Economics CSS Paper II 2008

FEDERAL PUBLIC SERVICE COMMISSION COMPETITIVE EXAMINATION FOR RECRUITMENT TO POSTS IN BPS-17 UNDER THE FEDERAL GOVERNMENT, 2008
Economics Paper – II
Part I (MCQs)
Q.1 Select the best option/answer and fill in the appropriate box on the Answer Sheet.
(1) Had net exports in Pakistan been reduced to “Zero” by contractionary fiscal policy through the first half of the 1980’s, the Pakistan economy would have:
(a) Been producing output will above the full employment level of GNP
(b) Been producing output slightly above the full employment level of GNP
(c) Been producing output nearly equal to the full employment level of GNP
(d) Been producing output slightly lower to the full employment level of GNP
(e) Been producing output considerably lower than the full employment level of GNP
(2) The internal rate of return of any capital good could reasonably be described as:
(a) The particular rate of interest at which the capital good would just be worth buying or building, i.e., the present value of revenue would just be matched by costs.
(b) The dollar amount of profit that would accrue if that capital good were bought or build.
(c) The same thing as the market rate of interest.
(d) The physical increase in output (as distinct from the money value) that would accrue if the capital good were bought or built.
(e) The percentage figure obtained by adding up all net revenues that would accrue from the capital good and dividing this total its cost.
(3) Consumers have budgeted a fixed money amount to buy a certain commodity. Within a certain range of prices, they will spend neither more nor less than this amount on it. Their demand in this price range would properly be
designated as:
(a) In equilibrium (b) Perfectly elastic (c) Perfectly inelastic (d) Highly inelastic but not perfectly so. (e) Unit-elastic
(4) An economy operating at full employment enters a period of high anticipated inflation. Which of the following statements accurately describes the likely result?
(a) Most people increase savings to be better prepared for the higher prices that they know are coming, thereby increasing capital investment, stimulating the rate of economic growth, and supporting lower interest rates.
(b) Most people decrease savings to increase current consumption and capital investment, thereby stimulating economic growth and supporting lower interest rates.
(c) Most people decrease savings to increase current consumption, thereby slowing capital investment, slowing the rate of economic growth and supporting lower interest rate.
(d) Most people increase savings to the better prepared for the higher prices that they know are coming, thereby reducing capital investment, slowing the rate of economic growth and supporting lower interest rate.
(e) Most people decrease savings to increase current consumption, thereby slowing capital investment, slowing the rate of economic growth and supporting higher interest rate.
(5)
(a) A general reduction in the tax rate applied to corporate profits.
(b) The elimination of the investment tax credit.
(c) A reduced emphasis on accelerated depreciation applied to a wide variety of types of capital, particularly building and equipment.
(d) The inclusion of intangible capital in the corporate income tax base.
(e) A contraction of the effective interest rate deduction against taxable corporate income.
(6) An absolute “precondition for growth” is the:
(a) Development of some excess of income over consumption.
(b) Creation of a surplus labour force for employment in manufacturing.
(c) Discovery and exploitation of some internal economics.
(d) Cultural acceptance of free enterprise principles of economic behaviour.
(e) Development of manufacturing to the point where it can begin to supplant agriculture.
(7) If a commodity’s return is in the nature of pure economic rent and a tax is imposed on the commodity, then:
(a) The incidence of tax is born wholly by the suppliers, and price to the buyers will not change.
(b) The incidence is borne wholly by the buyers.
(c) The incidence will be shared between the suppliers and the buyers.
(d) The output of the commodity will fall and its price will rise.
(e) The output of the commodity will not fall but its price will rise.
(8) If a nation’s capital – output ratio gradually increases over time, this indicates that:
(a) The share of capital – owners in total output is increasing.
(b) The diminishing returns stage has not yet been reached with respect to capital.
(c) The marginal physical product of capital must have reached zero.
(d) Technological progress must be improving the productivity of capital.
(e) The law of diminishing returns is operating with respect to capital’s productivity
(9) A general sales tax, without any exempted commodities, is considered to be:
(a) A progressive tax because it applies to luxuries as well as necessities.
(b) A regressive tax because wealthy people spend a smaller percentage of their total income on taxed commodities, and hence the proportion of payments to income is greater for people.
(c) A progressive tax because wealthy people spend more than poor people.
(d) A regressive tax because more money is collected from a poor person than from a rich one.
(e) A proportional tax because everybody pays the same tax percentage on each purchase.
(10) Given the usual downward – sloping shape of a market demand curve, what should be the effect of a tax that affects only the fixed cost of every firm remaining in a competitive market on the price received and the quantity
supplied by each competitive firm?
(a) Price up and quantity up
(b) Price up and quantity down
(c) Price down and quantity up
(d) Price down and quantity down
(e) Price and quantity remain unchanged
(11) Suppose that long term labour contrasts hold the real wage above equilibrium. Which of the following statements would then hold?
(a) Fiscal stimulus would perversely increase the excess supply labour
(b) Monetary stimulus would perversely increase the excess supply labour
(c) Monetary stimulus would be totally ineffective to change the excess supply labour
(d) Fiscal stimulus only would reduce the excess supply labour
(e) Both fiscal and monetary stimulus could reduce the excess supply labour
(12) A substantial fall in the price of Pakistani currency in foreign currencies could be expected to affect physical quantities of exports from Pakistan and imports into Pakistan as follows:
(a) Increase both exports and imports
(b) Increase exports, decrease imports
(c) Decrease both exports and imports
(d) Decrease exports, increase imports
(e) Have no perceptible affect on either imports or exports.
(13) If the marginal utility of a commodity is zero, then:
(a) Total utility for this commodity has reached a maximum.
(b) The commodity in question has no utility, i.e. it is not one that consumers want to use.
(c) The paradox of value must be involved.
(d) The consumer has reached his or her equilibrium position with respect to purchase of this commodity.
(e) Total utility for this commodity must be zero also.
(14) A difference between a tariff on an imported good and a quota on such a good is:
(a) That a quota can never be made to yield revenue for the government, whereas a tariff can.
(b) That a tariff can never be made to yield revenue for the government, whereas a quota can.
(c) That a quota can be used to shut off all, or virtually all, the inflow of the imported good whereas a tariff cannot.
(d) That a tariff can be used to shut off all, or virtually all, the inflow of the imported good whereas a quota cannot.
(e) That a quantity equivalent quota will only generate the same revenue if correctly prices, (for example, by an auction for import licenses.)
(15) The relationship between marginal revenue and the price elasticity of demand is this; when marginal revenue is:
(a) Negative, demand must be inelastic
(b) Zero, demand must be inelastic
(c) Positive, demand must be inelastic
(d) Negative, demand must be unit-elastic
(e) Positive, demand must be perfectly elastic
(16) In a period of deflation (i.e. of generally falling prices), the “real” rate of interest obtained by a lender on money lent:
(a) Will exceed the nominal rate
(b) Will become a negative figure
(c) Will fall below the stated rate, although not to the extent of becoming a negative figure.
(d) Will become a meaningless or incalculable figure
(e) Will be less than the nominal rate.
(17) Suppose that net export were to become more sensitive to change in the interest rate. You would expect to see (with respect to changing output)
(a) Both fiscal and monetary policy become more effective
(b) Both fiscal and monetary policy become less effective
(c) Monetary policies become more effective, while fiscal policy become less effective.
(d) Fiscal policy becomes more effective, while monetary policy become less effective.
(e) Fiscal policy becomes more effective, while monetary policy does not change.
(18) Net exports are most likely to be:
(a) Positively correlated with both interest rates and GNP
(b) Positively correlated with interest rate but fairly independent of GNP
(c) Positively correlated with GNP, but fairly independent of interest rates.
(d) Negatively correlated with GNP, but positively correlated with interest rates.
(e) Negatively correlated with both interest rates and GNP
(19) Trade theory predicts that protectionist measures produce:
(a) Permanent increase in the rate of inflation
(b) Temporary increase in the rate of inflation
(c) Permanent reductions in the rate of inflation
(d) Temporary reductions in the rate of inflation
(e) Temporary or permanent increase in the rate of inflation depending upon (1) whether they are quotas or tariffs and (2) the degree of market power held by domestic supplies in the import competing industry.
(20) When economists speak of investment, they are speaking of:
(a) The part of GNP used by households for current use.
(b) The part of GNP, past and present, that has been set aside to add to productive capacity.
(c) The part of GNP captured in the computation of rupee value of goods butn ot services.
(d) The part of GNP that the government devotes to the construction of roads, airports, and the like.
(e) The part of GNP used by business to add to productive capacity, and by households to add to their stock of new houses.
PART – II
NOTE: (i) PART-II is to be attempted on the separate Answer Book.
(ii) Attempt only FOUR questions from PART-II. All questions carry EQUAL marks.
(iii) Extra attempt of any question or any part of the attempted question will not be considered
Q.2. What is meant by the statement that many Developing Countries are subject to “dominance, dependence and vulnerability” in their relations with rich nations? Explain the statement with examples.
Q.3. Why is an understanding of the meaning of development crucial to policy formulation in Developing Nations?
Do you think it is possible for a nation to agree on a rough definition of development and orient its strategies for achieving these objectives accordingly? What might be some of the road block or constraints in realizing these
development objectives – economic and non-economic?
Q.4. What is meant by “absolute” poverty and the poverty gap? How and why should we be concerned with the measurement of absolute poverty in the Developing World? Explain with examples.
Q.5. It is sometimes asserted that small peasant frames are backward and ignorant because they seem to resist agricultural innovations that could raise farm yields substantially. Does this resistance stem from an inherent
“irrationality” on their part or might it be attributable to some other factors often over looked by Western economists? Explain your answer.
Q.6. There appears to be widespread agreement that in those regions where the distribution of land ownership is highly unequal (Latin America and parts of Asia), land reforms is necessary but not sufficient condition for
promoting and improving small – scale agriculture. What is meant by this statement and by the concept of land reforms? Give some examples of supportive policy measures that might accompany land reform in the light of
experience in Pakistan.
Q.7. How do the trade policies of developed countries affect the ability of less developed countries to benefit from greater participation in the world economy? How do “non trade” domestic economic policies of rich nations affect the expert earnings of Developing Countries? What is meant by “adjustment assistance” and why it is so important to the future of Developing Countries manufactured export prospects? Explain.
Q.8. How important is foreign aid for the economies of the developing world in relation to their other sources of foreign exchange receipts? Explain the various forms development assistance can take and distinguish between
bilateral and multilateral assistance. Which do you think is more desirable and why?