Download Mid-Summer Examinations 2015

EC1001
All Candidates
Mid-Summer Examinations 2015
DO NOT OPEN THE QUESTION PAPER UNTIL INSTRUCTED
TO DO SO BY THE CHIEF INVIGILATOR
Department
Economics
Module Code
EC1001
Module Title
Macroeconomics
Exam Duration
Two Hours
(in words)
CHECK YOU HAVE THE CORRECT QUESTION PAPER
Number of Pages
9
Number of Questions
35
Instructions to Candidates
Answer ALL questions in Section A. Answer ONE
question from Section B.
For this exam you are permitted to use the following
Calculators
Casio FX83GTPLUS or Casio FX85GTPLUS
Books/Statutes
Not Required
Additional Stationery
Not Required
Page 1 of 9
Continued. . .
EC1001
Section A
1. You are told that Country A has a higher Gini coefficient than Country B. It
follows that:
) Country A is more unequal than Country B
b) Country B is more unequal than country A
c) Country A and B have similar distributions of income
d) None of the above
2. If expected inflation is lower than actual inflation, then aggregate supply will:
) Be optimal
b) Equal the natural rate of output
c) Be above the natural rate of output
d) Be below the natural rate of output
3. The sacrifice ratio is defined as:
) Percentage points of annual output lost in the process of reducing inflation by 1 percentage point.
b) Percentage points of annual output gained in the process of reducing inflation by 1 percentage point
c) Percentage points of annual employment lost in the process of reducing
inflation by 1 percentage point
d) Percentage points of annual employment gained in the process of reducing inflation by 1 percentage point
4. A change in the money supply will:
) Shift the AS curve
b) Shift the AD curve
c) Permanently increase employment
d) Permanently decrease real GDP
Page 2 of 9
Continued. . .
EC1001
5. What do economists call the following observation: “Countries that start off
poor tend to grow more rapidly than countries that start off rich”? :
) The decreasing marginal return to capital
b) The increasing marginal return to capital
c) The catch-up effect
d) The overtaking criterion
6. If a country’s population increases:
) Real GDP per capita will always increase
b) Nominal GDP per capita will always decrease
c) Real GDP per capita may increase, decrease, or remain the same
d) None of the above
7. A person is unemployed if she is not employed and ... :
) wants to work
b) has previously been employed
c) is not disabled
d) wants to work and is looking for work
8. In a closed economy:
) net-export is positive
b) net-export is negative
c) net-export is zero
d) imports equals exports and both are positive
9. Let Y denote GDP, S private savings, T taxes, C consumption, and G government spending. Which of the following is true:
) S = Y − T − C
b) S = Y − T
c) S = Y − C
d) S = T − G
Page 3 of 9
Continued. . .
EC1001
10. An increase in the government’s deficit will:
) Increase the real rate of interest
b) Increase private investments
c) Increase government spending
d) Decrease government spending
11. The CPI is a measure of:
) The overall cost of goods bought by consumers
b) The overall cost of goods bought by firms
c) The overall price level
d) The overall cost of goods and services bought by consumers
12. Which of the following is NOT considered a function of money:
) It is a medium of exchange
b) It is a unit of account
c) Its supply can be controlled by the central bank
d) It is a store of value
13. By the quantity theory of money, an increase in the velocity of money will:
) Increase prices if the money supply is unchanged
b) Increase prices if output is unchanged
c) Decrease prices if the money supply and output are unchanged
d) Increase prices if the money supply and output are unchanged
14. The total expenditure on the economy’s output of goods and services is also
known as:
) GDP
b) NDP
c) NNP
d) RNP
Page 4 of 9
Continued. . .
EC1001
15. The GDP deflator is:
) The ratio of real GDP to nominal GDP multiplied by 100
b) The ratio of real GDP to nominal GDP
c) The ratio of nominal GDP to real GDP multiplied by 100
d) The ratio of nominal GDP to real GDP
16. The Short Run Aggregate Supply (SRAS) curve:
) slopes downwards
b) slopes upwards
c) is vertical
d) is horizontal
17. Which of the following statements is correct:
) The larger the marginal propensity to consume, the larger the multiplier
b) The smaller the marginal propensity to consume, the larger the multiplier
c) When the marginal propensity to consume increases, the multiplier will
remain the same
d) When the marginal propensity to consume increases, we cannot predict
whether the multiplier will increase, decrease, or remain the same
18. “When an economy enters a recession, tax receipts decrease because employment decreases. This fall in taxation shifts the aggregate demand (AD)
curve to the right.” This mechanism is known as:
) An autonomous effect
b) An automatic stabiliser
c) Expansive fiscal policy
d) Expansive monetary policy
Page 5 of 9
Continued. . .
EC1001
19. Which of the following does not improve the chance that a group of countries
forms an optimal currency area (OCA).
) A high degree of real wage flexibility within the countries
b) A high degree of mobility between the countries
c) A high degree of capital mobility between the countries
d) A high degree of asymmetry in the shocks that hit the different countries
20. A person is in the labor force if he is: :
) employed
b) employed or unemployed
c) not unemployed
d) between 18 and 65 years old
21. The CPI is not a good measure of prices faced by students because:
) Most students’ consumption is different from the average consumer’s
b) Most students do not hold any stocks and bonds
c) Most students do not work
d) None of the above
22. What are the main benefits of joining a currency union?
) Less likelihood of being hit by asymmetric shocks
b) Lower long-run inflation
c) The countries will have more influence over their individual monetary
policies
d) Lower transaction costs and lower exchange rate uncertainty
23. Lack of property rights is bad for productivity growth. Why?
) When contracts are hard to enforce domestic investment is discouraged
b) Lack of property rights leads to high inflation which is bad for growth
c) Countries with lack of property rights have high population growth rates.
d) Lack of property rights makes people want to invest more.
Page 6 of 9
Continued. . .
EC1001
24. If private savings is taxed less, we would expect that:
) The real interest rate would increase and private investment increase
b) The real interest rate would decrease and private investment decrease
c) The real interest rate would decrease and private investment increase
d) The real interest rate would increase and private investment decrease
25. The Philips curve shows the relationship between:
) The inflation rate and GDP growth rate
b) The inflation rate and rate of employment
c) The inflation rate and participation rate
d) The inflation rate and rate of unemployment
26. Assuming that the money market is always in equilibrium, what will be the
effect in the money market of an increase in the money supply:
) Lower GDP
b) Higher GDP
c) A lower interest rate
d) A higher interest rate
27. Which of the following may change the long-run aggregate supply (LRAS)
curve?
) A permanent increase in the money supply
b) A more flexible labor market
c) A temporary fiscal expansion
d) None of the above
28. A policy that reduces the time it takes for unemployed workers to find work:
) Cannot reduce frictional unemployment in the short run
b) Cannot reduce frictional unemployment in the long run
c) May reduce frictional unemployment but cannot change the natural rate
of unemployment
d) None of the above
Page 7 of 9
Continued. . .
EC1001
29. An increase in the UK government’s budget deficit will:
) Cause the real exchange rate to depreciate
b) Cause the real exchange rate to appreciate
c) Increase net capital outflows
d) Increase the supply of pounds to be exchanged into foreign currency
30. If the labor market is in equilibrium (supply equals demand), then there will
be no:
) Structural unemployment
b) Frictional unemployment
c) Cyclical unemployment
d) Natural rate of unemployment
31. Consider an open economy whose GDP equals 100 USD, while consumption,
investments, and government spending all equal 20 USD. What is the country’s net-exports?
) 60 USD
b) 50 USD
c) 40 USD
d) 30 USD
32. Everything else equal, higher net-outflows will lead to:
) An appreciation of the currency
b) A depreciation of the currency
c) No change in exchange rates
d) Currency speculation
Page 8 of 9
Continued. . .
EC1001
Section B
33. Consider a closed economy.
) Write down the economy’s production function and describe the main
determinants of productivity in the long run.
[50%]
b) You are told that the economy invests 100 billion Euro in 2015. Holding
all inputs in the production function fixed except for capital, explain how
this investment will affect output differently depending on the economy’s
capital stock at the beginning of 2015.
[30%]
c) Briefly explain why corruption will generally have a negative effect on an
economy’s growth rate.
[20%]
34. The following questions all refer to the quantity theory of money.
) State the quantity equation. Then explain the meaning of the velocity of
money.
[30%]
b) In a diagram illustrate how the value of money is determined in the long
run from supply and demand.
[40%]
c) In a diagram similar to the one you drew in part b), illustrate the effect of
an increase in money demand. Will such an increase in money demand
lead to inflation or deflation?
[30%]
35.
) Illustrate the aggregate demand (AD) curve in a diagram. Why is the AD
curve downwards sloping?
[30%]
b) Explain how the difference between the actual and expected price level
affects aggregate supply (AS) in the short-run.
[30%]
c) In the AD-AS model explain by use of diagrams the short-run as well as the
long-run consequences of an increase in government spending.
[40%]
End of Paper
Page 9 of 9
End of Paper