Unformatted text preview: C.U.H.K. ECON1010C / UGEC1511C PERSPCTIVES IN ECONOMICS (Fall 2014 Midterm Test) NAME: _____________________________(__________________) Student I.D.: s__________________ Part I: M.C. – Select the best answer and put the letter into corresponding box. (@ 2 points)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 C D C D C D C D A B C D A B C 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 D A B C D A B C D A B C D B B 1. Roy rented a flat in 2013, paying $5,000 each month. The housing service he receives will be
A. excluded in 2013 annual GDP at $60,000.
B. included in 2013 annual GDP at $5,000.
C. included in 2013 annual GDP at $60,000.
D. excluded in 2013 annual GDP at $5,000.
2. In a market economy, economic activity is usually guided by ___.
A. the government
C. central planners D. prices 3. The invisible hand works to promote general well-being in the economy primarily through ___.
A. government intervention
D. political process
4. A country’s consumption can be outside its production possibilities frontier ___.
A. by lowering unemployment in the country
B. by allocating resources differently
C. by producing different goods and services
D. with trade
5. The floating rate of the iBond series is calculated based on the ___ compiled and announced by the
Census & Statistics Department in Hong Kong.
A. GDP Deflator
B. Misery Index.
C. Composite Consumer Price Index
D. Unemployment Rate
6. In the production possibilities frontier shown below, what is the opportunity cost to society of the
movement from point C to point B? A. 300 potato chips B. 650 pretzels C. 500 pretzels D. 150 pretzels 7. The production possibilities frontier shown in Q.6 above is not linear because inputs are ___.
A. unlimited in supply
D. homogeneous 1 C.U.H.K. ECON1010C / UGEC1511C PERSPCTIVES IN ECONOMICS (Fall 2014 Midterm Test) 8. On a production possibilities frontier, production is efficient if the production point is ___ the frontier.
A. on or inside
9. A British company owns a bank in Japan. The value of the goods and services produced in the bank is
D. included in Japanese GDP, but not British GDP.
included partly in Japanese GDP and partly in British GDP.
included in British GDP, but not Japanese GDP.
included in both Japanese GDP and British GDP. For MC-10 and MC-12, please refer to the graphs given: These figures illustrate the production possibilities
frontiers for Robinson Crusoe and Friday with 12 hours of labour. 10. Robinson Crusoe has an absolute advantage in ___ and Friday has an absolute advantage in ___.
A. neither good, both goods
B. coconuts; fish
C. fish; coconuts
D. fish; nothing
11. The opportunity cost of getting 1 pound of fish is ___ pounds of coconuts for Robinson Crusoe.
12. The opportunity cost of getting 1 pound of coconuts is ___ pounds of fish for Friday.
13. The largest source of Hong Kong government revenues is ____.
A. income taxes
B. sales taxes
C. charges and fines D. Chinese donation 14. Whenever the government spends more than it receives in tax revenue, then by definition it
A. operates a balanced budget.
B. runs a budget deficit.
C. runs a budget surplus.
D. increases economic growth.
15. An individual wanting the most liquid asset possible will hold ___.
A) U.S. government bonds
16. (Commercial) banks create money whenever they
A. accept a deposit.
C. receive monthly payments on their loans. D. a savings account B. receive interest on existing loans.
D. lend excess reserves to a borrower.
2 C.U.H.K. ECON1010C / UGEC1511C PERSPCTIVES IN ECONOMICS (Fall 2014 Midterm Test) 17. Which of the following is likely NOT a reason of the financial tsunami?
A. Perfect regulatory and supervisory system.
B. Risky instruments from financial innovation.
C. Moral hazard in banking business.
D. Low interest rate.
18. Checking deposits or demand deposits are
A. not part of the money supply.
C. less important than currency in circulation. B. part of the money supply.
D. mainly serving as store of value. 19. In the long run, a decrease in the quantity of money will
A. increase real GDP.
B. increase the price level.
C. have no lasting impact on real GDP.
D. increase nominal GDP.
20. National saving equals
A. household saving + business saving.
B. household saving + government saving.
C. business saving + government saving.
D. household saving + business saving + government saving.
21. The largest source of unemployment consists of people who
A. lose their jobs and search for another.
B. leave their jobs and search for another.
C. enter or reenter the labour force to search for a job. D. quit their jobs and do not search for a job.
22. The latest Hong Kong’s unemployment rate is around ___%.
23. The unemployment rate is defined as the
A. number of people not working.
C. percentage of the labour force not working. D. 2.0 B. percentage of the population not working.
D. percentage of lazy population not working. 24. Economists distinguish real from nominal GDP to determine whether
A. the government sector is growing.
B. the nominal interest rates have changed.
C. economic welfare has changed.
D. real production has changed.
25. An increase in unemployment benefits
A. will cause frictional unemployment to increase.
B. will cause frictional unemployment to decrease.
C. will have no effect on frictional unemployment.
D. may effect frictional unemployment but only if the economy is in a recession.
26. In GDP accounting, aggregate expenditures include all of the following EXCEPT
A. consumption of food.
B. purchases of intermediate goods.
C. purchases of a piece of capital equipment.
D. purchases of guns by the government.
27. Misery index equals
A. nominal interest rate + unemployment rate
C. unemployment rate + inflation rate. B. labour force participation rate + inflation rate.
D. real interest rate + unemployment rate. 28. According to the quantity theory of money, changes in the price level are usually caused by changes in
A. the real interest rate.
B. the GDP.
C. the CPI.
D. the money supply. 3 C.U.H.K. ECON1010C / UGEC1511C PERSPCTIVES IN ECONOMICS (Fall 2014 Midterm Test) 29. The required reserve ratio
A. is the amount of money that banks require borrowers to reserve in their accounts.
B. is the fraction of a bank’s total deposits that are required to be held in reserve.
C. increases when withdrawals from a bank are made.
D. is higher for banks that make riskier loans.
30. Which of the following is an example of a normative statement?
A. If the price of a product decreases, quantity demanded increases.
B. Reducing tax rates on the wealthy would be good for the country.
C. If the national saving rate were to increase, so would the rate of economic growth.
D. All of the above are normative statements.
Part II: Compulsory Short Questions (@ 8points)
1. (a) Please describe and explain the trends of labour force participation rate by gender in Hong Kong. (4)
(b) Why is the unemployment rate of youth usually higher than the rate of others?
2. Please describe the problems that make the consumer price index (CPI) an imperfect measure of the cost
3. During the period of a social movement, the prices of most listed companies fall by 5% in the stock
market, the market capitalization has decreased US$100 billion within a week,
(a) Does the nominal GDP decrease also US$ 100 billion? Why?
(b) All else being equal, are these lower stock prices likely to cause a decrease in real GDP?
(c) How might they predict a decline in real GDP?
4. (a) Money serves different functions in the economy. What are they?
(b) How does inflation affect the ability of money to serve those functions you mentioned in (a)? (4)
(4) 5. According to the expenditure approach: Y = C + I + G + (X – M), what may a government have done for
increasing the output of the economy? (Hint: Policies on different components.)
(8) ~ END ~ 4 C.U.H.K. ECON1010C / UGEC1511C PERSPCTIVES IN ECONOMICS (Fall 2014 Midterm Test) Guide 1. a. In general, labour force participation rate is decreasing. (1).
However, female one is increasing (0.5) while male is decreasing (0.5). Male may have to continue
the study to accumulate more human capital and they choose not to be in labour force. (1) Female
education improves a lot and it makes more ladies joining to the market. (1) Middle-aged woman
will also rejoin the market as the household work is less but with financial need. (1)
b. Poor working attitude (lazy, pride…)
Unskilled (Skilled labour is also unemployed as their skill is mis-matched. Elementary job does
not require much skill but the labour supply is great.)
Inexperienced young people, poor productivity, low efficiency)
Less educated young people again but some of them may be self-employed
It may generate a signal to potential employer that he is not a good student or worker because he
could not acquire simple skill or knowledge in school.
(Maximum is 4 for each part with good explanation.) 2. The three main problems in the consumer price index as a measure of the cost of living are:
(i) substitution bias (1), which arises because people substitute toward goods that have become
relatively less expensive (1);
(ii) the introduction of new goods (1), which are not reflected quickly (1) in the CPI; and
(iii) unmeasured quality change. (2)
Hence, CPI may overstate the cost. (0.5)
(The other reasons will be 0.5 each. Maximum is 8 for the whole question.) 3. a. No. (1) Transfer of stocks in the market does not have any output or value. (1)
b. GDP could be reduced if stock owners feel significantly poorer and reduce their spending (1) on
goods and services, including investment in real capital goods. (0.5) Some people may be
unemployed (0.5) and reduce their household consumption. (1)
However, research indicates that short period of downturns in the stock market have not had major
impacts on GDP. (0.5)
c. A fall in stock prices might signal a change in expectations. (2) Evidence does suggest that there is
a link between falling stock prices and future recessions. (1) However, this is only one factor
related to predicting recessions and, by itself, a fall in stock prices is not a reliable predictor of
recession. (0.5) 5 C.U.H.K. ECON1010C / UGEC1511C PERSPCTIVES IN ECONOMICS (Fall 2014 Midterm Test) 4. a. The functions of money are to serve as a medium of exchange, (1) a unit of account, (1) and a store
of value, (1) record of history (1)
(Similar idea and explanation but not exact wording, we have 0.5 instead of 1.)
b. Inflation mainly affects the ability of money to serve as a store of value, since (unexpected) inflation
(0.5) erodes money's purchasing power, making it less attractive as a store of value. (1)
Money also isn’t as useful as a unit of account when there’s inflation, because stores have to change
prices more often (0.5) and because people are confused and inconvenienced by the changes in the
value of money. (1)
In some countries with hyperinflation, (0.5) stores post prices in terms of a more stable currency,
such as the U.S. dollar, even when the local currency is still used as the medium of exchange. (1)
And sometimes countries even stop using their local currency altogether, using a foreign currency as
the medium of exchange as well.
(Maximum is 4.)
5. C: Fiscal policy such as taxation and social transfer could change the disposable income of private
I: Taxation and commercial policies could change the investment environment and the incentives of
(both domestic and foreign) investors.
G: Money which is collected before (e.g. tax) would be re-injected in to the economy as government
purchase which may have some multiplying effect to stimulate the economy although it might have
(X-M): Exchange rate policy, trading policy, or diplomatic strategy would also affect the performance
of external sector. (Each item with appropriate argument may get 2.) 6 ...
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