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CITY UNIVERSITY OF HONG KONGThursday 01 November 2018 ACourse code & title : CB2402 Macroeconomics Session : Semester A 2018/ Time allowed : 90 minutesThis paper has eleven pages (including this cover page). Answer all 40 multiple-choice questions. Each question carries 2 marks. Answer questions...

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CITY UNIVERSITY OF HONG KONG

Thursday 01 November 2018

Course code & title Session Time allowed

A

: CB2402 Macroeconomics : Semester A 2018/2019 : 90 minutes

This paper has eleven pages (including this cover page). 1.

Answer all 40 multiple-choice questions.

2.

Each question carries 2.5 marks.

3.

Answer questions on the provided answer sheet.

4.

Write your name, student number, and the exam version code (A or B) on the answer sheet.

5.

Write your name and student number on this page

This is a closed-book examination. Approved calculators allowed. No materials or aids other than calculators are allowed during the whole examination. If any unauthorized materials or aids are found on a candidate during the examination, the candidate will be subject to disciplinary action.

Student name

:

Student number:

1

Question 1 Which of the following parts of GDP cannot exceed GDP? A) consumption B) investment C) government purchase D) net export

Question 2 A Taiwan firm Foxconn is assembling iPhone X in mainland China. For each iPhone X, the market value of the components imported from South Korea is $510, the cost of labor & capital from mainl and China is $90, and the assembled phone is sold at $680 to U.S. The value added of each iPhone X to mainland China is A) $680 B) $170 C) $90 D) $80

Question 3 Other things being unchanged, when firms pay higher wages, what will happen to the disposable income of households? A) higher B) lower C) unchanged D) all possible

Question 4 Choose 2009 as the base year. Real GDP higher than nominal GDP in 2008 implies that A) GDP deflator < 100 in 2008 B) GDP deflator > 100 in 2008 C) cost of living in 2009 is lower than 2008 D) cost of living in 2009 is higher than 2008

Question 5 After losing job, Bob stays at home being a YouTuber. Now Bob is A) unemployed B) employed C) out of labor force D) doing home production

Question 6 During recessions, unemployment rate A) stays high 2

B) stays low C) rises D) falls

Question 7 From 2008 to 2009 in an economy, 2400 thousand employed workers become unemployed, 2000 th ousand unemployed workers become employed, and 400 unemployed workers no longer look for jo bs. Assume other things are unchanged, the unemployment rate A) decreases B) does not change C) increases D) can either decrease or increase

Question 8 Alice took a variable rate mortgage loan last year. This year, the interest rate rises by 2%. Which of the following is true? A) Alice’s expected nominal wealth increases. B) Alice’s expected nominal wealth decreases. C) Alice’s expected real wealth increases. D) Alice’s expected real wealth decreases.

Question 9 Consider the following consumption basket (2017 is the base year): 2017 2018 Product Quantity Price ($) Quantity Price ($) Sunglasses 10 50 15 45 Pizzas 15 10 15 10 Books 20 20 15 25 If 2017 is the base year, the annual inflation rate in 2018 based on CPI is about A) 0% B) 2% C) 5% D) 14%

Question 10 Use the same table in Question 9. If 2018 is the base year, you can get a different annual inflation rate for 2018. Which of the following biases most likely explains this difference? A) outlet bias B) increase in quality bias C) new product bias D) substitution bias

Question 11 If real GDP per capita doubles between 2008 and 2020, what is the average annual growth rate of real GDP per capita? A) 3.5% 3

B) 4.7% C) 5.8% D) 7.3%

Question 12 Year 2013 2014 2015 2016

Real GDP (billions of 2000 dollars) $10,100 10,950 11,425 11,300

Using the table above, what is the approximate average annual growth rate from 2013 to 2016? A) -2% B) 1% C) 2% D) 4%

Question 13 Labor productivity will increase if the ________ increases and ________. A) quantity of capital per hour worked; technology improves B) quantity of labor per unit of capital; technology improves C) quantity of capital per hour worked; working hours are increasing D) quantity of labor per unit of capital; working hours are decreasing

Question 14 If government saving is negative, then A) Taxes > Transfer Payments. B) Government Purchases > Taxes. C) Taxes – Transfer Payments < Government Purchases. D) GDP + Transfer Payment < Consumption - Taxes.

Question 15 The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds. A) lower; greater; greater B) lower; smaller; smaller C) greater; greater; greater D) greater; smaller; smaller

Question 16 As the economy nears the end of an expansion, which of the following do we typically see? A) production is rising B) unemployment is falling C) interest rates are rising D) falling wages relative to output prices 4

Question 17 Country Sweden Ireland

GDP (billions of dollars) $3.85 2.23

Population (millions of people) 9.05 4.21

Based on the table above, which country has a higher standard of living and why? A) Sweden has a higher standard of living because their GDP is higher. B) Ireland has a higher standard of living because their GDP per capita is higher. C) Sweden has a higher standard of living because their GDP per capita growth is higher. D) Ireland has a higher standard of living because growth in GDP is greater in Ireland than in Sweden.

Question 18 If the per-worker production function shifts up, A) it now takes more capital per hour worked to get the same amount of real GDP per hour worked. B) an economy can increase its real GDP per hour worked without changing the level of capital per hour worked. C) the per-worker production function becomes flatter. D) technological change becomes a more effective way to increase output per hour.

Question 19 Country China Malaysia Colombia Singapore

Real GDP per Capita (in 1996 dollars) $1091 1,253 2,344 4,644

Growth in Real GDP per Capita, 1960-2000 5.39% 4.70% 1.35% 4.32%

In the table above, which countries are consistent with the predictions of the economic growth model (catch-up line)? A) only Singapore B) China and Malaysia C) Colombia and Singapore D) all four countries

Question 20 All of the following policies are ways for a country to promote long-run economic growth except A) increasing vaccinations against infectious diseases. B) encouraging firms to educate workers. C) enacting stronger laws to protect property rights. 5

D) imposing stricter regulations to limit foreign direct investment.

Question 21 Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP? A) $15 million B) $23 million C) $25 million D) $27 million

Question 22 If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? A) Inventories will decline, and GDP and employment will decline. B) Inventories will rise, and GDP and employment will decline. C) Inventories will decline, and GDP and employment will rise. D) Inventories will rise, and GDP and employment will rise.

Question 23 Consumption (dollars) $1,200 2,100 3,000

Disposable Income (dollars) $3,000 4,000 5,000

Given the consumption schedule in the table above, the marginal propensity to save is A) 0.1. B) 0.4. C) 0.7. D) 0.9.

Question 24 If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then A) investment spending will fall. B) investment spending will rise. C) investment spending will remain unaffected. D) investment spending will rise and then fall.

Question 25 On the 45-degree line diagram, for points that lie below the 45-degree line A) planned aggregate expenditure is greater than GDP. B) planned aggregate expenditure is less than GDP. 6

C) planned aggregate expenditure is equal to GDP. D) planned aggregate expenditure is less than aggregate income.

Question 26 Refer to Figure 1. If the economy is at point L, what will happen? A) Inventories have fallen below their desired level, and firms decrease production. B) Inventories have fallen below their desired level, and firms increase production. C) Inventories have risen above their desired level, and firms decrease production. D) Inventories have risen above their desired level, and firms increase production. Figure 1

Question 27 Which of the following correctly describes how an increase in the price level affects consumption spending? A) An increase in the price level raises real wealth, which causes consumption to increase. B) An increase in the price level decreases the amount of money a household needs to buy goods and raises the interest rate, which causes consumption to increase. C) An increase in the price level increases the amount of money a household needs to buy goods and raises the interest rate, which causes consumption to increase. D) An increase in the price level lowers real wealth, which causes consumption to decrease.

Question 28 The multiplier is calculated as the change in ________ divided by the change in ________. A) real GDP; autonomous expenditure B) autonomous expenditure; real GDP 7

C) nominal GDP; autonomous expenditure D) real GDP; induced spending

Question 29 Refer to Figure 2. Suppose that investment spending decreases by $5 million, decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1. If the MPC is 0.8, then what is the change in GDP? A) -$4 million B) -$5 million C) -$25 million D) -$40 million Figure 2

Question 30 Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what is the marginal propensity to consume? C = 5,000 + (MPC)Y I = 1,500 G = 2,000 NX = -500 A) 0.67 B) 0.75 C) 0.8 D) 0.9 8

Question 31 The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off A) government spending. B) government spending and unplanned investment. C) investment and consumption spending. D) net exports.

Question 32 Refer to Figure 3. Ceteris paribus, an increase in interest rates would be represented by a movement from A) AD1 to AD2. B) AD2 to AD1. C) point A to point B. D) point B to point A. Figure 3

Question 33 On the long-run aggregate supply curve A) an increase in the price level increases the aggregate quantity of GDP supplied. B) an increase in the price level reduces the aggregate quantity of GDP supplied. C) an increase in the price level has no effect on the aggregate quantity of GDP supplied. D) an increase in the price level increases the level of potential GDP.

Question 34 The short-run aggregate supply curve has a A) negative slope. B) positive slope. C) slope equal to infinity. D) slope equal to zero. 9

Question 35 A decrease in investment causes the price level to ________ in the short run and ________ in the long run. A) increase; increase further B) increase; decrease C) decrease; decrease further D) decrease; increase

Question 36 Refer to Figure 4. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be? A) A B) B C) C D) D Figure 4

Question 37 Stagflation usually results from A) a supply shock. B) a decrease in aggregate demand. C) an increase in aggregate supply. D) an increase in aggregate demand. 10

Question 38 In the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS A) inflation occurs. B) deflation occurs. C) stagflation occurs. D) disinflation occurs.

Question 39 Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2? A) 0.9% B) 1.8% C) 2.7% D) 3.0% Figure 5

Question 40 When people became ________ concerned with the underlying value of their houses and became ________ concerned with the expectations of the prices of their houses increasing, a housing bubble occurred. A) less; less B) less; more 11

C) more; less D) more; more

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