Economic Theory & Applications
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1 How could you check whether the instruments are weak? Explain.
2 What is an Economic problem? Give examples.
3 Explain the law of supply.
4 Explain the Revenue concepts. Prepare a Revenue Schedule and draw curves.
5 State and explain Circular Flow of Income and Expenditure.
6 Describe the Price and Output Determination under Monopoly.
7 Critically examine the Liquidity Preference Theory of Interest.
8 Describe Price and Output Determination under Monopolistic Competition.
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Case Study: Government intervention
In Germany in 2009 there was considerable debate about the extent to which the government should be intervening in the economy.
For example, its citizens were worried about the future of Opel, a German car brand that was part of the ailing General Motors. Some wanted the government to make sure jobs were saved no matter what. Others, however, were more hesitant and worried about becoming the government becoming too interventionist. Traditionally since the Second World War the German government has seen itself as a referee in market issues and has avoided trying to control parts of the economy. It would regulate anti-competitive behaviour, for example, but not try to run many industries. However in the recession of 2009 when the economy was shrinking the government was forced to spend more to stimulate demand and had to intervene heavily to save the banking sector from collapse. The government also had to offer aid to businesses to keep them alive.
Q.No 1: What are the possible benefits of a government intervening in an economy?
Q.No 2: What prompted greater intervention by the German government in 2009?
Q.No 3: What would determine whether the German continued to intervene on this scale in the future?
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1. A qualitative forecast
(A): predicts the quality of a new product.
(B): predicts the direction, but not the magnitude, of change in a variable.
(C): is a forecast that is classified on a numerical scale from 1 (poor quality) to 10 (perfect quality).
(D): is a forecast that is based on econometric methods.
2. Which of the following is not a qualitative forecasting technique?
(A): Surveys of consumer expenditure plans
(B): Perspectives of foreign advisory councils
(C): Consumer intention polling
(D): Time-series analysis
3. The first step in time-series analysis is to
(A): perform preliminary regression calculations.
(B): calculate a moving average.
(C): plot the data on a graph.
(D): identify relevant correlated variables.
4. Forecasts are referred to as naive if they
(A): are based only on past values of the variable.
(B): are short-term forecasts.
(C): are long-term forecasts
(D): generally result in incorrect forecasts.
5. Time-series analysis is based on the assumption that
(A): random error terms are normally distributed.
(B): there are dependable correlations between the variable to be forecast and other independent variables.
(C): past patterns in the variable to be forecast will continue unchanged into the future.
(D): the data do not exhibit a trend.
6. Which of the following is not one of the four types of variation that is estimated in time-series analysis?
(A): Predictable
(B): Trend
(C): Cyclical
(D): Irregular
7. The cyclical component of time-series data is usually estimated using
(A): linear regression analysis.
(B): moving averages.
(C): exponential smoothing.
(D): qualitative methods.
8. In time-series analysis, which source of variation can be estimated by the ratio-to-trend method?
(A): Cyclical
(B): Trend
(C): Seasonal
(D): Irregular
9. If regression analysis is used to estimate the linear relationship between the natural logarithm of the variable to be forecast and time, then the slope estimate is equal to
(A): the linear trend.
(B): the natural logarithm of the rate of growth.
(C): the natural logarithm of one plus the rate of growth.
(D): the natural logarithm of the square root of the rate of growth.
10. The use of a smoothing technique is appropriate when
(A): random behavior is the primary source of variation.
(B): seasonality is present.
(C): data exhibit a strong trend.
(D): all of the above are correct.
11. The greatest smoothing effect is obtained by using
(A): a moving average based on a small number of periods.
(B): exponential smoothing with a small weight value.
(C): the root-mean-square error.
(D): the barometric method.
12. The root-mean-square error is a measure of
(A): sample size.
(B): moving average periods.
(C): exponential smoothing.
(D): forecast accuracy.
13. Barometric methods are used to forecast
(A): seasonal variation.
(B): secular trend.
(C): cyclical variation.
(D): irregular variation.
14. A leading indicator is a measure that usually
(A): changes at the same time and in the same direction as the general economy.
(B): responds to a change in the general economy after a time lag.
(C): changes in the same direction as the general economy before the general economy changes.
(D): has all of the properties listed above.
15. If 3 of the leading indicators move up, 2 move down, and the remaining 6 are constant, then the diffusion index is
(A): 3/6 = 50%
(B): 3/11 = 27%
(C): 5/11 = 45%
(D): 6/11 = 55%
16. A single-equation econometric model of the demand for a product is a ________ equation in which the quantity demanded of the product is an ________ variable.
(A): structural, exogenous
(B): structural, endogenous
(C): definitional, exogenous
(D): definitional, endogenous
17. A reduce form equation expresses
(A): an exogenous variable as a function of endogenous variables.
(B): an endogenous variable as a function of exogenous variables.
(C): an exogenous variable as a function of both endogenous and exogenous variables.
(D): an endogenous variable as a function of both exogenous and endogenous variables.
18. Trend projection is an example of which kind of forecasting?
(A): Qualitative
(B): Time-series
(C): Barometric
(D): Econometric
19. Turning points in the level of economic activity can be forecast by using
(A): Time-series analysis
(B): Exponential smoothing
(C): Barometric methods
(D): Moving average
20. Econometric forecasts require
(A): accurate estimates of the coefficients of structural equations.
(B): forecasts of future values of exogenous variables.
(C): appropriate theoretical models.
(D): all of the above. We Also Provide SYNOPSIS AND PROJECT.
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21. Which of the following is an example of a capital input?
(A): Money.
(B): Shares of stock.
(C): Long-term bonds.
(D): A hammer. 22. Which of the following is an example of an intermediate product?
(A): A personal computer.
(B): A barrel of crude oil.
(C): A sports car.
(D): A house.
23. Customers are normally classified as part of a firm’s:
(A): contextual environment.
(B): internal environment.
(C): operational environment.
(D): general environment.
24. Microeconomic influences are defined as those which:
(A): affect smaller businesses.
(B): are related to changes in economic aggregates.
(C): operate at the level of the firm, industry or market.
(D): operate on an economy-wide basis.
25. Economic scarcity refers to:
(A): a general shortage of goods available for consumption.
(B): shortages of a particular good available for consumption.
(C): finite demands for resources coupled with infinite resources.
(D): infinite demands for resources coupled with finite resources.
26. If the government has an extra £5billion to spend on healthcare or education over the next 2 years and chooses to spend it on healthcare, then the ‘real cost’ of this decision is:
(A): £2.5 billion per year of extra spending.
(B): £5 billion spent on healthcare.
(C): £5billion spent on healthcare divided by the size of the population.
(D): £5 billion not spent on education.
27. An economy in which most decisions on resource allocation are taken by the government is known as:
(A): a capitalist economy.
(B): a command economy.
(C): a free enterprise economy.
(D): a market-based economy.
28. Which of the following does not necessarily apply to a market?
(A): It involves the processes of demand and supply.
(B): It is found in a given geographical location.
(C): It involves interaction between buyers and sellers.
(D): It is a mechanism designed to effect exchange.
29. Which of the following is NOT TRUE of the process of outsourcing?
(A): It results in the sharing of risk between both companies.
(B): It allows the outsourcing company complete control over production.
(C): It can cuts production costs for the outsourcing company.
(D): It allows the outsourcing firm to concentrate on it’s core competencies.
30. When a company outsources production but the employees of the sub-contractor company do not put in sufficient effort, this is an example of:
(A): division of labour.
(B): vertical integration.
(C): adverse selection.
(D): moral hazard.
31. If you hired a painter to decorate your house, you would be:
(A): the principal.
(B): an intermediary.
(C): the agent.
(D): a network.
32. Vertical integration refers to the process:
(A): where a company undertakes successive stages of the production process.
(B): where a company diversifies into other markets.
(C): where a company opens a branch overseas.
(D): where production takes place as part of a team.
33. In the Resource Based View of the firm the firms’ resources are divided into three types. Which of the following is NOT one of those types?
(A): Physical capital resources.
(B): Organisational capital resources
(C): Land physical resources.
(D): Human capital resources.
34. Which of the following would make a firm MORE likely to outsource an activity?
(A): The activity is standardised.
(B): The activity is very important for the organisation.
(C): Specific assets are required for the activity.
(D): The activity took place only infrequently.
35. Which of the following is NOT an organisational structure recognized by the theoretical literature?
(A): Divisional structure.
(B): Government organisation.
(C): Functional organisation.
(D): Matrix organisation.
36. A demand function for a product is constructed on the assumption that all the following remain constant except:
(A): the price of alternative goods.
(B): consumers’ tastes.
(C): disposable income.
(D): the price of the product.
37. Which of the following would shift the demand curve for a specific brand of ice-cream to the left?
(A): A fall in the price of the above brand.
(B): The onset of hot weather.
(C): A fall in the price of a rival brand.
(D): An increase in disposable income.
38. Which of the below conditions will result in the appearance of a ‘Giffen Good’?
(A): The good is inferior.
(B): The good is inferior and following a fall in price the income effect is greater than the substitution effect.
(C): The good is seen as unpopular.
(D): The good takes up a relatively small amount of consumers’ disposable income.
39. Consumer surplus comes about as a result of:
(A): consumers having a strong desire for the good.
(B): the consumer having an excess of disposable income.
(C): the producer charging a different price for each unit consumed.
(D): the consumer being willing to pay more than the market price.
40. The value of price elasticity as price falls on a downward sloping linear demand curve that starts at a point on the price axis and finishes at a point on the quantity axis:
(A): is always elastic so long as the curve is relatively shallow.
(B): will become increasingly less elastic as you move down the curve.
(C): is constant due to the linearity of the demand curve.
(D): is always inelastic so long as the slope of the demand curve is relatively steep We Also Provide SYNOPSIS AND PROJECT.
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