Practice gce model questions vol1 economics 2024 Past Questions

Question 1 View Details

Country A's aggregate production function per worker is given by $ y = k^{0.5} $. The depreciation rate is $ \delta = 0.03 $ and the population growth rate is $ n = 0.02 $. In the steady state before any tax change the capital per worker is observed to be $ k^{*}=144 $. The government then imposes a tax that reduces the effective savings rate by 20 % of its original value. After the tax the steady‑state output per worker falls to $ y^{*}=9.6 $. Determine the original savings rate $ s $ (as a proportion of output) and the new savings rate after the tax.

A. Original savings rate = 0.65 (65 %); New savings rate = 0.52 (52 %).

B. Original savings rate = 0.55 (55 %); New savings rate = 0.44 (44 %).

Correct C. Original savings rate = 0.60 (60 %); New savings rate = 0.48 (48 %).

D. Original savings rate = 0.50 (50 %); New savings rate = 0.40 (40 %).

Correct Answer: C

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Question 2 View Details

A country can produce either 100 units of wheat or 200 units of cloth if it devotes all its resources to one good. Currently it produces 40 units of wheat and 80 units of cloth. What is the opportunity cost of producing one additional unit of wheat, expressed in units of cloth?

A. 1 unit of cloth

Correct B. 2 units of cloth

C. 0.5 units of cloth

D. 3 units of cloth

Correct Answer: B

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Question 3 View Details

The demand for a good is given by $ Q = 500 - 5P $, where $ Q $ is quantity demanded and $ P $ is price (in naira). If the price rises from $ P = 40 $ to $ P = 45 $, calculate the price elasticity of demand using the midpoint formula and state whether demand is elastic, inelastic or unit‑elastic.

A. Elasticity ≈ -0.45; demand is inelastic

B. Elasticity ≈ -1.00; demand is unit‑elastic

C. Elasticity ≈ -1.20; demand is elastic

Correct D. Elasticity ≈ -0.74; demand is inelastic

Correct Answer: D

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Question 4 View Details

In a given year a country reports the following macro‑economic aggregates (all values in billions of naira):\ - Gross Domestic Product at market prices: 850\ - Indirect taxes less subsidies: 120\ - Net factor income from abroad: -30 (net outflow)\ - Consumption of fixed capital (depreciation): 70\ - Transfer payments received from abroad: 15\ Using the appropriate national‑income identities, calculate (a) Gross National Income at market prices and (b) Net National Income at factor cost.

A. (a) 820 bn naira; (b) 560 bn naira

B. (a) 800 bn naira; (b) 610 bn naira

C. (a) 880 bn naira; (b) 690 bn naira

Correct D. (a) 820 bn naira; (b) 630 bn naira

Correct Answer: D

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Question 5 View Details

A government is evaluating a new railway line. The project requires an initial capital outlay of $200$ million naira. Each year for ten years it generates revenue of $40$ million naira and incurs operating costs of $15$ million naira. Assuming the project is acceptable only if its net present value (NPV) is non‑negative, determine the highest discount rate (to two decimal places) at which the project is still viable.

A. 3.95 %

B. 5.12 %

Correct C. 4.28 %

D. 6.00 %

Correct Answer: C

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Question 6 View Details

A market for a good is described by the demand equation $ Q_d = 500 - 5P $ and the supply equation $ Q_s = 3P - 30 $, where $P$ is the price (in ₦) and $Q$ is quantity. The government introduces a specific tax of ₦20 per unit on the good, which is levied on producers. (a) Determine the equilibrium price paid by consumers and the equilibrium quantity after the tax. (b) Calculate the total tax revenue and the dead‑weight loss caused by the tax. (c) What is the ratio of tax revenue to dead‑weight loss (expressed as a decimal to two decimal places)?

A. 9.00

B. 12.00

Correct C. 7.00

D. 5.00

Correct Answer: C

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Question 7 View Details

A firm's total cost function is $ TC(Q) = 0.02Q^{3} - 0.3Q^{2} + 15Q + 200 $ (₦). The market price is constant at ₦50 per unit. (i) Find the output level that maximises profit and compute the maximum profit (to two decimal places). (ii) If the market price falls to ₦30, should the firm shut down in the short run? Justify your answer with the relevant calculations.

A. Profit‑maximising output ≈ 25.00 units, maximum profit ≈ 450.00 ₦; the firm should continue operating (output ≈ 18.00 units, profit ≈ 30.00 ₦ > 0).

Correct B. Profit‑maximising output ≈ 29.66 units, maximum profit ≈ 580.16 ₦; the firm should continue operating (output ≈ 21.58 units, profit ≈ 62.42 ₦ > 0).

C. Profit‑maximising output ≈ 28.75 units, maximum profit ≈ 500.00 ₦; the firm should continue operating (output ≈ 20.00 units, profit ≈ 10.00 ₦ > 0).

D. Profit‑maximising output ≈ 32.10 units, maximum profit ≈ 610.50 ₦; the firm should shut down (output ≈ 0 units, profit ≈ -200.00 ₦ < 0).

Correct Answer: B

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Question 8 View Details

The demand for a product is given by $ Q = 200 - 4P $, where $P$ is the price (₦) and $Q$ the quantity demanded. (a) Compute the price elasticity of demand at $P = 30$. (b) If the price is increased to ₦35, will total revenue rise or fall? Explain using the elasticity result. (c) Determine the price that maximises total revenue.

Correct A. Elasticity = -1.5; revenue will fall; revenue‑maximising price = 25 ₦.

B. Elasticity = -1.5; revenue will rise; revenue‑maximising price = 25 ₦.

C. Elasticity = -0.8; revenue will rise; revenue‑maximising price = 30 ₦.

D. Elasticity = -2.3; revenue will fall; revenue‑maximising price = 20 ₦.

Correct Answer: A

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Question 9 View Details

The labour force of a country is 10 million and the current unemployment rate is 8 %. The natural rate of unemployment is 5 %. A fiscal stimulus reduces cyclical unemployment by 1.2 percentage points, but structural unemployment rises by 0.3 percentage points. What is the new unemployment rate (to one decimal place) and how many people are unemployed now?

A. 6.9 % and 690 000 people

Correct B. 7.1 % and 710 000 people

C. 7.1 % and 710 100 people

D. 7.5 % and 750 000 people

Correct Answer: B

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Question 10 View Details

Three countries are evaluated on four development indicators as follows: | Country | GDP per capita (US$) | Literacy (%) | Life expectancy (years) | Gini coefficient | |---------|----------------------|--------------|--------------------------|-------------------| | A | 4 000 | 85 | 68 | 45 | | B | 7 500 | 92 | 74 | 38 | | C | 3 200 | 78 | 65 | 50 | A composite Development Index (DI) is constructed using min‑max normalisation for each indicator and the following weights: GDP per capita 0.2, Literacy 0.3, Life expectancy 0.3, and inverse Gini 0.2 (where a lower Gini is better). The inverse Gini is normalised as $ (G_{\max} - G)/(G_{\max} - G_{\min}) $. (a) Calculate the DI for each country (to three decimal places) and rank the countries from highest to lowest DI. (b) If Country C's GDP per capita rises by 20 % while all other indicators remain unchanged, what is its new DI (to three decimal places) and does its rank change?

A. DI: A ≈ 0.371, B = 0.990, C = 0.000; ranking B > A > C. After 20 % rise, C's DI ≈ 0.025, rank remains lowest.

B. DI: A ≈ 0.400, B = 0.950, C = 0.050; ranking B > A > C. After 20 % rise, C's DI ≈ 0.060, rank remains lowest.

Correct C. DI: A ≈ 0.371, B = 1.000, C = 0.000; ranking B > A > C. After 20 % rise, C's DI ≈ 0.030, rank remains lowest.

D. DI: A ≈ 0.350, B = 1.000, C = 0.020; ranking B > A > C. After 20 % rise, C's DI ≈ 0.045, rank remains lowest.

Correct Answer: C

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Question 11 View Details

A firm's total output is given by the production function $ Q = 3L^{2} - 0.1L^{3} $, where $L$ is the number of labour units employed. Determine the level of labour at which the average product of labour is maximised and state the maximum average product.

Correct A. Labour = 15 units; maximum average product = 22.5 output per unit labour

B. Labour = 12 units; maximum average product = 24 output per unit labour

C. Labour = 10 units; maximum average product = 20 output per unit labour

D. Labour = 20 units; maximum average product = 18 output per unit labour

Correct Answer: A

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Question 12 View Details

The market for a good is described by the linear equations $ Q_{d}=1000-50P $ (demand) and $ Q_{s}=30P-200 $ (supply), where $P$ is the price in pounds and $Q$ the quantity.\n(a) Find the equilibrium price and quantity.\n(b) The government introduces a price ceiling of £12. Calculate the resulting shortage.

A. Equilibrium price £10, quantity 500 units; shortage under £12 ceiling = 300 units

B. Equilibrium price £20, quantity 200 units; shortage under £12 ceiling = 100 units

Correct C. Equilibrium price £15, quantity 250 units; shortage under £12 ceiling = 240 units

D. Equilibrium price £15, quantity 250 units; shortage under £12 ceiling = 200 units

Correct Answer: C

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Question 13 View Details

Last year the Consumer Price Index (CPI) was 120 and this year it is 126. A savings account offers a nominal interest rate of 8% per annum.\n(i) Calculate the annual inflation rate.\n(ii) Using the exact Fisher formula, find the real interest rate.\n(iii) Approximate the real interest rate using the Fisher approximation.

Correct A. Inflation 5%; exact real rate 2.86%; approximate real rate 3%

B. Inflation 6%; exact real rate 2.5%; approximate real rate 2.8%

C. Inflation 5%; exact real rate 2.9%; approximate real rate 2.9%

D. Inflation 4%; exact real rate 3.2%; approximate real rate 3.5%

Correct Answer: A

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Question 14 View Details

A firm's total cost function is $ C = 0.5Q^{2} + 20Q + 1000 $ and its total revenue function is $ R = 120Q - 0.5Q^{2} $, where $Q$ is output. Determine the output level that maximises profit and calculate the maximum profit.

Correct A. Output that maximises profit = 50 units; maximum profit = £1500

B. Output that maximises profit = 60 units; maximum profit = £1800

C. Output that maximises profit = 40 units; maximum profit = £1200

D. Output that maximises profit = 45 units; maximum profit = £1350

Correct Answer: A

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Question 15 View Details

The world price of an imported good is £10. The domestic demand is $ Q_{d}=200-4P $. The government imposes a specific tariff of £2 per unit.\n(a) Find the new domestic price paid by consumers.\n(b) Calculate the quantity imported after the tariff.\n(c) Determine the government revenue from the tariff.\n(d) Compute the dead‑weight loss resulting from the tariff.

A. Domestic price £12; imports 152 units; government revenue £304; dead‑weight loss £10

Correct B. Domestic price £12; imports 152 units; government revenue £304; dead‑weight loss £8

C. Domestic price £12; imports 140 units; government revenue £280; dead‑weight loss £12

D. Domestic price £13; imports 152 units; government revenue £304; dead‑weight loss £8

Correct Answer: B

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Question 16 View Details

Region A has an initial population of $12$ million and grows at $2\%$ per year for the first $5$ years, after which the growth rate falls to $1.5\%$ per year. Region B starts with $8$ million people and grows at $3\%$ per year for the first $3$ years, then at $2\%$ per year thereafter. Assuming the growth rates apply year by year, after how many whole years will the combined population of the two regions first exceed $30$ million?

Correct A. 23

B. 24

C. 25

D. 22

Correct Answer: A

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Question 17 View Details

A manufacturing firm can invest in high‑tech plants at a capital cost of $₦20$ million each, each plant producing $5{,}000$ units per year, and in low‑tech plants at a cost of $₦8$ million each, each producing $2{,}000$ units per year. The government offers a subsidy equal to $10\%$ of the capital cost for every high‑tech plant. The firm must produce at least $120{,}000$ units per year while minimising its net capital outlay after the subsidy. How many high‑tech and low‑tech plants should it build, and what is the minimum net outlay (in millions of naira)?

A. 25 high‑tech plants, 0 low‑tech plants; net outlay ₦450 million

Correct B. 24 high‑tech plants, 0 low‑tech plants; net outlay ₦432 million

C. 23 high‑tech plants, 3 low‑tech plants; net outlay ₦438 million

D. 22 high‑tech plants, 5 low‑tech plants; net outlay ₦436 million

Correct Answer: B

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Question 18 View Details

The government has a transport improvement budget of $₦200$ million. Investing $₦1$ million in road upgrades reduces the average travel time of each road commuter by $0.05$ minutes, up to a maximum total reduction of $8$ minutes. Investing $₦1$ million in rail upgrades reduces the average travel time of each rail commuter by $0.08$ minutes, up to a maximum total reduction of $6$ minutes. There are $2$ million road commuters and $1$ million rail commuters. How should the budget be allocated between road and rail to minimise total commuter‑minutes per day, and how many commuter‑minutes are saved per day as a result?

A. Road: ₦150 million, Rail: ₦50 million; total saved 19.0 million commuter‑minutes per day

Correct B. Road: ₦160 million, Rail: ₦40 million; total saved 19.2 million commuter‑minutes per day

C. Road: ₦180 million, Rail: ₦20 million; total saved 17.6 million commuter‑minutes per day

D. Road: ₦120 million, Rail: ₦80 million; total saved 18.0 million commuter‑minutes per day

Correct Answer: B

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Question 19 View Details

A firm's short‑run production function is $Q = 20L - 0.5L^{2}$, where $L$ denotes labour input measured in hundreds of workers and $Q$ is output in units. The wage rate is $₦50$ per hundred workers and the product sells for $₦200$ per unit. Determine the value of $L$ that maximises profit and calculate the maximum profit (in naira).

A. Labour L = 10 (hundreds) i.e. 1 000 workers; maximum profit ₦29 500.00

Correct B. Labour L = 19.75 (hundreds) i.e. 1 975 workers; maximum profit ₦39 006.25

C. Labour L = 15 (hundreds) i.e. 1 500 workers; maximum profit ₦36 750.00

D. Labour L = 22 (hundreds) i.e. 2 200 workers; maximum profit ₦38 500.00

Correct Answer: B

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Question 20 View Details

The price of a good falls from $₦120$ to $₦90$ and quantity demanded rises from $500$ units to $650$ units. Using the midpoint method, calculate the price elasticity of demand (give your answer to two decimal places).

A. -1.20

Correct B. -0.91

C. 0.91

D. -0.69

Correct Answer: B

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Question 21 View Details

The central bank has a statutory reserve ratio of 10% and the public holds 20% of their deposits as cash (currency‑deposit ratio = 0.20). If the central bank purchases government securities worth £50 million, paying for them with newly created bank reserves, what is the total change in the money supply resulting from this open‑market operation?

A. £250 million

B. £300 million

C. £100 million

Correct D. £200 million

Correct Answer: D

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Question 22 View Details

Given the demand function $ Q_d = 120 - 2P $ and the supply function $ Q_s = 20 + 3P $, where $Q$ is quantity (units) and $P$ is price (₦), determine the equilibrium price and quantity.

A. Price = 25, Quantity = 70

Correct B. Price = 20, Quantity = 80

C. Price = 10, Quantity = 100

D. Price = 15, Quantity = 90

Correct Answer: B

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Question 23 View Details

The market for a good is described by the demand equation $ Q_d = 500 - 5P $ and the supply equation $ Q_s = 2P $. The government imposes a specific tax of $\$10$ per unit on producers. Calculate the new equilibrium consumer price, producer price, quantity traded, total tax revenue and the dead‑weight loss caused by the tax.

A. Consumer price ≈ 80.00, Producer price ≈ 70.00, Quantity ≈ 120.00, Tax revenue ≈ 1,200.0, Dead‑weight loss ≈ 80.00

B. Consumer price ≈ 70.00, Producer price ≈ 60.00, Quantity ≈ 130.00, Tax revenue ≈ 1,300.0, Dead‑weight loss ≈ 65.00

C. Consumer price ≈ 75.00, Producer price ≈ 65.00, Quantity ≈ 125.00, Tax revenue ≈ 1,250.0, Dead‑weight loss ≈ 70.00

Correct D. Consumer price ≈ 74.29, Producer price ≈ 64.29, Quantity ≈ 128.57, Tax revenue ≈ 1,285.7, Dead‑weight loss ≈ 71.43

Correct Answer: D

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Question 24 View Details

A firm faces the demand curve $ P = 200 - 0.5Q $. Its total cost function is $ TC = 20Q + 0.02Q^{2} + 500 $.\n(a) Determine the output level that maximises profit and state the corresponding profit.\n(b) If the market price falls to $\$80$, should the firm continue producing in the short run? Justify your answer.

A. a) Output ≈ 160.00 units, Profit ≈ 13,500.0. b) Shut down (price < minimum AVC).

Correct B. a) Output ≈ 173.08 units, Profit ≈ 15,076.9. b) Continue producing (price > minimum AVC).

C. a) Output ≈ 180.00 units, Profit ≈ 16,500.0. b) Continue producing (price > minimum AVC).

D. a) Output ≈ 150.00 units, Profit ≈ 12,000.0. b) Shut down (price < minimum AVC).

Correct Answer: B

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Question 25 View Details

In an economy the marginal propensity to consume (MPC) is 0.75. The government decides to increase autonomous spending by $\$30$ billion, financing the increase by borrowing. However, each $\$1$ billion of additional spending raises the interest rate enough to reduce autonomous investment by $\$0.2$ billion. Using the simple Keynesian multiplier, calculate the net change in equilibrium GDP resulting from this policy.

Correct A. £96 billion increase in GDP

B. £108 billion increase in GDP

C. £84 billion increase in GDP

D. £72 billion increase in GDP

Correct Answer: A

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