantity supplied will decrease.
  4. D) As the price falls, the quantity demanded will decrease while the quantity supplied will increase

10) The following table shows the demand and supply schedules for good X

 

Price (£) 1 2 3 4 5 6 7
Quantity demanded 120 100 80 60 40 20 0
Quantity supplied 0 20 40 60 80 100 120

 

Assume that supply increases by 40 units at all prices. What will be the effect on equilibrium price?

  1. A) Fall by £1 B) Fall by £2 C) Rise by £1  D) Rise by £2

 

11) Which one of the following statements is correct?

  1. A) If a supply curve shifts to the left this will lead to a surplus at the original price.
  2. B) If a supply curve shifts to the left the new equilibrium price will be lower.
  3. C) If a demand curve shifts to the left this will lead to a surplus at the original price.
  4. D) If a demand curve shifts to the left the new equilibrium price will be higher.

 

12) The price elasticity of demand for bottled water in Yorkshire is -2, while the price elasticity of demand for bottled water in London is -0.8.  In other words, demand in Yorkshire is ________ and demand in London is ________.

  1. A) elastic, unitarily elastic B) highly inelastic, slightly inelastic
  2. C) elastic, inelastic D) inelastic, elastic

 

13) The owner of a local hot dog stand has estimated that if she lowers the price of hot dogs she will increase sales from 400 to 500 hot dogs per day.  The demand for hot dogs is

  1. A) unitarily elastic. B) inelastic.
  2. C) elastic. D) perfectly elastic

 

14) The ABC Computer Company wants to increase the quantity of computers it sells by 5%.  If the price elasticity of demand is -2.5 the company must

  1. A) decrease price by 0.5%. B) increase price by 0.5%.
  2. C) decrease price by 2.0%. D) increase price by 2.0%.

 

15) A university decides to raise tuition fees to increase the total revenue it receives from students.  This strategy will work if the demand for this institution’s education is

  1. A) inversely related to price.   B) unitarily elastic.
  2. C) inelastic. D) elastic

 

16) The government is going to increase the tax on petrol to raise additional revenue for road repairs.  The government will be able to raise more revenue by raising the petrol tax if the demand for petrol is

  1. A) relatively elastic. B) perfectly elastic.
  2. C) relatively inelastic. D) unitarily elastic.

 

17) The ABC Computer Company spends a lot of money on advertising designed to convince you that its personal computers are superior to all other personal computers.  If the ABC Company is successful,

  1. A) the demand for ABC personal computers and the demand for other firms’ personal computers will become more price elastic.
  2. B) the demand for ABC personal computers will become less price elastic but the demand for other firms’ personal computers will become more price elastic.
  3. C) the demand for ABC personal computers will become more price elastic but the demand for other firms’ personal computers will become less price elastic.
  4. D) the demand for ABC personal computers and the demand for other firms’ personal computers will become less price elastic.

 

18) Assume that the income elasticity of demand for bread is 0.2. A 5% increase in income will cause

  1. A) a 1% increase in the demand for bread.
  2. B) a 25% increase in the demand for bread.
  3. C) a 25% decrease in the demand for bread.
  4. D) a 10% increase in the demand for bread.

 

19) There are two goods A and B. In which of the following cases will good A have the more price elastic supply?

  1. A) A higher proportion of national income is spent on A than on B.
  2. B) The cost of producing extra units increases more rapidly in the case of A than in the case of B.
  3. C) Consumers find it easier to find alternatives to A than to B.
  4. D) If it is less costly to shift from producing A to another product than it is to shift from producing B to another product.

 

20) The law of diminishing marginal utility allows us to conclude that

  1. A) demand curves slope downward to the right.
  2. B) total utility will increase by an increasing amount as consumption increases.
  3. C) supply curves slope upward.
  4. D) a consumer will buy positive amounts of all goods.

 

 

21) The additional cost of producing one more unit of a product is known as a firm’s ________ cost.

  1. A) average
  2. B) monetary
  3. C) real
  4. D) marginal

22) Economies of scale exist when

  1. A) increasing the scale of production leads to a higher cost per unit output.
  2. B) increasing the scale of production leads to a lower cost per unit output.
  3. C) doubling the amount of labour more than doubles the amount of output.
  4. D) doubling the amount of capital more than doubles total output.

 

23) Which of the following is most likely to be a variable cost for a firm?

  1. A) The monthly rent on office space that it leased for a year
  2. B) The taxes that are paid on employee wages
  3. C) The franchiser’s fee that a restaurant must pay to the national restaurant chain
  4. D) The interest payments made on loans

 

24) Which of the following is a fixed cost for a chocolate factory over the course of a month?

  1. A) The cost of electricity (paid quarterly) for running the mixing machines
  2. B) The cost of cocoa
  3. C) Depreciation of machines due simply to their age
  4. D) Overtime pay

 

25) The following table shows costs and revenue schedules for a firm.

 

Quantity (units) AC (£) MC (£) AR (£) MR (£)
100 3.20 3.00 3.00 3.00
200 2.80 2.80 3.00 3.00
300 2.84 3.00 3.00 3.00
400 3.00 3.60 3.00 3.00
500 4.00 6.00 3.00 3.00
600 6.00 9.00 3.00 3.00
         

 

How much total profit will the firm make at the profit-maximising level of output?

 

  1. A) £40 B) £16 C) £0 D) £48

 

26) If a country has negative outward Foreign Direct Investment (FDI), this means that

  1. A) inward FDI exceeds outward FDI.
  2. B) sales of foreign assets in the country exceed sales of the country’s assets abroad.
  3. C) outward investment as a percentage of inward investment is falling.
  4. D) sales of existing investments abroad exceed new investments abroad.

 

27) A vertically integrated multinational is one that

  1. A) produces various stages of production in different countries.
  2. B) one which exports more than 50% of output.
  3. C) produces different products in different countries.
  4. D) produces the same product in more than one country.

 

28) Poor communication between subsidiaries may cause

  1. A) diseconomies of scale. B) adverse selection.
  2. C) economies of scope. D) all of the above

 

29) Business cycles are highly irregular in practice because

  1. A) booms are short-lived, while recessions last a long time.
  2. B) the length and magnitude of each stage can vary.
  3. C) in a recovery growth is very rapid but, in a downturn, growth declines quickly so recoveries last a short time but downturns occur very slowly.
  4. D) None of the above

 

30) A recent research revealed that 100,000 of the residents in RAK are classified as unemployed while 0.5 million are classified as employed. How many percent is unemployed?

  1. A) 100% B) 20% C) 16.67%      D) 50%

 

31) If the budget deficit is lower than it was last year, we could say that………………………………………..

  1. A) the government must have an expansionary fiscal stance.
  2. B) other things being equal, the level of aggregate demand will be higher than it was last year.
  3. C) the general government debt will fall.
  4. D) other things being equal, the level of aggregate demand will be lower than it was last year

 

32) Fiscal stance refers to

  1. A) a government that prefers the use of fiscal to monetary policy for demand management.
  2. B) a government that is running a budget deficit.
  3. C) whether a government is pursuing an expansionary or contractionary fiscal policy.
  4. D) a government that takes a tough stance when it comes to running the country’s finances

 

33) If the economy were booming, we would expect

  1. A) government expenditure to be low and tax revenues to be high so that the public sector might be running a surplus.
  2. B) government expenditure to be low and tax revenues to be low so that the government could pay off the central government debt.
  3. C) government expenditure to be high and tax revenues to be low causing a large budget deficit.
  4. D) none of the above

 

34) A central bank wishing to operate a tighter monetary policy might

  1. A) lower interest rates to encourage spending and discourage saving.
  2. B) reduce interest rates but use open-market operations to reduce the money supply.
  3. C) promote investment in other countries by domestic firms.
  4. D) raise interest rates and use open-market operations so as to reduce the money supply.

 

35) Which of the following is NOT an undesirable side-effect of discretionary fiscal policy?          A) Tax changes may change expectations.

  1. B) Raising taxes raises prices.
  2. C) Tax changes could have disincentive effects.
  3. D) Cuts in spending may harm the poor.

 

36) Which of the following is an example of an easy/relaxed monetary policy?

  1. A) An increase in the liquidity ratio
  2. B) The central bank selling government securities in the open market
  3. C) A decrease in the tax rate
  4. D) A decrease in the repo rate

 

37) Assume that the UK’s unemployment rate is 10% and the inflation rate is 1%. The most likely policy for the Bank of England to pursue would be to

  1. A) do nothing because the inflation rate is so low.
  2. B) increase interest rates to try to bring the inflation rate to zero.
  3. C) decrease interest rates so long as predicted inflation remained below 2%.
  4. D) decrease interest rates to try to eliminate unemployment

 

38) Which of the following represents an action by a central bank which has the effect of increasing the money supply?

  1. A) Buying government securities in the open market
  2. B) An increase in government spending
  3. C) An increase in its repo rate
  4. D) Requiring banks to keep a higher liquidity ratio

 

39) If the central bank raises interest rates it will

  1. A) lower aggregate demand and raise the exchange rate.
  2. B) raise aggregate demand and lower the exchange rate.
  3. C) lower aggregate demand and lower the exchange rate.
  4. D) raise aggregate demand and raise the exchange rate.

 

40) Which of the following reduces the effectiveness of inflation targeting as a means of reducing cyclical fluctuations in the economy?

 

  1. A) People increasingly believe that the rate of inflation affects the level of real output.
  2. B) Oil prices become more stable.
  3. C) Goodhart’s Law, as applied to inflation targets, breaks down.
  4. D) The trade-off between inflation and unemployment (and output) virtually disappears.

 

41) What effect will a successful supply-side policy have on the aggregate demand curve?

  1. A) Leftward shift B) Rightward shift
  2. C) Movement down along D) Movement up along

 

42) If Argentina has an absolute advantage in the production of wheat and Chile has an absolute advantage in the production of copper, then

  1. A) neither country has anything to gain from specialisation and trade.
  2. B) it is reasonable to expect that specialisation and trade will benefit both countries.
  3. C) it is reasonable to expect that trade will benefit both countries, but specialisation will not.
  4. D) it is reasonable to expect that specialisation will benefit both countries, but trade will not

 

43) The main advantage of trade between two countries is that

  1. A) trade makes both countries more self-sufficient.
  2. B) employment in both countries will increase.
  3. C) both countries can produce beyond their previous resource and productivity constraints.
  4. D) both countries can consume beyond their previous resource and productivity constraints.

 

44) The following table provides information about the relationship between the quantity of toys assembled and the number of workers in the short run:

 Workers                    Number of toys

10                                60

15                                75

20                                80

25                                75

 

Which one of the following statements describes the situation in this firm?

  1. A) There are diminishing marginal returns.
  2. B) There are diminishing returns to scale.
  3. C) There are increasing returns to scale.
  4. D) There are constant returns to scale.

 

45) Which of the following would increase globalisation?

  1. A) Green policies leading to increased self-sufficiency
  2. B) Regulation of international speculation
  3. C) A reduction of world trade
  4. D) An increase in demand for Coca-Cola.tm

 

46) Which of the following would be a credit item in the UK balance of payments?

  1. A) A UK company sells computer software to a company in Spain.
  2. B) A UK firm hires a non-UK citizen.
  3. C) A UK citizen travels to the USA for a two-week holiday.
  4. D) The UK government lends money to a developing country

 

47) When a country hosts the Olympics this can be expected to

  1. A) reduce the supply of the country’s currency on the foreign exchange markets.
  2. B) increase the country’s exports.
  3. C) reduce the country’s imports.
  4. D) lead to a depreciation of the host country’s currency.

 

48) A country has the following items in its balance of payments:

 

  £ millions
Exports of goods 120
Imports of services   60
Income flows and current transfers from abroad   80
Imports of goods 150
Exports of services   50
Income flows and current transfers going abroad   30

 

Its balance on trade in goods and services is a

  1. A) deficit of £30m
  2. B) deficit of £40m
  3. C) deficit of £20m
  4. D) surplus of £10

 

49) The following table shows the balances in the three main accounts of a country’s balance of payments account:

 

 

  Credits (£m) Debits (£m)
Current account 1,000 1,200
Capital account      10     20
Financial account 1,900 1,700

 

How much are net errors and omissions?

  1. A) -£20m B) +£20m C) -£10m         D) +£10m

 

50) Which of the following would cause exports to rise?

  1. A) A depreciation of the exchange rate B) A fall in overseas income
  2. C) An appreciation of the exchange rate D) None of the above