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The University of Alberta Economics 102 – B1 Introduction to

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					The University of Alberta Economics 102 – B1 Introduction to Macroeconomics First Term Examination SPECIAL CODE: 1 A. Wong 90 Minutes July 16, 2009

Section I: Multiple Choice. Do all 40 questions for 80 marks on the NCS sheet provided in pencil. Each question is worth 2 marks. For each questions, choose the BEST possible answer. 1. The topics studied in macroeconomics include: A) inflation. B) monopolies. C) spillovers like pollution. D) mergers.

2. Among the tools available to macroeconomic policy makers are: A) fiscal policy, control of government spending, and taxation. B) the Competition Act, to break up monopolies. C) environmental policy, to clean up the economy. D) All answer choices are correct.

3. If a one-day ticket to Disneyland Paris costs €50,while to Tokyo Disney it costs ¥12,000, and to Disneyland (in California) it costs US$65, when the euro is selling for US$1.25 and the U. S. dollar is selling for ¥120, other things being equal, the cheapest place to get a one-day ticket to a Disney property is: A) Paris. B) Tokyo. C) California. D) either Paris or Tokyo.

4. As the value of the Canadian dollar falls against that of the U.S. dollar: A) it is unequivocally bad for Canadians. B) its is unequivocally good for Canadians. C) Canadian producers experience a cost advantage over U.S. competitors. D) Canadian consumers can buy U.S. goods cheaper.

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5. Fiscal policy attempts to stabilize the economy during the business cycle through: A) changes in the inflation rate. B) changes in the quantity of money or the interest rate. C) changes in tax policy or government spending. D) discretionary regulation of profits and wages.

6. If a country has a population of 20 million people, a labour force of 10 million people, unemployment of 500,000, and an aggregate output of $1 trillion, then its per capita output is: A) $100,000. B) $94,238.10. C) $50,000. D) $33,333.33.

7. One role for government policy is: A) to provide insurance to cover damages from macroeconomic fluctuations. B) to attempt to manage short-run macroeconomic fluctuations. C) to subsidize private insurance for businesses to cover harm from macroeconomic fluctuations. D) to put an end to macroeconomic fluctuations.

8. Changing the level of government spending is an example of: A) fiscal policy. B) interest rate policy. C) monetary policy D) exchange rate policy

9. In Canada, the official definition of a recession: A) is determined by the National Bureau of Economic Research. B) is two successive quarters of declining real GDP. C) is determined by the House of Commons. D) does not exist.

10. The Canadian economy grew at an average rate of 4.9% between 1947 and 1974. Growth rates slowed to an average of only 2.7% from 1975 through 1996 and subsequently appear to have returned to a rate of 3.5%. Economists: A) believe that this is due to the strengthening of the Canadian dollar. B) believe this to be a result of sound macroeconomic policy. C) believe this to be a result of inflation targeting by the Bank of Canada. D) do not generally agree on the cause of the slowdown.

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11. If a country has a working-age population of 20 million, 13.5 million people with jobs, 1 million people who were looking for a job but have given up, and 500,000 people unemployed and seeking employment, then its labour force is: A) 15.0 million. B) 14.5 million. C) 14.0 million. D) 13.5 million.

12. In the financial account, we can see the total net amount of _______ to foreigners. A) assets sold B) interest paid C) intermediate goods sold D) goods and services exported

13. Monetary policy attempts to stabilize the economy by changes in: A) taxes. B) taxes and spending. C) taxes and interest rates. D) interest rates and the quantity of money.

14. Secular long-run growth is: A) the sustained upward trend in aggregate output per person over several decades. B) the expansion phase of business cycles. C) the downturn phase of business cycles. D) the sustained downward trend in the employment rate over several decades.

Use the following to answer question 15: TABLE: Canadian Statistical Data Nominal GDP (millions) $145,200 437,096 750,696 1,252,380 GDP deflator (1992-100) 29.4 70.9 102.5 122.9 Population 22,807,918 25,607,651 28,999,006 31,946,316

1974 1984 1994 2004

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15. (Table: Canadian Statistical Data) Between 1974 and 1984, real GDP per capita (1992100) increased by: A) 4.9%. B) 11.1%. C) 26.3%. D) 39.1%.

16. The reason the dollar value of only final goods and services are counted in GDP is that: A) we can measure only the value of final goods and services and not the value of inputs. B) if we counted the value of all goods we would count inputs, like the value of steel in a new automobile, more than once. C) intermediate goods reduce GDP. D) only final goods and services matter for the economy.

Use the following to answer question 17: Table: Measuring GDP (billions of dollars) Personal consumption expenditures Gross private domestic investment Net exports Provincial and municipal government purchases of goods and services Federal government purchases of goods and services Imports $500 200 -5 200 100 15

17. (Table: Measuring GDP) Government purchases of goods and services are: A) $50 billion. B) $100 billion. C) $200 billion. D) $300 billion.

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18. The national accounts keep track of: A) the spending of consumers and the government. B) the sales of producers. C) business investment. D) the spending of consumers and the government, the sales of producers, and business investment.

19. If the growth rate of GDP is above its historical average, then there is a tendency for the unemployment rate to: A) fall to zero. B) rise. C) fall. D) stabilize.

20. Investment spending is: A) spending on productive physical capital. B) spending on bonds. C) spending on shares of stock. D) spending on labour.

Use the following to answer question 21: TABLE: Canadian Statistical Data Nominal GDP (millions) $145,200 437,096 750,696 1,252,380 GDP deflator (1992-100) 29.4 70.9 102.5 122.9 Population 22,807,918 25,607,651 28,999,006 31,946,316

1974 1984 1994 2004

21. (Table: Canadian Statistical Data) In 1994, real GDP (1992 dollars) per capita was: A) $25,256. B) $25,887. C) $31,898. D) $39,203.

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Use the following to answer question 22:
Figure: Circular-Flow Model 2

22. (Figure: Circular-Flow Model 2) If the circular-flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is an increase in imports? A) an increase in the nominal GDP B) a decrease in the nominal GDP C) a decrease in the unemployment rate D) a decrease in the real GDP

Use the following to answer question 23: Table: Pizza Economy II Gino's pizza Bruno's dough Carlo's tomatoes Aldo's pepperoni $25,000 7,000 8,000 5,000 $20,000 5,000 1,000 3,000

Value of sales Cost of intermediate goods

23. (Table: Pizza Economy II) Based on the accompanying table, GDP in this economy is: A) $74,000. B) $45,000. C) $29,000. D) $16,000.

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24. A price index: A) always includes a base year. B) measures the cost of purchasing a market basket of output across different years. C) is normalized to 100 for the base year. D) All answer choices are correct.

25. GDP is typically higher in Canada than GNP because: A) Canada is a small open economy. B) Canada has a relatively large proportion of foreign ownership in some industries. C) the US dollar is worth more than the Canadian dollar. D) Canada is heavily dependent on trade with the United States.

Use the following to answer question 26: Exhibit: Price Index Suppose that in the base period a college student buys 40 litres of gasoline at $1 per litre, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $1.125 per litre, CDs cost $12.50 each, and the price of a movie ticket is $7.50.

26. (Exhibit: Price Index) The price index for the second month is: A) 94. B) 106.4. C) 100. D) impossible to determine without more information.

27. In a market basket of goods: A) the quantities stay constant and the prices change. B) the quantities change and the prices are held constant. C) both the prices and the quantities are held constant. D) both the prices and the quantities change.

28. Assume two countries on a peninsula. The first has real GDP per capita growth rate of 2% and its neighbour to the south is growing at 5%. How much more quickly in years will the country in the south double its GDP per capita compared to its neighbour in the north? A) 5 years B) 10 years C) 15 years D) 21 years

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29. All the following are potential reasons for the economic stagnation of Latin America during the last century EXCEPT: A) irresponsible government policies that fuelled high levels of inflation. B) low rates of savings. C) lack of public support for education. D) excessively large flows of foreign investment.

30. The convergence hypothesis fits the data only when factors that affect growth are held equal across countries. These factors include: A) education. B) infrastructure. C) favourable policies and institutions. D) All answer choices are correct.

31. Workers now are more productive than in the past because workers today: A) have more physical capital to use. B) use more technologically advanced physical capital. C) are more educated and so have more human capital. D) All answer choices are correct.

32. A relatively low saving rate affects productivity growth by: A) depriving investment spending of the funds needed to increase the physical capital. B) promoting consumption spending and depriving investment in human capital of the funds needed for tuition. C) reducing the tax base and preventing the government from providing public goods. D) stimulating imports and increasing the trade deficit.

33. Economies with higher growth rates tend to be those that: A) have large amounts of natural resources. B) have a stable government that protects property rights. C) have high levels of government regulation. D) All answer choices are correct.

34. Among the public goods important for economic growth are: A) publicly held companies like Loblaw's. B) political stability. C) public regulation of businesses. D) All answer choices are correct.

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Use the following to answer question 35: Scenario: Growth Rates Suppose that the current real GDP per capita of Canada is $32,000, and its growth rate is 2% per year. Assume that the real GDP per capital of China is $4,000, and its annual growth rate is 7%.

35. (Scenario: Growth Rates) How long will it take China's real per capita GDP to double? A) 14 years B) 10 years C) 35 years D) 50 years

36. The most important driver for economic growth appears to be: A) more physical capital. B) more human capital. C) progress in technology. D) All answer choices are correct.

37. Which of the following accurately describes what is happening along a typical aggregate production function? A) At some point, increasing the amount of physical capital per worker will reduce productivity. B) Increases in physical capital per worker will always bring about an increase in productivity that is worth the cost of the additional physical capital. C) Due to diminishing returns, at some point increasing the amount of physical capital per worker will bring small increases in productivity. D) Added additional workers results in the amount of real GDP per worker to rise at an increasing rate throughout the function.

Use the following to answer question 38: Exhibit: Aggregate Production Function The economy of Brittania has 2,000 workers and has estimated its aggregate production function, when holding human capital per worker and technology constant, as

Y K = 200 × L L
where Y is real GDP, L is the number of workers, and K is the quantity of physical capital.

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38. (Exhibit: Aggregate Production Function) When the quantity of physical capital per worker equals $49, what is real GDP per worker? A) $200 B) $700 C) $1,400 D) $3,600

39. A main reason South Korea has grown so rapidly is that because it was so poor: A) it could take advantage of international financial aid for poor countries. B) people left to go to more prosperous countries. C) it could skip forward or “leapfrog” to use new generation technology as it developed. D) it could import highly trained engineers from other countries.

40. If output is growing at 5%, how many years will it take for output to quadruple? A) 14 B) 10 C) 20 D) 28 Section II: Short Answer Question. Do two (2) of the following for 20 marks. Each question is worth 10 marks. Please show your work and put your response on the booklet provided.
1. The economy of Econoland estimates its aggregate production function as Y/L = 80(K/L)1/2 when technology and human capital per worker are held constant. In the equation, Y is real GDP, L is the number of workers, and K is the quantity of physical capital. As physical capital per worker decreases, what happens to real GDP per worker? 2. “The GDP deflator takes into account price changes of both domestic and foreign goods consumed by a typical consumer.” True or false? Explain. 3. The text distinguishes between an economic expansion as part of the business cycle and long-run economic growth. Concisely explain the difference between these two terms. 4. List and briefly describe two factors that contribute to economic growth.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. A A A C C C B A D D C A D A B B D D C A A B D D B B A D D D D A B B B C C C C D

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