Qno1

a)Use a production possibilities frontier to describe the idea of trade-off.

b)Accumulation of capital and change in technology bring economic growth, which means that the PPF keeps shifting outward: Production that was unattainable yesterday becomes attainable today; production that is unattainable today will become attainable tomorrow. Why doesn't this process of economic growth mean that scarcity is being defeated and will one day be gone?

Qno2

a)Why the use real GDP is preferred by economists over nominal GDP to gauge economic well-being?

b)Consider the following data on the Pakistan economy:

Nominal GDP GDP Deflator

Year(in billions of rupees) (base year 2012)

2018 21,501 111.4

19989,16376.3

i.What was the growth rate of nominal GDP between 1998 and 2018? (Hint: The growth rate of a variable X over an N-year period is calculated as [(X_final/X_initial)^1/N - 1] x 100).

ii.What was the growth rate of the GDP deflator between 1998 and 2018?

iii.What was real GDP in 1998 measured in 2012prices?

iv.What was real GDP in 2018 measured in 2012prices?

v.What was the growth rate of real GDP between 1998 and 2018?

vi.Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.

QNO3

a)Does an increase in the price of imported Belgian chocolate affect the CPI or the GDP deflator more? Why

b)Cost of a dozen oranges was Rs80 in January 1980 and Rs.170 in January 2018. The average hourly wage for production and non supervisory workers was Rs.650 in January 1980 and Rs.2200 in January 2018.

i.By what percentage did the price of oranges rise?

ii.By what percentage did the wage rise?

iii.In each year, how many minutes did a worker have to work to earn enough to buy a dozen oranges?

iv.Did workers' purchasing power in terms of oranges rise or fall?

Qno 4

a)Explain the determinants of productivity.

b)Many countries import considerable amounts of goods and services from other countries. Yet economists argue that a nation can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts?

Qno5

a)What are demand deposits and why should they be included in the stock of moneY?

b)Explain whether each of the following events increases or decreases the money supply.

i.The State Bank of Pakistan sells bonds in open-market operations.

ii.The State Bank of Pakistan increases the reserve requirement.

iii.The State Bank of Pakistan reduces the interest rate it pays on reserves.

iv.MCB Bank repays a loan it had previously taken from the State Bank of Pakistan.

v.After a rash of pickpocketing, people decide to hold less currency.

vi.Fearful of bank runs, bankers decide to hold more excess reserves.

Qno6

In past 50 years the frozen food industry in U.S has grown from $1billion to $27 billion. Discuss the role of opportunity cost in our lives with regards to this huge growth in the frozen food market in the U.S

Qno7

Assume a country produces haircuts and shirts with inputs of labour. The country has 1000 hours of labour available.A haircut requires hour of labour, while a shirt requires 5 hours of labour.

a.Construct country's production- possibility frontier.

b.The country is faced with massive unemployment. How will the PPF be impacted? Explain and indicate on graph.

c.The country discovers new technology and moves towards automation. Justify how this will impact the PPF for the economy. Also, indicate the same through the graph.