0607_EC1301-1 - EC1301 NATIONAL UNIVERSITY OF SINGAPORE...

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Unformatted text preview: EC1301 NATIONAL UNIVERSITY OF SINGAPORE EC1301: Principles of Economics Semester I AY 2006/ 2007 November 2006 Time Allowed: 2 hours INSTRUCTIONS TO CANDIDATES 1. This examination—paper comprises FIFTEEN (15) printed pages, including this page. There are 45 multiple choice questions. Answer ALL questions. The total mark for this exam is 45 marks. 2. This is a CLOSED BOOK examination. 3. Use the computer bubble form for your answers. 4. You must submit the computer bubble form. 2 EC1301 Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. Answer ALL questions on the computer bubble form provided. AMOUNT (billions of dollars) 1. Refer to Table 1. What is the value of GDP? A. $13,516 billion B. $10,679 billion C. $9,541 billion D. $8,403 billion COMPONENT Net taxes Personal consumption expenditure Depreciation . Government purchases Gross investment Exports Imports Household saving Table 1 2. Refer to Table 1. What is the value of net domestic product? A. $622 billion ' B. $7,781 billion C. $6,768 billion D. $8,919 billion 3 EC1301 3. Suppose that a Vietnamese farmer sells fruits and vegetables directly to customers. In addition, the farmer also sells fruits and vegetables to restaurants, which later use the fruits and vegetables in prepared food for customers. Denote the direct sales of fruits and vegetables to customers as I, and the sales of fruits and vegetables to restaurants as II. Which of the following would be part of Vietnam’s GDP? ' A. Ibut not 11 B. II but not I C. Both I and H D. Neither I nor II 4. Suppose that in 2004 a country produced 20 computers at a price of $2,000 each and 4 cars at a price of $5,000 each. In 2005 the country produced 15 computers at a price of $3,000 each and 5 cars at a price of $6,000 each. What do we know has happened? Nominal GDP has increased, and real GDP has increased. Nominal GDP has increased, and real GDP has decreased. Nominal GDP has decreased, and real GDP has increased. Nominal GDP has decreased, and real GDP has decreased. com? 5. Transfer payments are: _ A. excluded when calculating GDP because they only reflect inflation. B. excluded when calculating GDP because they do not reflect current production. C. included when calculating GDP because they are a category of investment spending. D. included when calculating GDP because they increase the spending of recipients. 6. When 100 Singaporeans who were previously looking for jobs stop looking for jobs, the: unemployment rate increases. the size of the labor force decreases. labor-force participation rate does not change. unemployment rate does not change. POP”? 4 EC1301 Population 16 years old or over (millions) Labor force (millions) Employed (millions) 133.5 Unemployed (millions) 5.9 Table 2 7. Refer to Table 2. The number of people not in the labor force equals: A. 5.9. B. 68.4. C. 74.3. D. 201.9. 8. Refer to Table 2. The unemployment rate equals: A. 2.8 percent B. 4.2 percent C. 4.4 percent D. 5.0 percent 9. If the unemployment rate in China is 9 percent and the natural rate of unemployment is 5 percent, then the: , A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase. 5 EC1301 10. Which of the following best explains how employment can increase at the same time as the real wage is decreasing? A. The labor supply and demand curves both shift to the right; however, the shift in the labor demand curve is greater than the shift in the labor supply curve. B. The labor supply and demand curves both shift to the left; however, the shift in the labor supply curve is greater than the shift in the labor demand curve. C. A rightward shift of the labor demand curve and a movement along the labor supply curve occur. D. The labor supply and demand curves both shift to the right; however, the shift in the labor supply curve is greater than the shift in the labor demand curve. ‘ 11. If your nominal wage rises faster than the price level then we can say your real wage has and the purchasing power of your income has fallen; fallen fallen; risen risen; risen risen; fallen POP”? 12. If inflation in Malaysia increases unexpectedly, then A. borrowers lose. B. lenders lose. C. lenders gain and borrowers gain. D. neither borrowers nor lenders lose. 13. Suppose that nominal GDP in year 1 is 300 and nominal GDP in year 2 is 340. Assume that inflation is five percent a year. About how fast did the economy grow between these two years (using year 1 as the base year)? A. 80 percent B. 10 percent C. 8 percent D. 13 percent 6 EC1301 The following table lists the basket of goods in the Vegetarian Price Index (Assume 2003 is the base year). QUANTITY 2003 _2004 PRICE PRICE Cabbages $2.00 $3.00 $2.50 2005 PRICE Table 3 14. Using the information in Table 3, the Vegetarian Price Index for 2004 is: A. 133. B. 100. C. 48. D. 158. 15. An increase in shifts the production function, and makes it possible to produce a higher level of GDP with capital per hour worked. A. technology; down; the same amount of B. technology; up; the same amount of C. consumption; up; a lesser amount of D. labor productivity; down; the same amount of 16. As a result of an increase in capital, the demand for labor would , the supply of labor would , and the real wage would ' A. increase; increase; increase B. increase; remain the same; increase C. increase; remain the same; decrease D. increase; decrease; remain the same _ 7 EC1301 17. Suppose that Pakistan’s real GDP starts at 100 and grows at a rate of 6 percent a year for two years. Then real GDP after 2 years would be: A. 106. B. 136. C. 1 12.36. D. 200. 18. Capital deepening causes in the demand for labor. A. an increase B. a decrease C. no change > D. either an increase or decrease 19. If the Philippines economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP? An increase in wealth An increase in interest rates A decrease in'business confidence An increase in the value of the Philippines peso relative to other currencies POP”? 20. Spending on the war in Iraq is essentially categorized as government purchases. How do increases in spending on the war in Iraq affect the aggregate demand curve? A. This will move the economy up along the aggregate demand curve. B. This will move the economy down along the aggregate demand curve. C. This will shift the aggregate demand curve to the left. D. This will shift the aggregate demand curve to the right. 8 EC1301 21. Suppose Thailand receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result, A. the long run aggregate supply curve will shift to the right. B. the long run aggregate supply curve will shift to the left. C. the economy will move up along the long run aggregate supply curve. D. the economy will move down along the long run aggregate supply curve. _ 22. Hurricane Katrina destroyed oil and natural gas refining capacity in the gulf. This subsequently drove up natural gas, gasoline, and heating oil prices. As a result this should , A. shift the short run aggregate supply curve to the left. B. shift the short run aggregate supply curve to the right. C. move the economy up along the short run aggregate supply curve. D. move the economy down along the short run aggregate supply curve. 23. Which of the following correctly describes the automatic mechanism through which the economy adjusts to long run equilibrium? A. The leftward shift in the short run aggregate supply curve that occurs after a recession B. The rightward shift in the short run aggregate supply curve that occurs after a recession C. The leftward shift in the aggregate demand curve that occurs after a recession D. The rightward shift in the aggregate demand curve that occurs after a recession 24. Stabilization policies are policies: A. that only aim to reduce the level of GDP. B. that only aim to increase the level of GDP. C. taken to move the economy closer to potential output. D. aimed at increasing trade. 9 EC1301 25. The President of Vulcan hires you as an economic consultant. He is concerned that the output level in Vulcan is too high and this will cause inflation. He feels that it is necessary to reduce output by $10 billion He tells you that the marginal propensity to consume in Vulcan is 0.6. Which of the following would 'be the best advice to give to the Vulcan President? Reduce government spending in Vulcan by $4 billion. Reduce government spending in Vulcan by $2.5 billion. Reduce government spending in Vulcan by $10 billion. Reduce taxes in Vulcan by $2.5 billion. POP”? 26. Although running a budget deficit during a recession should not be a source of concern, running a budget deficit when there is no recession is a bad policy due to: crowding out. long inside lags. long outside lags. crowding in. . 53.053“? 27. An increase in interest rates leads to: a leftward shift in the demand for money curve. a rightward shift in the demand for money curve. a leftward movement up along the demand for money curve. a rightward movement down along the demand for money curve. POP“? 28. The demand for money curve has shifted left. This may be the result of: a decrease in the level of prices. an increase in the level of prices. a decrease in real GDP. both A and C. PCP“? 10 EC1301 29. If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the central bank expands the money supply under these circumstances, then the interest rate will _ A. fall substantially and investment and consumer spending will fall substantially. B. rise substantially and investment and consumer spending will rise substantially. _ C. fall substantially and investment and consumer spending will change very little. _ D. change very little and investment and consumer spending will change very little. 30. Based on the model of money market, when the risk associated with holding other assets increases, the equilibrium interest rate should: A. stay the same. B. increase. C. decrease. _ D. increase to the same extent that the supply of money increases. 31. If a bond was to pay off one year from now for $110 and the interest rate is 10 per cent, what is the price of the bond? A. $11 B. $100 C. $110 D. $121 32. Automatic stabilization occurs: because monetary policy is effective. because taxes‘and transfer payments fluctuate with real GDP. because government purchases fluctuate with real GDP. when the government makes changes to transfer payment programs. » $70.53? 33. 34. 35. Imam m; Figure 1 Refer to Figure 1. Which point on the graph is possible if prices rise but the central bank does not act? A. A B. B C. C D. D Refer to Figure 1: Which point on the graph is possible if the central bank conducts open market purchases and the real income rises? A. A B. B C. C D. D Suppose that the Indonesian economy is producing below potential GDP and the central bank implements the correct change in monetary policy, but does so too late. Then A. the central bank’s contractionary policy will result in too large of a decrease in GDP. the central bank’s contractionary policy will result in too small of a decrease in GDP. the central bank’s expansionary policy will result in too small of a decrease in GDP. the central bank’s expansionary policy will result in too large of an increase in GDP. B. C. D. EC1301 12 ' EC1301 36. What would be a way for the central bank of Hong Kong to slow down the economy when it is growing too quickly or is inflationary? A. Print more money. B. Buy back government bonds. C. Sell more government bonds. D. Decrease reserve requirements (or required reserve ratio). 37. Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate? A. The purchase of government bonds by the central bank and a decrease in the level of real GDP B. An increase in the discount rate and an increase in the price level C. A decrease in the reserve requirements (or required reserve ratio) and an increase in the level of real GDP D. The sale of government bonds by the central bank and a decrease in the price level 38. Suppose that India has been experiencing 3 percent annual inflation. If output is less than full employment, prices will generally rise at: A. a rate of 3 percent. B. a rate greater than 3 percent. C. a rate less than 3 percent. D. a rate of 0 percent. 39. In the long run, an increase in the money supply: A. decreases interest rates, increases investment, and decreases output. B. decreases interest rates, but has no effect on investment or output. C. increases output, but has no effect on interest rates or investment. D. has no effect on interest rates, investment or output. 13 EC1301 Figure 2 40. Refer to Figure 2. A movement from point A to point B would be the result of the: A. unemployment rate exceeding the natural rate, causing wages to rise. B unemployment rate exceeding the natural rate, causing wages to fall. C. natural rate exceeding the unemployment rate, causing wages to rise. D natural rate exceeding the unemployment rate, causing wages to fall. 41. Investment is “crowded out” by an increase in government spending because: A. an increase in government spending causes output and prices to rise, which in turn causes interest rates to rise. B. an increase in government spending causes output and prices to fall, which in turn causes interest rates to rise. C. an increase in government spending causes output and prices to rise, which in turn causes interest rates to fall. D. an increase in government spending causes output and prices to fall, which in turn causes interest rates to fall. 14 EC1301 42. Suppose there are only 2 nations A and B, and only two goods, x and y. If nation A produces only x, it can make 12x per day. If nation A produces only y, it can make 36y per day. If nation B produces only x, it can make 4x per day. If nation B produces only y, it can make 12y per day. After trade begins, nation will specialize in the production of x and nation will specialize in the production of y. A. A; B B. B; B C. B; A D. No trade will occur. 43. As a whole, nations are better off after trade and specialization because: A. nations can consume along their consumption possibilities curve, which is outside of their production possibilities curve. B. nations can consume along their consumption possibilities curve, which is inside of their production possibilities curve. C. nations can consume along their production possibilities curve, which is outside of their consumption possibilities curve. D. nations experience an outward shift of their production possibilities curve. 44. Whichof the following situations will arise in the South Korean domestic market following the imposition of an import ban? A. Imports increase, domestic production increases, prices increase B. Imports increase, domestic production increases, prices decrease C. Imports decrease, domestic production increases, prices D. increase Imports decrease, domestic production increases, prices decrease 15 EC1301 Table 4 45. Refer to Table 4 on the daily output of Japan and U.S.A. After trade begins, will specialize in the production of stereos and will specialize in the production of tractors. A. U.S.A.; U.S.A. B. U.S.AQ; Japan C. Japan; U.S.A. D. Japan; Japan END OF PAPER ...
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0607_EC1301-1 - EC1301 NATIONAL UNIVERSITY OF SINGAPORE...

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