Download Admission Examination in Economics

Economics Education and Research Consortium
MA Program in Economics
National University “Kyiv – Mohyla Academy”
Admission Examination in Economics
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.
Tbilisi, Georgia, June 2005
Part I – Macroeconomics (50 points, 5 points each question)
1. A foreign tourist spends an equivalent of 100 dollars for goods and serviced in your country.
If marginal propensity to consume is 0.75, calculate the maximum potential increase in your
country’s GDP resulting from the tourist’s spending.
2. You have put your money on a bank account at the annual interest rate of 10%. The inflation
rate that year was expected to be 6%, and the actual rate of inflation happened to be 7%.
What is the real interest rate in this case?
3. What is the maximum amount of money that can be created by the banking system out of a
new deposit of 2000 dollars, if the required reserve rate is 5%.
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4. The Central Bank of China is claimed to be keeping the Chinese currency artificially
undervalued relative to other currencies. Explain how this could help the Chinese exporters.
5. Complete the sentences: The notion of potential GDP relates to the output level, which cannot
be increased in the ________-run. In the _________-run, however, the government can use
expansionary _______________ and/or monetary policy to _____________ the output level
above the potential GDP. Yet, such a policy will eventually only lead to ______________.
6. Give an example of a situation when a country’s official currency cannot be called ‘money’
as this notion is defined in Economics textbooks.
7. The so-called Phillips curve tries to explain relationship between unemployment and
inflation. What is the slope of this curve?
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8. Can either borrowers or lenders gain as a result of expected inflation? Explain why or why
not.
9. Define the term ‘labor force participation rate’.
10. Explain the ‘infant industry’ argument against free trade. Why does protection of ‘infant
industries’ usually fail to help them become internationally competitive?
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Part II – Microeconomics (50 points, 5 points each question)
11. Explain how and why an increase in price of wine is likely to affect demand for vodka.
12. Results of a medical study are published, stating that eating apples prolongs one’s life. Using
the supply-demand diagram, indicate what will happen to the equilibrium price for and
quantity of apples, other things equal. Assume consumers on average prefer to live longer.
13. A good is called a luxury if the percentage change in demand for the good is larger than the
percentage change in income that caused this increase in demand. Explain which values of
income elasticity of demand will correspond to this definition.
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14. Consider a consumer choosing an optimal bundle of goods X and Y. Price of a unit of good
X is 1, price of a unit of good Y is 2, and the consumer’s income is 16. If the consumer’s
optimal bundle contains 4 units of good X, how many units of good Y will the optimal bundle
include?
15. Using the supply-demand diagram, explain what problem can appear if the government sets
the minimum price on the market.
16. With average cost on the vertical axis and output on the horizontal axis, draw marginal cost
and average variable cost curves for a technology which exhibits decreasing returns to scale.
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17. A firm on a competitive market faces price of 8 hryvnias per unit of whatever it is it sells and
chooses to supply 100 units of that stuff. Firm’s marginal cost is 9, average total cost is 6. Is
this an equilibrium for this firm (explain why)? Calculate the firm’s profit (loss).
18. Explain the notion of sunk cost.
19. Name at least three major characteristics of an oligopolistic market.
20. Explain (from the point of view of economics) why secondary education should be (and in
majority of countries is) subsidized by the government.
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