Download Economics Education and Research Consortium

Economics Education and Research Consortium
MA Program in Economics
National University “Kyiv–Mohyla Academy”
Admission Examination in Economics
Variant B
Name:
________________________________________________________________________
(please print legibly using capital block letters)
Instructions:
1. Do not turn this page until told to do so.
2. You have two hours to answer all the questions in the space provided. If the provided
space is insufficient, you may continue on the back of the sheet.
3. Answers in any language other than English will receive zero credit.
4. No dictionaries are allowed.
5. No calculators or other similar devices are permitted. Mobile phones must be switched off
for the duration of the exam.
6. Positively no cheating. If caught cheating, you will be asked to leave the room
immediately, and your grade for this exam will be zero.
Kyiv, July 2006
Part I – Macroeconomics (50 points, 5 points each question)
1. The consumer price index (CPI) measures the price of a certain fixed market basket of
goods and services. Give at least two reasons why the CPI is likely to overstate inflation.
2. A Ukrainian firm decides to cut its level of domestic investment by 10 000 hryvnas. What
is the maximum potential change in Ukrainian GDP if the marginal propensity to save in
the economy is 0.4?
3. Suppose that a saver puts $1 000 on a bank account at the annual interest rate 20%. What
is the real value (purchasing power) of that deposit in one year if inflation turns out to be
25%?
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4. Complete the sentences:
The full-employment rate of unemployment is also referred to as the ____________________
rate of unemployment. It consists of ____________________ unemployment and
____________________ unemployment. The actual rate of unemployment in the economy is
equal to the full-employment rate of unemployment when the ____________________
unemployment is zero. The real level of domestic output associated with the full-employment
rate of unemployment is called the economy’s ____________________ output.
5. Why a progressive tax system is an automatic stabilizer of the economy?
6. What is the crowding-out effect associated with expansionary fiscal policy?
7. Describe how rapid inflation can undermine money’s ability to perform the function of
medium of exchange.
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8. The so-called Laffer curve depicts the relationship between tax rates and tax revenues.
Explain the shape of this curve.
9. Suppose that the money supply and the nominal GDP for a hypothetical economy are $36
billion and $144 billion respectively.
a) What is the velocity of money?
b) If the central bank changes money supply by $6 billion and prices are completely
flexible in this economy, by how much will the price level change (in %)?
10. What is the condition of Purchasing Power Parity?
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Part II – Microeconomics (50 points, 5 points each question)
1. Suppose that the total revenue of a firm rises by 5% after the price of the product that this
firm sells increases by 10%. What can you say about price elasticity of demand for this
product?
2. Suppose that a consumer chooses an optimal bundle of goods X and Y. Price of a unit of
good X is $2, price of a unit of good Y is $3, and the consumer’s budget is $18. How
many units of good X and good Y will the optimal bundle include if for all levels of
consumption the marginal utility from consuming good X is 4, and the marginal utility
from consuming good Y is 3.
3. Suppose that in a given industry a firm might choose from only three plant sizes: small,
medium and large. The short-run average total cost curves for various plant sizes are
depicted on the graph below. Use this graph to show how the long-run average total cost
curve would look like for this industry.
Average
total
costs
ATClarge
ATCsmall
ATCmedium
output
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4. A firm on a competitive market faces price of $10 for its product and produces 100 units
of it. The marginal cost of production is $10; average total cost is $11, and fixed cost is
$150. Is this equilibrium for this firm (explain why)? Calculate the firm’s profit (loss).
5. What is the moral hazard problem associated with unemployment compensation
insurance?
6. How is monopsony different from monopoly?
7. Complete the sentences:
The cross elasticity of demand is computed as the percentage change in the
________________ demanded of good X divided by the percentage change in the
________________ of good Y. A positive coefficient indicates that the two products are
________________; a negative coefficient indicates that goods are ________________.
Unrelated or independent products have ___________ cross elasticity.
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8. Productive efficiency occurs when the average total cost of output is at the lowest possible
level. Are purely competitive markets efficient in the short run? In the long run? Explain.
9. Using the supply-demand diagram, explain what problem can appear if the government
sets the maximum price (price ceiling) on the market. Does this problem necessarily
appear once the maximum price is set?
10. Suppose that a country discovered huge oil reserves on its territory resulting in a
substantial increase in income of its residents. The country is a large world importer of
soybeans. Assuming that soybeans are inferior goods, what is likely to happen to the
equilibrium price and quantity of soybeans, other things equal?
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