1. A seller raises the price from Tk 50 to Tk 54 and quantity sold falls from 1,000 to 880 units. What is the price elasticity of demand, and what happens to total revenue?

A) PED 1.5 (elastic); revenue rises by Tk 2,480
B) PED 0.67 (inelastic); revenue falls by Tk 2,480
C) PED 1.5 (elastic); revenue falls by Tk 2,480
D) PED 0.67 (inelastic); revenue rises by Tk 2,480

Correct: C complex Price elasticity of demand

Price change = 4 / 50 = 8%; quantity change = 120 / 1,000 = 12%. PED = 12 / 8 = 1.5, so demand is elastic and a price rise cuts revenue: 50,000 falls to 54 x 880 = 47,520, a fall of Tk 2,480. If you chose 0.67 you inverted the ratio. If you chose a rise in revenue you applied the inelastic rule to elastic demand.

2. When the price of polypropylene sacks rises 10%, demand for jute sacks rises 6%. What is the cross elasticity of demand and what does it show?

A) -0.6; the goods are complements
B) +0.6; the goods are substitutes
C) +1.67; the goods are substitutes
D) +0.6; the goods are complements

Correct: B difficult Cross elasticity

XED = % change in quantity of jute / % change in price of polypropylene = 6 / 10 = +0.6. A positive value means substitutes. If you chose complements you misread the sign. If you chose 1.67 you inverted the ratio. If you chose -0.6 you also reversed the sign.

3. The marginal propensity to consume is 0.75. The government raises spending by Tk 200 billion. What is the total increase in national income using the simple multiplier?

A) Tk 267 billion
B) Tk 600 billion
C) Tk 800 billion
D) Tk 200 billion

Correct: C difficult Fiscal multiplier

Multiplier = 1 / (1 - 0.75) = 4, so the increase is 200 x 4 = Tk 800 billion. If you chose 600 you used a multiplier of 3 (the MPC / (1 - MPC)). If you chose 267 you divided by the MPC. If you chose 200 you ignored the multiplier effect.

4. Which TWO are features of an oligopoly? (Select TWO.)

Multiple response
A) Few large firms with interdependent decisions
B) Significant barriers to entry
C) Firms are price takers
D) Free entry and exit
E) Many small sellers

Correct: A, B difficult Market structures

Oligopolies have a few dominant firms whose pricing decisions affect each other, protected by barriers to entry. Price taking, free entry and many small sellers describe perfect competition. If you chose C, D or E you described a competitive market.

5. Which TWO are causes of cost-push inflation? (Select TWO.)

Multiple response
A) Rising consumer confidence
B) Expansionary fiscal policy
C) Greater availability of household credit
D) A rise in imported fuel prices
E) Wage increases not matched by productivity gains

Correct: D, E complex Cost-push inflation

Cost-push inflation comes from higher input costs: fuel and unmatched wage rises. The other options increase aggregate demand and cause demand-pull inflation. If you chose A, B or C you picked demand-side causes.

6. Which TWO would tend to cause a currency to depreciate? (Select TWO.)

Multiple response
A) Higher domestic interest rates relative to other countries
B) Imports growing faster than exports
C) A surge in foreign direct investment
D) A rise in export demand
E) Domestic inflation higher than in trading partners

Correct: B, E difficult Exchange rates

More imports than exports increases supply of the domestic currency, and higher relative inflation erodes competitiveness. Higher interest rates, FDI and export demand raise demand for the currency. If you chose A, C or D you chose appreciation factors.

7. Consider macroeconomic policy. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Expansionary fiscal policy means higher government spending or lower taxes.   Yes

2. Monetary policy is implemented through the government's annual budget.   No

3. A budget deficit is financed by government borrowing.   Yes

Correct: Y, N, Y difficult Fiscal and monetary policy

(1) Yes. (2) No: monetary policy is run by the central bank through interest rates and money supply. (3) Yes.

8. Consider market behaviour. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. A fall in the price of a substitute raises demand for the good.   No

2. Lower input costs shift the supply curve to the right.   Yes

3. A price ceiling set above the equilibrium price causes a shortage.   No

4. If demand is elastic, a price cut raises total revenue.   Yes

Correct: N, Y, N, Y difficult Supply, demand and elasticity

(1) No: cheaper substitutes reduce demand for the good. (2) Yes. (3) No: a ceiling above equilibrium is not binding; only a ceiling below equilibrium creates a shortage. (4) Yes.

9. When household incomes rise by 12%, demand for a firm's premium air conditioners rises by 18%. What is the income elasticity of demand and how is the good classified?

A) 1.5, income elastic (a luxury good)
B) 0.67, income inelastic (a normal necessity)
C) 1.5, income inelastic because demand rises when income rises
D) -1.5, an inferior good because demand is volatile

Correct: A complex Income elasticity of demand

YED = % change in quantity demanded / % change in income = 18 / 12 = 1.5. A value above 1 means demand is income elastic, typical of luxury goods. If you chose 0.67 you inverted the ratio. If you chose income inelastic you ignored that the value exceeds 1. If you chose an inferior good you confused volatility with a negative elasticity, which would show demand falling as income rises.

10. A government sets a maximum price for a staple food below the equilibrium price. What is the most likely result?

A) The price rises to the equilibrium level because suppliers raise output quickly
B) Excess supply, because producers increase output when the price is controlled
C) No effect, because a maximum price below equilibrium is ignored by buyers
D) Excess demand, with a risk of a black market outside the official channels

Correct: D difficult Maximum prices

A maximum price below equilibrium attracts customers but deters suppliers, so demand exceeds supply and a black market may emerge. Only a maximum price set above equilibrium has no effect on market forces.

11. Street lighting along a public road in Dhaka is difficult to provide through the market. Which feature of public goods explains this?

A) Non-excludability, which allows people to benefit without paying (free riders)
B) Rivalry, which means each user's consumption reduces what is available to others
C) Monopsony, which means a dominant single buyer forces suppliers to cut prices
D) Excludability, which allows suppliers to charge each user directly in proportion to use

Correct: A difficult Public goods

Public goods are such that use by one person does not significantly reduce availability to others, and it is difficult to exclude anyone once the good is provided, so individuals have little incentive to pay. Monopsony is about dominant buyers and is a different market imperfection.

12. Which THREE are features of perfect competition? (Select THREE.)

Multiple response
A) Suppliers are price takers
B) High barriers to entry
C) Collusion on prices
D) Products are differentiated by brand
E) Many small buyers and sellers
F) Identical (homogeneous) products

Correct: A, E, F difficult Perfect competition

Perfect competition features many small buyers and sellers, identical products, no barriers to entry or exit, perfect information and no collusion, so suppliers are price takers. High barriers, collusion and differentiation describe imperfect markets.

13. Which THREE are causes of market failure? (Select THREE.)

Multiple response
A) Externalities
B) Rising inflation
C) Public goods
D) Market power exercised by one or a few suppliers
E) A budget deficit
F) Floating exchange rates

Correct: A, C, D difficult Causes of market failure

Market failure arises from market imperfections such as market power, externalities, public goods and economies of scale. Inflation, deficits and exchange regimes are macroeconomic conditions, not causes of market failure.

14. Which TWO statements about the business cycle and government response are correct? (Select TWO.)

Multiple response
A) Recession tends to occur quickly while recovery is typically slower
B) A boom follows a depression directly with no recovery phase
C) Recovery is typically faster than the onset of recession
D) In a recession the government will try to boost overall demand
E) In a recession the government cuts spending to reduce overall demand

Correct: A, D difficult Business cycle

Recession can begin quickly because of the speed with which declining confidence spreads, whereas recovery is slower, and governments try to boost demand in recession. The cycle runs through recession, depression, recovery and boom.

15. Consider monetary policy. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Quantitative easing is an expansionary policy in which the central bank buys financial assets such as government securities.   Yes

2. Quantitative easing aims to reduce liquidity in the financial system.   No

3. Buying bonds tends to raise bond prices and lower yields.   Yes

4. A rise in bond prices raises bond yields.   No

5. Bangladesh Bank manages liquidity partly through operations involving government securities.   Yes

Correct: Y, N, Y, N, Y difficult Quantitative easing

(1) Yes. (2) No: it increases liquidity. (3) Yes. (4) No: yields move inversely to prices. (5) Yes.

16. Consider market structures and market failure. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. In the long run, suppliers in perfect competition earn above-normal profits.   No

2. A monopsony is a large buyer that dominates demand in a market.   Yes

3. An externality is the difference between private and social costs or benefits.   Yes

4. Climate change is an example of a positive externality.   No

5. Public goods tempt individuals to act as free riders.   Yes

Correct: N, Y, Y, N, Y difficult Market structures and failure

(1) No: they earn normal profits. (2) Yes. (3) Yes. (4) No: climate change is an externality where costs of activity are borne by others, a negative one. (5) Yes.

17. When the price of a product rises by 10%, quantity supplied rises by 15%. What is the price elasticity of supply and how is supply described?

A) 0.15, elastic
B) 1.5, inelastic
C) 0.67, inelastic
D) 1.5, elastic

Correct: D difficult Price elasticity of supply

PES = % change in quantity supplied / % change in price = 15 / 10 = 1.5. A value above 1 is elastic.

18. Nominal GDP grows by 10% and the general price level rises by 4%. What is the approximate real GDP growth?

A) 5.8%
B) 14.0%
C) 2.5%
D) 6.0%

Correct: A difficult Real GDP growth

Real growth = 1.10 / 1.04 - 1 = 5.8%. Subtracting gives 6.0%, which ignores compounding.

19. A sudden increase in demand for solar panels pushes up their price, which leads manufacturers to produce more and resources to move into the industry. Which functions of the price mechanism are illustrated?

A) Taxing, borrowing and spending
B) Signalling, rewarding and allocating
C) Planning, directing and controlling
D) Lending, saving and investing

Correct: B complex The price mechanism

Prices signal scarcity or demand, reward suppliers who respond and allocate resources to their most valued uses.

20. A central bank raises interest rates. What is the most likely effect on a business that borrows at a floating rate to fund investment?

A) Higher finance costs and lower investment, because projects must clear a higher cost of capital
B) Lower finance costs and more investment, because borrowing becomes cheaper
C) Higher export demand, because the currency falls automatically
D) No effect, because interest rates affect only households

Correct: A difficult Interest rate changes

Higher interest rates raise the cost of floating-rate borrowing and the hurdle rate for projects, reducing investment.

21. A garment worker loses his job because machines now perform his task, and his skills do not match the available vacancies in other industries. Which type of unemployment is this?

A) Structural unemployment
B) Frictional unemployment
C) Cyclical unemployment
D) Seasonal unemployment

Correct: A complex Unemployment

A mismatch of skills caused by changes in the structure of industry is structural. Cyclical unemployment arises from a downturn, frictional from job search.

22. Which government action is an example of a supply-side policy?

A) Investing in vocational training to raise labour productivity
B) Raising interest rates to reduce inflation
C) Increasing the money supply to raise demand
D) Cutting government spending in a recession to reduce the deficit

Correct: A difficult Supply-side policy

Supply-side policies aim to raise potential output, for example through education, training and removing barriers. The other options are demand-side tools.

23. A factory's emissions impose costs on local residents that are not reflected in its costs. Which government response best internalises the externality?

A) A subsidy for the factory's output
B) Removal of all environmental regulation
C) A price ceiling on the factory's product
D) A tax on emissions equal to the marginal external cost

Correct: D difficult Externalities and taxes

A corrective tax makes the polluter bear the external cost. Subsidies and ceilings do not address it.

24. Government spending and household credit both expand sharply while the economy is already close to full capacity. Prices rise broadly. Which type of inflation is this?

A) Deflation
B) Demand-pull inflation
C) Imported inflation caused by lower exchange rates
D) Cost-push inflation

Correct: B complex Demand-pull inflation

Excess aggregate demand against limited capacity pulls up prices.

25. Compared with a competitive market with the same costs, a profit-maximising monopolist will typically:

A) Restrict output and charge a higher price
B) Increase output and charge a lower price
C) Produce the same output at a lower price
D) Produce at the level where price equals marginal cost

Correct: A difficult Monopoly pricing

A monopolist sets marginal revenue equal to marginal cost, resulting in lower output and higher price than competition.