University of Alberta Version 11 Department of Economics

ECON 102 A2 First Midterm Exam Fall 2016

Instructor: Mesbah Sharaf
Allowed time: 50 minutes
Please copy your Name, ID, version number, and answers in the multiple choice scantron sheet provided.
The exam is 34 multiple choice (6 pages)
You are allowed to use a nonprogrammable calculator

1. Which of the following purchases is NOT included in the calculation of Canada’s GDP?
a. A newly-constructed home in Canada
b. Wood used to build a four-bedroom home in Canada
c. A meal at Burger King in Toronto
d. A bottle of Canadian wine
e. A touristic visit to Edmonton

2. GDP equals $1.1 trillion. If consumption equals $690 billion, investment equals $200 billion, and
government spending equals $270 billion, what can we conclude about the value of exports and imports
for the country?
a. Net exports equal zero.
b. Exports exceed imports by $140 billion.
c. Exports exceed imports by $40 billion.
d. Imports exceed exports by $60 billion.

3. What is subtracted from GDP to determine net domestic income?

a. Transfer payments and net exports
b. Inventory accumulation and depreciation
c. Net indirect taxes and depreciation
d. Net exports and net indirect taxes

4. How is nominal GDP defined?

a. The current-year market value of all goods and services produced domestically during a
given period
b. The current-year market value of all final goods and services produced domestically
during a given period
c. The current-year market value of domestic production of intermediate goods
d. The base-year market value of domestic production of intermediate goods
e. The base-year market value of all final goods and services produced domestically during a
given period

5. What occurred during 2012 if nominal GDP decreased and real GDP increased, relative to the year 2011?
a. The economy experienced deflation during 2012.
b. The economy experienced inflation during 2012.
c. Total production of goods and services in the economy decreased during 2012.
d. Total production of goods and services in the economy remained constant during 2012.

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6. If real GDP per capita is decreasing, what can we conclude about real output?
a. It is growing more rapidly than the population.
b. It is growing less rapidly than the population.
c. It is growing more rapidly than prices.
d. It is growing at the same rate as the population.

7. What is the best way to measure economics growth?

a. By the annual percentage change in nominal GDP
b. By the annual percentage change in nominal GDP per capita
c. By the annual percentage change in real GDP per capita
d. By the annual percentage change in real GDP

8. What annual growth rate will result in a country roughly doubling its GDP in five years?
a. 5 percent
b. 7 percent
c. 12 percent
d. 14 percent

9. What did Malthus base his predictions regarding the decline in per capita economic growth on?
a. The law of diminishing marginal returns
b. Scarce resources
c. The law of demand
d. Decreasing returns to scale

10. Which of the following describes marginal propensity to save (MPS) and average propensity to save
(APS)?
a. MPS is less than 1, but APS can be either greater or less than 1.
b. Both MPS and APS are always less than 1.
c. MPS is less than 1, but APS is always equal to 1.
d. MPS and APS are always greater than or equal to 1.
e. MPS is less than 1, but APS can be either equal to 1 or less than 1.

11. With which of the following marginal propensities to consume would a given change in disposable
income have the smallest effect on consumption?
a. 0.2
b. 0.4
c. 0.6
d. 0.8

12. What impact would a combination of improved, expected future profitability of businesses and higher
business taxes have?
a. It would leave the investment demand curve unchanged.
b. It would decrease the investment demand curve.
c. It could either increase or decrease the investment demand curve.
d. It would increase the investment demand curve.

13. What impact would an increase in the Canadian price level have?
a. It will decrease money demand in Canada.
b. It will increase real GDP demanded in Canada.
c. It will decrease Canadian exports.
d. It will decrease Canadian imports.

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14. What effect would an increase in business tax rates, combined with a decrease in consumer confidence,
have on aggregate demand (AD)?
a. AD would increase.
b. AD could either increase or decrease, depending on which change was of a greater
magnitude.
c. AD would decrease.
d. AD would stay the same.

15. What is the unemployment rate in a town in which 65,400 persons are employed, and 11,000 are
unemployed?
a. 11 percent
b. 14.4 percent
c. 16.8 percent
d. 20.2 percent

16. What does an economist consider a university student who is enrolled in school full-time and NOT
seeking employment?
a. underemployed
b. A discourage worker
c. Out of the labor force
d. Unemployable, and not counted in official statistics

17. Which of the following will occur if a large number of individuals file unemployment claims and work
in the underground economy?
a. The unemployment rate will decrease.
b. The unemployment rate will overstate the level of unemployment.
c. The unemployment rate will understate the level of unemployment.
d. The unemployment rate will not be affected.
18. According to economists, what is a discouraged worker?
a. Someone who is unemployed and looking for work
b. Someone who works part-time, but is actively seeking full-time work
c. Someone who has a job, but wants to get a different one
d. Someone who gives up looking for work, and is no longer counted as unemployed

19. Laura has finished her diploma in business and has just started looking for a job. What kind of
unemployment is she facing?
a. cyclical
b. seasonal
c. structural
d. frictional
20. What is the term for unemployment caused by a contraction in the economy?
a. Seasonal unemployment
b. Structural unemployment
c. Frictional unemployment
d. Cyclical unemployment

21. If the price index is 120 in 2001 and 126 in 2002, what is the inflation rate?
a. 5 percent
b. 6 percent

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c. 20 percent
d. 26 percent

22. If the nominal rate of interest is 10.5 percent and the inflation rate is 4.3 percent, what is the real rate of
interest?
a. 3.0 percent
b. 4.3 percent
c. 6.2 percent
d. 10.5 percent

23. In the short run, given a negatively sloped AD, what is the impact of cost-push inflation on
unemployment and the price level?
a. It decreases unemployment and increases the price level.
b. It increases unemployment but not the price level.
c. It increases the price level but not unemployment.
d. It increases both unemployment and the price level.
e. It decreases both unemployment and the price level.

24. When does stagflation occur?

a. When unemployment rises and the price level rises
b. When real output falls and the price level falls
c. When real output rises and the price level falls
d. When unemployment falls and the price level rises
e. When unemployment rise and the price level falls
25. If wages increase 20 percent while the worker productivity increases 10 percent, what would we expect
the short-run aggregate supply curve to do?
a. Shift left (an increase in aggregate supply)
b. Shift right (an increase in aggregate supply)
c. Shift right (a decrease in aggregate supply)
d. Shift left (a decrease in aggregate supply)
e. No change in aggregate supply
26. What will an economy that is operating at its potential output NOT experience?
a. Frictional unemployment
b. Structural unemployment
c. unemployment
d. Cyclical unemployment
e. Natural unemployment
27. In the Keynesian AE model, if the autonomous components of consumption, investment, government
spending, and net export spending total $200 billion, and the MPC is 0.6, what will unplanned changes
in inventory be when output is $990 billion?
a. $10 billion
b. -$8 billion
c. $8 billion
d. -$10 billion
e. None of the above

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28. Refer to figure 9.4. Which of the following statements best describes output in relation to the desired
spending at Y1?
a. The output is less than the desired spending, and inventories will fall.
b. The output is greater than the desired spending, and inventories will rise.
c. The output is greater than the desired spending, and real wealth will fall.
d. The output is less than the desired spending, and governments must decrease spending.
e. None of the above

29. What happens to unemployment and price level during the market adjustment from an inflationary gap?
a. Unemployment increases and price level increases.
b. Unemployment increases and price level decreases.
c. Unemployment decreases and price level increases.
d. Unemployment decreases and price level decreases.
e. None of the above.

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30. In the Keynesian AE model, if the autonomous components of consumption, investment, government
spending, and net export spending total $200 billion and the MPC is 0.8, under what circumstances will
unplanned changes in inventory be zero?

a. When output is $160 billion

b. When output is $250 billion
c. When output is $1000 billion
d. When output is $1600 billion
e. When output is $200 billion

31. In the short run, what is the impact of demand pull inflation on unemployment and the price level?
a. It decreases unemployment and increases the price level.
b. It increases unemployment but not the price level.
c. It increases the price level but not unemployment.
d. It increases both unemployment and the price level.
e. It decreases both unemployment and the price level.

32. In a closed economy, what will an increase in government spending without an equivalent increase in tax
revenue lead to?
a. A decrease in private saving and a decrease in investment
b. A decrease in public saving and a decrease in the quantity of investment
c. An increase in private saving and an increase in investment
d. An increase in public saving and an increase in investment
e. None of the above

33. If nominal GDP was $650 billion in 2015 and $950 billion in 2014, what likely occurred from 2014 to
2015?
a. Total production of output increased.
b. The economy experienced inflation.
c. The value of intermediate production increased.
d. Either total production increased, or there was inflation or both.
e. None of the above

34. The current cost of a market basket of goods is $2000. The cost of the same basket of goods in the base
year was $6000. What is the current consumer price index?
a. 33.3
b. 150
c. 300
d. 600