Practice gce model questions vol1 economics 2022 Past Questions

Question 1 View Details

The consumer price index (CPI) was 120 at the start of 2021, rose to 132 at the end of 2022 and to 138 at the start of 2023. A government bond pays a nominal annual interest rate of $8\%$ compounded once per year. A savings account offers a nominal rate of $6\%$ per annum, with interest paid semi‑annually and compounded. Assuming the inflation rate for the year 2022‑2023 is measured by the change in CPI, which investment provides the higher real rate of return for that year? State the investment and the approximate real return (to one decimal place).

Correct A. The 8 % bond gives the higher real return, about 3.3 % versus 1.5 % for the savings account.

B. The 6 % savings account gives the higher real return, about 3.0 % versus 2.2 % for the bond.

C. The 8 % bond gives the higher real return, about 2.5 % versus 1.0 % for the savings account.

D. The 6 % savings account gives the higher real return, about 2.9 % versus 1.4 % for the bond.

Correct Answer: A

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Question 2 View Details

Using adaptive expectations with parameter $\lambda = 0.5$, expected inflation for the current year is $\pi^{e}_{t}= \pi_{t-1}+ \lambda(\pi_{t-1}-\pi_{t-2})$. The two previous years' inflation rates were $\pi_{t-2}=2\%$ and $\pi_{t-1}=4\%$. The short‑run Phillips curve is $\pi_{t}= \pi^{e}_{t} - \beta (u_{t}-u_{n})$ with $\beta =0.5$ and natural unemployment $u_{n}=6\%$. If the actual inflation observed this year is $3\%$ and nominal wages grow at $4\%$, determine (a) the current unemployment rate and (b) the percentage change in real wages.

A. Unemployment is 12 % and real wages fall by about 0.5 %.

B. Unemployment is 8 % and real wages rise by about 2 %.

Correct C. Unemployment is 10 % and real wages rise by about 1 %.

D. Unemployment is 10 % and real wages fall by about 1 %.

Correct Answer: C

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Question 3 View Details

A car manufacturer's total cost (in thousand Naira) for producing $Q$ thousand cars is given by $TC = 0.02Q^{3} - 0.3Q^{2} + 15Q + 200$. The government introduces a per‑unit tax of $0.5$ thousand Naira. (a) Write the new total‑cost function including the tax. (b) Find the output level that minimises average total cost (ATC) after the tax and compute this minimum ATC. (c) At that output, does the firm experience economies of scale? Explain briefly.

Correct A. New TC: $0.02Q^{3}-0.3Q^{2}+15.5Q+200$. Minimum ATC occurs at $Q=20$ (20 000 cars) with ATC = $27.5$ thousand Naira per car. At this output the firm is at the ATC minimum, so it does not experience economies of scale (they are neutral).

B. New TC: $0.02Q^{3}-0.3Q^{2}+15.5Q+200$. Minimum ATC occurs at $Q=20$ (20 000 cars) with ATC = $25$ thousand Naira per car. At this output the firm experiences diseconomies of scale.

C. New TC: $0.02Q^{3}-0.3Q^{2}+15.0Q+200$. Minimum ATC occurs at $Q=20$ (20 000 cars) with ATC = $27.5$ thousand Naira per car. At this output the firm experiences economies of scale.

D. New TC: $0.02Q^{3}-0.3Q^{2}+15.5Q+200$. Minimum ATC occurs at $Q=15$ (15 000 cars) with ATC = $30$ thousand Naira per car. At this output the firm experiences economies of scale.

Correct Answer: A

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Question 4 View Details

In a closed economy the following aggregate expenditures (in billion Naira) are recorded for a year: consumption $C = 500$, investment $I = 150$, government spending $G = 200$, exports $X = 120$ and imports $M = 80$. Net factor income from abroad is $-30$ billion Naira and the statistical discrepancy in the income approach is $+10$ billion Naira. (a) Calculate GDP using the expenditure approach. (b) Compute GNP. (c) If the population is 50 million, determine GDP per capita.

A. GDP = 890 bn Naira; GNP = 860 bn Naira; GDP per capita = 15,000 Naira.

Correct B. GDP = 890 bn Naira; GNP = 860 bn Naira; GDP per capita = 17,800 Naira.

C. GDP = 950 bn Naira; GNP = 920 bn Naira; GDP per capita = 19,000 Naira.

D. GDP = 870 bn Naira; GNP = 840 bn Naira; GDP per capita = 17,400 Naira.

Correct Answer: B

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Question 5 View Details

The market for wheat is described by the demand equation $Q_{d}=120-2P$ and the supply equation $Q_{s}=20+P$, where $Q$ is thousand tonnes and $P$ is the price in Naira per tonne. (a) Find the competitive equilibrium price and quantity. (b) The government sets a price floor of $P = 50$ Naira per tonne and purchases any surplus at that price. Determine the quantity demanded, quantity supplied and the size of the surplus at the floor price. (c) Calculate the government's annual expenditure on wheat purchases. (d) Estimate the dead‑weight loss caused by the price floor (express your answer in thousand Naira, rounded to the nearest whole number).

A. Equilibrium price = 35 Naira, quantity = 50 k tonnes. At the floor: demand = 15 k, supply = 75 k, surplus = 60 k tonnes. Government spends 3,000 k Naira. Dead‑weight loss ≈ 500 k Naira.

B. Equilibrium price = 30 Naira, quantity = 60 k tonnes. At the floor: demand = 25 k, supply = 65 k, surplus = 40 k tonnes. Government spends 2,000 k Naira. Dead‑weight loss ≈ 350 k Naira.

Correct C. Equilibrium price = 33.33 Naira, quantity = 53.33 k tonnes. At the floor: demand = 20 k, supply = 70 k, surplus = 50 k tonnes. Government spends 2,500 k Naira. Dead‑weight loss ≈ 417 k Naira.

D. Equilibrium price = 40 Naira, quantity = 40 k tonnes. At the floor: demand = 10 k, supply = 80 k, surplus = 70 k tonnes. Government spends 4,000 k Naira. Dead‑weight loss ≈ 600 k Naira.

Correct Answer: C

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Question 6 View Details

A firm's marginal product of labour (MP) is given by $ MP = 30 - 3L $ for $ L $ dozens of workers, where $ L $ can take any positive value. Total product is zero when $ L = 0 $. At what level of labour does the marginal product equal one‑half of the average product? Give your answer as a fraction.

A. 25/3

Correct B. 20/3

C. 10/3

D. 7/2

Correct Answer: B

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Question 7 View Details

The population of Country X was 50 million at the start of 2020. For the first three years (2021‑2023) the natural increase rate (births minus deaths) was 2 % per year. After 2023 the natural increase rate fell to 1.2 % per year. Net migration was -0.3 % per year for the first five years (2021‑2025) and then became +0.2 % per year from 2026 onward. Assuming these rates apply continuously each year, what was the population at the end of 2026? Give your answer rounded to two decimal places (in millions).

A. 54.01

B. 55.12

C. 53.84

Correct D. 54.29

Correct Answer: D

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Question 8 View Details

The Consumer Price Index (CPI) was 120 in 2022 and rose to 126 in 2023. The government expects the CPI to reach 138 by the end of 2025. A bank offers a nominal interest rate that is 2 percentage points higher than the expected average annual inflation rate over the period 2023‑2025. What nominal interest rate does the bank offer? Express your answer as a percentage rounded to two decimal places.

A. 6.76%

B. 5.05%

C. 4.65%

Correct D. 6.65%

Correct Answer: D

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Question 9 View Details

According to the Harrod‑Domar model, the annual growth rate of output $ g $ is given by $ g = s/k $, where $ s $ is the savings rate (as a proportion of GDP) and $ k $ is the capital‑output ratio. A developing country aims for a growth rate of 5 % per year and currently saves 20 % of GDP. The government plans to raise the savings rate to 25 % and, through efficiency reforms, reduce the capital‑output ratio by 10 %. Assuming the initial capital‑output ratio is consistent with the current target, what is the new expected growth rate (as a percentage, to one decimal place)?

A. 6.4%

Correct B. 6.9%

C. 5.7%

D. 6.3%

Correct Answer: B

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Question 10 View Details

A small open economy imports a good for which the domestic demand curve is $ Q_d = 100 - 2P $, where $ Q_d $ is quantity demanded and $ P $ is the price in £ per unit. The world price of the good is £10 per unit and there is no domestic supply. The government imposes a specific tariff of £4 per unit on imports. Calculate the dead‑weight loss (in £) caused by the tariff. Give your answer as a whole number.

A. 20

B. 24

C. 12

Correct D. 16

Correct Answer: D

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Question 11 View Details

The economy has a labour force of $20$ million and an unemployment rate of $8\%$. The government creates $200{,}000$ jobs in one year, and the labour force grows by $1\%$ during the same period. What is the unemployment rate after one year (express your answer to one decimal place)?

Correct A. 6.9

B. 7.5

C. 8.0

D. 7.2

Correct Answer: A

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Question 12 View Details

Given the market demand curve $P = 120 - 2Q$ and total cost function $TC = 20Q + 0.5Q^{2}$, a monopolist chooses output to maximise profit. Determine the monopoly price and output, the competitive equilibrium price and output, and calculate the dead‑weight loss caused by monopoly (give the DWL to two decimal places).

A. 150.00

B. 200.00

Correct C. 177.78

D. 250.00

Correct Answer: C

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Question 13 View Details

A country can produce either 100 units of wheat or 200 units of cloth, or any linear combination of the two. If the country decides to produce 40 units of wheat, how many units of cloth can it produce? (Assume a straight‑line PPF.)

Correct A. 120

B. 80

C. 140

D. 160

Correct Answer: A

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Question 14 View Details

In an economy the required reserve ratio is 10\% and the public holds cash equal to 20\% of bank deposits. The central bank purchases government bonds worth ₦50 million, paying cash to the sellers. Using the money multiplier approach, calculate the total increase in the money supply (in millions of naira).

Correct A. 200

B. 250

C. 150

D. 300

Correct Answer: A

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Question 15 View Details

The market demand for a good is $Q = 500 - 5P$. Currently the price is $P_{0}=40$. The government proposes to raise the price to $P_{1}=50$. Calculate the price elasticity of demand at the initial price, state whether total revenue will increase or decrease, and find the percentage change in total revenue (to one decimal place).

Correct A. 4.2

B. 2.5

C. 5.0

D. 3.8

Correct Answer: A

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Question 16 View Details

A firm's total cost function is (TC = 200 + 5Q + 0.1Q^{2}\) and the market price‑demand relationship is (P = 50 - 0.2Q\). Using marginal analysis, determine the profit‑maximising output level and the corresponding profit (in £).

Correct A. Output = 75 units; Profit = £1487.5

B. Output = 50 units; Profit = £1300

C. Output = 80 units; Profit = £1480

D. Output = 60 units; Profit = £1420

Correct Answer: A

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Question 17 View Details

A manufacturing firm has total cost $TC = 1000 + 20Q + 0.05Q^{2}$. The market price is £30 per unit.\n(a) Find the output at which average total cost (ATC) is minimised.\n(b) Calculate that minimum ATC.\n(c) Should the firm produce in the short‑run? State the profit or loss at the output found in (a).

A. Output ≈ 150 units; Minimum ATC ≈ £33.00; Firm should produce; Expected loss ≈ £450.0

B. Output ≈ 141.4 units; Minimum ATC ≈ £30.00; Firm should produce; Expected loss ≈ £0.0

Correct C. Output ≈ 141.4 units; Minimum ATC ≈ £34.14; Firm should shut down; Expected loss ≈ £585.5

D. Output ≈ 100 units; Minimum ATC ≈ £35.00; Firm should shut down; Expected loss ≈ £500.0

Correct Answer: C

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Question 18 View Details

A proposed railway line requires an initial capital outlay of £500 million. It will generate annual benefits that start at £80 million in year 1 and grow at 4 % per year for 10 years. Annual operating costs are a constant £20 million each year. Using a discount rate of 5 %, calculate the net present value (NPV) of the project and state whether the project should be undertaken.

A. NPV ≈ £102.3 million (positive); therefore the project should be undertaken

B. NPV ≈ £-12.5 million (negative); therefore the project should not be undertaken

Correct C. NPV ≈ £76.0 million (positive); therefore the project should be undertaken

D. NPV ≈ £45.2 million (positive); therefore the project should be undertaken

Correct Answer: C

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Question 19 View Details

The market demand for a good is $P = 100 - 2Q$. The firm's total cost function is $TC = 20Q + 0.5Q^{2}$ (no fixed cost).\n(a) Assuming perfect competition, find the equilibrium output, price and profit.\n(b) Assuming the firm is a monopoly, find the profit‑maximising output, price and profit.\n(c) Compare the two profit levels.

A. Perfect competition profit ≈ £210; Monopoly profit = £540; Monopoly profit is higher by ≈ £330

B. Perfect competition profit ≈ £300; Monopoly profit = £620; Monopoly profit is higher by ≈ £320

Correct C. Perfect competition profit ≈ £356; Monopoly profit = £640; Monopoly profit is higher by ≈ £284

D. Perfect competition profit ≈ £400; Monopoly profit = £580; Monopoly profit is higher by ≈ £180

Correct Answer: C

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Question 20 View Details

Supply in a market is given by $P = 20 + Q$ and demand by $P = 100 - 2Q$. The government imposes a specific tax of £15 per unit on sellers. Determine the new equilibrium quantity, the price paid by consumers, the price received by producers, the total tax revenue, and the dead‑weight loss caused by the tax.

Correct A. Quantity = 21.67 units; Consumer price = £56.67; Producer price = £41.67; Tax revenue = £325; Dead‑weight loss = £37.5

B. Quantity = 22.50 units; Consumer price = £58.00; Producer price = £43.00; Tax revenue = £340; Dead‑weight loss = £45.0

C. Quantity = 19.00 units; Consumer price = £54.00; Producer price = £39.00; Tax revenue = £285; Dead‑weight loss = £25.0

D. Quantity = 20.00 units; Consumer price = £55.00; Producer price = £40.00; Tax revenue = £300; Dead‑weight loss = £30.0

Correct Answer: A

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Question 21 View Details

The price of a good rises from $\$10$ to $\$12$ and its quantity demanded falls from 200 units to 150 units. Using the midpoint method, calculate the price elasticity of demand and state whether demand is elastic, inelastic or unit‑elastic.

A. -1.00 (unit‑elastic)

B. -2.34 (elastic)

C. -0.83 (inelastic)

Correct D. -1.57 (elastic)

Correct Answer: D

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Question 22 View Details

The government imposes a specific tax of $\$2$ per unit on a good. The market demand is $Q_D = 100 - 5P$ and the market supply (before tax) is $Q_S = 20 + 3P$, where $P$ is the price received by producers. Determine (a) the consumer price, (b) the producer price, (c) the tax revenue, and (d) the dead‑weight loss caused by the tax.

A. Consumer price = $12.00, Producer price = $10.00, Tax revenue = $120.0, Dead‑weight loss = $6.00

B. Consumer price = $11.00, Producer price = $9.00, Tax revenue = $100.0, Dead‑weight loss = $5.00

Correct C. Consumer price = $10.75, Producer price = $8.75, Tax revenue = $92.5, Dead‑weight loss = $3.75

D. Consumer price = $10.50, Producer price = $8.50, Tax revenue = $85.0, Dead‑weight loss = $2.50

Correct Answer: C

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Question 23 View Details

Country Y imports wheat. Domestic demand is $Q_D = 800 - 10P$ and domestic supply is $Q_S = 5P$, where $P$ is the domestic price. The world price is $\$30$ per unit. The government is considering two policies that will restrict imports to the same quantity: (a) Impose a specific import tariff of $\$6$ per unit. (b) Impose an import quota that limits imports to the quantity that would result from the tariff. The quota licences are auctioned, so the government captures the quota rent. For each policy, calculate: 1. The domestic price of wheat. 2. The quantity imported. 3. Consumer surplus, producer surplus and (where applicable) government revenue or quota rent. 4. The change in national welfare relative to free‑trade. Which policy yields the higher national welfare?

A. Both policies give a domestic price of $36, imports 260, CS $9,500, PS $3,300, government revenue/rent $1,560 and a welfare loss of $240. With rent captured the policies are equivalent; otherwise the tariff is superior.

Correct B. Both policies give a domestic price of $36, imports 260, CS $9,680, PS $3,240, government revenue/rent $1,560 and a welfare loss of $270. With rent captured the policies are equivalent; otherwise the tariff is superior.

C. Both policies give a domestic price of $36, imports 260, CS $9,680, PS $3,240, government revenue/rent $1,400 and a welfare loss of $300. With rent captured the policies are equivalent; otherwise the tariff is superior.

D. Both policies give a domestic price of $38, imports 240, CS $9,680, PS $3,240, government revenue/rent $1,560 and a welfare loss of $270. With rent captured the policies are equivalent; otherwise the tariff is superior.

Correct Answer: B

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Question 24 View Details

A firm faces the market demand $P = 200 - 2Q$ and has total cost $C(Q) = 0.5Q^{2} + 20Q + 1000$. Determine the profit‑maximising output, the corresponding price, the level of profit, and state whether the firm is experiencing economies of scale at that output.

A. Output = 38 units, Price = $128, Profit = $2,500, Economies of scale are present (LRMC < LRAC).

Correct B. Output = 36 units, Price = $128, Profit = $2,240, Economies of scale are present (LRMC < LRAC).

C. Output = 36 units, Price = $124, Profit = $2,240, Economies of scale are absent (LRMC > LRAC).

D. Output = 34 units, Price = $132, Profit = $2,100, Economies of scale are present (LRMC < LRAC).

Correct Answer: B

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Question 25 View Details

A firm produces output according to the Cobb‑Douglas production function $Q = L^{0.5}K^{0.5}$. The price of labour is $w_L = \$4$ per unit and the price of capital is $w_K = \$6$ per unit. The firm wishes to produce $Q = 100$ units at minimum cost. Determine the cost‑minimising quantities of labour and capital and compute the minimum total cost.

A. Labour ≈ 140 units, Capital ≈ 70 units, Minimum total cost ≈ $960

B. Labour ≈ 110 units, Capital ≈ 90 units, Minimum total cost ≈ $1020

C. Labour ≈ 100 units, Capital ≈ 100 units, Minimum total cost ≈ $1000

Correct D. Labour ≈ 122.5 units, Capital ≈ 81.7 units, Minimum total cost ≈ $980

Correct Answer: D

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