ECO 102 Past Questions and Answers

Contents

1. The Concept of Macro Economics
2. National Income Accounting
3. Circular Flow of Income
4. Money and Barter System
5. Financial Institution
6. Inflation
7. Employment and Unemployment
8. Business Cycle Theory
9. Public Finance
10. Evolution of Theories of International Trade
11. Economic Development

PRACTICE

1. The main focus of macroeconomics is:
   A. Individual firms
   B. Aggregate output and employment
   C. Household choice
   D. Product design
   Answer: B
2. Gross Domestic Product (GDP) measures:
   A. Total income of residents only
   B. Value of final goods and services produced domestically
   C. Total exports only
   D. Government spending only
   Answer: B
3. Which approach sums wages, rent, interest and profits?
   A. Expenditure approach
   B. Income approach
   C. Production approach
   D. Transfer approach
   Answer: B
4. Net factor income from abroad is included in:
   A. GDP
   B. GNP (GNI)
   C. Value added only
   D. Imports
   Answer: B
5. If depreciation is subtracted from GDP, we get:
   A. Gross national product
   B. Net domestic product
   C. Personal income
   D. Disposable income
   Answer: B
6. A fall in consumption with constant investment likely reduces:
   A. Aggregate demand
   B. Aggregate supply
   C. Potential output
   D. Money supply
   Answer: A
7. The circular flow model without government includes:
   A. Households and firms only
   B. Government, households, firms
   C. Banks only
   D. Foreign sector only
   Answer: A
8. In the circular flow, savings are:
   A. Injections
   B. Leakages
   C. Taxes
   D. Exports
   Answer: B
9. An injection into the circular flow is:
   A. Savings
   B. Taxes
   C. Investment
   D. Imports
   Answer: C
10. If leakages > injections, equilibrium output will:
    A. Rise
    B. Fall
    C. Remain same
    D. Cause hyperinflation
    Answer: B
11. Barter fails mainly because:
    A. Money value fluctuates
    B. Double coincidence of wants is hard
    C. Banks control barter
    D. Taxes are higher
    Answer: B
12. Money as a unit of account means it:
    A. Stores value only
    B. Measures prices and value
    C. Is used for barter
    D. Is always backed by gold
    Answer: B
13. Which is NOT a function of money?
    A. Medium of exchange
    B. Unit of account
    C. Factor of production
    D. Store of value
    Answer: C
14. Fiat money is:
    A. Backed by gold
    B. Legal tender by government decree
    C. Barter goods
    D. Foreign currency only
    Answer: B
15. A major short-run effect of introducing money is:
    A. Eliminate all transaction costs
    B. Easier trade and specialization
    C. End of prices
    D. Instant full employment
    Answer: B
16. Financial institutions mainly:
    A. Produce goods
    B. Channel funds from savers to borrowers
    C. Set fiscal policy
    D. Control exports
    Answer: B
17. A bank’s main role in credit creation is to:
    A. Print money
    B. Lend deposits and create deposits
    C. Fix prices
    D. Control imports
    Answer: B
18. The central bank usually:
    A. Runs commercial shops
    B. Controls monetary policy
    C. Runs hospitals
    D. Prints textbooks
    Answer: B
19. Open market operations affect:
    A. Government spending only
    B. Money supply and interest rates
    C. Exports only
    D. Tax laws
    Answer: B
20. Reserve requirement ratio affects:
    A. Bank lending capacity
    B. Export quotas
    C. Tariff levels
    D. Wage setting
    Answer: A
21. Cost-push inflation is caused by:
    A. Too much demand only
    B. Rising production costs
    C. Falling wages only
    D. Lower money supply
    Answer: B
22. Demand-pull inflation arises when:
    A. Aggregate demand exceeds supply
    B. Supply increases faster than demand
    C. Prices fall
    D. Exports drop only
    Answer: A
23. If inflation expectations rise, nominal wages tend to:
    A. Fall immediately
    B. Rise as workers demand compensation
    C. Stay fixed by law
    D. Equal zero
    Answer: B
24. Headline inflation includes:
    A. Only food and energy
    B. All items in the CPI basket
    C. GDP deflator only
    D. Only housing costs
    Answer: B
25. Core inflation excludes:
    A. Durable goods
    B. Food and energy prices
    C. Services
    D. Clothing
    Answer: B
26. Frictional unemployment is due to:
    A. Skill mismatch
    B. Time in job search
    C. Permanent industry decline
    D. Seasonal layoffs
    Answer: B
27. Structural unemployment results from:
    A. Short job search time
    B. Mismatch of skills and jobs
    C. Temporary strikes only
    D. Seasonal work
    Answer: B
28. Cyclical unemployment is caused by:
    A. Long-term structural shifts
    B. Business cycle downturns
    C. Job search frictions only
    D. Immigration
    Answer: B
29. Natural rate of unemployment equals:
    A. Zero
    B. Frictional + structural unemployment
    C. Cyclical unemployment only
    D. Full employment without any unemployment
    Answer: B
30. If minimum wage rises above equilibrium, it may cause:
    A. Excess supply of labor (unemployment)
    B. Labor shortage only
    C. No effect on market
    D. Immediate full employment
    Answer: A
31. Business cycles are measured by changes in:
    A. Long-run trend only
    B. Short-run fluctuations in output and employment
    C. Population growth rates only
    D. Land use patterns
    Answer: B
32. A recession is identified by:
    A. Rapid inflation only
    B. Significant decline in economic activity across the economy
    C. High net exports always
    D. Permanent GDP increase
    Answer: B
33. Leading indicators are useful because they:
    A. Move before the economy as a whole
    B. Always predict exact dates of recessions
    C. Are the same as lagging indicators
    D. Measure only monetary policy
    Answer: A
34. Expansion in a business cycle is when:
    A. Output declines
    B. Output and employment increase
    C. Prices always fall
    D. Investment stops
    Answer: B
35. Fiscal policy uses:
    A. Interest rate changes only
    B. Government spending and taxes
    C. Central bank reserves only
    D. Tariff quotas only
    Answer: B
36. A contractionary fiscal policy would:
    A. Increase government spending
    B. Reduce spending or raise taxes
    C. Cut central bank reserves only
    D. Eliminate public debt immediately
    Answer: B
37. Progressive tax system means:
    A. Same rate for all incomes
    B. Higher average tax with higher income
    C. Lower rate for higher incomes
    D. No taxation
    Answer: B
38. Benefit principle in taxation says taxes should be:
    A. Based on ability to pay only
    B. Related to benefits received from public goods
    C. Collected only from firms
    D. Flat for everyone
    Answer: B
39. Public debt is sustainable if:
    A. Interest rate < GDP growth rate or debt stabilizes relative to GDP
    B. Debt always grows faster than GDP
    C. Government stops all spending
    D. Taxes are zero
    Answer: A
40. Debt crowding out happens when:
    A. Private investment falls due to higher interest rates from government borrowing
    B. Exports rise automatically
    C. Consumption increases only
    D. Money supply vanishes
    Answer: A
41. A lump-sum tax is efficient because it:
    A. Distorts choices heavily
    B. Does not change relative prices of goods and work
    C. Is always fair
    D. Is easy to evade
    Answer: B
42. Transfer payments are:
    A. Government payments to firms for goods only
    B. Payments like pensions and unemployment benefits
    C. Taxes collected by the state
    D. Exports of services
    Answer: B
43. The fiscal multiplier is larger when:
    A. Openness to trade is high
    B. Marginal propensity to consume is high and imports are low
    C. Taxes are very high always
    D. Money supply is fixed
    Answer: B
44. Automatic stabilizers work by:
    A. Changing policy rates daily
    B. Dampening fluctuations without new legislation
    C. Requiring new laws every time
    D. Eliminating unemployment instantly
    Answer: B
45. Balance of payments current account records:
    A. Capital flows only
    B. Trade in goods and services, income and transfers
    C. Only exports
    D. Only imports
    Answer: B
46. A current account deficit must be financed by:
    A. Net capital inflows from abroad
    B. Reducing imports automatically
    C. Increasing exports instantly
    D. Cutting domestic savings to zero
    Answer: A
47. Comparative advantage depends on:
    A. Absolute productivity only
    B. Relative opportunity costs across countries
    C. Tariff levels only
    D. Currency value only
    Answer: B
48. Heckscher-Ohlin theory links trade patterns to:
    A. Technology only
    B. Factor endowments (capital, labor)
    C. Political systems only
    D. Population density only
    Answer: B
49. Terms of trade measure:
    A. Ratio of export prices to import prices
    B. Exchange rate only
    C. Government budget only
    D. Domestic inflation rate
    Answer: A
50. An improvement in terms of trade means:
    A. Exports fetch more imports per unit
    B. Imports become more expensive only
    C. No effect on welfare
    D. Exports drop to zero
    Answer: A
51. Export-led growth strategy focuses on:
    A. Domestic consumption only
    B. Promoting exports to drive growth
    C. Closing borders to trade
    D. Reducing human capital
    Answer: B
52. Import substitution strategy emphasizes:
    A. Replacing imports with local production
    B. Increasing imports always
    C. Export subsidies only
    D. Removing local industry
    Answer: A
53. Foreign direct investment (FDI) usually brings:
    A. Only capital flight
    B. Capital, technology and management skills
    C. Higher trade barriers
    D. No jobs at all
    Answer: B
54. A fixed exchange rate requires:
    A. No foreign reserves
    B. Active use of reserves to defend the peg
    C. Flexible monetary policy always
    D. Ignoring capital flows
    Answer: B
55. A flexible exchange rate is determined by:
    A. Central bank only
    B. Market supply and demand for currency
    C. Government decree only
    D. Fixed commodity backing
    Answer: B
56. Devaluation makes exports:
    A. Cheaper for foreigners
    B. More expensive abroad
    C. Unchanged in competitiveness
    D. Illegal
    Answer: A
57. Economic development differs from growth by focusing more on:
    A. Raw GDP numbers only
    B. Structural change, living standards and institutions
    C. Short-run output spikes only
    D. Currency accumulation only
    Answer: B
58. Human capital refers to:
    A. Physical machines only
    B. Education, skills and health of workers
    C. Natural resources only
    D. Government buildings
    Answer: B
59. Physical capital accumulation raises growth by:
    A. Reducing labor productivity
    B. Increasing productive capacity and output per worker
    C. Causing immediate inflation only
    D. Eliminating trade
    Answer: B
60. In Solow model, technological progress leads to:
    A. Higher long-run growth in output per worker
    B. Lower productivity forever
    C. Immediate zero growth
    D. Decline in steady-state output
    Answer: A
61. Poverty trap implies:
    A. Small initial differences can lead to large long-run gaps
    B. Everyone escapes poverty easily
    C. No role for savings or investment
    D. All countries converge automatically
    Answer: A
62. Sustainable development stresses:
    A. Only GDP growth today
    B. Meeting present needs without harming future generations
    C. Exploiting all resources now
    D. Ignoring environmental limits
    Answer: B
63. Structural adjustment programs often require:
    A. Increased government subsidies only
    B. Fiscal discipline, liberalization and privatization
    C. Closing markets to trade
    D. Banning foreign investment
    Answer: B
64. Which policy is most likely to reduce structural unemployment?
    A. Improve education and retraining programs
    B. Raise unemployment benefits permanently
    C. Ban technological change
    D. Fix wages rigidly
    Answer: A
65. If consumption function is C = 200 + 0.8Y, marginal propensity to consume (MPC) is:
    A. 0.2
    B. 0.8
    C. 200
    D. 1.0
    Answer: B
66. The multiplier (with MPC = 0.75) equals:
    A. 1 / (1 – 0.75) = 4
    B. 0.75
    C. 1
    D. 0.25
    Answer: A
67. Real GDP adjusts nominal GDP using:
    A. Exchange rates
    B. Price index (deflator)
    C. Bank reserves
    D. Tax rates
    Answer: B
68. If nominal GDP rises faster than real GDP, this suggests:
    A. Deflation
    B. Positive inflation
    C. No price changes
    D. GDP deflator fell
    Answer: B
69. Velocity of money equals:
    A. (Price level × real GDP) / Money supply
    B. Money supply only
    C. Interest rates only
    D. Tax revenue divided by money
    Answer: A
70. Monetarists claim controlling money growth controls:
    A. Trade deficits only
    B. Long-run inflation
    C. Employment permanently
    D. Natural resources
    Answer: B
71. Phillips curve shows trade-off between:
    A. Inflation and unemployment in the short run
    B. Growth and technology only
    C. Exports and imports only
    D. Budget deficit and trade balance
    Answer: A
72. Long-run Phillips curve is vertical because:
    A. No trade-off exists between inflation and natural unemployment long run
    B. Inflation eliminates unemployment permanently
    C. Unemployment can be zero long run
    D. Prices are fixed long run
    Answer: A
73. Sticky wages mean wages:
    A. Adjust instantly to clear labor markets
    B. Do not fall quickly, causing unemployment in downturns
    C. Never rise in expansions
    D. Are always set by markets only
    Answer: B
74. Rational expectations imply agents:
    A. Use all available information and model-consistent forecasts
    B. Never update beliefs
    C. Ignore policy announcements
    D. Always be irrational
    Answer: A
75. If government runs persistent deficits, long-term interest rates may:
    A. Rise due to higher demand for loanable funds
    B. Fall to zero always
    C. Become negative only
    D. Be unaffected forever
    Answer: A
76. Seigniorage is revenue from:
    A. Taxing imports only
    B. Money creation by the government/central bank
    C. Income taxes only
    D. Foreign aid exclusively
    Answer: B
77. A liquidity trap occurs when:
    A. Interest rates are very low and monetary policy is ineffective
    B. Interest rates are high and money demand is low
    C. Banks refuse to hold reserves only
    D. All consumers hoard gold only
    Answer: A
78. Quantitative easing involves:
    A. Selling long-term assets only
    B. Central bank buying long-term securities to increase money supply
    C. Increasing taxes directly
    D. Cutting exports
    Answer: B
79. Exchange rate depreciation tends to:
    A. Make exports cheaper and imports more expensive
    B. Make exports more expensive abroad
    C. Eliminate trade entirely
    D. Fix terms of trade automatically
    Answer: A
80. Capital account records:
    A. Trade in goods and services
    B. Capital transfers and acquisition/disposal of non-produced, non-financial assets
    C. Only tourism receipts
    D. Only tax revenue
    Answer: B
81. A current account surplus implies:
    A. Net lending to the rest of the world
    B. Net borrowing from abroad
    C. Zero investment domestically
    D. Balanced budget always
    Answer: A
82. Currency substitution occurs when:
    A. A country uses a foreign currency widely instead of its own
    B. Everyone uses barter only
    C. Central bank bans foreign money strictly
    D. Imports equal exports always
    Answer: A
83. Purchasing Power Parity (PPP) suggests:
    A. Exchange rates adjust so similar goods cost the same across countries
    B. Exchange rates never change
    C. Nominal wages are equal across countries
    D. Tariffs set price levels only
    Answer: A
84. A trade tariff typically:
    A. Raises domestic prices of imported goods
    B. Lowers government revenue always
    C. Has no effect on trade flows
    D. Makes imports cheaper
    Answer: A
85. Subsidies to domestic industry typically:
    A. Improve long-run efficiency always
    B. Distort resource allocation and fiscal cost
    C. Lower domestic production cost without cost
    D. Are revenue-neutral always
    Answer: B
86. Import quota restricts:
    A. Quantity of imports allowed
    B. Export prices only
    C. Currency supply only
    D. Domestic production only
    Answer: A
87. Structural transformation in development means:
    A. Economy shifts from agriculture to industry and services
    B. Staying in low-productivity agriculture only
    C. Closing all markets to trade
    D. Reducing human capital
    Answer: A
88. Income distribution matters for development because:
    A. It affects poverty, demand and social stability
    B. It only affects taxes for the rich
    C. It has no role in growth
    D. Only average GDP matters
    Answer: A
89. Conditional cash transfers aim to:
    A. Provide cash with behavioral conditions like school attendance
    B. Give cash with no conditions always
    C. Replace all public services
    D. Remove incentives for school attendance
    Answer: A
90. Microfinance primarily targets:
    A. Large corporations only
    B. Small borrowers and entrepreneurs lacking collateral
    C. Government agencies only
    D. International banks only
    Answer: B
91. Human Development Index (HDI) combines:
    A. GDP per capita only
    B. Income, education and health indicators
    C. Trade balance only
    D. Inflation rate only
    Answer: B
92. A current account surplus combined with capital inflow:
    A. Means the country is net lender and also receiving foreign investment
    B. Impossible situation
    C. Always causes sovereign default
    D. Indicates zero trade
    Answer: A
93. Terms of trade deterioration hurts a country because:
    A. It gets fewer imports for its exports
    B. Exports become more valuable always
    C. Domestic prices fall only
    D. It always leads to higher GDP
    Answer: A
94. Import-dependent economies have fiscal multipliers that are:
    A. Larger than closed economies
    B. Smaller because leakages via imports reduce multiplier
    C. Equal to zero always
    D. Infinite
    Answer: B
95. Convergence hypothesis states:
    A. Poor countries will catch up to rich countries under certain conditions
    B. All countries always converge automatically regardless of policy
    C. Rich countries get poorer always
    D. Growth rates are identical everywhere
    Answer: A
96. Balanced growth strategy encourages:
    A. Equal development across sectors to avoid bottlenecks
    B. Focus on one sector only always
    C. Ignoring capital accumulation
    D. Eliminating exports entirely
    Answer: A
97. Structural unemployment can be reduced by:
    A. Improving labor mobility and retraining
    B. Eliminating education systems
    C. Fixing wages at high levels permanently
    D. Banning migration
    Answer: A
98. If government raises taxes and uses revenue to build roads, short-run effect on aggregate demand is likely:
    A. Ambiguous — depends on tax size and multiplier effects
    B. Always zero
    C. Always negative only
    D. Always cause hyperinflation
    Answer: A
99. In small open economy with perfect capital mobility, fiscal expansion tends to:
    A. Fully crowd out net exports via higher interest rates and exchange rate changes
    B. Have no effect on trade balance
    C. Increase exports only
    D. Lower world interest rates only
    Answer: A
100. The three pillars of development usually include:
     A. Economic growth, equity, environmental sustainability
     B. Only GDP growth, high inflation, trade barriers
     C. High tariffs, export bans, no education
     D. Zero investment, closed borders, no institutions
     Answer: A

101. Price controls are often aimed at helping the poor.
A. True
B. False
Answer: A

102. The price ceiling is binding if it’s below the equilibrium point.
A. True
B. False
Answer: A

103. The price floor is binding if it’s above the equilibrium point.
A. True
B. False
Answer: A

104. When the tax is levied on sellers, buyers and sellers share the burden of the tax.
A. True
B. False
Answer: A

105. In house renting, both supply and demand are more elastic in the long run.
A. True
B. False
Answer: A

106. When a good is taxed, the quantity of the good sold is ____ in the new equilibrium.
A. Smaller
B. Larger
C. The same
D. Shifted
Answer: A

107. The minimum wage has greatest impact on:
A. The market for teenage labor
B. The increase in number of old laborers
C. The average employee
D. The manager of the organization
Answer: A

108. Minimum-wage laws may raise the incomes of some workers, but they also:
A. Cause other workers to be unemployed
B. Disrupt market equilibrium
C. Cause inflation
D. Decrease quality of hired workers
Answer: A

109. The impact of the minimum wage depends on the skill and experience of the worker.
A. True
B. False
Answer: A

110. Buyers and sellers share the burden of the tax all the time.
A. True
B. False
Answer: B

111. Minimum wage raises the income of those workers who have jobs, but it lowers the income of workers who cannot find jobs.
A. True
B. False
Answer: A

112. Minimum wage is more often ______ for teenagers than for other members of the labor forces.
A. Advantageous
B. Abusive
C. Non-binding
D. Binding
Answer: D

113. When minimum wage rises, some teenagers who are still attending school choose to:
A. Stay in school because their parents can now easily pay
B. Drop out and take jobs
C. Result to underground employment
D. Have a part-time job
Answer: B

114. When tenants get lower rents, they:
A. The price is not in equilibrium
B. They have smaller houses
C. Are satisfied
D. Also get lower-quality housing
Answer: D

115. Which is not a step for analyzing supply and demand?
A. Decide whether the law affects the supply curve or demand curve
B. Decide which way the curve shifts
C. Examine how the shift affects equilibrium price and quantity
D. Decide whether the supply and demand curves are elastic or inelastic
Answer: D

116. 10 percent increase in the minimum wage increases teenage employment between 1 and 3 percent.
A. True
B. False
Answer: B

117. The only difference between taxes on sellers and taxes on buyers is:
A. Whose curve is more inelastic
B. Who benefits more
C. Who sends the money to the government
D. Who leaves faster from the market
Answer: C

118. The elasticity measures the willingness of buyers or sellers to leave the market when:
A. Conditions improve
B. Prices inflate
C. Conditions become unfavorable
D. The tax is too big
Answer: C

119. Taxes levied on sellers and taxes levied on buyers are equivalent.
A. True
B. False
Answer: A

120. Two roles of economists: as policy advisors, they develop and test their theories to explain the world around them. As policy advisers, they use their theories to help change the world for the better.
A. True
B. False
Answer: A

121. When policymakers set prices by legal decree, they improve the signals that normally guide the allocation of society’s resources.
A. True
B. False
Answer: B

122. The amount that shows up as a deduction on your pay stub is the:
A. Worker’s tax
B. Worker’s burden
C. Worker contribution
D. Employee tax
Answer: A

123. A price ceiling set above equilibrium price is:
A. Non-binding
B. Binding
C. Effective
D. Distorting
Answer: A

124. The total tax revenue collected by the government equals:
A. Tax × Quantity sold
B. Price × Demand
C. Income × Rate
D. Tax ÷ Output
Answer: A

125. A policy that reduces market efficiency but improves equality is an example of:
A. Trade-off
B. Subsidy
C. Equilibrium
D. Elasticity
Answer: A

126. Which of the following represents an indirect tax?
A. VAT
B. Income tax
C. Property tax
D. Wealth tax
Answer: A

127. A perfectly inelastic supply curve means sellers:
A. Cannot change quantity supplied
B. Respond quickly to price
C. Increase output easily
D. Are very flexible
Answer: A

128. When supply is elastic, a small fall in price causes:
A. Large fall in quantity supplied
B. Small rise in quantity supplied
C. No change
D. Constant supply
Answer: A

129. In economics, equilibrium means:
A. No tendency to change
B. Constant rise in price
C. Increasing supply
D. Surplus in market
Answer: A

130. A fall in demand while supply remains constant leads to:
A. Lower price
B. Higher price
C. Constant price
D. Excess supply
Answer: A

131. When the government sets a minimum price, it is called:
A. Price floor
B. Price ceiling
C. Subsidy
D. Tax rate
Answer: A

132. If the equilibrium price of rice is ₦500 and government fixes ₦400, the result is:
A. Shortage
B. Surplus
C. Stability
D. Inflation
Answer: A

133. Elasticity less than 1 means:
A. Inelastic
B. Unit elastic
C. Elastic
D. Perfectly elastic
Answer: A

134. The slope of the demand curve is generally:
A. Negative
B. Positive
C. Zero
D. Infinite
Answer: A

135. Inflation reduces the purchasing power of:
A. Money
B. Labour
C. Capital
D. Exports
Answer: A

136. Which is not a type of inflation?
A. Demand-pull
B. Cost-push
C. Structural
D. Informal
Answer: D

137. Unemployment occurs when:
A. People willing to work cannot find jobs
B. Firms make high profits
C. Demand for goods rises
D. Workers change jobs freely
Answer: A

138. Frictional unemployment is caused by:
A. Job transition period
B. Low education
C. Economic recession
D. Technological change
Answer: A

139. The total value of all goods and services produced within a country is:
A. GDP
B. GNP
C. NDP
D. NNP
Answer: A

140. National income is measured using:
A. Income, Output, and Expenditure methods
B. Supply, Demand, and Cost methods
C. Labour, Capital, and Tax methods
D. Import and Export values
Answer: A

141. The circular flow of income describes:
A. Movement of income and spending between sectors
B. Exchange of foreign currency
C. Money growth in banks
D. Movement of goods abroad
Answer: A

142. In the circular flow model, households supply:
A. Factors of production
B. Goods and services
C. Imports
D. Taxes only
Answer: A

143. Leakage in the circular flow includes:
A. Savings, taxes, imports
B. Exports, investment, government spending
C. Production, demand, price
D. Consumption, income, labour
Answer: A

144. A barter economy means:
A. Goods exchanged for goods
B. Use of money
C. Government control
D. No market
Answer: A

145. The main problem of barter is:
A. Lack of double coincidence of wants
B. Price stability
C. Overproduction
D. Inflation
Answer: A

146. Money overcomes the problems of:
A. Barter trade
B. Taxation
C. Inflation
D. Shortage
Answer: A

147. Which is not a function of money?
A. Store of value
B. Medium of exchange
C. Unit of account
D. Source of credit
Answer: D

148. Financial institutions are classified into:
A. Banking and non-banking
B. Public and private
C. Domestic and foreign
D. Retail and wholesale
Answer: A

149. The Central Bank controls:
A. Money supply
B. Company profits
C. Labour unions
D. Imports only
Answer: A

150. Commercial banks create money through:
A. Credit creation
B. Taxation
C. Currency printing
D. Exchange rate
Answer: A

151. Inflation rate is usually measured by:
A. Consumer Price Index (CPI)
B. GDP growth rate
C. Unemployment ratio
D. Money supply
Answer: A

152. Deflation refers to:
A. Continuous fall in prices
B. Rise in prices
C. Price stability
D. Wage increase
Answer: A

153. The Phillips Curve shows the relationship between:
A. Inflation and unemployment
B. Demand and supply
C. Output and imports
D. Wages and exports
Answer: A

154. Full employment means:
A. No involuntary unemployment
B. Every citizen is employed
C. Zero unemployment
D. Government jobs only
Answer: A

155. A business cycle refers to:
A. Periodic fluctuations in economic activity
B. Daily stock market movements
C. Steady growth in GDP
D. Inflation alone
Answer: A

156. The expansion phase of a business cycle is marked by:
A. Rising output and employment
B. Falling income
C. Economic depression
D. High unemployment
Answer: A

157. Fiscal policy refers to:
A. Government spending and taxation
B. Money supply control
C. Exchange rate management
D. Bank regulation
Answer: A

158. Public finance deals with:
A. Government revenue and expenditure
B. Household budgets
C. Private investment
D. Corporate loans
Answer: A

159. Direct taxes include:
A. Income tax
B. VAT
C. Excise duty
D. Sales tax
Answer: A

160. A budget deficit occurs when:
A. Expenditure > Revenue
B. Revenue > Expenditure
C. Income = Expenditure
D. Tax = Spending
Answer: A

161. A balanced budget means:
A. Government income equals spending
B. Surplus in trade
C. Low inflation
D. Equal exports and imports
Answer: A

162. International trade allows countries to:
A. Specialize and gain comparative advantage
B. Avoid exchange
C. Reduce production
D. Produce all goods themselves
Answer: A

163. Absolute advantage means:
A. Producing more efficiently than others
B. Producing everything locally
C. Trading without exports
D. Equal output with all countries
Answer: A

164. Comparative advantage was explained by:
A. David Ricardo
B. Adam Smith
C. Keynes
D. Friedman
Answer: A

165. Terms of trade measure:
A. Ratio of export prices to import prices
B. Balance of payment
C. GDP ratio
D. Foreign reserve level
Answer: A

166. Developing countries often face:
A. Low income and high unemployment
B. High technology
C. Industrial surplus
D. Balanced growth
Answer: A

167. Economic development focuses on:
A. Long-term improvement in living standards
B. Price control
C. Short-term profits
D. Political gains
Answer: A

168. One indicator of economic development is:
A. Per capita income
B. Inflation rate
C. Tax ratio
D. Money supply
Answer: A

169. Which of the following reduces economic growth?
A. High corruption
B. Education
C. Investment
D. Trade openness
Answer: A

170. Human capital includes:
A. Education, health, and skills
B. Machines
C. Buildings
D. Natural resources
Answer: A

171. Developing economies often depend on:
A. Primary production
B. Industrial exports
C. Financial services
D. Technology goods
Answer: A

172. One feature of developing countries is:
A. High population growth
B. Low unemployment
C. Advanced infrastructure
D. Stable income distribution
Answer: A

173. Which policy aims at long-term growth?
A. Development planning
B. Price ceiling
C. Wage control
D. Devaluation
Answer: A

174. Import substitution encourages:
A. Domestic production of goods
B. Heavy imports
C. Currency depreciation
D. Trade deficit
Answer: A

175. Structural unemployment occurs due to:
A. Technological changes
B. Holiday periods
C. Seasonal jobs
D. Inflation
Answer: A

176. A progressive tax means:
A. Higher income, higher tax rate
B. Equal tax for all
C. Lower income, higher tax
D. Tax on imports
Answer: A

177. Regressive tax affects:
A. The poor more than the rich
B. Only companies
C. The rich more than the poor
D. Government revenue
Answer: A

178. Exchange rate is:
A. The price of one currency in terms of another
B. Interest on savings
C. Inflation measure
D. Wage rate
Answer: A

179. Balance of payment records:
A. All transactions between a country and the rest of the world
B. Only exports
C. Only imports
D. Government budgets
Answer: A

180. Devaluation makes exports:
A. Cheaper
B. Costlier
C. Useless
D. Unchanged
Answer: A

181. An import quota is:
A. A limit on quantity imported
B. A tax on exports
C. A subsidy
D. A price floor
Answer: A

182. Dumping occurs when:
A. Goods are sold abroad below cost price
B. Imports exceed exports
C. Firms close down
D. Government intervenes
Answer: A

183. Tariffs are imposed to:
A. Protect local industries
B. Encourage imports
C. Reduce tax revenue
D. Support inflation
Answer: A

184. Foreign aid can promote:
A. Development
B. Inflation
C. Overproduction
D. Corruption only
Answer: A

185. Economic planning means:
A. Government deliberate control of economic activities
B. Free market
C. Monopoly power
D. Random growth
Answer: A

186. Gross National Product (GNP) =
A. GDP + Net income from abroad
B. GDP − Imports
C. GDP + Government spending
D. GDP − Taxes
Answer: A

187. Net National Product (NNP) =
A. GNP − Depreciation
B. GDP + Imports
C. GDP + Inflation
D. GNP + Savings
Answer: A

188. Disposable income =
A. Personal income − Taxes
B. National income + Tax
C. GDP ÷ Population
D. Wage + Rent
Answer: A

189. If imports > exports, the result is:
A. Trade deficit
B. Trade surplus
C. Balance of payment
D. Inflation
Answer: A

190. The invisible hand concept was proposed by:
A. Adam Smith
B. David Ricardo
C. Karl Marx
D. Keynes
Answer: A

191. Keynes emphasized:
A. Government intervention
B. Free market forces
C. International trade only
D. Privatization
Answer: A

192. Classical economists believed in:
A. Self-regulating markets
B. Government control
C. Fiscal stimulus
D. Fixed prices
Answer: A

193. A recession is defined as:
A. Decline in GDP for two consecutive quarters
B. One month drop in prices
C. Rapid inflation
D. High exports
Answer: A

194. Depression is:
A. Severe and prolonged recession
B. Temporary fall in income
C. Sudden rise in tax
D. Currency appreciation
Answer: A

195. Economic growth is measured by:
A. Increase in real GDP
B. Population growth
C. Rise in money supply
D. Price index
Answer: A

196. One cause of inflation is:
A. Too much money chasing few goods
B. Reduced demand
C. Increased productivity
D. Balanced trade
Answer: A

197. When government spending exceeds income, it borrows by issuing:
A. Bonds
B. Tariffs
C. VAT
D. Subsidies
Answer: A

198. Public debt refers to:
A. Total borrowing by the government
B. Household loans
C. Corporate debt
D. Foreign remittances
Answer: A

199. The dual-sector model of development was proposed by:
A. W. Arthur Lewis
B. Adam Smith
C. John Keynes
D. Karl Marx
Answer: A

200. Sustainable development focuses on:
A. Meeting present needs without harming future generations
B. Short-term profit
C. Trade surplus
D. Tax increase
Answer: A