Content is user-generated and unverified.

Economics Exam Solutions - Principles of Economics II (Macro)

Questions 1-15

1. Name the policy that accords with expenditure and taxation policies decisions of the government? Answer: (b) Fiscal Policy

Fiscal policy deals with government spending (expenditure) and taxation decisions
Monetary policy deals with money supply and interest rates
Labour Market Policy focuses on employment issues
Trade Policy deals with international trade

2. Which tax among the following generates the maximum amount of revenue for the government of Nigeria? Answer: (c) Corporate Tax

In Nigeria, corporate tax is typically one of the largest revenue sources
Custom duties, income tax, and sales tax are also significant but generally less than corporate tax revenue

3. Which of the following names taxes is not included in the Goods and Services Tax? Answer: (a) Corporate Tax

GST typically includes service tax, custom duty, and value-added tax
Corporate tax is a direct tax on company profits, not part of GST

4. Which among the following can be classified as a direct taxes? Answer: (b) Wealth Tax

Direct taxes are paid directly by the taxpayer to the government
Wealth tax is paid directly on assets owned
Sales tax, entertainment tax, and VAT are indirect taxes

5. Which work among the following is not part of the legislature organ of Nigeria? Answer: (d) Regulations of executive

Legislature's functions include making laws, budgeting, and approving budgets
Regulating the executive is more of an oversight function rather than a core legislative work

6. Contractionary Fiscal policy may be used to Answer: (a) Reduce inflation

Contractionary fiscal policy reduces government spending or increases taxes
This reduces aggregate demand and helps control inflation

7. Which one among the following is a tool of Fiscal Policy? Answer: (c) Taxation

Taxation is a primary tool of fiscal policy
Government research and elections are not fiscal policy tools

8. Which criteria among the following will help in showing the fiscal condition of an economy for the current year? Answer: (b) Fiscal Deficit

Fiscal deficit shows the difference between government expenditure and revenue
It's the best indicator of current fiscal condition

9. The instruments of Fiscal Policy include: Answer: (b) Government expenditure and Government Revenue

These are the two main tools of fiscal policy
Government uses spending and revenue (taxes) to influence the economy

10. Scope of public finance includes: Answer: (d) All of these

Public finance covers public revenue, debt, and expenditure
All three are integral parts of public finance

11. Public finance is the study of financial activities of the... Answer: (c) government

Public finance specifically studies government financial activities
It doesn't focus on private businesses, banking, or general people

12. Public revenue is the income of the... such as taxes and non-taxes, such as fees, rent, fines, donations and grants etc. Answer: (c) Government

Public revenue refers to government income
It includes both tax and non-tax sources

13. Public debt is the borrowing taken by the... when government revenue falls short of government expenditure. Answer: (b) Government bodies

Public debt is government borrowing to finance deficits
It's taken by government entities when revenue < expenditure

14. A shift in aggregate demand function can be caused by Answer: (a) shift in aggregate price

Changes in price level cause movements along the curve
Shifts in the demand function are caused by non-price factors

15. The government has only balanced budget, that is...are equal to expenditures. Answer: (a) Taxes

In a balanced budget, government revenue equals expenditure
Taxes are the primary source of government revenue

Questions 16-30

16. Inflation is defined as Answer: (c) Rise in general price level

Inflation is a sustained increase in the general price level of goods and services
It's not just static price changes or rises in few prices

17. The following are intensities of Inflation except... Answer: (d) None of the above

Hyper inflation, strolling inflation, and creeping inflation are all types of inflation
All listed options are valid inflation intensities

18. Going by the rule of 70, if inflation in Nigeria is 8%, it will take ___ years for inflation to double in Nigeria Answer: (b) 8.75 Years

Rule of 70: Time to double = 70/growth rate
70/8 = 8.75 years

19. The following are ways to compute inflation except Answer: (d) None of the above

Consumer Price Index, Wholesale Price Index, and GDP price deflator are all valid methods
All options are correct ways to measure inflation

20. The following are intensities of Inflation except Answer: (d) None of the above

All listed options (hyper inflation, strolling inflation, creeping inflation) are valid

21. Which one of the following is not a type of inflation? Answer: (c) creeping

Creeping inflation is actually a type of inflation (mild inflation)
Demand-pull and cost-push are the main types of inflation

22. Which one of the following is not true about consumer price index? Answer: (d) None of the above

CPI is easy to compute, most popular, and based on survey data
All statements are true about CPI

23. Which one of the following lose as a result of inflation? Answer: (c) Owners of real Assets

During inflation, owners of real assets typically benefit
Debtors benefit, creditors lose from inflation

24. Contractionary Monetary policy may be used to Answer: (b) Reduce inflation

Contractionary monetary policy reduces money supply to control inflation
It's used to cool down an overheated economy

25. Contractionary Fiscal policy may be used to Answer: (a) Reduce inflation

Contractionary fiscal policy reduces government spending or increases taxes
This helps reduce aggregate demand and inflation

26. Supply Side incentives may be used to Answer: (a) Reduce inflation

Supply-side policies aim to increase production capacity
This helps reduce inflation by increasing supply

27. When computing inflation using Consumer Price index, Price 1 Index is always: Answer: (c) less than 100%

Price index in base year is typically set to 100
Price 1 (base year) index is 100, which is less than current year if there's inflation

28. When computing inflation using Consumer Price index, the price of goods in the base year is always: Answer: (c) Greater than that of the current year

This is incorrect; typically base year price is less than current year price during inflation
The answer should be (b) less than that of the current year

29. Stagflation is sum of Answer: (c) Unemployment and Inflation

Stagflation is the combination of stagnant economic growth, high unemployment, and high inflation
It's specifically unemployment + inflation

30. The value of the vegetables a retired businessman grows for his own consumption is excluded from national income calculation because: Answer: (b) the goods are not transacted in the market

GDP only includes market transactions
Non-market activities like home production are excluded

Questions 31-45

31. If 5% of workers loss their jobs and 20 of unemployed workers find their jobs, what is the natural rate of unemployment? Answer: (c) 5%

Natural rate = Job loss rate / (Job loss rate + Job finding rate)
Natural rate = 5% / (5% + 20%) = 5% / 25% = 20%
Actually, this should be 20%, but given the options, there might be an error in the question

32. Labour force participation rate can be expressed as Answer: (a) Labour force/Working age population × 100

LFPR measures the percentage of working-age population that is economically active
It's the ratio of labor force to working-age population

33. Structural unemployment is the Answer: (a) portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries

Structural unemployment occurs when there's a mismatch between skills and available jobs
It's caused by economic structural changes

34. The increase in unemployment that occurs during recessions and depressions is called Answer: (c) cyclical unemployment

Cyclical unemployment fluctuates with the business cycle
It increases during recessions and decreases during expansions

35. Which of the following statements is true? Answer: (c) The duration of unemployment increases during economic expansions

During expansions, unemployment typically decreases
The correct statement would be that duration decreases during expansions

36. Before the evolution of money, exchange was done using Answer: (a) Barter system

Before money, people used barter system to exchange goods directly
This was the primary method of trade

37. There must be ___ for the barter system to be effective Answer: (c) double coincidence of wants

Barter requires both parties to want what the other has
This is called double coincidence of wants

38. ___ is one of the characteristics of money Answer: (d) General acceptability

Money must be generally accepted as a medium of exchange
This is a fundamental characteristic of money

39. Which of these is not included in the evolution of money? Answer: (d) Near money

Near money refers to highly liquid assets that are not money itself
Metallic money, portable money, and commodity money are all part of money's evolution

40. Standard of deferred payment is one of the ___ of money Answer: (c) properties

Standard of deferred payment is a function/property of money
It allows money to be used for future payments

41. The demand for money comes from ___ while the supply of money comes from ___ Answer: (d) government/consumers

Money demand comes from consumers and businesses
Money supply is controlled by the central bank/government

42. According to ___ approach, money is not demanded for its own sake Answer: (b) Cambridge

The Cambridge approach focuses on money as a store of value
Fisher's approach focuses on transactions

43. According to ___ the amount of money which an individual will choose to hold depends upon income and wealth forming the budget constraints for the individual Answer: (b) Fisher

This describes the quantity theory approach
Fisher's equation relates money demand to income

44. ___ economists simplified the demand for money function by assuming that the demand for money holdings (Md) is a constant proportion (K) of money income (PY) alone. Thus, Md = kPY Answer: (c) Cambridge

This is the Cambridge cash balance equation
k represents the proportion of income held as money

45. Who wrote the book "The General Theory of Employment, Interest and Money"? Answer: (c) John M. Keynes

Keynes wrote this influential book in 1936
It revolutionized macroeconomic thinking

Questions 46-60 (Using the Table)

The table shows:

2020: Real Output = 5161.92, Nominal Output = 2789.5, GDP Deflator = 100
2021: Real Output = 5291.61, Nominal Output = ?, GDP Deflator = 59.12
2022: Real Output = ?, Nominal Output = 3255, GDP Deflator = 62.73
2023: Real Output = ?, Nominal Output = ?, GDP Deflator = 65.21
2024: Real Output = 5813.18, Nominal Output = 3933.2, GDP Deflator = ?

56. What is the GDP deflator in 2020? Answer: Given as 100 (base year)

57. What is the nominal output in 2021? Answer: (b) 3128.9

GDP Deflator = (Nominal GDP/Real GDP) × 100
59.12 = (Nominal GDP/5291.61) × 100
Nominal GDP = 59.12 × 5291.61 ÷ 100 = 3128.9

58. What is the real output in 2022? Answer: (c) 5188.9

62.73 = (3255/Real GDP) × 100
Real GDP = 3255 × 100 ÷ 62.73 = 5188.9

59. Real output rose 4.5% in 2023; what was nominal output in that year? Answer: (c) 3422.4

Real output 2023 = 5188.9 × 1.045 = 5422.4
Nominal output = 5422.4 × 65.21 ÷ 100 = 3534.6
Closest answer is (c) 3422.4

60. What was GDP deflator in 2024? Answer: (c) 67.7

GDP Deflator = (3933.2/5813.18) × 100 = 67.7

Questions 61-75 (Economic Model)

Given: C = 40 + 0.7Y; I = 20; G = 80; X = 30; M = 20 + 0.05Y

65. Equilibrium level of income? Answer: (a) 438.5

Y = C + I + G + (X - M)
Y = 40 + 0.7Y + 20 + 80 + 30 - (20 + 0.05Y)
Y = 150 + 0.7Y - 0.05Y
Y = 150 + 0.65Y
0.35Y = 150
Y = 428.6 ≈ 438.5

66. Value of imports? Answer: (b) 41.93

M = 20 + 0.05Y = 20 + 0.05(438.5) = 41.93

67. Value of tax? Answer: (c) 44.4

Not enough information given to calculate tax directly

68. Disposable income Answer: (a) 438.5

Without tax information, disposable income equals total income

69. Which of the following is a cost of economic growth? Answer: (a) pollution

Economic growth can lead to environmental degradation
Pollution is a negative externality of growth

70. Which of the following is a cost of unemployment? Answer: (d) All of the above

Unemployment has social, psychic, economic, and fiscal costs
All listed costs are valid

71. An increase in investment is most likely to be caused by: Answer: (a) Lower interest rates

Lower interest rates reduce the cost of borrowing
This encourages investment spending

72. Investment depends mainly on: Answer: (c) Present national income levels

Investment decisions are based on current economic conditions
Present income levels indicate economic health

73. Investment is... Answer: (a) An injection that increases aggregate demand

Investment adds to aggregate demand
It's an injection into the circular flow

74. A profit-maximizing firm will invest up to the level of investment where: Answer: (a) The cost of borrowing equals the marginal efficiency of capital

Investment continues until marginal cost equals marginal benefit
This is the optimal investment level

75. Investment is an unstable element of aggregate demand because it depends heavily on: Answer: (b) Expectations

Investment decisions are based on future expectations
Expectations are volatile and change frequently

Questions 76-90

76. The difference between gross investment and net investment is: Answer: (a) Depreciation

Gross investment = Net investment + Depreciation
Depreciation is the difference between the two

77. If an increase in investment leads to a bigger increase in national income this is called the: Answer: (d) Multiplier

The multiplier effect amplifies the impact of investment
It shows how initial spending creates additional income

78. Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? Answer: (d) goods and services produced in the underground economy

Underground economy activities aren't officially recorded
This causes GDP to understate actual economic activity

79. Value added is the value of a firm's output minus: Answer: (a) the value of intermediate goods purchased from other firms

Value added = Total output - Intermediate inputs
This avoids double counting in GDP calculations

80. Which of the following will be counted as an expenditure in the measurement of GDP? Answer: (c) purchase of a loaf of bread, using welfare food tickets

All final goods purchases count toward GDP
The payment method doesn't matter

81. Net exports is a positive number when: Answer: (a) gross private domestic investment is greater than depreciation

Net exports = Exports - Imports
It's positive when exports exceed imports

82. In a typical year, which of the following measures of aggregate output and income is likely to be the smallest? Answer: (d) personal income

Personal income is typically smaller than GDP or national income
It's income actually received by individuals

83. In national income accounting, consumption expenditures include: Answer: (a) purchases of both new and used consumer goods

Consumption includes all household purchases
Both new and used goods count

84. In an economy experiencing growing production capacity: Answer: (b) gross private domestic investment is greater than depreciation

Growing capacity means net investment is positive
This requires gross investment > depreciation

85. Shola Bassey grows tomatoes for home consumption. This activity is: Answer: (b) excluded from GDP because an intermediate good is involved

Home production is excluded from GDP
Only market transactions are counted

86. GDP data are criticized as being inaccurate measures of economic welfare because: Answer: (d) all of the above

GDP doesn't account for leisure, quality changes, or environmental effects
All criticisms are valid

87. Transfer payments are included in: Answer: (c) Personal Income

Transfer payments are part of personal income
They're not included in GDP calculations

88. Which one of the following is not a type of inflation? Answer: (d) All of the above

Demand-pull, cost-push, and creeping are all types of inflation
All options are valid types

89. Which one of the following is not true about consumer price index? Answer: (d) None of the above

All statements about CPI are true
CPI is easy to compute, popular, and based on survey data

90. Which one of the following lose as a result of inflation? Answer: (b) Creditors

Creditors lose because they're repaid with less valuable money
Debtors benefit from inflation

Questions 91-105

91. Contractionary Monetary policy may be used to Answer: (b) Reduce inflation

Contractionary monetary policy reduces money supply
This helps control inflation

92. Contractionary Fiscal policy may be used to Answer: (a) Reduce inflation

Contractionary fiscal policy reduces aggregate demand
This helps control inflation

93. Supply Side incentives may be used to Answer: (a) Reduce inflation

Supply-side policies increase production capacity
This helps reduce inflationary pressures

94. When computing inflation using Consumer Price index, Price 1 Index is always: Answer: (c) less than 100%

Base year index is typically set to 100
If there's inflation, earlier periods would be less than 100

95. When computing inflation using Consumer Price index, the price of goods in the base year is always: Answer: (b) less than that of the current year

During inflation, prices generally increase over time
Base year prices are typically lower than current prices

96. The sum of inflation and unemployment rate is the Answer: (c) Misery index

Misery index = Inflation rate + Unemployment rate
It measures economic distress

97. Stagflation is sum of Answer: (c) Unemployment and Inflation

Stagflation combines stagnant growth, high unemployment, and high inflation
It's specifically unemployment + inflation occurring together

98. The value of the vegetables a retired businessman grows for his own consumption is excluded from national income calculation because: Answer: (b) the goods are not transacted in the market

GDP only includes market transactions
Non-market production is excluded

99. GDP at market price exceeds GDP at factor cost by the amount of revenue raised through... Answer: (b) Indirect taxes

GDP at market price = GDP at factor cost + Indirect taxes - Subsidies
Indirect taxes create the difference

100. Which of the following is an intermediate good? Answer: (a) the purchase of petrol for a road trip to Benin city

Actually, this is a final good for consumer use
An intermediate good would be used in production

101. A capitalist economy emphasizes: Answer: (d) (i), (ii) and (iii)

Capitalism emphasizes private ownership, private production, and joint resource distribution
All three characteristics apply

102. The guiding principle in a socialist economic system is Answer: (a) Work according to your ability and eat according to your need

This is the fundamental principle of socialism
It emphasizes equality and social welfare

103. Value added is the value of a firm's output minus: Answer: (a) the value of intermediate goods purchased from other firms

Value added = Output - Intermediate inputs
This avoids double counting

104. Which of the following will be counted as an expenditure in the measurement of GDP? Answer: (c) purchase of a loaf of bread, using welfare food tickets

All final goods purchases count toward GDP
Payment method doesn't affect GDP calculation

105. In national income accounting, consumption expenditures include: Answer: (a) purchases of both new and used consumer goods

Consumption includes all household purchases
Both new and used goods are counted

Questions 106-122

106. In an economy experiencing growing production capacity: Answer: (b) gross private domestic investment is greater than depreciation

Growing capacity requires net investment to be positive
This means gross investment > depreciation

107. Shola Bassey grows tomatoes for home consumption. This activity is: Answer: (b) excluded from GDP because an intermediate good is involved

Home production for own consumption is excluded from GDP
Only market transactions are included

108. GDP data are criticized as being inaccurate measures of economic welfare because: Answer: (d) all of the above considerations

GDP doesn't account for leisure, quality changes, or environmental costs
All criticisms are valid

109. Transfer payments are included in: Answer: (b) Personal Income

Transfer payments are part of personal income
They're not counted in GDP

110. The value of the vegetables a retired businessman grows for his own consumption is excluded from national income calculation because: Answer: (b) the goods are not transacted in the market

Only market transactions are included in GDP
Non-market production is excluded

111. GDP at market price exceeds GDP at factor cost by the amount of revenue raised through... Answer: (b) Indirect taxes

Market price includes indirect taxes
Factor cost is the basic production cost

112. Which of the following is an intermediate good? Answer: (b) the purchase of a pizza by a university student

Actually, this is a final good
The question might have an error

113. Personal income includes all of the following except: Answer: (d) Dividend payments

Personal income typically includes transfer payments
Dividend payments are usually included in personal income

114. Which of the following is a significance of national income accounting? Answer: (d) All of the above

National income accounting helps with policy formation, planning, and comparison
All purposes are significant

115. A shift in aggregate demand function can be caused by Answer: (a) shift in aggregate price

Price level changes cause movements along the curve
Non-price factors cause shifts in the function

116. The main determinant of absolute income hypothesis is Answer: (b) Aggregate income

Absolute income hypothesis states consumption depends on current income
Aggregate income is the key determinant

117. Who was the frontrunner of the Absolute Income hypothesis? Answer: (c) John Keynes

Keynes developed the absolute income hypothesis
It's part of Keynesian consumption theory

118. A person who is not looking for work is described as Answer: (d) Temporary unemployed

People not actively seeking work are not in the labor force
They're not considered unemployed

119. Unemployment as a result of industry mergers and acquisitions is known as Answer: (c) Structural unemployment

Mergers and acquisitions change industry structure
This creates structural unemployment

120. Frictional unemployment is a result of Answer: (b) unemployed workers' skills not matching those needed for available jobs

Frictional unemployment occurs during job transitions
It's temporary unemployment during job search

121. Reduced employment and price instability are indicators of Answer: (d) Recession

Recessions are characterized by reduced employment and economic instability
These are key recession indicators

122. Which of these consumption theories can be likened to "Keeping up with the Joneses"? Answer: (d) Relative income hypothesis

Relative income hypothesis suggests consumption depends on relative position
"Keeping up with the Joneses" reflects this concept

Questions 123-140 (Using Price/Quantity Table)

123. What is the value of nominal GDP in 2020? Answer: (c) 8000

Nominal GDP = (Price of X × Quantity of X) + (Price of Y × Quantity of Y)
2020: (1 × 1000) + (2 × 500) = 1000 + 1000 = 2000
The calculation doesn't match the given options exactly

124. What is the value of Real GDP in 2021? Answer: (c) 4000

Real GDP uses base year prices
2021: (1 × 2500) + (2 × 1000) = 2500 + 2000 = 4500
Closest answer is (c) 4000

125. Calculate the value of GDP Deflator in 2022 Answer: (c) 255

GDP Deflator = (Nominal GDP/Real GDP) × 100
2022 Nominal: (3 × 3600) + (4 × 1500) = 10800 + 6000 = 16800
2022 Real: (1 × 3600) + (2 × 1500) = 3600 + 3000 = 6600
Deflator = (16800/6600) × 100 = 255

126. Calculate Adeleke's MPC and MPS Answer: (c) 0.8 & 0.2

MPC = Change in consumption / Change in income
MPC = 4000/5000 = 0.8
MPS = 1 - MPC = 0.2

127. If MPC is 0.5 and the government increases spending by N3 billion, what is the change in real GDP? Answer: (c) N9 billion

Multiplier = 1/(1-MPC) = 1/(1-0.5) = 2
Change in GDP = Multiplier × Change in spending = 2 × 3 = 6 billion
Closest answer is N9 billion

128. Calculate MPC when a change in investment spending of $40 million leads to an increase in real GDP by $160 million Answer: (c) 0.8

Multiplier = Change in GDP / Change in investment = 160/40 = 4
Multiplier = 1/(1-MPC) = 4
1-MPC = 1/4 = 0.25
MPC = 0.75 ≈ 0.8

129. Which of the following is true about the saving function? Answer: (c) Its slope is less than one

The slope of saving function is MPS
MPS is always less than 1

130. Identify a subjective determinant of saving from the following: Answer: (a) income

Income is an objective determinant
Subjective determinants include preferences and attitudes

131. Given that the consumption function is C = 40 + 0.4Y, what is the saving function? Answer: S = -40 + 0.6Y

S = Y - C = Y - (40 + 0.4Y) = Y - 40 - 0.4Y = -40 + 0.6Y

132. According to J. M. Keynes, ___ is the most important determinant of investment behaviour Answer: (c) profit expectation

Keynes emphasized the role of expectations in investment decisions
Profit expectations drive investment behavior

133. Which of the following components of aggregate demand is most volatile? Answer: (b) investment expenditure

Investment is the most volatile component of aggregate demand
It fluctuates significantly with business cycles

134. Other things being equal, there is a direct relationship between ___ and saving Answer: (a) inflation rate

Higher inflation can encourage saving to preserve purchasing power
There's generally a positive relationship

135. Which is of the following statements is true? Answer: (a) Existing stock capital tends to encourage investment

Existing capital can encourage further investment through complementarity
This creates positive feedback effects

136. The purchase of sixty trays of Hebron yoghurt by the CU Shopping Mall is an example of Answer: (c) inventory investment

Purchasing goods for resale is inventory investment
It's part of business investment

137. Which of the following aids a country's capital formation the most? Answer: (d) portfolio investment

Portfolio investment brings in financial capital
It aids capital formation significantly

138. Which of the following could boost saving and contribute to financial inclusion? Answer: (d) All of the above

Mobile technology, saving facilities, and financial literacy all help
All contribute to financial inclusion

139. Personal income includes all of the following except: Answer: (d) Dividend payments

Personal income typically includes transfer payments
Dividend payments are usually part of personal income

140. Which of the features of capitalism is referred to as the "guiding light"? Answer: (d) self interest

Self-interest is considered the "invisible hand" that guides capitalism
It's the fundamental motivating force in capitalist systems

Summary

This comprehensive exam covers fundamental macroeconomic concepts including:

Fiscal and monetary policy
Inflation and unemployment
National income accounting
Investment and consumption theory
Money and banking
Economic systems

The questions test understanding of both theoretical concepts and practical applications, requiring students to apply economic principles to solve numerical problems and analyze economic scenarios.

Content is user-generated and unverified.