Young Economists Society Nepal

NEPAL ECONOMICS OLYMPIAD 2020

(National Competition)
There are two sections in this paper i.e. Section A and B.
Time allowed: 2:30 hrs. Total marks: 100

Section-A

INSTRUCTIONS:
• Attempt this section on MCQs Answer Sheet only.
• Use Black ball point for shading only one circle for correct option of a question.
• No mark will be awarded for cutting, erasing, over writing and multiple circles shading.

All 20 multiple choice questions will be graded (2 raw points for the correct answer, −0.5 raw point for the
incorrect answer, 0 points for no answer). Choose one answer in each question.

1. Match list I (Type of inflation) and list II (relevant percentage rise in prices) and select the correct
answer using the codes given below:
List I List II
A. Creeping inflation 1. 3%
B. Trotting Inflation 2. 10 – 20%
C. Hyper Inflation 3. 3 – 7%
D. Running Inflation 4. 20 – 30%
Codes
A B C D
a. 2 4 1 3
b. 2 1 3 4
c. 4 1 3 2
d. 1 3 4 2

2. If the citizens of a country are earning more from abroad than foreigners are earning in that country
then
a. GNP exceeds GDP b. GDP exceeds GNP
c. GDP becomes equal to GNP d. None of the above.

3. International comparisons indicate that the degree of income inequality is greatest in

a. more developed countries. b. less developed countries
c. countries with a homogenous population d. Landlocked countries.

4. Which of the following statements are correct?

a. Your material wealth is the largest amount that you can consume without borrowing, which includes
the value of your house, car, financial savings, and human capital.
b. Net income is the maximum amount that you can consume and leave your wealth unchanged.
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c. In economics, investment means saving in financial assets such as stocks and bonds.
d. Depreciation is the loss in your financial savings due to unfavourable movements in the market.

5. Brian likes going to the cinema more than watching football. Anna, on the other hand, prefers
watching football to going to the cinema. Either way, they both prefer to be together rather than
spending an afternoon apart. The following table represents the happiness levels (payoffs) of Anna and
Brian, depending on their choice of activity (the first number is Brian’s happiness level while the
second number is Anna’s):

a. The dominant strategy for both players is Football.

b. There is no dominant strategy equilibrium.
c. The dominant strategy equilibrium yields the
highest possible happiness for both.
d. Neither player would want to deviate from the
dominant strategy equilibrium.

6. If policy makers wants to reduce unemployment by increasing investment during a mild recession, what
is the best policy?
a. increase government expenditure and taxes equally
b. increase government expenditure only
c. pursue the purchase of bonds by the central bank
d. increase government transfer payments.

7. Currently you work for 40 hours per week at the wage rate of £20 an hour. Your free hours are defined
as the number of hours not spent in work per week, which in this case is 24 hours × 7 days − 40 hours
= 128 hours per week. Suppose now that your wage rate has increased by 25%. If you are happy to
keep your total weekly income constant, then:
a. Your total number of working hours per week will fall by 25%.
b. Your total number of working hours per week will be 30 hours.
c. Your total number of free hours per week will increase by 25%.
d. Your total number of free hours per week will increase by 6.25%.

8. Which of the following is an economic rent?

a. The amount you pay your landlord for the use of an apartment.
b. The amount you pay to hire a car for a weekend.
c. The extra profit that a successful innovator makes on bringing a new product to the market
before its competitors.
d. The extra profit that a firm makes when it doubles in size and there are no changes to costs or the
price for each unit of its output.
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9. Which of the following statements about bubbles is correct?

a. A bubble occurs when the fundamental value of a share rises too quickly.
b. A bubble is less likely to occur in a market where people can easily switch from buying to selling.
c. Momentum trading strategies make bubbles more likely to occur.
d. Bubbles can only occur in financial markets.

10. Which of the following policy is used to control negative externalities?

a. Subsidy policy b. Income Policy c. Tax policy d. Monetary policy

11. Which of the following is a powerful weapon that has served to increase the bargaining power of labor
unions?
a. right–to–work laws b. the strike c. the lockout d. all of the above.

12. GDP of the country X grows by 1% per year every year. GDP of the country Y grows by 2% per year
every year. If in the year 2019 countries have equal GDP, by what year will their GDP differ by two
times? (Choose the nearest estimate).
a. 2050 b. 2090 c. 2150 d. 2180

13. You are going to buy a laptop for 1,000 USD. You can either withdraw this money from your bank
account (it pays 10% interest yearly) or do it using one of the following credit schemes. Pick the
scheme in which you will spend the most amount of money overall.
a. Paying directly from you bank account.
b. Credit at 0.1% compound interest per day, the only payment is at the end of the year.
c. Credit at 12% interest rate per year, the only payment is at the end of the year.
d. Credit at 0.5% compound interest per month, the only payment is at the end of the year.

14. Quantitative easing is the common name for which policy instrument?
a. Asset purchasing by the central bank
b. Lowering the interest rates at which commercial banks lend to each other
c. Asset selling by a central bank
d. When a central bank reduces

15. Which is not a characteristic of oligopoly?

a. When the firm faces a perfectly elastic demand curve
b. When the firm faces both elastic and inelastic demand
c. When only a few firms dominate a market
d. Firms tend to be interdependent

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16. A significant rise in interest rates is most likely to lead to an increase in:
a. Short run aggregate supply b. Consumer spending
c. Unemployment d. Investment spending

17. Number of times a unit of money changes hands in the course of a year is called_____
a. Supply of Money
b. Purchasing power of money
c. Velocity of money
d. Value for money

18. Classical economists argue that:

a. The economy needs government spending to grow
b. The economy needs increases in taxes to grow
c. The economy should be left alone
d. The economy needs the government to create laws protecting the economy from decline

19. Which among the following is NOT an assumption of Pareto optimality?

a. Every consumer wishes to maximize his level of satisfaction.
b. All the factors of production are used in the production of every commodity.
c. Conditions of perfect competition exist making all the factors of production perfectly mobile
d. The concept of utility is cardinal and cardinal utility function of every consumer is given.

20. In the diagram D1 and S1 are the initial supply and demand curves of the pound sterling (£) on the
foreign exchange markets.
a. a decrease in the price levels of other countries
b. a depreciation of the pound sterling
c. a reduction in the level of UK import tariffs
d. an increase in UK interest rates

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Section-B
All open questions will be graded (15 raw points for the correct answer, 0 points for no answer). Choose and
answer only three (4) questions from below. Candidates are required to give their answers in their own words as
far as practicable.

1. Discuss Nepal’s labor market issues from an economic environment point of views.

2. Consider public policy aimed at smoking.

a) Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes
currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it
increase the price? (10)

b) Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true.
- (5)

3. (a) In a two country world one country is more efficient at producing one product and the other
country is more efficient at producing another product. Explain why specialisation and trade usually
benefit both countries. (8)

(b) Suppose one country were more efficient at producing both products. Discuss whether it is the case
that specialisation and trade will always benefit both countries. (7)

4. Define market failure. Discuss the various sources of market failure. How does government try to solve
market failure?

5. Consider two commodities, A and B, that are substitutes in consumption.

a) Suppose that the number of consumers of good A increased, thus shifting the demand for it.
Assuming perfect competition in both markets, what can you say about the resulting change in the
price of B? Explain in detail. (5)

b) Suppose that A and B are not only substitutes in consumption but also complements in production.
What can you say about the resulting change in the price of B? Explain in detail. (5)

c) Give a real-world example of two commodities that are both substitutes in con- sumption and
complements in production. (5)

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