ECON110 2018 S2 - fdsafsa PDF

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SEAT NUMBER: ……….… ROOM:..………………. FAMILY NAME:………….....…………………………. This question paper must be returned. Candidates are not permitted to remove any part of it from the examination room.

OTHER NAMES:……..…….…………………..…….. STUDENT NUMBER:…..…….………..……………..

FORMAL EXAMINATION PERIOD: SESSION 2, NOVEMBER 2018 Unit Code:

ECON 110

Unit Name:

Macroeconomic Principles

Duration of Exam (including reading time if applicable):

2 hours + 10 minutes reading time

Total No. of Questions:

33

Total No. of Pages

7

(including this cover sheet):

GENERAL INSTRUCTIONS TO STUDENTS:  Students are required to follow directions given by the Final Examination Supervisor and must refrain from communicating in any way with another student once they have entered the final examination venue.  Students may not write or mark the exam materials in any way during reading time.  Students may only access authorised materials during this examination. A list of authorised material is available on this cover sheet.  All watches must be removed and placed at the top of the exam desk and must remain there for the duration of the exam. All alarms, notifications and alerts must be switched off.  Students are not permitted to leave the exam room during the first hour (excluding reading time) and during the last 15 minutes of the examination.  If it is alleged you have breached these rules at any time during the examination, the matter may be reported to a University Discipline Committee for determination.

EXAMINATION INSTRUCTIONS:

Instructions: Section A: (Answer all) 30 multiple choice questions Section B: (Answer only 2 of) 3 questions. Section A is worth 60% of this exam. Section B is worth 40% of this exam. All questions in Section A are to be answered. Answer ONLY 2 out of the 3 questions in Section B Each of the 30 answered questions in section A is worth 2 percentage points. Each of the 2 answered questions in section B is worth 20 percentage points. For Section A: code on the Multiple Choice Answer Sheet the letter of the response that you think is the most correct. Code either A., B., C., D. or E. For Section B: use a separate exam booklet for each question. Write your name, student number and the questions attempted on the front of each exam booklet that you use it.

AIDS AND MATERIALS PERMITTED/NOT PERMITTED: Dictionaries: Paper-based translation dictionaries permitted Calculators:

Non-programmable calculators without text storage/retrieval permitted

Other:

Closed book – No notes or textbooks permitted

SECTION A

Answer all 30 multiple choice questions on your computer scoring sheet. Put your name on the sheet. Select the answer that is most likely to be right. 1. Use the following data for an economy to answer the question: Price level

Nominal GDP

2002

100

$1600

2004

150

$3000

2006

300

$6000

Year

Which of the following is true concerning changes between 2004 and 2006? A. B. C. D. E.

Nominal and real GDP both increased Nominal GDP increased, but real GDP was unchanged Nominal GDP increased, but real GDP declined Nominal and real GDP both decreased None of the above.

2. If the Reserve Bank buys securities in the open market, it is likely that: A. B. C. D. E.

interest rates will fall and consumption and investment will increase interest rates will fall and consumption and investment will decrease interest rates will rise and consumption and investment will increase interest rates will rise and consumption and investment will decrease None of the above

3. The key variable determining changes in a country's standard of living is the: A. B. C. D. E.

interest rate inflation rate unemployment rate exchange rate long-run rate of economic growth

4. Data for an economy shows that the unemployment rate is 10%, the participation rate 80%, and 100 million people 15 years or older. How many people are in the labour force in this economy? A. B. C. D. E.

8 million 10 million 20 million 80 million 100 million

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5. If the Citrus Growers Association grows oranges, sells $1 million worth of these oranges to consumers, and uses the rest to make orange juice that is sold to consumers for $2 million, what is the Citrus Growers Association's contribution to GDP? A. B. C. D. E. 6.

$500 000 $1 000 000 $3 000 000 $4 000 000 $4 500 000 If the real interest rate is 1% and the inflation rate is 5%, then the nominal interest rate equals:

A. 1% B. 4% C. 5% D. 6% E. -4% 7. The consumer price index measures this year’s cost of: A. a standard consumer’s basket of goods and services B. all goods and services purchased by consumers C. goods and services required to live above the poverty level D. producing all goods and services E. none of above 8.

If workers and employers expect 3% inflation and agree to a three-year nominal wage contract, but inflation turns out to be 5%, then:

A. workers gain and employers gain B. workers gain and employers lose C. workers lose and employers gain D. workers lose and employers lose E. none of the above 9. Use the following data for an economy to answer the question: Year Price level Nominal GDP 2015 100 $1600 2016 180 $3500 2017 300 $6000 Using 2015 as the base year, what was real GDP in 2017? A. $1600 B. $2000 C. $2400 D. $3000 E. None of the above 10.

Cyclical unemployment is:

A. the unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers B. the unemployment that results when people retire or leave the labour force C. short-term unemployment that is associated with the process of matching workers with jobs D. the unemployment experienced by cyclists E. the extra unemployment that occurs in contractions, especially during periods of recession

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11.

Every year the typical family on Planet Econ consumes ten pizzas, seven pairs of jeans and 20 litres of milk. In 2002 pizzas cost $10 each, jeans cost $40 per pair, and milk costs $3 per litre. In 2003, the price of pizzas went down to $8 each, while the price of jeans and milk remained the same. Between 2002 and 2003, a typical family's cost of living:

A. increased by 4.5% B. decreased by 4.5% C. increased by 2% D. decrease by 2% E. none of above 12.

Assume that the minimum wage already exceeds the market-clearing wage. If the minimum wage is increased then, holding other factors constant, the number of unemployed _____ and the number of employed _____.

A. increase; increases B. increases; decreases C. does not change; increases D. increases; does not change E. decreases; decreases 13.

Based on the Reserve Bank's policy reaction function, when inflation is high compared to its target, the Reserve Bank ____ interest rates, thereby _____ short-run equilibrium output.

A. increases; increasing B. increases; decreasing C. decreases; increasing D. does not change; increasing E. decreases; decreasing 14.

Starting from long-run equilibrium, an increase in government purchases will most likely result in a(n) _____ output gap and ____ inflation in the short run.

A. contractionary; lower B. contractionary; unchanged C. expansionary; lower D. expansionary; higher E. contractionary; higher 15. Assume that the marginal propensity to consume is 0.5. In order to offset a recessionary gap resulting from a $2 billion decrease in autonomous consumption, transfers must be: A. increased by $2 billion B. decreased by $2 billion C. increased by $4 billion D. decreased by $1 billion E. increased by $1 billion 16.

Real GDP is measured in ______ prices and nominal GDP is measured in _______ prices.

A. current; base-year B. base-year; current C. current; current D. current; market E. market; current

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17. Increasing the physical capital available to the workforce, holding other factors constant, tends to _____ total output (y) and to _____ average labour productivity (y/l). A. increase; decrease B. decrease; keep unchanged C. increase; increase D. decrease; increase E. increase; keep unchanged 18. Diminishing marginal productivity refers to: A. the decline in marginal productivity due to wear and tear B. the decline in total productivity due to wear and tear C. the decline in output over time D. the tendency for the marginal product of an input factor to decline as more of that factor is used in production, holding all other factors constant E. the tendency for the marginal product of a factor to decline as less of that factor is used in production, holding all other factors constant 19. In the short-run Keynesian model, in order to close a recessionary gap of $1 billion, government purchases are likely to be: A. B. C. D. E.

increased by $1 billion decreased by $1 billion increased by more than $1 billion increased by less than $1 billion decrease by less than $1 billion

20. The aggregate demand curve shows the relationship between inflation and: A. B. C. D. E.

the nominal interest rate the real interest rate the exchange rate the long-run equilibrium output short-run equilibrium output

21. As long as aggregate supply remains constant, the greater the increase in aggregate demand the: A. greater the increase in the inflation rate B. greater the increase in the rate of unemployment C. smaller the decrease in employment D. larger the increase in real output E. none of above 22. The real exchange rate is the: A. quantity of foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market B. rate at which currencies of various nations are traded for each another C. rate at which two currencies can be traded for each other D. the actual exchange rate in the market E. price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency

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23. If the Renminbi is undervalued against the USD and is being held fixed by the Chinese central bank, we would expect to see: A. The Chinese central bank buying Renminbi B. The Chinese central bank selling USD C. The Chinese central bank selling Renminbi D. The Chinese central bank buying USD E. Both C. and D. are correct 24. In an open economy, a decrease in national saving _______ the equilibrium domestic real interest rate, and _____ the quantity of net capital inflows, and ______ the quantity of domestic investment. A. increases; decreases; decreases B. increases; increases; decreases C. decreases; decreases; decreases D. increases; increases; increases E. leaves unchanged; leaves unchanged; leaves unchanged 25. Accounts kept by the commercial banks with the Reserve Bank, which are used to manage the flow of funds between commercial banks generated by the commercial activities of their customers, are called: A. customers offset accounts B. mortgage settlements accounts C. customers' settlement accounts D. exchange settlement accounts E. short-term settlement accounts 26. A record of all the transactions made between the residents of one country and the residents of all other countries is known as the: A. net external balance sheet B. balance on merchandise trade C. capital account D. balance of payments E. current account 27. An Australian-made PC costs $2400 and a similar Japanese-made PC costs ¥242 000. If the nominal exchange rate is ¥105/$ what is the price of the Japanese-made PC expressed in dollars? A. B. C. D. E.

$2404.7 $2104.7 $2904.7 $2400 $2304.7

28. An economy with a current account surplus must also have: A. B. C. D. E.

a current account deficit a budget surplus a budget deficit positive net capital outflows none of above

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29. If consumption increases by $75 when after-tax disposable income increases by $100, the marginal propensity to consume equals: A. B. C. D. E.

0.25 0.45 0.5 0.75 none of above

30. If planned aggregate expenditure in an economy is PAE = 10 000 + .9Y, what is the short-run equilibrium level of output in this economy? A. B. C. D. E.

10 000 19 000 90 000 100 000 none of above

SECTION B Answer ONLY 2 out of the 3 questions (31., 32., 33.) below, each in a separate exam answer booklet. 31. Consider an economy described by the following equations. 𝐶 𝑑 = 2000 + 0.75(𝑌 − 𝑇) 𝐼 𝑝 = 500 𝐺 = 1000 𝑋 = 100 𝑇 = 1500 where Cd is consumption on domestically produced goods, G is government expenditure, IP is planned investment spending, X is exports, T is tax revenue. (i) (ii) (iii) (iv)

Derive the equation for planned aggregate expenditure as a function of output, Y. Find the short-run equilibrium for this economy. (ie: the value of Y) Illustrate the equilibrium on a 45-degree diagram. Suppose there is a decrease in planned investment spending from 500 to 300. a. Calculate the effect on short-run equilibrium. b. Calculate and explain the multiplier. c. Illustrate your answer on the same diagram as in part (iii).

32. (i) Explain the difference between nominal and real interest rate. (ii) How does the Reserve Bank of Australia conduct monetary policy? (iii) You hear a news report that the world economy is booming. How do you expect the impact of a growing world economy will impact on Australia? (eg: GDP) Explain why. (iv) The government faces a large contractionary gap. How would you expect the government to respond? Explain step by step how a change in fiscal policy is likely to affect the economy. Use the AD-AS diagram to illustrate your answer.

33. Under a flexible exchange rate regime, how does an expansionary monetary policy (a higher interest rate) affect the value of the exchange rate? Explain how this change of policy affects output and employment.

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