Practice neco economics 2020 Past Questions | Edcrib

Question 1 View Details

Country X's export price index rose from 110 to 132 over a year, while its import price index increased from 100 to 119. During the same period, export volume grew by 6% and import volume grew by 4%. The country's real national income grew by 5% over the year. $ (a) $ Calculate the percentage change in the terms of trade. $ (b) $ Assuming that the change in real national income can be approximated by the sum of the net volume effect (export volume growth minus import volume growth) and the change in terms of trade, determine the contribution of the terms of trade change to the observed real income growth.

A. Terms of trade increased by approximately 0.75 %; its contribution to real income growth is about 0.75 %.

Correct B. Terms of trade increased by approximately 0.92 %; its contribution to real income growth is about 0.92 %.

C. Terms of trade increased by approximately 0.92 %; its contribution to real income growth is about 0.70 %.

D. Terms of trade increased by approximately 1.15 %; its contribution to real income growth is about 1.15 %.

Correct Answer: B

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Question 2 View Details

In year 1 the consumer price index (CPI) was 150 and in year 2 it rose to 165. A 1‑year Treasury bond offered a nominal interest rate of 12% in year 2. $ (a) $ Compute the inflation rate between the two years. $ (b) $ Using the Fisher equation, find the real interest rate for the bond. $ (c) $ A worker's nominal monthly wage increased from ₦50,000 to ₦56,000 over the same period. Determine the percentage change in the worker's real wage and state whether purchasing power improved.

A. Inflation = 12%; real interest rate ≈ 0%; real wage rose by about 0%, so purchasing power unchanged.

B. Inflation = 10%; real interest rate ≈ 2.5%; real wage rose by about 2.5%, so purchasing power improved.

C. Inflation = 9%; real interest rate ≈ 3%; real wage fell by about 3%, so purchasing power declined.

Correct D. Inflation = 10 %; real interest rate ≈ 1.82 %; real wage rose by about 1.82 %, so purchasing power improved.

Correct Answer: D

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Question 3 View Details

In an economy the required reserve ratio is 8%, banks hold excess reserves equal to 2% of deposits, and the public keeps currency equal to 30% of deposits. If the central bank injects a net increase of ₦200 million in reserves, calculate the maximum possible increase in the money supply.

A. ₦800 million

B. ₦600 million

C. ₦700 million

Correct D. ₦650 million

Correct Answer: D

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Question 4 View Details

A smallholder farmer produces maize. The market price is ₦120 per kg. The farmer's total‑cost function is $TC = 20Q + 0.02Q^{2}$ where $Q$ is output in kg. The government imposes a price ceiling of ₦100 per kg.\n\n(a) Determine the profit‑maximising output without the ceiling.\n(b) Under the ceiling, assuming the farmer will produce only if price covers average variable cost, find the output the farmer will actually supply.\n(c) The market demand for maize is linear: $P = 200 - 0.5Q$. Using the outputs from (a) and (b), calculate the dead‑weight loss caused by the price ceiling.

Correct A. Dead‑weight loss = ₦82,800

B. Dead‑weight loss = ₦78,600

C. Dead‑weight loss = ₦90,000

D. Dead‑weight loss = ₦83,200

Correct Answer: A

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Question 5 View Details

The short‑run Phillips curve of an economy is $\pi_t = \pi_{t-1} - 0.5\bigl(u_t - 0.06\bigr)$, where $\pi_t$ is the inflation rate, $u_t$ the unemployment rate and 6 % is the natural rate of unemployment. In year $t-1$ inflation was 8 % and unemployment 5 %. The central bank announces a credible policy expected to raise unemployment to 7 % in year $t$.\n\n(a) Compute the expected inflation rate for year $t$.\n(b) If the nominal interest rate set for year $t$ is 10 %, calculate the expected real interest rate using the Fisher equation.\n(c) Briefly comment on whether the policy is likely to have a contractionary effect on output.

A. Expected inflation = 8.0 %; expected real interest rate ≈ 2.0 %; the policy is likely expansionary.

B. Expected inflation = 7.0 %; expected real interest rate ≈ 2.5 %; the policy is likely contractionary.

C. Expected inflation = 6.5 %; expected real interest rate ≈ 3.5 %; the policy is likely neutral.

Correct D. Expected inflation = 7.5 %; expected real interest rate ≈ 2.33 %; the policy is likely contractionary.

Correct Answer: D

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Question 6 View Details

The economy's nominal GDP increased from $\text{₦}2.5$ trillion to $\text{₦}3.0$ trillion over a 3‑year period. During the same period the GDP deflator rose from 120 to 138 and the population grew from 50 million to 55 million. Calculate the average annual real per‑capita GDP growth rate (in % to two decimal places).

A. 1.25%

B. 0.85%

Correct C. -1.75%

D. -2.10%

Correct Answer: C

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Question 7 View Details

Country X can produce either 100 units of wheat or 80 units of cloth if it devotes all resources to one good. Assuming a linear production‑possibility frontier, if the country chooses to produce 60 units of wheat, how many units of cloth can it produce?

A. 48

Correct B. 32

C. 20

D. 5

Correct Answer: B

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Question 8 View Details

Initially, Country Y exports coffee at $\$5$ per kg and imports wheat at $\$2$ per kg. It exports 200,000 kg of coffee and imports 300,000 kg of wheat. The government then imposes a 25 % tariff on wheat imports and gives a 10 % subsidy on coffee exports (applied to the export price). Compute (a) the new trade balance (in dollars) and (b) the percentage change in the terms of trade (export price index divided by import price index). Express the percentage change to the nearest whole percent.

Correct A. (a) \$350,000 (b) -12%

B. (a) \$350,000 (b) -10%

C. (a) \$400,000 (b) -15%

D. (a) \$300,000 (b) -10%

Correct Answer: A

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Question 9 View Details

A competitive firm faces the demand curve $P = 120 - 0.5Q$ and has total cost $TC = 2000 + 20Q + 0.1Q^{2}$. Determine the output level that maximizes profit and compute the maximum profit. Give the output to the nearest whole unit and profit to the nearest whole dollar.

Correct A. Output = 83 units, Profit = \$2,167

B. Output = 85 units, Profit = \\$2,100

C. Output = 78 units, Profit = \\$1,950

D. Output = 90 units, Profit = \\$2,300

Correct Answer: A

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Question 10 View Details

Given the demand equation $Q_d = 500 - 5P$ and supply equation $Q_s = 100 + 3P$, find the equilibrium price (in dollars) and equilibrium quantity.

Correct A. Price = 50, Quantity = 250

B. Price = 40, Quantity = 300

C. Price = 60, Quantity = 200

D. Price = 45, Quantity = 275

Correct Answer: A

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Question 11 View Details

Country A can produce either $120$ units of rice or $180$ units of textiles when all resources are devoted to one good. Assuming a linear production possibility frontier, if the country chooses to produce $30$ units of rice, how many units of textiles can it produce?

A. 120

Correct B. 135

C. 150

D. 90

Correct Answer: B

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Question 12 View Details

Consider a market with inverse demand $P = 100 - 2Q$ and total cost $TC = 20Q + 0.5Q^{2}$. A monopolist maximizes profit by equating marginal revenue and marginal cost.\n\n(a) Determine the monopoly quantity $Q_{m}$ and price $P_{m}$.\n(b) Under perfect competition the price equals marginal cost. Find the competitive quantity $Q_{c}$.\n(c) By what percentage is the monopoly output lower than the competitive output?

A. Qm = 18, Pm = 64; Qc = 85/3 (≈28.33); monopoly output is 36% lower than competitive output

B. Qm = 14, Pm = 72; Qc = 90/3 (≈30.00); monopoly output is 53% lower than competitive output

Correct C. Qm = 16, Pm = 68; Qc = 80/3 (≈26.67); monopoly output is 40% lower than competitive output

D. Qm = 20, Pm = 60; Qc = 70/3 (≈23.33); monopoly output is 30% lower than competitive output

Correct Answer: C

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Question 13 View Details

An economy's production function is $Q = K^{0.4} L^{0.6}$, where $K$ is capital and $L$ is labour.\nIf capital is increased by 20% and labour by 10%, by what percentage does output change? Also state whether the production function exhibits increasing, decreasing, or constant returns to scale.

A. Output falls by 2%; the production function has constant returns to scale

Correct B. Output rises by 14%; the production function has constant returns to scale

C. Output rises by 16%; the production function has increasing returns to scale

D. Output rises by 12%; the production function has decreasing returns to scale

Correct Answer: B

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Question 14 View Details

According to the Harrod‑Domar model, the long‑run growth rate of real GDP is given by $g = \frac{s}{v}$, where $s$ is the savings rate and $v$ the capital‑output ratio. The per‑capita growth rate is $g_{pc}= g - n$, with $n$ the population growth rate.\n\nA developing country currently has a real GDP growth rate of 5% per year and a population growth rate of 2% per year. Its savings rate is 20% of GDP and the capital‑output ratio remains constant.\n\n(a) Determine the current capital‑output ratio $v$.\n(b) The government wishes to raise the per‑capita growth rate to 4% per year (population growth unchanged). What savings rate is required to achieve this target?\n(c) By how many percentage points must the savings rate be increased? Is this target feasible under the Harrod‑Domar assumptions?

Correct A. v = 4; required savings rate = 24%; increase of 4 percentage points; target is feasible under the model

B. v = 4; required savings rate = 20%; increase of 0 percentage points; target is not feasible under the model

C. v = 3; required savings rate = 28%; increase of 8 percentage points; target is feasible under the model

D. v = 5; required savings rate = 22%; increase of 2 percentage points; target is not feasible under the model

Correct Answer: A

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Question 15 View Details

The price of a good falls from $\text{₦}500$ to $\text{₦}400$ and the quantity demanded rises from 200 units to 260 units.\nUsing the midpoint (arc) method, calculate the price elasticity of demand. State whether demand is elastic, inelastic, or unit‑elastic.

Correct A. Elasticity ≈ -1.17 (elastic demand)

B. Elasticity ≈ -1.50 (elastic demand)

C. Elasticity ≈ -1.00 (unit‑elastic demand)

D. Elasticity ≈ -0.83 (inelastic demand)

Correct Answer: A

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Question 16 View Details

Given the production function $ Q = 5L^{2} - \frac{L^{3}}{3} $, where Q is output and L is labour units, determine the amount of labour at which marginal product equals average product. State the corresponding output and marginal product.

A. Labour = 10 units; Output = 166.667 units; Marginal product = 0 units

B. Labour = 5 units; Output = 83.333 units; Marginal product = 25 units

Correct C. Labour = 7.5 units; Output = 140.625 units; Marginal product = 18.75 units

D. Labour = 12.5 units; Output = 130.208 units; Marginal product = -31.25 units

Correct Answer: C

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Question 17 View Details

The following data are for a closed economy in a given year (all values in $\text{₦}$ billions): Consumption $C = 2500$, Investment $I = 800$, Government spending $G = 1200$, Exports $X = 600$, Imports $M = 500$, Indirect taxes $T = 300$, Subsidies $S = 50$, Depreciation $D = 400$, Net factor income from abroad $NFI = 120$. Compute the Net National Income at factor cost for the year.

Correct A. 4070

B. 4020

C. 4370

D. 4470

Correct Answer: A

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Question 18 View Details

In a Keynesian economy, autonomous consumption is $200$ $\text{₦}$, marginal propensity to consume (MPC) is $0.75$, tax rate is $20\%$ of income, marginal propensity to import (MPM) is $0.1$, government spending $G = 150$ $\text{₦}$, investment $I = 100$ $\text{₦}$, and net exports are zero. Determine the equilibrium level of national income.

A. 1050

B. 825

C. 750

Correct D. 900

Correct Answer: D

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Question 19 View Details

The required reserve ratio in the banking system is $10\%$ and the public holds currency equal to $30\%$ of bank deposits (currency‑deposit ratio $c = 0.3$). The central bank purchases securities worth $200$ million $\text{₦}$, increasing reserves by that amount. Assuming no excess reserves, calculate the total increase in the money supply.

Correct A. 650

B. 800

C. 700

D. 600

Correct Answer: A

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Question 20 View Details

The demand for a product is given by $Q_d = 500 - 5P$ and supply by $Q_s = 2P + 20$, where $Q$ is quantity and $P$ is price in Naira. Find the equilibrium price and quantity.

A. Price \approx 50.00 Naira; Quantity \approx 120.00 units

Correct B. Price \approx 68.57 Naira; Quantity \approx 157.14 units

C. Price \approx 80.00 Naira; Quantity \approx 180.00 units

D. Price \approx 96.00 Naira; Quantity \approx 212.00 units

Correct Answer: B

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Question 21 View Details

A monopolist faces the demand equation $ P = 120 - 2Q $ and has a constant marginal cost of \u00A0₦20 per unit with a fixed cost of \u00A0₦200. Determine the dead‑weight loss caused by the monopoly.

Correct A. 625

B. 500

C. 900

D. 750

Correct Answer: A

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Question 22 View Details

A firm's total cost function is $ TC = 0.5Q^{2} + 20Q + 200 $ and the market price of its product is $ \text{₦}30 $ per unit.\n(a) Find the output that minimizes average total cost (ATC).\n(b) Determine the profit‑maximising output for the firm.\n(c) Based on your results, should the firm continue operating in the short run? State your answer clearly.

A. Q_ATC_min = 15 units; Q_profit = 10 units; continue operating: Yes

Correct B. Q_ATC_min = 20 units; Q_profit = 10 units; continue operating: Yes

C. Q_ATC_min = 20 units; Q_profit = 10 units; continue operating: No

D. Q_ATC_min = 20 units; Q_profit = 12 units; continue operating: Yes

Correct Answer: B

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Question 23 View Details

Country X's export price index for coffee rises from 100 to 112 and its import price index for oil rises from 100 to 105.\n(a) Calculate the percentage change in the terms of trade after these movements.\n(b) The government then imposes a 10% ad valorem tariff on oil imports. Compute the new percentage change in the terms of trade relative to the original base period.

A. -3.5

B. -4.2

Correct C. -3.1

D. -2.9

Correct Answer: C

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Question 24 View Details

The labour force of a country is 5,000,000 and the unemployment rate is 12%. A training programme moves 150,000 unemployed persons into employment and simultaneously attracts an additional 50,000 people into the labour force. What is the new unemployment rate (to one decimal place)?

Correct A. 8.9

B. 9.1

C. 9.9

D. 9.0

Correct Answer: A

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Question 25 View Details

The market for a good is described by demand $ P = 100 - 2Q $ and pre‑tax supply $ P = 20 + Q $. The government imposes a specific tax of $ \text{₦}5 $ per unit.\n(a) Find the equilibrium price paid by consumers, the price received by producers, and the equilibrium quantity after the tax.\n(b) Compute the total tax revenue collected.

Correct A. 125

B. 100

C. 200

D. 150

Correct Answer: A

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