Download Semester 2 Examination – (Summer 2009)

Cork Institute of Technology
(Institiuid Teicneolaiochta Chorcai)
Bachelor of Business
(BACCT_7_Y1) – (BACCT_8_Y1) – (BBIS_8_Y2) – (BBUSS_7_Y1)
(BMNGT_7_Y2)
Higher Certificate in Business
(BBUSA_6_Y1) – (BBUSE_6_Y1)
Semester 2 Examination – (Summer 2009)
EC1011 – The Macroeconomy
(Econ 6001)
(Time: 2 Hours)
External Examiner: Mr T Coughlan.
Name:
Internal Examiners: Ms A Conway, Mr. K Crilly,
Mr. J Keane, Mr. E O’Brien,
____________________________
Class Group: ________________
College ID Number: __________________
Lecturer: ___________________
Instructions – Please read carefully!
Sections
A
B
C
Numbers of Questions to be
attempted
20
3
1
Percentage of Total Marks
Available
20
60
20
Section A:
For each question in this section, you should circle the letter opposite the answer that you
consider to be correct. In the event of there appearing to be more than one correct
answer, you should circle the letter opposite the particular answer that you consider to be
most correct. There is no negative marking for incorrect answers in this section.
Section B:
The answer to each question in this section must be answered in the space(s) provided
within each question.
Section C:
This question must be answered on the lined pages attached at the end of this
Question paper.
Red Ink:
You may not use red ink.
Non-compliance with the above instructions will result in some of your answers not being graded.
Section A
A1
Which one of the following is a condition for a market to be an oligopoly?
(a)
(b)
(c)
(d)
A2
A monopolistically competitive industry is one where:
(a)
(b)
(c)
(d)
A3
Oligopolistic competition;
Monopolistic competition;
Monopoly;
Oligopoly.
To obtain the factor cost of a good from its market price one must:
(a)
(b)
(c)
(d)
A5
There are a large number of firms;
There are no barriers to entry or exit in the industry;
The output of each firm is closely substitutable by all other firms’ output;
All of the above conditions apply.
Which market type below is perceived as being the most competitive in
Mainstream Economics?
(a)
(b)
(c)
(d)
A4
There are barriers to entry into and exit from the industry;
The number of firms in the industry is large;
The number of firms in the industry is one;
The number of consumers is very small.
Add indirect taxes and subtract subsidies;
Subtract indirect taxes and add subsidies;
Subtract both indirect taxes and subsidies;
Add both indirect taxes and subsidies.
Which one of the following is true?
(a)
(b)
(c)
(d)
GDPfc = GNPmp;
GDE = FD – X;
GDP = FD – X;
GDP = NNP – Dep.
A6
Which of the following is a widely used measure of the standard of living?
(a)
(b)
(c)
(d)
A7
If the MPC = APC = 0.75, then:
(a)
(b)
(c)
(d)
A8
S + T + M = I + G + X;
As = C + I + G + NX;
As = C + I + G + X – M;
All of the above are true.
The average propensity to save (APS) is calculated by:
(a)
(b)
(c)
(d)
A10
C = 750;
S = 0.25Yd;
C = 0.75Yd;
Both (b) and (c) are correct.
At the equilibrium level of output Ye (in an open economy with Government),
which of the following statements is most correct?
(a)
(b)
(c)
(d)
A9
Nominal output per person employed;
Nominal output per head of population;
Real income per head of population;
Real output per unit of capital.
Income divided by savings;
Income divided by consumption;
Savings divided by income;
Savings divided by consumption.
Which one of the following is false?
(a)
(b)
(c)
(d)
MPS < 1;
MPC – MPS = 1;
MPC + MPS = 1;
1 – MPC = MPS.
A11
If, in a closed economy with no government, the marginal propensity to consume
(MPC) increases from 0.70 to 0.75, then:
(a)
(b)
(c)
(d)
A12
An open economy with a government sector is in equilibrium and taxes are
greater than government spending. This means that:
(a)
(b)
(c)
(d)
A13
Euro notes and coins issued by the Irish Central Bank;
Money created by the commercial banks;
Euro coins, notes and bank deposits;
All items of legal tender plus Euro in circulation.
Which of the following is not a function of money?
(a)
(b)
(c)
(d)
A15
Investment plus taxation is greater than savings plus government
spending;
Investment plus government spending is less than savings plus taxation;
Investment plus export earnings is greater than savings plus imports;
Investment plus taxation is less than savings plus government spending.
Which is the most comprehensive description of the supply of money in the Irish
economy?
(a)
(b)
(c)
(d)
A14
The slope of the consumption function decreases;
The MPS increases;
The multiplier coefficient decreases;
None of the above apply.
A unit of account;
A measure of inflation;
A medium of exchange;
A store of value.
In which year was the link with Sterling finally broken?
(a)
(b)
(c)
(d)
1922;
1923;
1979;
2002.
A16
Which of the following statements about the Euro in its trading with Sterling
and the Dollar is true?
(a)
(b)
(c)
(d)
A17
The Balance of Payments (BOP) is an annual statement of:
(a)
(b)
(c)
(d)
A18
A credit item in the current account;
A debit item in the current account;
A debit item in the capital account;
A debit item in the financial account.
If the CPI for year 1 was 106.1, while that for year 2 was 112.4, then the inflation
rate for year 2 was:
(a)
(b)
(c)
(d)
A20
The international trade position of the Irish Economy;
The end of year position of the government’s budget;
An annual balance sheet view of money inflows and outflows for an
economy;
None of the above describes the balance of payments.
Irish aid to developing countries appears in the Balance of Payments as:
(a)
(b)
(c)
(d)
A19
The Euro is above parity with both Sterling and the Dollar;
The Euro is below parity with the Dollar and above with Sterling;
The Euro is below parity with Sterling and above with the Dollar;
The Euro is below parity with both Sterling and the Dollar.
5.9%;
6.3%;
5.6%;
12.4%.
Which of the following best describes the notion of full employment?
(a)
(b)
(c)
(d)
Less than 5% of the labour force is unemployed;
The current level of employment that is sustainable;
Employment and unemployment are at their “natural” rates;
All of the above could describe it.
Section B
B1
(a)
Barriers to the entry of new firms, or to the exit of existing/incumbent
firms, is a standard condition for industries labelled as less than perfectly
(8 marks)
competitive. List and explain any two (2) such barriers.
(b)
The economy of Utopia produces only three products and the table below
shows the level of output and prevailing price for each of the three
products over a two-year period.
(12 marks)
Product
Year 1
Year 2
Q
P(€)
Q
P(€)
Apples
Bananas
120
100
0.5
0.4
130
120
0.6
0.5
Pears
110
0.4
120
0.5
(i)
Calculate the nominal GDP for year 1.
(ii)
Calculate the nominal GDP for year 2.
(iii)
Calculate the Real GDP for year 2.
B2
(a)
Complete the table below for a closed economy without government
and using the table identify, with explanation, the level of Ye:
(8 marks)
Y
C
S
I
0
50
30
100
130
30
200
30
300
30
400
30
500
30
APC
MPC
(b)
State the equations for consumption and savings implied above in (a):
(4 marks)
(c)
Calculate the value of the multiplier for the above economy:
(d)
If Investment were to increase from 30 to 50 what would the equilibrium
level of Income increase to?
(4 marks)
(4 marks)
B3
EuroBank is a monopoly commercial bank. The general public in Euroland
holds no cash. The Central Bank requires that the banking system holds a
specified proportion of its liabilities in a reserve form. €5000 of new cash is
lodged to the bank, providing a foundation for credit expansion (perhaps!). The
scenario (incomplete) at stage 1 shows the bank holding no excess reserves.
(a)
(i)
Stage
1
2
3
4
Etc….
Totals
(ii)
Complete the following table:
(6 marks)
New deposits
Reserves
New loans
5000
_____
_____
_____
1000
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
By how much will the Money Supply have increased as a result of
the new cash when the process of new bank credit creation has
been completed?
(2 marks)
(b)
Set out the final row of the table above in balance sheet format. (4 marks)
(c)
Present the revised assets/liabilities profile of the bank when it has fully
adjusted to a new reserve requirement of 10%.
(4 marks)
(d)
Re-write Stage 1 on the basis of a 100% reserve ratio.
(4 marks)
B4
(a)
(b)
Into which account of the BOP are the following included?
(i)
Foreign Direct Investment (FDI);
(3 marks)
(ii)
Transfer Payments;
(3 marks)
(iii)
Dividends, interest and profits (i.e. Factor Incomes);
(3 marks)
(iv)
Imports of crude oil.
(3 marks)
(i)
What is the Exchange Rate?
(4 marks)
(ii)
In the context of the Exchange Rate what does the word
Devaluation mean?
(4 marks)
Section C
C1
Compare and contrast the short and long run equilibrium outcomes for a firm
operating under perfectly competitive and monopoly conditions.
C2
(a)
Generate a schematic representation of the circular flow of economic
activity. Identify those flows that are ‘injections’ and those that are
‘withdrawals’ and comment on the relationship between such flows and
the level of economic activity.
(b)
Use a simple numerical example to explain the basic accounting identity
National Income ≡ National Product (Output) ≡ National Expenditure.
C3
C4
Explain in detail the following concepts:
(a)
(b)
(c)
(d)
The consumption function.
The multiplier.
Aggregate demand.
The 45 degree or Keynesian cross diagram.
(a)
(b)
List 6 functions of a Central Bank and explain one of them.
List the instruments available to a Central Bank to control the money
supply and briefly illustrate one of them.
What is the primary objective of monetary policy in the Euro Area?
(c)
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