ECO 112 TEST1key 20202021 PDF

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UNIVERSITY OF BOTSWANAECONOMICS DEPARTMENTECO 112 BASIC MCROECONOMICSTEST 1SUNDAY 7TH MARCH 2021INSTRUCTIONS1. Answer ALL Questions.2. Total Marks: 40%3. Use capital letters for multiple choice answers.4. Test duration is 2hours. From 0800 to 1000.5. Submission details: deadline for submission is 10...

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UNIVERSITY OF BOTSWANA ECONOMICS DEPARTMENT ECO 112 BASIC MCROECONOMICS TEST 1 SUNDAY 7TH MARCH 2021

INSTRUCTIONS 1. Answer ALL Questions. 2. Total Marks: 40% 3. Use capital letters for multiple choice answers. 4. Test duration is 2hours. From 0800 to 1000. 5. Submission details: deadline for submission is 1000. Students must sign a class register as confirmation of submission. 6. Details of how and where to submit shall be given to students by each group lecturer.

ECO 112 BASIC MACROECONOMICS

SECTION- A QUESTION-1 Multiple choice questions (Each question carries 1 Mark = 20 Marks) 1. A firm should engage in an investment project when: A) B) C) D)

The expected rate of return is less than the rate of interest The operation and maintenance costs of the project are high The expected rate of return is greater than the rate of interest The economy’s stock of capital is high

2. Use the data below to answer the question which follows Income (Pula)

Consumption (Pula)

300

310

350

340

400

370

450

400

500

430

If disposable income is P550, consumption is

A) B) C) D)

P430 P450 P460 P470

3. Which of the following statements is correct? A) The slope of the consumption schedule is inversely related to the multiplier B) The slope of the saving schedule is directly related to the multiplier

C) The economy’s MPC = 0.5. a P5 billion increase in government expenditure will decrease GDP D) If the MPS is 1, the multiplier will be 1

4. If consumption spending increase from P360 to P390 million when disposable income increases from P420 to P460 million, it can be concluded that the marginal propensity to consume is: A) B) C) D)

0.45 0.75 1.33 0.9

5. What do investment and government expenditures have in common? A) B) C) D)

Both represent injections to the circular flow Both represent leakages from the circular flow Neither is subject to the multiplier effect Both represent a decline in indebtedness

6. GDP in an economy is P3452 billion. Consumer expenditures are P2343 billion, government purchases are P865 billion, and gross investment is P379 billion. Net exports are: A) B) C) D)

(+) P93 billion (+) P123 billon (-) P45 billion (-) P135 billion

7. If the equilibrium level of GDP in a private open economy is P1000 billion and consumption is P700 billion at that level of GDP, then: A) B) C) D)

Saving must be P300 billion. Net exports must be P300 billion. S + C must equal P300 billion. I + Xn must equal P300 billion.

Use the following to answer questions 8 and 9: Suppose the Botswana GNP (in millions of Pula) = 11063.6. Income earned by Botswana citizens abroad = 329.1 Income paid to foreigners in Botswana = 273.9 8. What is the NFFI for Botswana? A) -55.8 B) 11392.7 C) 55.2 D) 10789.7 9. What is the GDP for Botswana? A) 11008.1 B) 10734.5 C) 11666.6 D) 10460.6 Use the following to answer questions 10 : If you know that an increase in a household's disposable income from P35,000 to P45,000 leads to an increase in consumption from P30,000 to P38,000 10. You can conclude that the: A) Slope of the consumption schedule is 0.75. B) Marginal propensity to consume is 0.25 C) Slope of the consumption schedule is 8 D) Marginal propensity to consume is 0.8. 11.If consumption spending increase from P360 to P390 million when disposable income increases from P420 to P460 million, it can be concluded that the marginal propensity to consume is: A) B) C) D)

0.45 0.75 1.33 0.9

12.Which is a primary use for national income accounting? A) To analyze the environmental cost of economic growth B) To assess the economic efficiency of specific industries in the economy C) To measure changes in the value of goods and services produced in the economy D) To determine whether there is a fair and equitable distribution of income in the economy

13.The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because: A) Tax declines tend to be more expansionary. B) Households may not spend all of an increase in disposable income. C) The MPC which applies to the incomes of households always exceeds the MPC which applies to business incomes. D) The multiplier is high when the MPS is low.

14.

If intermediate goods and services were included in GDP:

A) B) C) D)

The GDP would then have to be deflated for changes in the price level. Nominal GDP would exceed real GDP. The GDP would be overstated. The GDP would be understated.

15. If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced: A) B) C) D)

Inflation of 4 percent. Inflation of 3.33 percent. Deflation of 3.33 percent. Deflation of 4 percent.

16. Employing Figure 1 below, autonomous consumption expenditures are ____________, and the marginal propensity to consume is ____________. A) 200; .75 B) 500; 1 C) 200; .60 D) 0; 1 Figure 1

17. A) B) C) D)

The multiplier measures the number of steps it takes to move from one equilibrium to another. rise in saving resulting from a rise in income. marginal propensity to invest. rise in equilibrium GDP resulting from a one Pula rise in planned autonomous expenditures.

18. Assuming that both autonomous taxes, and government expenditures were to rise by P100 million, we would expect equilibrium GDP to A) B) C) D)

rise by P100 million. rise, but by a multiple of P100 million. rise by less than P100 million. remain unaffected because leakages have changed by the same amount.

19. An exogenous rise in government expenditures will have the same effect on GDP as an equal rise in either autonomous ___________ or autonomous ____________. A) consumption; investment B) taxes; consumption C) savings; investment D) taxes; investment 20. Assume that all taxes in the economy are autonomous and the values for planned investment, government expenditures, and autonomous taxes are given: I = 100 G = 100 T = 50 The consumption function is: C = 50 + 0.5 YD What is the A) B) C) D)

level of consumption when the level of income is 850? 375 425 450 475

SECTION- B Question 2 A) Given the data below (Millions Transactions Proprietors Income Rental Income Interest Corporate Profits Net Factor Income Capital Consumption Allowance Compensation of employees Indirect Business Taxes Statistical Discrepancy

i.

ii.

of Pula) calculate the following. Pula Millions 30 20 12 56 6 20 220 16 2

National Income (3 Marks) NI = Proprietor’s Income +rental income +Interest + Corporate Profits + Compensation of Employees + Indirect Taxes = 354 Gross National Product (GNP) NI + STATS Discrepancy = NNP NNP=354 + 2 =356 + Depreciation = GNP GNP=356+20=376

(2 Marks)

iii.

Gross Domestic Product (GDP), (1 Marks) GDP=GNP-Net Foreign Income = 376-6 = 370

B)

Which of the following are included and which are excluded in calculating this year’s GDP? Explain in each instance. (1 Mark each) i)

A monthly scholarship check received by an economics student Ans: Not included: they don’t represent income earned by productive

resource,

rather

they

are

awards

performance. ii)

Government purchase of missiles from a private business

for

past

Ans: Included: As it represents investment. It is a final good that was produced in the current year. iii)

The purchase of a used tractor by a farmer Ans: Not included: because it was counted when it was new

iv)

The value of the purchase of Barclays bank’s shares by an individual Ans: Not included: because it is just swap of paper assets

QUESTION 3 A) Discuss the functions of the two main players in a closed economy, with no government. (2 MARKS) Households who are the owners of factors of production such as labour, Capital and Land. They sell the factors to the other player, Firms who produce Goods and services. The Household gets paid for factors and use the income to pay for goods and services. The firms sell goods and services and use the revenues to pay for factors B) we assume that in the year 2019, the GDP of Botswana was P 125 billion and the NDP was P105 billion. What accounts for this difference? [1 Mark Each] GDP- NDP=DEPRECIATION (C)

(D)

What are the two main macroeconomic policies that governments might use to achieve Economic Growth? (2 Marks) Fiscal Policy which entails Change in Government Spending and/or Change in Taxes to influence Economic Activity Monetary which entails Change in Money Supply and Interest rates to influence Economic Activity

Given the following simple Keynesian Model: Y = C + I + G + X-M, where

Consumption schedule is given as C= 100 +0.75Y Investment (I) = 50 Government (G) = 100

Taxes (T) = 50 and i.

ii. iii.

Net Export (X-M) = 20 Calculate the Equlibrium Level of Income [2 Marks] Y=100 +0.75Y+50+100+20 = 270+0.75Y Y = 1,080 Calculate the value of the Government Multiplier [1 Marks] 1/(1-mpc)=1/0.25=4 Assume Investment (I) Increases by 50; calculate the new equilibrium level of Income [2 Marks] Y=100 +0.75Y+100+100+20 =320-0.75Y-37.5 Y=1,280...