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ECON 1010A: INTRODUCTION TO MACROECONOMICS DEPARTMENT OF ECONOMICS

FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES YORK UNIVERSITY

MIDTERM EXAM

FALL 2011 Version 1

Course Director: Dr. Sadia Mariam Malik TOTAL POINTS: 100 TOTAL WORTH: 30% STUDENT NAME:_____________________________________________________ STUDENT I.D.: ________________________________________________________ INSTRUCTIONS:

1. This exam consists of 40 multiple choice questions. There is only one correct answer.

2. Circle your final answer for every question on each page of the exam and carefully mark the selected letter on the computerized Answer Sheet.

3. Use HB pencils only.

4. Only non-programmable calculators and your student I.D is allowed to be with you on your desk.

5. Time Allowed: 90 minutes

GOOD LUCK!

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Midterm Exam/Econ 1010A/Fall 2011

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1)

The study of how producers decide what inputs to hire and what outputs to produce.

B) The study of how a provincial government allocates tax dollars.

C) The study of how individuals, businesses, governments, and entire societies make choices

as they cope with scarcity and the incentives that influence and reconcile those choices.

D) The study of how consumers spend their income.

E) The study of how consumers and producers meet each other at the market.

2)

A) Why do grain producers purchase less pesticides?

B) Why are people buying more SUVs and fewer minivans?

C) How would an unexpected freeze in Oxford, Nova Scotia change the price of blueberries in

the Maritimes?

D) How would a tax on e-commerce affect chapters.indigo.ca?

E) Why is Japan's economy stagnant?

3) When a farmer decides to harvest tomatoes using machines instead of migrant workers, the

farmer is answering the ________ question.

A) "how" B) "who" C) "where" D) "when" E) "what"

4) The fact that a hockey star earns $3 million a year while a teacher earns $35,000 annually is an

example of an economy facing the ________ question.

A) "what"

B) "when"

C) "how"

D) "for whom"

E) "where"

5) When the government of Alberta chooses to build more roads, the required resources are no

longer available to provide better health care facilities. This situation illustrates the concept of

A) opportunity cost.

B) human capital.

C) entrepreneurship.

D) monetary cost.

E) marginal benefit.

6)

A) Increasing the minimum wage results in more unemployment.

B) Canada should have lower tax rates for wealthier Canadians.

C) The Bank of Canada ought to cut the interest rate.

D) Canada should cut back on its use of carbon-based fuels such as coal and oil.

E) Every Canadian should have equal access to health care.

Which of the following is the best definition of economics? 1) _______

A)

Which of the following newspaper headlines concerns a macroeconomic issue? 2) ______

_

3) ______

_

4) _______

5) ______

_

Which of the following is an example of a positive statement? 6) ______

_

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7)

A) is unaffected by costs and technology.

B) must be doing the best he can with limited resources.

C) is fully using all his resources and allocating his resources to their best use.

D) can increase production of both goods with zero opportunity cost.

E) has a high opportunity cost of moving from this point.

8)

A) reflects the existence of increasing opportunity cost.

B) is due to the equal usefulness of resources in all activities.

C) is due to capital accumulation.

D) is due to technological change.

E) reflects the existence of decreasing opportunity cost.

9)

A) marginal benefit exceeds marginal cost by as much as possible.

B) marginal benefit equals marginal cost.

C) marginal benefit is at its maximum.

D) marginal cost is at its minimum.

E) marginal cost exceeds marginal benefit by as much as possible.

10) A production possibilities frontier will shift outward FOR ALL OF THE FOLLOWING

REASONS EXCEPT

10)

A) an increase in the stock of capital.

B) a technological improvement.

C) opportunity cost is increasing.

D) an increase in the labour force.

E) none of the above.

Use the information below to answer the following questions.

Fact 2.4.2

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y

in an hour.

11) Refer to Fact 2.4.2. Which one of the following statements is true? 11)

Brenda has an absolute advantage over Agnes in the production of both goods.

B) Brenda will not gain from trade.

C) Agnes has a comparative advantage in the production of Y.

D) Brenda has a comparative advantage in the production of X.

If Sam is producing at a point inside his production possibilities frontier, then he 7) _______

The bowed-out (concave) shape of a production possibilities frontier 8) _____

With allocative efficiency, for each good produced, 9) ______

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A)

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E) Agnes will not gain from trade.

12) Given Fact 2.4.2, the opportunity cost of producing a unit of X is 12)

1 unit of Y for Agnes and 1/2 unit of Y for Brenda.

B) 1 hour for Agnes and 2 hours for Brenda.

C) 1 unit of Y for Agnes and 2 units of Y for Brenda.

D) 1 hour for Agnes and 1/4 hour for Brenda.

E) 1 hour for Agnes and 1/2 hour for Brenda.

13) Individuals A and B can both produce good X. We say that A has a comparative advantage in

the production of good X if

13)

A) A can produce more units of X in a given time period than B.

B) A can produce X using newer technology than B.

C) A has a higher opportunity cost of producing X than B.

D) A has a lower opportunity cost of producing X than B.

E) A can produce less units of X in a given time period than B.

14) Which one of the following events shifts the demand curve for grape jelly to the right? 14)

A) an increase in the price of peanut butter, a complement of grape jelly

B) an increase in income if grape jelly is a normal good

C) a decrease in the population

D) a decrease in the price of strawberry preserves, a substitute for grape jelly

E) a decrease in the price of grape jelly

15) A turnip is an inferior good if 15)

A) an increase in income decreases the demand for turnips.

B) turnips are considered to be substitues for potatoes.

C) turnips violate the law of demand.

D) an increase in income increases the demand for turnips.

E) an increase in the price of a turnip decreases the quantity of turnips that consumers want to

buy.

16) Which of the following will shift the supply curve of good X rightward? 16)

an increase in the cost of capital used to produce good X

B) an increase in the price of energy

C) a decrease in the wages of workers employed to produce good X

D) a decrease in the number of suppliers of good X

E) the price of Y, a substitute in production for good X, rises

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A)

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A)

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Use the figure below to answer the following questions.

Figure 3.4.2

17) At a price of $10 a unit in Figure 3.4.2 17)

A) there is a shortage of 400 units.

B) there is a surplus of 200 units.

C) there is a shortage of 200 units.

D) there is a surplus of 400 units.

E) quantity will rise.

18) If demand increases and supply decreases, then the 18)

A) effect on both equilibrium price and quantity is unknown.

B) equilibrium quantity decreases but the effect on the equilibrium price is unknown.

C) equilibrium price falls but the effect on the equilibrium quantity is unknown.

D) equilibrium price rises but the effect on the equilibrium quantity is unknown.

E) equilibrium quantity increases but the effect on the equilibrium price is unknown.

19) In calculating GDP, economists use the value of final goods and services because 19)

A) intermediate goods are imported from other countries.

B) GDP is underestimated if intermediate goods are used instead.

C) final goods can be exported to other countries.

D) by using final goods and services, they avoid double counting.

E) none of the above.

20) Which of the following would be an example of a consumption expenditure? 20)

A) The purchase of a new computer by the IPSCO steel company.

B) An increase in welfare payments to single mothers.

C) More spending by the government on children's programs.

D) The purchase of a new car by the Singh household.

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E) All of the above.

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21) Suppose the economy of Econoworld produces only two goods, kayaks and birdseed. In one

year 20 kayaks are produced and sold for $1,000 each and 10 bags of birdseed are produced and

sold for $30 each. The value of nominal GDP for this year is

21)

A) $23,000.

B) $20,000.

C) $300.

D) $20,300.

E) 20 kayaks plus 10 bags of birdseed.

22) Which approach to measuring GDP is being used when Statistics Canada sums wages, salaries

and supplementary labour income, corporate profits, interest and miscellaneous investment

income, farmers' income, and income of non-farm unincorporated businesses?

22)

A) Opportunity cost approach.

B) Factor cost approach.

C) Value-added approach.

D) Income approach.

E) Expenditure approach.

23) If you want to investigate the claim that more goods and services were produced in the economy

during 2008 than 2009, what should you look at?

23)

A) Nominal GDP.

B) Intermediate GDP.

C) GDP calculated using the expenditure approach.

D) Real GDP.

E) Either B or D.

24) Nominal GDP will increase 24)

only if the unemployment rate rises.

B) only if both the average level of prices rises and the quantity of goods and services

produced increases.

C) only if the quantity of goods and services produced increases.

D) only if the average level of prices rises.

E) if either the average level of prices rises or the quantity of goods and services produced

increases.

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A)

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Use the table below to answer the following questions.

Table 20.2.6

There are only two goods in this economy.

25) Refer to Table 20.2.6. Consider the data in this table. What is current nominal GDP? 25)

A) $192,000.

B) $189,900.

C) $95,000.

D) $93,000.

E) None of the above.

26) Refer to Table 20.2.6. Consider the data in this table. What is current real GDP in terms of

base-year prices?

26)

A) $192,000.

B) $95,000.

C) $93,000.

D) $189,900.

E) None of the above.

27) Which of the following items would be included in a current measure of GDP? 27)

Your labour in fixing a leaky pipe under your sink.

B) The illegal sale of a bag of marijuana.

C) A professional gardener who regularly cuts your lawn.

D) The value of safety on the streets of your community.

E) All of the above.

28) The business cycle is defined as the 28)

A) regular growth rate of the real GDP.

B) irregular fluctuations of real GDP around potential GDP.

C) regular fluctuations of real GDP below potential GDP.

D) periodic and regular up-and-down movement of total production.

E) irregular fluctuations of prices around real GDP.

29) When we use PPP we can make valid international comparisons of real GDP because we 29)

calculate the value of goods and services produced in two countries using the same prices.

B) calculate the value of goods and services produced in two countries using the same

quantities.

C) use the health and education data.

D) use official government data.

E) use data provided by the IMF.

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A)

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A)

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30) Why is the Human Development Index thought to be a better measure of economic well-being

than real GDP per person?

30)

A) It includes leisure time and household production.

B) It includes a measure of resource depletion.

C) It includes health and education measures, as well as real GDP per person.

D) It includes only health and education measures, ignoring real GDP per person.

E) It ignores health, which is hard to measure.

31) Which one of the following people would be counted as unemployed in Canada? 31)

A) Benoit who was laid off when his firm closed down 2 months ago and has not been looking

for work as he is going back to school.

B) Kathy has stopped looking for work since she was unable to find a suitable job during a

one-month search.

C) Christos has been laid off from his job a month ago, and has not been looking for a new job

as he is waiting for a severance package from his former employer.

D) Veena is not working, but she is looking for a full-time job.

E) Sharon is a college student with a job.

32) In a country with a working-age population of 22 million, 16 million are employed, 2 million are

unemployed, and 1 million of the employed are working part-time, half of whom wish to work

full-time. The unemployment rate is

32)

A) 15.4 percent.

B) 10.3 percent.

C) 10 percent.

D) 11.1 percent.

E) none of the above.

33) Unemployment caused by permanently decreased demand for horse-drawn carriages is an

example of

33)

A) cyclical unemployment.

B) discouraged unemployment.

C) structural unemployment.

D) seasonal unemployment.

E) frictional unemployment.

34) If the economy is at full employment, then 34)

A) the entire labour force is employed.

B) all unemployment arises from normal frictions and structural change.

C) the unemployment rate is less than 3 percent.

D) the only unemployment is frictional unemployment plus discouraged workers.

E) the entire population is employed.

35) Jesse just graduated from university, and is looking for her first job. Jesse is 35)

A) cyclically unemployed.

B) frictionally unemployed.

C) structurally unemployed.

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D) not unemployed.

E) not in the labour force.

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36) If the CPI was 128 at the end of 2007 and 136 and the end of 2008, what was the inflation rate in

2008?

36)

A) 5.9 percent

B) 8 percent

C) 4.2 percent

D) 9.4 percent

E) 6.25 percent

37) Comparing the core inflation rate to the Consumer Price Index, the core inflation rate 37)

A) controls for the biases of the CPI.

B) includes volatile elements not in the CPI.

C) uses current period quantities, not base period quantities.

D) excludes the volatile elements of the CPI.

E) measures all goods produced, not just consumer goods.

38) The fixed basket of Econoland consists of 10 units of A, 20 units of B, and 30 units of C. Current

prices are $1 per unit of A, $2 per unit of B, and $3 per unit of C. Base year prices are $1 for each

unit of A, B, and C. What is the CPI in the current year?

38)

A) 100 B) 233 C) 430 D) 43 E) 140

39) For the aggregate economy, income equals 39)

A) expenditure equals GDP only if there is no depreciation.

B) expenditure equals GDP.

C) GDP, but expenditure is generally less than these.

D) expenditure equals GDP only if there is no government or foreign sectors.

E) expenditure, but these are not generally equal to GDP.

40) When the unemployment rate is less than the natural unemployment rate, real GDP is ________

than potential GDP and the output gap is ________.

40)

A) greater; negative

B) greater; positive

C) smaller; positive

D) greater; equal to zero

E) smaller; negative

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