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Download complete IJMB updated past questions paper paper 1, 2, and 3.1. The basic economic problem arises mainly because: a) people are lazy b) wants are unlimited while resources are limited c) governments print too much money d) all goods are scarce.
✅ b) wants are unlimited while resources are limited — Scarcity forces societies to make choices about allocation of resources.
2. The opportunity cost of holding money instead of bonds is: a) interest forgone b) inflation rate c) tax payment d) depreciation.
✅ a) interest forgone — Keeping money means sacrificing the interest that could have been earned on alternative assets.
3. A fall in the price of tea causing consumers to buy less coffee indicates that tea and coffee are: a) complementary goods b) inferior goods c) substitute goods d) public goods.
✅ c) substitute goods — Consumers switch between substitute goods when relative prices change.
4. Which of the following is a fixed cost? a) wages of casual workers b) cost of raw materials c) rent of factory building d) electricity used in production.
✅ c) rent of factory building — Fixed costs do not change with output in the short run.
5. The central bank uses open market operations mainly to: a) regulate labour supply b) control money supply c) determine tax rates d) regulate foreign trade.
✅ b) control money supply — Buying and selling government securities influences liquidity in the economy.
6. Which of the following is an example of indirect tax? a) company income tax b) personal income tax c) value added tax d) capital gains tax.
✅ c) value added tax — VAT is imposed on goods and services rather than directly on income.
7. The average propensity to consume is: a) consumption divided by income b) income divided by consumption c) saving divided by income d) investment divided by income.
✅ a) consumption divided by income — APC measures the proportion of income spent on consumption.
8. If total utility is maximum, marginal utility is: a) positive b) negative c) zero d) rising.
✅ c) zero — TU reaches its peak when additional satisfaction from consuming another unit becomes zero.
9. Which of the following best describes inflation? a) continuous rise in the general price level b) fall in national income c) increase in unemployment d) increase in imports.
✅ a) continuous rise in the general price level — Inflation reduces the purchasing power of money over time.
10. A perfectly elastic demand curve is: a) vertical b) downward sloping c) horizontal d) upward sloping.
✅ c) horizontal — Consumers will buy all they want at one price but none at a higher price.
11. The reward for entrepreneurship is: a) rent b) wages c) interest d) profit.
✅ d) profit — Entrepreneurs bear risks and organize production, earning profit as reward.
12. Which of the following causes a movement along the demand curve? a) change in consumer income b) change in price of the commodity c) change in taste d) change in population.
✅ b) change in price of the commodity — Price changes cause extension or contraction of demand along the same curve.
13. In economics, capital refers to: a) money only b) natural resources c) man-made productive assets d) entrepreneur's income.
✅ c) man-made productive assets — Capital includes machines, tools, and equipment used in production.
14. The money paid regularly to a retired worker is called: a) subsidy b) pension c) transfer earnings d) dividend.
✅ b) pension — Pensions are transfer payments made after retirement.
15. Which of the following is a feature of monopolistic competition? a) homogeneous products b) no competition c) product differentiation d) single seller.
✅ c) product differentiation — Firms compete using branding and product variety.
16. If marginal product is above average product, average product will: a) rise b) fall c) remain constant d) become zero.
✅ a) rise — A value above the average pulls the average upward.
17. Devaluation differs from depreciation because devaluation: a) occurs automatically in free markets b) is an official reduction in currency value c) increases exports only d) reduces inflation permanently.
✅ b) is an official reduction in currency value — Governments deliberately lower the currency value under fixed exchange systems.
18. Which of the following is a stock variable? a) national income b) investment c) capital d) savings per year.
✅ c) capital — Stock variables are measured at a specific point in time.
19. The demand for labour is called derived demand because it depends on: a) government policy b) population growth c) demand for final goods and services d) labour unions.
✅ c) demand for final goods and services — Firms hire workers because consumers demand output.
20. Which of the following is a merit good? a) cigarettes b) alcohol c) education d) gambling.
✅ c) education — Merit goods generate positive external benefits to society.
21. The main objective of production is to: a) increase scarcity b) satisfy human wants c) reduce population d) increase imports.
✅ b) satisfy human wants — Production exists to provide goods and services people need.
22. When supply exceeds demand, there will be: a) shortage b) equilibrium c) surplus d) inflation.
✅ c) surplus — Excess supply occurs when quantity supplied is greater than quantity demanded.
23. The slope of a budget line depends on: a) consumer taste b) prices of goods c) government expenditure d) level of imports.
✅ b) prices of goods — Relative prices determine the slope of the budget constraint.
24. Which of the following is a function of commercial banks? a) printing currency b) issuing coins c) accepting deposits d) formulating fiscal policy.
✅ c) accepting deposits — Commercial banks mobilize savings and provide credit facilities.
25. The total amount spent by consumers on goods and services is called: a) investment expenditure b) consumption expenditure c) transfer payment d) government revenue.
✅ b) consumption expenditure — Household spending on goods and services forms consumption expenditure.
26. A rise in demand while supply remains constant will lead to: a) lower price and lower quantity b) higher price and higher quantity c) lower price and higher quantity d) higher price and lower quantity.
✅ b) higher price and higher quantity — Increased demand raises equilibrium price and output.
27. Which of the following is a barrier to entry in monopoly? a) homogeneous products b) freedom of entry c) patent rights d) perfect information.
✅ c) patent rights — Legal protections can prevent competitors from entering the market.
28. The sum of marginal utilities divided by price is equal across goods at consumer equilibrium according to: a) Gossen's second law b) law of supply c) quantity theory of money d) Say's law.
✅ a) Gossen's second law — Consumers maximize satisfaction when MU/P is equal for all goods.
29. The process by which banks create credit is known as: a) rationing b) monetization c) credit creation d) capitalization.
✅ c) credit creation — Banks expand money supply through lending activities.
30. Which of the following is most likely during a recession? a) rising employment b) falling unemployment c) declining output d) rising exports only.
✅ c) declining output — Economic recessions are characterized by reduced production and economic activity.
31. A subsidy granted to producers will generally: a) reduce supply b) increase production costs c) increase supply d) decrease demand.
✅ c) increase supply — Subsidies lower production costs and encourage output expansion.
32. The equilibrium price in a market is determined by: a) government decree only b) interaction of demand and supply c) producer decision only d) consumer preference alone.
✅ b) interaction of demand and supply — Market forces determine equilibrium price and quantity.
33. Which of the following is not a function of the entrepreneur? a) bearing risk b) coordinating production c) providing land d) decision making.
✅ c) providing land — Land is supplied by landowners, not entrepreneurs.
34. The formula for price elasticity of demand is:
a) percentage change in quantity demanded divided by percentage change in price b) percentage change in price divided by percentage change in quantity demanded c) quantity demanded divided by total price d) total expenditure divided by quantity demanded.
✅ a) percentage change in quantity demanded divided by percentage change in price — PED measures responsiveness of demand to price changes.
35. Which of the following is an example of variable cost? a) insurance premium b) machine depreciation c) wages of temporary workers d) factory rent.
✅ c) wages of temporary workers — Variable costs change directly with output level.
36. Fiscal policy is mainly concerned with: a) money supply and interest rates b) taxation and government expenditure c) exchange rate determination d) population growth.
✅ b) taxation and government expenditure — Fiscal policy uses government revenue and spending to influence the economy.
37. A decrease in supply with demand unchanged will result in: a) lower equilibrium price b) higher equilibrium price c) lower consumer income d) stable equilibrium quantity only.
✅ b) higher equilibrium price — Reduced supply creates scarcity, pushing prices upward.
38. Which of the following is a qualitative measure of economic development? a) GDP growth rate b) per capita income c) literacy rate d) export volume.
✅ c) literacy rate — Development includes improvements in living standards and social welfare.
39. The law of supply states that: a) quantity supplied falls as price rises b) quantity supplied rises as price rises c) supply remains constant d) demand equals supply always.
✅ b) quantity supplied rises as price rises — Producers are willing to supply more at higher prices.
40. A customs duty imposed on imports is called: a) subsidy b) tariff c) quota d) excise duty.
✅ b) tariff — Tariffs are taxes placed on imported goods.
41. Which of the following is not included in GDP? a) production of final goods b) salaries and wages c) second-hand car sales d) investment expenditure.
✅ c) second-hand car sales — Used goods are excluded because they were counted when first produced.
42. The shape of a typical average variable cost curve is: a) vertical b) horizontal c) U-shaped d) upward sloping straight line.
✅ c) U-shaped — AVC initially falls then rises due to the law of diminishing returns.
43. Which of the following is an example of capital intensive production? a) using many workers and few machines b) using advanced machinery and fewer workers c) relying only on manual labour d) household production.
✅ b) using advanced machinery and fewer workers — Capital-intensive methods rely heavily on equipment and technology.
44. Balance of trade refers to: a) total payments and receipts from abroad b) difference between exports and imports of visible goods c) exchange rate policy d) money supply regulation.
✅ b) difference between exports and imports of visible goods — BOT focuses only on trade in physical goods.
45. Which of the following is most likely to reduce inflation? a) increasing money supply b) reducing taxes c) increasing interest rates d) increasing government expenditure.
✅ c) increasing interest rates — Higher interest rates reduce borrowing and aggregate demand.
46. Consumer sovereignty means: a) producers determine what to produce b) consumers influence production through their demand c) government controls production decisions d) foreign firms dominate markets.
✅ b) consumers influence production through their demand — Producers respond to consumer preferences in market economies.
47. The minimum legal wage set by government is known as: a) transfer payment b) living allowance c) minimum wage d) salary scale.
✅ c) minimum wage — Governments establish wage floors to protect workers.
48. Which of the following is not a feature of money? a) portability b) divisibility c) perishability d) durability.
✅ c) perishability — Money must be durable and not easily spoiled.
49. The quantity theory of money suggests that inflation occurs when: a) money supply grows faster than output b) output grows faster than money supply c) unemployment increases d) exports decline.
✅ a) money supply grows faster than output — Too much money chasing limited goods raises prices.
50. A production possibility curve is usually concave to the origin because of: a) increasing opportunity cost b) constant returns to scale c) unlimited resources d) falling prices.
✅ a) increasing opportunity cost — Resources are not equally efficient in producing all goods, causing rising opportunity costs.