BANAHAW TECHNOLOGICAL COLLEGE INC.

College Department

Engineering Economics

Name: __________________________ Score: _____________

Course: _________________________ Date: ______________

Directions: Below are questions on engineering economic concepts and

problems. Read the items carefully and write the letter which corresponds to
your chosen answer on the space provided for.

_________1.Which of the following is the best example of land?

a. the gasoline refined from crude oil
b. a factory that produces new goods and services
c. river water used to produce steam in the production of bitumen
d. a forest protected by the government so that it cannot be used
for production

_________2. Karl Marx argued that:

a. centrally planned economies provide a more equitable
distribution of total economic output
b. technological change was not important in improving living
standards
c. market system would produce a more equitable society
d. self-interest will produce an effective economic order
e. the pricing system will act as the invisible hand in allocating
resources to its best use

_________3. Capital as economists use the term refers to:

a. the money needed to start the business
b. the costs of operating a business
c. stocks and bonds traded in the stock market
d. equipments and tools that are used to produce other goods and
services
e. all of the above

_________4. According to the law of increasing opportunity costs:

a. the more one is willing to pay for resources; the larger will be the
possible level of production
b. increasing the production of a particular good will cause the
price of the good to rise
c. in order to produce additional units of a particular good; it is
necessary for society to sacrifice increasingly larger amounts of
alternative goods
d. only by keeping production constant can rising prices cannot be
avoided.
 e. in order to produce additional units of a particular good, it is
necessary for society to sacrifice increasingly smaller amounts of
alternative goods.

_________5. Which of the following is an example of a fiat money?

a. gold and silver coins
b. tire money
c. cigarettes in a prison
d. token coins in an arcade
e. paper dollars

_________6.The biggest asset for a chartered bank si the?

a. sum retail and commercial deposits
b. land, buildings and computers owned by the banks
c. money it has in vaults
d. money deposited with the government
e. none of the above

_________7. Suppose the Central Bank purchased P100,000,000 worth of bonds

from the chartered banks and the banks decided to stop lending. If
the desired reserve ratio is 20 percent, the money supply will?
a. not change
b. increase by only P100 million
c. decrease by only P100 million
d. increase by P500 million
e. decrease by P500 million

_________8. Assume the banks keep a desired reserve ratio of 10 percent

against their deposits. Further assume the banks keep no excess
reserves. Bank A receives a new deposit of P100,000. The largest
loan this bank could make is:
a. P10,000
b. P90,000
c. P100,000
d. P900,000
e. P1,100,000

_________9. Real GDP is more accurate than nominal GDP when measuring
phases of the business cycle because:
a. nominal GDP can increase simply because prices are rising over
time.
b. real GDP is not affected by output changes.
c. nominal GDP is the hypothetical output that would be produced
at full employment.
d. real GDP is not affected by changes in productivity nor the size of
the labor force.
e. real GDP includes changes in the quality of goods whereas
nominal GDP does not.
_________10. One of the problems with the consumer price index as a
measurement for inflation is that:
a. quantities used in the index change over time
b. prices used in the index change over time.
c .it is extremely unreliable as a measurement for inflation.
d. some new goods or services may not be included in the basket
e. it only contains about 65 items that a typical household would
purchase

The Icelandic
volcano
explosion
which shut
down the
European
airspace is an
example
of a …..risk
a) Known-
Unknown
b) Known-
Known
c) Unknown-
known
d) Unknown-
unknown
_________11. Mayon volcano’s explosion which shut down the airspace is an
example of a __________ risk.
a. known-unknown
b. known- known
c. unknown-known
d. unknown-unknown
e. undetermined

_________12. If the interest rate of a bond is the same as the expected interest
rate, then this is true of the present worth of the bond:
a. it is the same as its face value
b. it is the half of its face value
c. it is the higher as its face value
 d. it is the lower as its face value
e. none of the above

_________13. Which of the following is a way for a company to raise money?

a. raid the corporate bank account
b. issue more stocks.
c. issue a bond.
d. all of the above
e. none of the above

_________14. If the price of a commodity is highly elastic, then:

a. demand will not affect its price
b. an increase in demand will force people to buy another
alternative
c. a decrease in demand will force people to buy another alternative
d. people will buy it no matter what it costs
e. buyers will resort to product hoarding

_________15. An asset purchased for P50 000 is to be depreciated over 5 years

using the straight line method. Salvage value is P10,000. Its book
value after 3 years is
a. 26,000
b. 24,000
c. 20,000
d. 10,000
e. 18,000

_________16. Which is not included in the calculation of GDP?

a. corporate profits before taxes
b. wages and salaries
c. net farm and small business incomes
d. intermediate goods and services
e. assets

_________17. You borrowed P200 from your friend and pay her back P1,600 in
3 years. What is the implied interest rate?
a. 8%
b. 14%
c. 200%
d. 300%
e. 89%

_________18. Which of the following is not a real cash flow?

a. utilities
b. debt interest
c. depreciation
d. taxes

_________19. Stagflation occurs when?

 a. the GDP decreases and inflation increases
b. the GDP increases and inflation increases
c. the GDP decreases and inflation decreases
d. the GDP decreases and inflation decreases
e. the GDP decreases and inflation is at a steady rate

_________20. A break-even analysis is:

a. A form of sensitivity analysis
b. The point where costs equal incomes
c. The juncture of 2 money flow curves
d. comparison of total variable and fixed costs
e. all of the above

34. Interest which is

continuously compounded
compared to daily
compounding is
a. The same
b. Slightly higher
c. Slightly lower
d. Much highe
_________21. Interest which is continuously compounded compared to daily
compounding is:
a. the same
b. slightly higher
c. slightly lower
d. much higher
e. all of the above

_________22. If a newspaper reported that eating broccoli would eliminate

cancer, this would happen to its:
a. Demand curve would shift right
b. Demand curve would shift left
c. Demand curve would not change
d. Supply curve would shift right
e. Supply curve will go downward

_________23. A non-monetary increase in supply will lead to:

 a. a decrease in the equilibrium price and an increase in the
equilibrium quantity
b. a decrease in the equilibrium price and an increase in the
equilibrium quantity
c. a increase in the equilibrium price and an increase in the
equilibrium quantity
d. a increase in the equilibrium price and an decrease in the
equilibrium quantity
e. the same equilibrium price and a decrease in the equilibrium
quantity

_________24. Public sector projects do not have profits. Instead they replace
increasing profit with:

a. maintaining quality
b. minimizing costs
c. self-assuring the costs
d. paying taxes
e. bonds and stocks

_________25. What is another term for the yield in reference to bonds?

a. the bond’s purchase price

b. the bond’s return on investment
c. the bond’s interest
d. the amount to be paid to the holder when due
e. the bonds utilized

Part II. Computation

Calculate the following economics problems. Show your formulas and
computations used.
a. Bill wants to make monthly payments of P1,000 into an account that pays 6
percent compounded interest monthly. Calculate the future value of these
deposits for 10 years.

b. Tommy has a choice of making equal deposit into an account at the

beginning of each year for 30 years. (30 payments) The account will pay an
annual interest of 4.0 percent compounded annually. He plans on depositing P
10,000 per year.
The other option is for Tommy to make deposits at the end of the year in order
to give him the same future value as the scenario above?

c. Steven is planning to retire in 30 years and during his retirement; he expects

to withdraw P 80,000 at the end of each year during his retirement. Based on
family history, Steven expects to live 25 years in retirement. During his
retirement, he expects to earn 4% compounded annually.
How much would Steven have to save at the end of each year if he expects to
earn 5 percent compounded monthly on his investments until retirement?

ANSWER KEY

1. B
2. A
3. D
4. C
5. E
6. D
7. B
8. D
9. A
10.D
11.D
12.A
13.C
14.B
15.B
16.D
17.C
18.C
19.A
20.E
21.B
22.A
23.A
24.B
25. C