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VANCOUVER ISLAND UNIVERSITY ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 MIDTERM EXAM I, February 04, 2013 THIS EXAM HAS TOTAL 08 PAGES INCLUDING THE COVER PAGE Instructions: Total marks: 90. Duration: 75 Minutes. Please answer your MCQs in the table provided on the last page and short questions in the space provided. For short answer and easy type questions YOU MUST SHOW YOUR ALL WORK TO GET FULL MARKS. IF YOU DO NOT SHOW WORK, YOU MAY NOT GET FULL MARKS EVEN FOR A CORRECT ANSWER. Use the marks assigned to each question as a guide to allocating your time across questions. Good Luck on Your Exam Midterm Exam I, ECON212 2 February 04, 2013 PART A: MCQ (There will be 30 MCQs in this section which is worth 30 marks) 01. Macroeconomics is mainly concerned with the study of a) b) c) d) fluctuations and trends in aggregated data individual households and how they deal with problems like inflation and unemployment governments and their intervention in individual markets large economic units such as General Motors or Molson Breweries 02. Suppose a Canadian firm imports $5 000 worth of frisbees from China and sells them for $10 000. The effect on GDP would be a) to increase the value of GDP by $10 000 b) to increase the value of GDP by $5 000 c) to decrease the value of GDP by $15 000 d) no effect on GDP since the frisbees were produced outside of Canada 03. Which of the following statements about depreciation is true? a) b) c) d) Net investment is equal to gross investment plus depreciation Depreciation is equal to net investment Net investment is equal to gross investment minus depreciation Depreciation includes net additions to the economy's total stock of capital 04. Which of the following pairs are conceptually identical? a) b) c) d) Personal income and personal disposable income Gross domestic product and personal disposable income Gross national product and gross domestic product Gross domestic product and gross domestic expenditure 05. Real GDP is equivalent to a) b) c) d) the money value of all goods and services produced in an economy per year plus imports the market value of all goods and services produced in an economy per year personal disposable income plus depreciation the value of all goods and services produced in an economy per year adjusted for price changes 06. The three main reasons that Canada's real GDP has increased steadily for many years are a) increasing productivity of labour, increasing productivity of land and increasing productivity of the capital stock b) an increasing stock of physical capital, increasing exports and rising employment c) rising employment, increasing stock of physical capital and increasing productivity d) rising employment, increasing levels of education of the labour force and the increase in the participation rate of women in the labour force. 07. Real national income a) b) c) d) always equals nominal national income changes only when the underlying quantities change changes by the same amount and in the same direction as does nominal national income refers to national wealth but is not an indicator of current production Midterm Exam I, ECON212 3 February 04, 2013 08. Suppose that a country's population is 30 million and it has a labour force of 15 million people. Assuming it has 500 000 people unemployed, the country's unemployment rate is a) 3.3 percent b) 9.0 percent c) 2.5 percent d) 4.5 percent 09. Workers with marketable skills sometimes quit a job and become unemployed, with the expectation of soon finding a better job. This type of unemployment is called a) frictional unemployment b) overly-optimistic unemployment c) cyclical unemployment d) historical unemployment e) structural unemployment 10. If nominal national income increased by 20 percent over a certain period of time while real national income increased by 10 percent, then a) inflation has decreased during this time period b) the price level has increased by approximately 10 percent c) the labour force increased by 10 percent d) everybody in the economy became worse off e) the price level has declined by about 10 percent 11. If the Consumer Price Index changes from 120 in year one to 150 in year two, the rate of inflation in the intervening year is a) 12.5 percent b) 10 percent c) 25 percent d) 30 percent 12. Which if the following is the main result of long-term economic growth? a) b) c) d) e) increasing inflation rate decreasing interest rates decreasing unemployment rate a rising average living standards appreciation of the domestic currency 13. Potential or full-employment output is a) b) c) d) a goal that can never be achieved by the economy achieved during periods when all of the labour force is employed the maximum GDP that an economy actually achieves throughout its entire history the GDP that could be produced if the economy's resources were fully employed at their maximum intensity of use e) the GDP that would be produced if the economy's resources were fully employed at a normal intensity of use 14. Suppose that in 2007 Canada's automobile manufacturers produced 2 million cars priced at $20 000 each. And in 2008 they produced 1 million cars priced at $40 000 each. Ceteris paribus, the change in nominal national income is a) insufficient information to know b) a decrease because fewer cars were produced c) no change in nominal national income d) an increase because the price of each car increased Midterm Exam I, ECON212 4 February 04, 2013 15. If the price index is in one year and in the next year, the inflation rate from one year to the next is calculated as a) b) c) d) 16.In the study of short-run fluctuations in national income, potential income (output) is usually assumed to be a) b) c) d) e) irrelevant, as the economy is rarely there falling at its average growth rate constant moving together with potential output in neighbouring countries equal to actual income 17. Suppose the unemployment rate is 8.5 percent and we know that frictional and structural unemployment together account for 5.5 percent. The cyclical unemployment rate is then a) -3.0 percent b) 8.5 percent c) 3.0 percent d) 14 percent e) 5.5 percent 18. In Neoclassical growth theory, the production function exhibits a) b) c) d) increasing returns to scale property constant returns to scale property diminishing returns to scale property unknown returns to scale property 19. If a country is experiencing inflation, the change in the nominal national product will a) b) c) d) e) be falling faster than the rate of inflation equal the change in the real national product overstate the change in the real value of production overstate the inflation rate understate the value of national income 20. When calculating GDP using the expenditure approach, the investment component includes a) fixed investment minus depreciation b) gross investment plus depreciation c) net investment plus depreciation d) net investment only e) net investment minus depreciation 21. In the simple macroeconomic model, "autonomous expenditures" are a) b) c) d) e) not dependent on national income induced expenditures non-domestic expenditures dependent on national income those which are constant Midterm Exam I, ECON212 5 February 04, 2013 22.Refer to the following table. Dependent Variable 10 30 70 130 Independent variable 0 50 150 300 The slope is equal to a) 2.5 b) 0.4 c) 0.6 d) 0.67 23. Which of the statement is incorrect a) Real GDP per person in Canada doubled between 1969 and 2010 b) Real GDP per person is real GDP divided by the population c) Real GDP per person tells us the value of real GDP when all the economy’s labour, capital, land and entrepreneurial ability are fully employed d) BY measuring the standard of living by using real GDP per person we remove any influence from rising prices 24. A south sea island produces only coconuts. In 2005, the price of coconut is $1.5 and quantity produced is 350. In 2010, the price of coconut is $1.0 and quantity produced is 450. Assuming 2005 as the base year, real GDP in 2010 in terms of base-year price is a) 450 b) 350 c) 525 d) 675 25. When the unemployment rate is less than the natural unemployment rate, real GDP is ________ than potential GDP and the output gap is ___________ a) unchanged; unchanged b) smaller; positive c) smaller; negative d) greater; positive e) greater; negative 26. The unemployment that rises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs is __________ unemployment a) cyclical b) structural c) frictional d) natural 27. The CPI in 2007 was 111.5 and in 2008 was 114.1. The inflation rate is a) b) c) d) 2.6% 2.3% 112.8 Insufficient information Midterm Exam I, ECON212 6 February 04, 2013 28. The economic growth rate is the annual percentage change of a) b) c) d) labour productivity real GDP the quantity of money real GDP per person 29. Between 1910 and 2010, the average growth rate if real GDP per person in Canada was 2% a year. During this period _______ grew at a faster rate than ________ a) the population; real GDP b) real GDP; the population c) GDP; the population d) Inflation; real GDP 30. According to new growth theory, ________ experience diminishing returns a) b) c) d) labour does not knowledge is capital that does not physical capital does not factors of production Midterm Exam I, ECON212 7 February 04, 2013 PART B: SAQ (This section contains 4 short answer questions, worth 40 marks) 1. (10 marks) Using expenditure method, calculate the GDP for the following hypothetical economy for the year 2020. Item Billions of dollars Wages paid to labour 815 Consumption expenditure 885 Net domestic income at factor cost 1,210 Net Investment 304 Government expenditure 357 Exports 40 Subsidies 20 Import 50 Depreciation 202 GDP Expenditure method: 1738 here Billion Dollars Midterm Exam I, ECON212 8 February 04, 2013 2. (10 marks) A typical family on Sandy Island consumes only juice and cloth. Last year, which was the base year, the family spent $40 on juice and $25 on cloth. In the base year, juice was $4 a bottle and cloth was $5 a length. This year, juice is $4 a bottle and cloth is $6 a length. Calculate the inflation rate in the current year The consumer basket contains 10 Juice ( Cost of the basket in the base year (last year) Cost of the basket in this year = $40+$25=$65 Inflation rate= 3. (10 marks) Japan’s real GDP was 561 trillion yen in 2007 and 569 trillion yen in 2008. Japan’s population was 127.7 million in 2007 and 127.8 million in 2008. Calculate the growth rate of real GDP per person. Per capita GDP in 2007 Per capita GDP in 2008 Per capita GDP growth rate in 2008 4. (10 marks) Statistics Canada reported the following data for June 2011: Labour force: 19,021,600 Employment: 17,693,300 Working-age population: 27,975,700 Calculate the unemployment rate and labour force participation rate Unemployment rate= Labour force participation rate= Midterm Exam I, ECON212 9 February 04, 2013 PART C: Essay Question (In this section there is an Essay type question, worth 20 marks) Toyota first to Build Electric Vehicles in Canada “Toyota will start assembling electric versions of its RAV4 sport utility vehicle in Woodstock. Governments are contributing $141 million to Toyota for a series of upgrades at plants in Cambridge and Woodstock worth a total of $545 million under the name Project Green Light.” Explain how this activity by Toyota will influence Canada’s GDP and the components of aggregate expenditure Keywords: investment, government expenditure, employment, GDP, GDP growth *END OF EXAMINATION* Midterm Exam I, ECON212 10 February 04, 2013 Name (Last, First): ______________________________________________ ID #: ______________________________________________ Signature: _______________________________________________ Please answer your MCQs in the following table 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.