Practice gce model questions vol1 economics 2021 Past Questions

Question 1 View Details

A firm's total cost (TC) in naira is given by $TC = 0.2Q^{2} + 10Q + 50$, where $Q$ is output in units. Its total revenue (TR) is $TR = 40Q - 0.1Q^{2}$. Determine the output level that maximises profit and state the maximum profit.

A. Output = 40 units; Maximum profit = 670

B. Output = 30 units; Maximum profit = 580

Correct C. Output = 50 units; Maximum profit = 700

D. Output = 45 units; Maximum profit = 650

Correct Answer: C

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Question 2 View Details

The labour force in a country is 5 million people. The actual unemployment rate is 9 %. Frictional unemployment accounts for 2 % and structural unemployment for 3 %. Calculate the cyclical unemployment rate and the number of people unemployed due to cyclical factors.

Correct A. 200000

B. 250000

C. 150000

D. 300000

Correct Answer: A

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Question 3 View Details

A perfectly competitive firm has total cost $TC = Q^{3} - 6Q^{2} + 15Q + 20$ (naira). Fixed cost is the constant term.\n\n(a) Find the shut‑down price.\n(b) If the market price is ₦8, determine the output the firm will produce and the resulting profit (or loss).

A. Shut‑down price = 7; Output ≈ 4.10 units; Loss ≈ 15.2

B. Shut‑down price = 5; Output ≈ 2.85 units; Loss ≈ 12.4

Correct C. Shut‑down price = 6; Output ≈ 3.29 units; Loss ≈ 13.7

D. Shut‑down price = 6; Output ≈ 3.00 units; Loss ≈ 10.5

Correct Answer: C

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Question 4 View Details

Initially, frictional unemployment is 2.5 % and structural unemployment is 4 %. Cyclical unemployment is 3 %, giving an actual unemployment rate of 9.5 %. A government training programme reduces frictional unemployment by 0.5 percentage points and structural unemployment by 1 percentage point, while cyclical unemployment remains unchanged.\n\nCalculate the new actual unemployment rate and the percentage reduction in total unemployment compared with the initial rate.

Correct A. New actual unemployment = 8.0 %; Reduction = 1.5 % points (≈15.8 % decrease)

B. New actual unemployment = 7.5 %; Reduction = 2.0 % points (≈21.1 % decrease)

C. New actual unemployment = 8.5 %; Reduction = 1.0 % points (≈10.5 % decrease)

D. New actual unemployment = 8.0 %; Reduction = 1.2 % points (≈12.6 % decrease)

Correct Answer: A

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Question 5 View Details

A student can either work a part‑time job that pays ₦500 per hour or spend the same time studying economics. If the student studies economics for 3 hours, what is the monetary opportunity cost of this study time?

A. 2500

Correct B. 1500

C. 1000

D. 2000

Correct Answer: B

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Question 6 View Details

The Consumer Price Index (CPI) was $120$ in 2018 and $138$ in 2020. Assuming the inflation rate was constant each year, calculate the annual inflation rate. A savings account offers a nominal interest rate of $8\%$ per annum. Using the Fisher approximation, determine the real interest rate earned in 2020.

A. Annual inflation ≈ 6.80 % and real interest rate ≈ 1.10 %

Correct B. Annual inflation ≈ 7.24 % and real interest rate ≈ 0.71 %

C. Annual inflation ≈ 8.00 % and real interest rate ≈ -0.20 %

D. Annual inflation ≈ 7.00 % and real interest rate ≈ 0.50 %

Correct Answer: B

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Question 7 View Details

The central bank requires banks to hold $10\%$ of deposits as required reserves. The public holds cash equal to $25\%$ of total deposits (currency‑deposit ratio $c = 0.25$). If the total amount of reserves held by banks is £500 million, calculate the total money supply $M$ in the economy.

A. £5.75 billion

Correct B. £6.25 billion

C. £6.80 billion

D. £5.25 billion

Correct Answer: B

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Question 8 View Details

A firm produces $200$ units of output. Its fixed costs are £500 and its variable cost per unit is £3. What is the average total cost per unit of output?

A. £5.00 per unit

B. £4.50 per unit

Correct C. £5.50 per unit

D. £6.00 per unit

Correct Answer: C

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Question 9 View Details

During a year, the export price index of a country rises from $100$ to $112$, while the import price index rises from $100$ to $105$. Calculate the percentage change in the country's terms of trade over the year and state whether the terms of trade have improved or deteriorated.

A. Deteriorated by approximately 6.7 %

B. Improved by approximately 10.0 %

Correct C. Improved by approximately 6.7 %

D. Improved by approximately 5.0 %

Correct Answer: C

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Question 10 View Details

In a wheat market, the demand function is $Q_d = 5000 - 10P_c$ where $P_c$ is the price paid by consumers, and the supply function is $Q_s = 5P_f - 200$ where $P_f$ is the price received by farmers. The government imposes a specific tax of $t$ pounds per tonne on wheat, so that $P_c = P_f + t$. The government wishes to raise exactly £20,000 in tax revenue.\n\n(a) Determine the value of the tax $t$ (to two decimal places) that will achieve this revenue target.\n(b) Calculate the dead‑weight loss associated with this tax.

Correct A. Tax = £13.45 per tonne; Dead‑weight loss ≈ £302

B. Tax = £10.00 per tonne; Dead‑weight loss ≈ £250

C. Tax = £15.00 per tonne; Dead‑weight loss ≈ £350

D. Tax = £12.00 per tonne; Dead‑weight loss ≈ £280

Correct Answer: A

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Question 11 View Details

The economy records the following components (in billions of naira): consumption $C = 600$, investment $I = 200$, government spending $G = 250$, exports $X = 150$ and imports $M = 100$. Indirect taxes net of subsidies amount to 150 bn and depreciation is 80 bn. Gross National Product (GNP) is reported as 1 300 bn. Calculate the net factor income from abroad.

A. 110

B. 90

C. 150

Correct D. 130

Correct Answer: D

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Question 12 View Details

A market's demand curve is linear and passes through the points $(P=20,\;Q=500)$ and $(P=15,\;Q=800)$. Determine the price elasticity of demand at the price $P = 18$ using the point‑elasticity formula, and state whether demand is elastic at that price.

A. -2.10

B. -1.20

Correct C. -1.74

D. -0.85

Correct Answer: C

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Question 13 View Details

A firm produces output according to the Cobb-Douglas function $Q = L^{0.5}K^{0.5}$. It currently employs $L = 100$ units of labour and $K = 400$ units of capital, with unit costs of labour £2 and capital £1. The firm wishes to increase output as much as possible while keeping total cost unchanged. What is the maximum output the firm can achieve under the existing cost constraint? Give your answer to two decimal places.

A. 190.45

Correct B. 212.13

C. 225.50

D. 200.00

Correct Answer: B

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Question 14 View Details

The market demand for a product is given by $Q = 500 - 5P$. The total cost function is $TC = 2000 + 20Q$. Find the price that maximizes profit and state the corresponding profit level.

A. 55

B. 70

Correct C. 60

D. 65

Correct Answer: C

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Question 15 View Details

A country's initial population is 1 200 000. The annual crude birth rate is 20 per 1 000, the crude death rate is 8 per 1 000 and net migration is -2 per 1 000. After five years a health programme reduces the death rate by 25 % and a migration policy halves the net out‑migration (i.e. the net migration becomes -1 per 1 000). Assuming the rates remain constant within each five‑year period, calculate the projected population after ten years. Round your answer to the nearest whole number.

A. 1338723

Correct B. 1345349

C. 1332122

D. 1343191

Correct Answer: B

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Question 16 View Details

Region A had a population of $2.5$ million in 2010 and $3.0$ million in 2015. Assuming constant exponential growth, (a) calculate the annual growth rate as a percentage (to two decimal places), (b) estimate the population in 2025, and (c) state the calendar year in which the population will first reach $5$ million. Give your answer as "growth rate %, population million, year".

A. 3.80%, 4.20 million, 2027

B. 3.45%, 4.10 million, 2028

Correct C. 3.65%, 4.32 million, 2029

D. 4.12%, 4.55 million, 2030

Correct Answer: C

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Question 17 View Details

The price of a good rises from $\text{₦}200$ to $\text{₦}250$ and the quantity demanded falls from 800 units to 640 units. Using the midpoint method, calculate the price elasticity of demand and state whether demand is elastic, inelastic or unit‑elastic.

A. -0.5 (inelastic)

Correct B. -1 (unit elastic)

C. -0.8 (inelastic)

D. -1.2 (elastic)

Correct Answer: B

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Question 18 View Details

In a closed economy the consumption function is $C = 200 + 0.75Y_d$ where disposable income $Y_d = Y - T$ and taxes are $T = 0.2Y$. Investment $I = 150$, government spending $G = 100$ and net exports $NX = 20$ (all values in millions).\n(a) Find the equilibrium national income $Y$.\n(b) If autonomous consumption rises by $30$ (so the constant term becomes 230), what is the new equilibrium $Y$?

A. 1,100 million; 1,240 million

B. 1,150 million; 1,260 million

Correct C. 1,175 million; 1,250 million

D. 1,200 million; 1,300 million

Correct Answer: C

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Question 19 View Details

Country X reports a GDP of $\text{₦}8{,}000$ million. Net factor income from abroad is $\text{‑}200$ million and depreciation (consumption of fixed capital) amounts to $\text{₦}500$ million. The population is 4 million.\n(a) Compute Gross National Product (GNP).\n(b) Compute Net Domestic Product (NDP).\n(c) Find per‑capita NDP (in ₦).

Correct A. GNP = ₦7,800 million; NDP = ₦7,300 million; per‑capita NDP = ₦1,825

B. GNP = ₦8,000 million; NDP = ₦7,500 million; per‑capita NDP = ₦1,875

C. GNP = ₦7,600 million; NDP = ₦7,100 million; per‑capita NDP = ₦1,775

D. GNP = ₦7,700 million; NDP = ₦7,200 million; per‑capita NDP = ₦1,800

Correct Answer: A

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Question 20 View Details

The Consumer Price Index (CPI) was 120 in 2020 and 126 in 2021. A savings account pays a nominal interest rate of 8 % per annum.\n(a) Calculate the inflation rate between 2020 and 2021.\n(b) Using the Fisher approximation, find the real interest rate.\n(c) If a person saved $\text{₦}10{,}000$ at the start of 2020, what is the purchasing power of the amount at the end of 2021 after interest is credited and prices have changed? Give the final amount in 2020‑price terms (rounded to the nearest naira).

A. 5%; 2%; ₦10,150

B. 6%; 2%; ₦10,200

C. 4%; 4%; ₦10,350

Correct D. 5%; 3%; ₦10,286

Correct Answer: D

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Question 21 View Details

Country A had a population of 12 million in 2010. From 2010 to 2020 the annual population growth rate was $2\%$. A family‑planning policy introduced in 2020 reduced the growth rate to $1.2\%$ per year. Assuming the rates apply each year, (i) what is the population in 2025 (in millions, to two decimal places), and (ii) in which calendar year does the population first exceed 15 million?

A. 15.12 million, 2025

Correct B. 15.53 million, 2023

C. 14.87 million, 2024

D. 16.01 million, 2022

Correct Answer: B

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Question 22 View Details

Country B imports a good whose import‑price index was 120 (base 100) and exports a good with an export‑price index of 150. The terms of trade (ToT) are defined as the ratio of the export‑price index to the import‑price index. The government then imposes a specific tariff that raises the import‑price index by 10 % while the export‑price index remains unchanged. (i) What is the new terms of trade and the percentage change from the original ToT? (ii) If the country's initial export earnings were $200 billion and the volume of exports falls by 5 % because of reduced competitiveness, what is the change in export earnings in billions of dollars?

A. New ToT = 1.05, change = -15.0 %; export earnings fall by $15 billion

B. New ToT = 1.20, change = -5.0 %; export earnings fall by $8 billion

Correct C. New ToT = 1.14, change = -9.1 %; export earnings fall by $10 billion

D. New ToT = 1.08, change = -12.0 %; export earnings fall by $12 billion

Correct Answer: C

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Question 23 View Details

In 2022 the Consumer Price Index (CPI) was 108 (base 100 in 2020) and in 2023 it rose to 112. Worker A's nominal annual wage increased from £25,000 to £26,500, whereas Worker B's nominal wage remained at £25,000. Calculate the real‑wage growth for each worker between 2022 and 2023 (expressed as a percentage), and state which worker experienced the larger real‑wage increase.

A. Worker A: +2.3 %; Worker B: -3.7 %; Worker B has the larger increase

B. Worker A: +1.9 %; Worker B: -4.1 %; Worker A has the larger increase

C. Worker A: -0.5 %; Worker B: -2.5 %; Worker B has the larger increase

Correct D. Worker A: +2.3 %; Worker B: -3.7 %; Worker A has the larger increase

Correct Answer: D

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Question 24 View Details

A city road currently carries 100,000 vehicle trips per year. The marginal external cost of congestion is £2 per trip. The demand for road trips has a price elasticity of $-0.5$. The average private cost (including road maintenance) is £5 per trip. The local authority is considering a uniform toll equal to the marginal external cost. Determine (i) the percentage change in the number of trips after the toll is introduced, (ii) the new annual number of trips, and (iii) the net change in total welfare (sum of consumer‑surplus change, external‑cost saving and toll revenue). Express the welfare change in pounds.

A. Quantity falls 20 %; new trips = 80,000; welfare loss = £5,000

Correct B. Quantity falls 20 %; new trips = 80,000; welfare gain = £20,000

C. Quantity falls 25 %; new trips = 75,000; welfare gain = £30,000

D. Quantity falls 15 %; new trips = 85,000; welfare gain = £15,000

Correct Answer: B

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Question 25 View Details

In an economy the public holds currency equal to 30 % of bank deposits (currency‑deposit ratio $c = 0.3$). The required reserve ratio is 10 % ($r = 0.10$). The central bank purchases £50 million of government bonds from the public, paying by increasing bank reserves. (i) Calculate the change in the money supply resulting from this open‑market operation, using the appropriate money multiplier. (ii) If the initial money supply was £500 million, what is the new total money supply?

A. Increase of £150 million; new money supply = £650 million

B. Increase of £162.5 million; new money supply = £700 million

Correct C. Increase of £162.5 million; new money supply = £662.5 million

D. Increase of £175 million; new money supply = £675 million

Correct Answer: C

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