1BB3
Introductory PRACTICETEST#1pleasenotethatthistestcoverschapters1to6test#1inwinter2010onlycoverschapters
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ECONOMICS Macroeconomics
Sections C01, C02
This examination paper includes 14 pages including the title page and 43 questions. You are responsible for ensuring that your copy of the paper is complete. Please bring any discrepancy to
the attention of your invigilator.
Special Instructions:
Only the McMaster Standard (Casio - FX991) Calculator may be used. This test paper must be
returned along with the scan sheet. Write your name and student number on the test paper and
the scan sheet. If you are writing in the wrong room, you will lose 5 points off your test score. If
you are wearing a baseball cap, please turn it so the peak is in the back. Please turn off all cell
phones. There should be no electronic devices at your seat other than a calculator. All books
and bags must be left at the front of the room. You will need your student ID card at your desk,
along with your calculator, a pencil, and a pen. If you complete the short answer section in pencil your test will not be re-graded if there is a dispute. Use an HB pencil to fill in the scan sheet.
If a TA has to grade your scan sheet by hand, you will lose 5 points off your test score. You
cannot fill in the version number of your test paper on the scan sheet.
Part A:
Multiple Choice Questions:
There are 40 multiple choice questions. Please record
your answers on the scan answer sheet provided.
Part B:
Short Answer Questions:
There are 3 short answer questions. Please record your
answers on the test paper.
Part A Multiple Choice
/40
Part B Short Answer
/15
Total
/55
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OMR EXAMINATION - STUDENT INSTRUCTIONS
NOTE: IT IS YOUR RESPONSIBILITY TO ENSURE THAT THE ANSWER SHEET IS
PROPERLY COMPLETED: YOUR EXAMINATION RESULT DEPENDS UPON
PROPER ATTENTION TO THESE INSTRUCTIONS.
The scanner, which reads the sheets, senses the shaded areas by their non-reflection of light. A
heavy mark must be made, completely filling the circular bubble, with a HB pencil. Marks made
with a pen or felt-tip marker will NOT be sensed. Erasures must be through or the scanner may
still sense a mark. Do NOT use correction fluid on the sheets. Do NOT put any unnecessary
marks or writing on the sheets.
1.
Print your name, student number, course name, section number and the date in the
space provided at the top of Side 1 (red side) of the form.
2.
Mark your student number in the space provided on the sheet on Side 1 and fill in
the corresponding bubbles underneath.
3.
Mark only ONE choice from the alternatives (1,2,3,4,5, or A,B,C,D,E) provided
for each question. If there is a True/False question, enter response of 1 (or A) as
True, and 2 (or B) as False. The question number is to the left of the bubbles.
Make sure that the number of the question on the scan sheet is the same as the
question number on the test paper.
4.
Pay particular attention to the Marking Directions on the form.
5.
Begin answering questions using the first set of bubbles, marked 1".
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PRACTICETEST#1pleasenotethatthistestcoverschapters1to6test#1inwinter2010onlycoverschapters
1to4.Thequestionsonthepracticetestthatarefromchapters5and6are:2,3,1012,14,15,2022,27,3336,40.
Part A - Multiple Choice (40 points)
Identify the choice that best completes the statement or answers the question. Answer on the scan sheet provided.
Figure 4-10
1. Refer to Figure 4-10. Which of the four graphs represents the market for pizza delivery in a college town in
September?
a. B
b. C
c. A
d. D
2. Which of the following is included in GDP?
a. the sale of stocks and bonds
b. the sale of services such as visits to a doctor
c. the sale of used goods
d. All of the above are correct.
3. Suppose that twenty-five years ago a country had nominal GDP of 1,000, a GDP deflator of 200, and a population
of 100. Today they have nominal GDP of 3,000, a deflator of 400, and population of 150? What happened to the
real GDP per person?
a. It more than doubled.
b. It was unchanged.
c. It fell.
d. It rose, but less than doubled.
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1to4.Thequestionsonthepracticetestthatarefromchapters5and6are:2,3,1012,14,15,2022,27,3336,40.
4. The field of economics is traditionally divided into two broad subfields,
a. microeconomics and macroeconomics.
b. private sector economics and public sector economics.
c. consumer economics and producer economics.
d. national economics and international economics.
Figure 3-1
5. Refer to Figure 3-1. If Paul divides his time equally between corn and wheat, he will be able to produce
a. 3 bushels of wheat and 3 bushels of corn.
b. 2 bushels of wheat and 2 bushels of corn.
c. 4 bushels of wheat and 5 bushels of corn.
d. 4 bushels of wheat and 6 bushels of corn.
6. Refer to Figure 3-1. The opportunity cost of 1 bushel of wheat for Cliff is
a. 1/3 bushel of corn.
b. 3/2 bushels of corn.
c. 1 bushel of corn.
d. 2/3 bushel of corn.
7. Refer to Figure 3-1. Assume that Cliff and Paul were both producing wheat and corn, and each were dividing
their time equally between the two. Then they decide to specialize in the product they have a comparative
advantage in. As a result, total production of corn would
a. increase by 1 bushel.
b. increase by 3 bushels.
c. increase by 5 bushels.
d. decrease by 2 bushels.
8. Terms used by an economist would include
a. torts and venues.
b. vector spaces and axioms.
c. comparative advantage and elasticity.
d. ego and cognitive dissonance.
e. relativity and string theory.
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1to4.Thequestionsonthepracticetestthatarefromchapters5and6are:2,3,1012,14,15,2022,27,3336,40.
9. Holding all else constant, a higher price for ski lift tickets would be expected to
a. increase the number of skiers.
b. decrease the demand for other winter recreational activities.
c. decrease ski sales.
d. decrease the supply of ski resorts.
The following questions are based on the following information:
Scenario 24-1
Grant Smith was a doctor in 1944 and made about $12,000 a year. His daughter Lisa Smith also is a doctor and she
made about $175,000 in 2006. The price index in 1944 was 17.6 and the price index was 192 in 2006.
10. Refer to Scenario 24-1. What is Grant's income in 2006 dollars?
a. $19,128
b. $21,240
c. $120,682
d. $130,909
e. $173,600
11. A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls
increases, the GDP deflator
a. and the CPI both increase.
b. is unchanged and the CPI increases.
c. increases and the CPI is unchanged.
d. and the CPI are unchanged.
12. Jake loaned Elwood $6,000 for one year at a nominal interest rate of 12 percent. After Elwood repaid the loan in
full, Jake complained that he could buy 5 percent fewer goods with the money Elwood gave him than he could
before he loaned Elwood the $6,000. From this we can conclude that the rate of inflation during the year was
a. 17 percent
b. 8 percent.
c. 7 percent.
d. 2.5 percent.
e. 14 percent.
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1to4.Thequestionsonthepracticetestthatarefromchapters5and6are:2,3,1012,14,15,2022,27,3336,40.
13. Which of the following would be most likely to decrease the price of a new house?
a. Lower wages for carpenters, lower wood prices, increases in consumer incomes, higher
apartment rents, increases in population and expectations of higher house prices in the
future.
b. Higher wages for carpenters, lower wood prices, reductions in consumer incomes, lower
apartment rents, decreases in population and expectations of lower house prices in the
future.
c. Higher wages for carpenters, higher wood prices, increases in consumer incomes, higher
apartment rents, increases in population and expectations of higher house prices in the
future.
d. Lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher
apartment rents, decreases in population and expectations of higher house prices in the
future.
e. Lower wages for carpenters, lower wood prices, decreases in consumer incomes, lower
apartment rents, decreases in population and expectations of lower house prices in the
future.
14. Real GDP is the production of final goods and services valued at
a. future year prices.
b. current year prices.
c. constant prices.
d. the ratio of current year prices to constant year prices.
15. Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent.
a. The dollar value of savings increased at 2 percent, and the value of savings measured in
goods increased at 3 percent.
b. The dollar value of savings increased at 1 percent, and the value of savings measured in
goods increased at 2 percent.
c. The dollar value of savings increased at 4 percent, and the value of savings measured in
goods increased at 3 percent.
d. The dollar value of savings increased at 3 percent, and the value of savings measured in
goods increased at 2 percent.
16. The word that comes from the Greek word for "one who manages a household" is
a. home economics.
b. consumer.
c. producer.
d. market.
e. economy.
17. A friend of yours asks you why market prices are better than government-determined prices. You say that marketdetermined prices are better because they generally reflect
a. the cost of making a good to society, but not its value.
b. both the value of a good to society and the cost of making it.
c. neither the value of a good to society nor the cost of making it.
d. the value of a good to society, but not the cost of making it.
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Figure 4-1
18. Refer to Figure 4-1. The movement from point A to point B on the graph would be caused by
a. a decrease in price.
b. a decrease in the price of a substitute good.
c. an increase in price.
d. an increase in income.
19. For market economies, which would NOT be correct?
a. Prices guide economic decisions and thereby allocate scarce resources.
b. Prices ensure that quantity supplied and quantity demanded are in balance.
c. Prices ensure that anyone who wants a product can get it.
d. Prices influence how much of a good buyers choose to purchase and how much sellers
choose to produce.
20. A German citizen buys an automobile produced in Canada by a Japanese company. As a result,
a. Canadian net exports GDP and increase, Japanese GNP increases, German net exports
decrease, and German GDP and GNP are unaffected.
b. Canadian net exports, GNP, and GDP increase, Japanese GDP increases, German net
exports decrease, and German GDP is unaffected.
c. Canadian net exports increase, Canadian. GNP and GDP are unaffected, Japanese GNP
increases, German net exports decrease, and German GNP and GDP are unaffected.
d. Canadian net exports, GNP, and GDP are unaffected, Japanese GNP increases, German
net exports decrease, and German GDP and GNP fall.
21. Roommates Grace and Kelly are sharing household chores and think they have an even exchange. Other things the
same, if instead they paid each other for the chores the other did GDP would
a. be unaffected because paid or not, household chores are not included in GDP.
b. fall.
c. rise.
d. be unaffected because paid or not, household chores are included in GDP.
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22. When the quality of a good improves the purchasing power of the dollar
a. decreases, so the CPI understates the change in the cost of living if the quality change is
not accounted for.
b. increases, so the CPI overstates the change in the cost of living if the quality change is not
accounted for.
c. decreases, so the CPI overstates the change in the cost of living if the quality change is not
accounted for.
d. increases, so the CPI understates the change in the cost of living if the quality change is
not accounted for.
23. The term market failure refers to
a. a firm which is forced out of business because of losses.
b. a situation in which the market on its own fails to allocate resources efficiently.
c. an unsuccessful advertising campaign which reduces buyer demand.
d. a situation in which competition among firms becomes ruthless.
Figure 2-6
24. Refer to Figure 2-6. What is the opportunity cost to society of the movement from point A to point C?
a. 50 baseballs
b. 100 bananas
c. 100 baseballs
d. 300 bananas
25. Which of the following is the most correct statement about the relationship between inflation and unemployment?
a. In the long run, reducing inflation is associated with rising unemployment.
b. In the long run, reducing inflation is associated with falling unemployment.
c. In the short run, reducing inflation is associated with falling unemployment.
d. In the short run, reducing inflation is associated with rising unemployment.
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1to4.Thequestionsonthepracticetestthatarefromchapters5and6are:2,3,1012,14,15,2022,27,3336,40.
26. In the simple circular-flow diagram, markets consist of
a. factors of production and the financial market.
b. the market for goods and services and the market for factors of production.
c. the market for goods and services, the financial market, and the market for the factors of
production.
d. the market for goods and services, the market for factors of production, and the financial
market.
e. the market for goods and services and the financial market.
27. If a small country has current nominal GDP of $25 billion and the GDP deflator is 125, what is real GDP?
a. $20 billion
b. $207.5 billion
c. $31.25 billion
d. $312.5 billion
e. None of the above is correct.
28. Which of the following is NOT a positive statement?
a. Equity is more important than efficiency.
b. Higher gasoline prices will reduce gasoline consumption.
c. If a nation wants to avoid inflation, it should not print too much money.
d. Trade restrictions lower our standard of living.
29. Without trade
a. a country can still benefit from international specialization.
b. a country is better off because it will become self-sufficient.
c. more product variety is available in a country.
d. a country's production possibilities frontier is also its consumption possibilities frontier.
30. Suppose that health officials have argued that eating too much beef might be harmful to human health. As a result,
there has been a significant decrease in the amount of beef produced. Which of the following best explains the
decrease in production?
a. Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in
the marketplace.
b. Individual consumers, concerned about their own health, decreased their demand for beef,
which lowered the relative price of beef, making it less attractive to produce.
c. Government officials, concerned about consumer health, ordered beef producers to
produce relatively less beef.
d. Beef producers, concerned about the health of their customers, decided to produce
relatively less beef.
e. None of the above are correct.
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PRACTICETEST#1pleasenotethatthistestcoverschapters1to6test#1inwinter2010onlycoverschapters
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31. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker
in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and
20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn
and 100 bushels of oats, while Oatland will produce and consume 50 bushels of corn and 500 bushels of oats.
Combined output for the two countries would therefore be 450 bushels of corn and 600 bushels of oats. If the two
countries do trade, each will completely specialize in producing the crop for which it has a comparative advantage.
If trade occurs, combined output for the two countries will increase by
a. 800 bushels of corn and 1000 bushels of oats.
b. There would not be any increase.
c. 400 bushels of corn and 500 bushels of oats.
d. 350 bushels of corn and 400 bushels of oats.
Table 4-1
The table shows individual demand schedules for a market.
Price of the Good
Aaron
Angela
$0.00
20
16
0.50
18
12
1.00
14
10
1.50
12
8
2.00
6
6
2.50
0
4
Austin
10
6
2
0
0
0
Alyssa
8
6
5
4
2
0
32. Refer to Table 4-1. If the price increases from $1.00 to $1.50,
a. individual demands will increase.
b. the quantity demanded in the market decreases by 7 units.
c. the quantity demanded in the market decreases by 2 units.
d. the market demand increases by 20 units.
33. The consumer price index is used to
a. monitor changes in the cost of living.
b. track changes in the level of wholesale prices in the economy.
c. monitor changes in the level of real GDP.
d. track changes in the stock market.
For the following questions, consider the table below.
Table 24-4
Food and Beverages
Housing
Transportation
2006
168.4
169.6
153.3
2007
173.6
176.2
154.3
34. Refer to Table 24-4. Of those categories, which one had the highest increase and which one had the lowest rate of
inflation?
a. Food and Beverages, Housing
b. Housing, Transportation
c. Food and Beverages, Transportation
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d. Housing, Food and Beverages
35. Refer to Table 24-4. Among these categories, what was the highest rate of inflation?
a. 3.9 percent
b. 3.1 percent
c. 6.6 percent
d. 5.2 percent
36. Which of these would NOT be included in the component(s) listed after them?
a. Shelly adds DVDs produced in Canada to her inventory-Canadian investment.
b. Emily receives her Pension Plan benefits-Canadian government purchases
c. Mary buys a skateboard manufactured in Germany-Canadian net exports.
d. None of the above are correct.
37. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact
discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music
compact discs and music lovers experience an increase in income?
a. Price will rise and the effect on quantity is ambiguous.
b. Price will fall and the effect on quantity is ambiguous.
c. Quantity will rise and the effect on price is ambiguous.
d. Quantity will fall and the effect on price is ambiguous.
e. None of the above are correct.
38. The opportunity cost of an item is
a. always less than the dollar value of the item.
b. what you give up to get that item.
c. the number of hours needed to earn money to buy it.
d. always equal to the dollar value of the item.
39. Wheat is the main input in the production of flour. If the price of wheat decreases, all else equal, we would expect
the
a. demand for flour to decrease.
b. supply of flour to be unaffected.
c. supply of flour to decrease.
d. supply of flour to increase.
40. Over time people have come to rely more on market-produced goods and less on goods that they produce for
themselves. For example people eat at restaurants relatively more and prepare their own meals at home relatively
less. By itself this change would
a. make GDP rise over time.
b. change GDP, but in an uncertain direction.
c. not make any change in GDP over time.
d. make GDP fall over time.
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Part B - Short Answer (15 points)
1. Calculate the equilibrium price and quantity in a market described by the following demand and supply
equations. Show your work. (4 points)
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2. Darrin and Samantha are hosting a dinner party. The preparation involves cleaning the house and
cooking dinner. It would take Darrin 6 hours to cook dinner and 5 hours to clean the house. It would take
Samantha 4 hours to cook dinner and 2 hours to clean the house. (7 points)
a)
How much total time would it take the two to prepare for the party if each person does half the
cooking and half the cleaning?
b)
____________________ has the absolute advantage in cooking.
____________________ has the absolute advantage in cleaning.
____________________ has the comparative advantage in cooking.
____________________ has the comparative advantage in cleaning.
c)
How much total time would it take the two to prepare for the dinner party if they use
comparative advantage and specialize in cooking or cleaning?
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3. What two measures of the price level did we discuss in class? What is ONE way that the two measures
differ from one another? (4 points)
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