1501/178.100
MAN
Distance/Internal NSB
Sc MASSEY UNIVERSITY
MANAWATU CAMPUS
EXAMINATION FOR
178.100 PRINCIPLES OF MACROECONOMICS
Semester One 2015
Time allowed: THREE (3) hours
All students are required to answer ALL the questions.
All questions to be answered on the InspiroScan sheet provided separately.
A blue answer book is not required for this question paper.
One (1) mark per question – total of ONE HUNDRED (100) marks. InspiroScan Answer sheets
Ensure that your name and identification number are entered onto your
InspiroScan Answer Sheet.
Answers should be recorded on the InspiroScan form directly: Shade-in the entire
circle surrounding the character (A-E) that best represents your chosen answer. If
subsequent changes are required, cross through the original answer circle clearly
with an X, before selecting an alternative. Use ballpoint pen (blue or black); pencil
is NOT permitted. Follow all instructions carefully, otherwise InspiroScan answer
sheets may not read correctly.
Calculators are NOT permitted.
Test is Version A
All questions are multiple choice.
Identify the choice that best completes the statement or answers the question. Page 1 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc Multiple Choice
Identify the choice that best completes the statement or answers the question. 1. A tradeoff exists between a clean environment and a higher level of income in that
a. studies show that individuals with higher levels of income pollute less than lowincome individuals.
b. efforts to reduce pollution typically are not completely successful.
c. laws that reduce pollution raise costs of production and reduce incomes.
d. employing individuals to clean up pollution causes increases in employment and
income. 2. Public policies
a. may be able to improve either economic efficiency or equality.
b. may be able to improve economic efficiency but cannot improve equality.
c. may be able to improve equality but cannot improve economic efficiency.
d. cannot improve either equality or economic efficiency. 3. The mainstream view among economists is that
a. society faces a tradeoff between unemployment and inflation, but only in the short
run.
b. society faces a tradeoff between unemployment and inflation, but only in the long
run.
c. society faces a tradeoff between unemployment and inflation, both in the short run
and in the long run.
d. no tradeoff exists between unemployment and inflation, either in the short run or in
the long run. Page 2 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc Figure 1 4. Refer to Figure 1. In order to reach point L, the economy would have to a. acquire more resources or experience a technological advance.
b. begin using its available resources more efficiently than it is currently using them.
c. shift resources away from the production of nails and toward production of
hammers.
d. None of the above are correct; the economy will never be able to reach point L. 5. Erma and Wayne are both economists. Erma thinks that taxing consumption, rather than
income, would result in higher household saving because income that is saved would not
be taxed. Wayne does not think that household saving would respond much to a change
in the tax laws. In this example, Erma and Wayne
a.
have different normative views about tax policy.
b.
disagree about the validity of a positive theory.
c.
must both be incorrect because economists always agree on policy issues.
d.
None of the above is correct. 6. In the early 19th century, the Russian government sent doctors to southern Russian
villages to provide assistance during a cholera epidemic. The villagers noticed that
wherever doctors appeared, people died. Therefore, many doctors were chased away
from villages, and some were even killed. This reaction to the correlation between
doctors and deaths is most likely a problem of
a. omitted variables.
b. reverse causality.
c. government propaganda.
d. medical incompetence. Page 3 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc Figure 2
Peru’s Production Possibilities Frontier
400 rubies 360
320
280
240
200
160
120
80
40 1 2 3 4 5 6 7 8 emeralds 7. Refer to Figure 2. The fact that the line slopes downward reflects the fact that a.
b.
c.
d. for Peru, it is more costly to produce emeralds than it is to produce rubies.
Peru will produce more emeralds and fewer rubies as time goes by.
Peru faces a tradeoff between producing emeralds and producing rubies.
Peru should specialize in producing rubies. Table 1
Assume that England and Spain can switch between producing cheese and producing bread
at a constant rate. England
Spain Labour Hours Needed
to Make 1 Unit of
Cheese
Bread
1
4
4
8 Number of Units
Produced in 40 Hours
Cheese
Bread
40
10
10
5 8. Refer to Table 1. If England and Spain each spends all its time producing the good in
which it has a comparative advantage and the countries agree to trade 2 units of bread for
6 units of cheese, then England will consume
a. 34 units of cheese and 2 units of bread and Spain will consume 6 units of cheese
and 3 units of bread.
b. 34 units of cheese and 2 units of bread and Spain will consume 16 units of
cheese and 3 units of bread.
c. 34 units of cheese and 12 units of bread and Spain will consume 6 units of
cheese and 3 units of bread.
d. 34 units of cheese and 12 units of bread and Spain will consume 16 units of
cheese and 3 units of bread. Page 4 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc Figure 3
Chile’s Production Possibilities Frontier
20 Colombia’s Production Possibilities Frontier soybeans 20 ( in pounds) 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 2 4 6 8 10 12 14 16 18 coffee
20
( in pounds) soybeans
( in pounds) 2 4 6 8 10 12 14 16 18 coffee
20
( in pounds) 9. Refer to Figure 3. Chile should specialize in the production of a.
b.
c.
d. coffee and import soybeans.
soybeans and import coffee.
both goods and import neither good.
neither good and import both goods. 10. Which of the following would most likely serve as an example of a monopoly?
a. a restaurant in a large city.
b. a dry cleaners in a large city.
c. a local gas station.
d. a local electrical company. 11. Suppose there is an increase in the price of steel. We would expect the supply curve for steel
beams to
a. shift rightward.
b. shift leftward.
c. become flatter.
d. remain unchanged. Page 5 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 12. The law of supply and demand asserts that
a. demand curves and supply curves tend to shift to the right as time goes by.
b. the price of a good will eventually rise in response to an excess demand for that
good.
c. when the supply curve for a good shifts, the demand curve for that good shifts in
response.
d. the equilibrium price of a good will be rising more often than it will be falling. 13. Which of the following is not a question that macroeconomists address?
a. Why is average income high in some countries while it is low in others?
b. Why does the price of oil rise when war erupts in the Middle East?
c. Why do production and employment expand in some years and contract in others?
d. Why do prices rise rapidly in some periods of time while they are more stable in
other periods? 14. For an economy as a whole,
a. wages must equal profit.
b. consumption must equal saving.
c. income must equal expenditure.
d. the number of buyers must equal the number of sellers. 15. The residents of country A earn $500 million of income from abroad. Residents of other
countries earn $200 million in country A. These earnings are accounted for in country A’s
a. country A’s net factor payments from abroad are positive, and its GDP is larger
than its GNP.
b. country A’s net factor payments from abroad are positive, and its GNP is larger
than its GDP.
c. country A’s net factor payments from abroad are negative, and its GDP is larger
than its GNP.
d. country A’s net factor payments from abroad are negative, and its GNP is larger
than its GDP. 16. In the economy of Ukzten in 2010, consumption was $5000, exports were $100,
government purchases were $900, imports were $200, and investment was $1000. What
was Ukzten’s GDP in 2010?
a. $6700
b. $6800
c. $7000
d. $7200 Page 6 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 17. If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the
GDP deflator?
a.
25
b.
40
c.
250
d.
400 18. Otherwise legal transactions that go unreported or unrecorded are called
a. the underground economy.
b. the shadow economy.
c. the informal economy.
d. All of the above are correct. 19. When the consumer price index (CPI) rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more. 20. Which of the following is correct?
a. The GDP deflator is better than the CPI at reflecting the goods and services bought
by consumers.
b. The CPI is better than the GDP deflator at reflecting the goods and services bought
by consumers.
c. The GDP deflator and the CPI are equally good at reflecting the goods and
services bought by consumers.
d. The GDP deflator is more commonly used as a gauge of inflation than the CPI is. 21. The steps involved in calculating the consumer price index and the inflation rate, in order,
are as follows:
a. Choose a base year, update the basket, find the prices, estimate the basket’s cost,
compute the index, and compute the inflation rate.
b. Choose a base year, fix the basket, find the prices, compute the inflation rate,
compute the basket's cost, and compute the index.
c. Fix the basket, find the prices, compute the basket's cost, choose a base year and
compute the index, and compute the inflation rate.
d. Fix the basket, find the prices, compute the inflation rate, compute the basket’s
cost, and choose a base year and compute the index. Page 7 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 22. When new goods are introduced, consumers have more variety from which to choose. As
a result, each dollar is worth
a. more, and the cost of living increases.
b. more, and the cost of living decreases.
c. less, and the cost of living increases.
d. less, and the cost of living decreases. 23. Iggie took a university teaching job as an assistant professor in 1974 at a salary of $10,000.
By 2003, she had been promoted to full professor, with a salary of $50,000. If the price
index was 50 in 1974 and 180 in 2003, then what is Iggie's 1974 salary in 2003 dollars?
a. $2,777.78
b. $18,000
c. $26,000
d. $36,000 24. When looking at a graph of nominal and real interest rates you notice that nominal rates
always lie above real rates. From this you conclude
a. there were serious episodes of deflation in the time frame represented on the
graph.
b. consumer prices were always rising in the time frame represented on the graph.
c. the economy never experienced a recession in the time frame represented on the
graph.
d. GDP was always increasing for the time frame represented on the graph. 25. Productivity is the amount of goods and services
a. an economy produces. It is not linked to a nation’s economic policies.
b. an economy produces. It is linked to a nation’s economic policies.
c. produced for each hour of a worker’s time. It is not linked to a nation’s
economic policies.
d. produced for each hour of a worker’s time. It is linked to a nation’s economic
policies. 26. Which of the following is not correct?
a. Across countries there are large differences in the average income per person.
These differences are reflected in large differences in the quality of life.
b. With a growth rate of about 2 percent per year, average income per person
doubles about every 35 years.
c. The ranking of countries by average income changes very little over time.
d. In some countries real income per person has changed very little over many
years. Page 8 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 27.
For a given year, productivity in a particular country is most closely matched with
that country's
a.
level of real GDP over that year.
b.
level of real GDP divided by hours worked over that year.
c.
growth rate of real GDP divided by hours worked over that year.
d.
growth rate of real GDP per person over that year. 28. Alexis and Tara both mine salt. Alexis mines 400 pounds in 40 hours. Tara mines 300
pounds in 20 hours. Which of the following is correct?
a.
Alexis’s productivity is greater than Tara’s. This difference could be explained
by Alexis having more physical capital than Tara.
b.
Alexis’s productivity is greater than Tara’s. This difference cannot be
explained by a difference in the physical capital each has.
c.
Tara’s productivity is greater than Alexis’s. This difference could be explained
by Tara having more physical capital than Alexis.
d.
Tara’s productivity is greater than Alexis’s. This difference cannot be
explained by a difference in the physical capital each has. 29. Investment in
a.
physical capital, unlike investment in human capital, has an opportunity cost.
b.
physical capital, like investment in human capital, has an opportunity cost.
c.
human capital is particularly attractive because it involves no externalities.
d.
human capital has been shown to be relatively unimportant, relative to
investment in physical capital, for a country’s long-run economic success. 30. Which of the following statements is not correct?
a.
The catch-up effect is based on the assumption of diminishing returns to
capital.
b.
Investment in poor countries by citizens of rich countries is one way poor
countries can learn new technologies.
c.
Malthus argued that charity and government aid was an effective way to reduce
poverty.
d.
Peace and justice are keys to growth. 31. Most entrepreneurs do not have enough money of their own to start their businesses.
When they acquire the necessary funds from someone else,
a.
their consumption expenditures are being financed by someone else’s saving.
b.
their consumption expenditures are being financed by someone else’s
investment.
c.
their investments are being financed by someone else’s saving.
d.
their saving is being financed by someone else’s investment.
Page 9 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 32. A national chain of grocery stores wants to finance the construction of several new stores.
The firm has limited internal funds, so it likely will
a.
demand the required funds by buying bonds.
b.
demand the required funds by selling bonds.
c.
supply the required funds by buying bonds.
d.
supply the required funds by selling bonds. 33. Suppose the government finds a major defect in one of a public listed company's products
and demands that the product be taken off the market. We would expect that the
a.
supply of existing shares of the stock and the price will both rise.
b.
supply of existing shares of the stock and the price will both fall.
c.
demand for existing shares of the stock and the price will both rise.
d.
demand for existing shares of the stock and the price will both fall. 34. If national saving in a closed economy is greater than zero, which of the following must
be true?
a.
Either public saving or private saving must be greater than zero.
b.
Investment is positive.
c.
d.
All of the above are correct. Scenario 1. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150. 35. Refer to Scenario 1. This economy’s government is running a
a.
budget deficit of $50.
b.
budget deficit of $80.
c.
budget surplus of $50.
d.
budget surplus of $80. 36. In 2002 mortgage rates fell and mortgage lending increased. Which of the following
could explain both of these changes?
a.
The demand for loanable funds shifted rightward.
b.
The demand for loanable funds shifted leftward.
c.
The supply of loanable funds shifted rightward.
d.
The supply of loanable funds shifted leftward. Page 10 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc Table 2
2009 Labour Data for Baltivia
Number of adults
Number of adults who are paid employees
Number of adults who work in their own businesses
Number of adults who are unpaid workers in a family member’s business
Number of adults who were temporarily absent from their jobs because of an
earthquake
Number of adults who were waiting to be recalled to a job from which they had
been laid off
Number of adults who do not have a job, are available for work, and have tried
to find a job within the past four weeks
Number of adults who do not have a job, are available for work, but have not
tried to find a job within the past four weeks
Number of adults who are full-time students
Number of adults who are homemakers or retirees 20,000
8,000
1,600
1,000
400
200
1,400
780
3,000
3,620 37. Refer to Table 2. How many people were employed in Baltivia in 2009?
a. 9,600
b. 10,600
c. 11,000
d. 11,200 38. A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job
a. is counted as out of the labour force but should be counted as unemployed.
b. is counted as unemployed but should be counted as out of the labour force.
c. is correctly counted as out of the labour force.
d. is correctly counted as unemployed. 39. Frictional unemployment is
a. not inevitable; rather, it can be reduced to zero by well-designed public policies.
b. not inevitable; rather, it could be reduced to zero if by the elimination of
unemployment insurance.
c. inevitable, because at any given time, jobs are being created in some firms and
destroyed in other firms.
d. inevitable, because in some industries, wages are always set above the level that
brings supply and demand into equilibrium. Page 11 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc Figure 4 40. Refer to Figure 4. If the government imposes a minimum wage of $8, then how many
workers will be unemployed?
a. 0
b. 3000
c. 4000
d. 7000 41. If unions were formed in more industries, the supply of labour in other industries would
a. increase, causing employment in other industries to rise.
b. increase, causing employment in other industries to fall.
c. decrease, causing employment in other industries to rise.
d. decrease, causing employment in other industries to fall. 42. Minimum-wage laws, unions, and efficiency wages contribute to
a. both structural unemployment and the natural rate of unemployment.
b. neither structural unemployment nor the natural rate of unemployment.
c. structural unemployment, but not the natural rate of unemployment.
d. the natural rate of unemployment, but not structural unemployment. 43. A double coincidence of wants
a. is required when there is no item in an economy that is widely accepted in
exchange for goods and services.
b. is required in an economy that relies on barter.
c. is a hindrance to the allocation of resources when it is required for trade.
d. All of the above are correct.
Page 12 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 44. Paper dollars
a. are commodity money and gold coins are fiat money.
b. are fiat money and gold coins are commodity money.
c. and gold coins are both commodity monies.
d. and gold coins are both fiat monies. 45. The set of items that serve as media of exchange clearly includes
a. balances that lie behind debit cards.
b. demand deposits.
c. other checkable deposits.
d. All of the above are correct.
46. Monetary policy affects employment
a. only in the long run.
b. only in the short run.
c. in both the long run and the short run.
d. in neither the long run nor the short run. 47. In a system of 100-percent-reserve banking, the purpose of a bank is to
a. make loans to households.
b. influence the money supply.
c. give depositors a safe place to keep their money.
d. buy and sell gold. 48. If the money multiplier is 2 and the Reserve Bank buys $50,000 worth of bonds, what
happens to the money supply?
a. it increases by $100,000
b. it increases by $150,000
c. it decreases by $100,000
d. it decreases by $150,000 49. The term hyperinflation refers to
a. the spread of inflation from one country to others.
b. a decrease in the inflation rate.
c. a period of very high inflation.
d. inflation accompanied by a recession. Page 13 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 50. The supply of money increases when
a. the value of money increases.
b. the interest rate increases.
c. the Fed makes open-market purchases.
d. None of the above is correct. 51. The payments you make on your automobile loan are given in terms of dollars. As
prices rise you notice you give up fewer goods to make your payments.
a.
The dollar amount you pay is a nominal value. The number of goods you give
up is a real value.
b.
The dollar amount you pay is a real value. The number of goods you give up is
a nominal value.
c.
Both the dollar amount you pay and the goods you give up are nominal values.
d.
Both the dollar amount you pay and the goods you give up are real values. 52. The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real
GDP is $400 billion. What are the price level and velocity in Muckland?
a.
The price level and velocity are both 8.
b.
The price level is 2 and velocity is 8.
c.
The price level and velocity are both 4.
d.
The price level is 4 and velocity is 8. 53. When inflation causes relative-price variability,
a.
consumer decisions are distorted and the ability of markets to efficiently
allocate factors of production is impaired.
b.
consumer decisions are distorted, but markets are still able to efficiently
allocate factors of production.
c.
consumer decisions are not distorted, but the ability of markets to efficiently
allocate factors of production is impaired.
d.
consumer decisions are not distorted and markets are still able to efficiently
allocate factors of production. 54. Which of the following is accurate?
a. Monetary policy is neutral in both the short run and the long run.
b. Though monetary policy is neutral in the long run, it may have effects on real
variables in the short run.
c. Monetary policy has profound effects on real variables in both the short run and
the long run.
d. Monetary policy has profound effects on real variables in the long run, but is
neutral in the short run. Page 14 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 55. One year a country has negative net exports. The next year it still has negative net exports
and imports have risen more than exports. This means that:
a. its trade surplus fell.
b. its trade surplus rose.
c. its trade deficit fell.
d. its trade deficit rose 56. When the Sykes Corporation (an American company) buys shares of Audi stock (a German
company) for its pension fund, U.S. net capital outflow
a. increases because an American company makes a portfolio investment in
Germany.
b. declines because an American company makes a portfolio investment in Germany.
c. increases because an American company makes a direct investment in Germany.
d. declines because an American company makes a direct investment in Germany. 57. You are planning a graduation trip to Nepal. Other things the same, if the dollar appreciates
relative to the Nepalese rupee, then
a. the dollar buys fewer rupees. Your purchases in Nepal will require fewer dollars.
b. the dollar buys fewer rupees. Your purchases in Nepal will require more dollars.
c. the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.
d. the dollar buys more rupees. Your purchases in Nepal will require more dollars. 58. Consider an identical basket of goods in both the U.S. and India. For a given nominal
exchange rate, in which case is it certain that the U.S. real exchange rate with India falls?
a. the price of the basket of goods rises in the U.S. and India.
b. the price of the basket of goods rises in the U.S. and falls in India.
c. the price of the basket of goods falls in the U.S. and rises in India.
d. the price of the basket of goods falls in both India and the U.S.. 59. If purchasing-power parity holds, a dollar will buy
a. one unit of each foreign currency.
b. foreign currency equal to the U.S. price level divided by the foreign country’s
price level.
c. enough foreign currency to buy as many goods as it does in the United States.
d. None of the above is implied by purchasing-power parity. Page 15 of 24 1501/178.100
MAN
Distance/Internal NSB
Sc 60. According to purchasing power parity which of the following would happen if a country
raised its money supply growth rate?
a. its nominal exchange rate would fall.
b. its real exchange rate would fall.
c. its real net exports would rise.
d. All of the above would happen. 61. The open-economy macroeconomic model takes
a. GDP, but not the price level as given.
b. the price level, but not GDP as given.
c. both the price level and GDP as given.
d. the price level and GDP as variables to be determined by the model. 62. The explanation for the slope of
a. the supply of loanable funds curve is based on the...

 

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