Econ 203: Midterm Exam Page 1 of 11

Version A
UNIVERSITY OF CALGARY
DEPARTMENT OF ECONOMICS
MIDTERM #1
ECONOMICS 203 (01)

VERSION A

Winter 2012

Instructor: Mr. Douglas McClintock

Thursday March 1, 2012

Marks: 50 Marks

Duration: 60 Minutes


NAME: ______________________________


UCID# ____________________________________



INSTRUCTIONS:

This exam consists of 50 multiple questions. For the multiple choice questions, choose
the best answer and mark your choice (in pencil) on the Scantron sheet provided.


WRITE WHICH VERSION YOU HAVE ON THE TOP OF THE SCANTRON
SHEET

Non-programmable calculators are allowed for this exam



ALL QUESTIONS SHEETS MUST BE RETURNED AT THE END OF THE
EXAM. FAILURE TO DO SO WILL RESULT IN AN F FOR THE EXAM.

Econ 203: Midterm Exam Page 2 of 11
Version A
MULTIPLE CHOICE (50 Marks 1 Mark each)


1. The best description of macroeconomics can be described by
a. how individual households deal with problems such as inflation and
unemployment.
b. the decision making of economic units such as the Government of Canada or
Research in Motion (RIM).
c. how large markets develop in some industries such as the market for Apple
IPads.
d. the economic behaviours of large economic sectors such as the whole
household sector, all businesses collectively, all level of governments and the
international sector.
e. the economic behaviours of large economic sectors such as the household
sector, all businesses collectively, the international sector and the federal
government, but excluding provincial and municipal governments.


2. A country's nominal Gross Domestic Product (GDP) in a given year measures the
a. dollar income earned by the nation's business sector in one year.
b. value of final goods and services produced by the economy, measured in base
year prices.
c. level of national income that is subject to taxation by the federal government.
d. market value of final goods and services produced by the economy in a year.
e. opportunity cost of the economy's national output in one year.


3. Which of the following does not represent investment spending in the national
accounts?
a. the construction of a new condominium.
b. the construction of a new shopping mall in Calgary by a local developer.
c. the construction of a factory with borrowed money.
d. an increase in the quantity of clothes on the shelves of a clothing store.
e. the purchase of land by the Alberta government to build a new Research Center
at the University of Calgary.


4. In the simple circular flow model with consumers (households) and firms,
a. firms buy factors of production and households sell their factors of production.
b. firms sell their factors of production and buy goods and services.
c. households sell goods and services and buy their factors of production.
d. firms always create real flows whereas households create money flows.
e. firms always create money flows whereas households create real flows.
Econ 203: Midterm Exam Page 3 of 11
Version A
5. The largest portion of the opportunity cost of attending the University of Calgary is
a. the cost of books and tuition.
b. there is no opportunity cost since most students will earn much higher salaries
when compared to non-university careers.
c. the cost of a students rent when attending the U of C.
d. the lost foregone wages that students would receive if they were working
instead of studying.
e. the amount of a student loan including interest.


6. If a country is experiencing inflation, the gross domestic product will
a. equal real GDP.
b. overstate the inflation rate.
c. overstate the real value of production.
d. understate the value of domestic income.
e. none of the above


7. Suppose the title of a newspaper read President Obama must cut spending on the
military in 2012. This is an example of a (n) ____________ statement.
a. forward-looking.
b. normative.
c. positive.
d. rational.
e. irrational.


8. When calculating GDP from the expenditure side, Government Spending comprises
a. only expenditures made by the federal government.
b. government expenditures on goods and services, excluding transfer payments.
c. only expenditures made on goods but not on services.
d. only expenditures made by state and local governments.
e. government expenditures on goods and services, including transfer payments.


9. Suppose a dishwasher is manufactured in 2010, sold in 2010 to a retailer, and then
sold by the retailer to a final customer in 2011. The dishwasher is:
a. counted as consumption in 2010.
b. counted as investment in 2010.
c. counted as investment in 2011.
d. not included in the gross domestic product in 2010.
e. recorded as a statistical discrepancy in 2011.



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Version A

10. In terms of the national accounts, which of the following statements regarding
investment is correct?
a. the accumulation of inventories does not count as investment.
b. rental payments for apartments are included as investment expenditures.
c. a new house purchased by a family is included as investment spending.
d. depreciation refers to funds used to increase the existing capital stock because it
is added to calculate GDP from the expenditure side.
e. the capital stock includes investment in stocks and bonds.


11. Suppose that in 2010, ABC Corporation produced $10 million worth of pipes (for
transporting natural gas) but was able to sell only $8 million worth of pipe. Is the
remaining $2 million of unsold pipes part of GDP for 2010?
a. Yes, since changes in inventories are part of consumption spending.
b. No, since changes in inventories are part of actual investment.
c. Yes, since they are part of inventories and are added to the economys output in
2010.
d. No, since they are part of the economys output only when sold.
e. No, $8 million would be part of GDP in 2010 and $2 million would be part of
GDP in 2011.


12. One major reason that GDP is not a perfect measurement of economic well-being is
that
a. it includes all used goods.
b. it does not include non-market activities such as homeowners doing their own
house maintenance.
c. people frequently buy things they do not want and therefore, should not be
included.
d. it cannot be adjusted for changes in prices.
e. both b and d.


13. In a particular country, the gross domestic product (GDP) increased by 8 percent
during the year. At the same time inflation was 5 percent. Therefore the real GDP
a fell by 8 percent.
b. fell by 5 percent.
c. was unaffected.
d. rose by 3 percent.
e. rose by 13 percent.

Econ 203: Midterm Exam Page 5 of 11
Version A

14. Suppose Doug runs a business that sells used electronic products. If Doug buys a
used TV for $100, does some repairs and resells it to Emily for $200, the result of
Dougs transaction is to
a. decrease the value of GDP by $100.
b. decrease the value of GDP by $200.
c. leave the value of GDP unchanged since the TV is a used good.
d. increase the value of GDP by $200.
e. increase the value of GDP by $100.


15. Capital Consumption Allowance (Depreciation) is
a. the difference between net investment and consumption.
b. included in net investment.
c. the difference between gross investment and net investment.
d. the increase in the economy's stock of capital per year.
e. the reduction in inventories per year.


16. The concept of the invisible hand refers to
a. how the pricing system allocates goods and services to its most efficient use
and how it coordinates markets.
b. government spending and how this spending works as an invisible hand to
reach market efficiency.
c. a concept put forth by Karl Marx as a way of allocating resources.
d. how the market system creates market failure.
e. the way scarce resources are allocated by centrally planned committees.


17. One of the main conclusions of Karl Marx was that
a. scarce resources would be efficiently allocated by the free market.
b. a laissez faire economy would provide incentives for innovation.
c. communism would create a reserved army of the unemployed.
d. capitalism would create a reserved army of the unemployed.
e. self-interest was the foundation of economic order.


18. As more workers get laid off in the tourist sector due to an economic downturn,
these workers would then be classified as:
a. cyclically unemployed.
b. structurally unemployed.
c. frictionally unemployed.
d. naturally unemployed.
e. underemployed.

Econ 203: Midterm Exam Page 6 of 11
Version A
TABLE A
The table below shows total output for an economy over 3 years

Year Nom.GDP* Deflator Real GDP**
2008 $______ 105 $760,000
2009 $820,000 106 $______
2010 $855,000 ___ $800,000

* millions of dollars
** real GDP measured in millions of 2002 dollars

19. Refer to Table A. The nominal Gross Domestic Product in 2008 was
a. $700,000.
b. $724,000.
c. $774,000.
d. $798,000.
e. $820,000.


20. Refer to Table A. The real growth rate from 2008 to 2010 is
a. 5.00 percent.
b. 1.84 percent.
c. 3.25 percent.
d. 3.41 percent.
e. 5.26 percent.


21. Refer to Table A. The inflation rate from 2008 to 2010 is
a. 6.87 percent.
b. 1.87 percent.
c. 1.79 percent.
d. 106.875 percent.
e. 106 percent.


22. Real GDP in Canada in 2008 was $1,566 billion and in 2009 it was $1,553 billion.
It can be concluded that:
a. the price level in Canada declined between 2008 and 2009.
b. the price level in Canada rose between 2008 and 2009.
c. the quantity of goods produced in Canada fell between 2008 and 2009.
d. the quantity of goods produced in Canada rose between 2008 and 2009.
e. the quality of goods produced in Canada was inferior in 2009 compared to
2008.
Econ 203: Midterm Exam Page 7 of 11
Version A
The table below includes data required to calculate various accounts of national income.
Table B
Accounts $
Gross Investment 402.00
Wages and salaries 1741.00
Consumption expenditures 1302.40
Interest and investment income 99.40
Investment income paid to non-residents 20.00
Depreciation 199.20
Government expenditures 486.80
Net Exports 94.00
Net Investment 202.80
Indirect taxes less subsidies 100.00
Investment income received by Canadians 5.00
Business profits 70.40

23. Refer to Table B. What is the value of Gross Domestic Product (GDP)?
a. $2,285.20.
b. $2,584.40.
c. $1,986.00.
d. $1,982.60.
e. $2,010.00.


24. Refer to Table B. What is the value of Gross National Product (GNP)?
a. $2,086.00.
b. $2,270.20.
c. $2,290.20.
d. $2,275.20.
e. $2,185.80.

25. Refer to Table B. What is the value of Net National Product? (NNP)
a. $2,270.20.
b. $2,300.20.
c. $2,071.00.
d. $1,982.60.
e. $1,971.00.

26. Refer to Table B. What is the value of Net National Income (NI)?
a. $2,086.00.
b. $2,010.20.
c. $2,071.00.
d. $1,971.00.
e. none of the above.
Econ 203: Midterm Exam Page 8 of 11
Version A
27. Inflation
a. has no effect since wages always catch up to the rate of inflation.
b. has a tendency to lower interest rates since it cost more to buy goods and
services.
c. increases the purchasing power of the dollar.
d. benefits lenders if inflation is unexpected.
e. diminishes the purchasing power of the dollar.


28. According to your text, the Catch-Up effect refers to:
a. when an economy just starts its expansionary phase of the business cycle.
b. when an economy is sitting in a trough and it is the amount of production it
must gain to be at the peak of the business cycle.
c. the difference between real GDP and nominal GDP.
d. a situation where poor countries tend to grow more rapidly than rich countries.
e. a situation where poor countries will never grow faster than rich countries
because they can never catch up in terms of economic production.


29. The source of the demand for loanable funds comes from
a. household spending.
b. national savings by households, firms and governments.
c. investment spending but not new residential construction.
d. the amount of money that is available to borrow.
e. investment spending that would include new residential construction.


30. National savings can be determined as
a. the total amount of money that is injected into the financial markets.
b. the total amount of money that is deposited in the bond market.
c. the difference between the governments spending and its tax revenue.
d. the total income in an economy after firms pay for capital goods.
e. the total income in an economy that remains after paying for consumption and
government purchases.

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Version A
31. According to your text, a country with a low national savings rate will have
a. a high growth rate since more will be spent on consumption.
b. either a high or low growth rate depending on how much the government
spends.
c. a prolonged Peak period of the business cycle .
d. a high growth rate because more money is available for investment.
e. a low growth rate because sustained high investment is not possible with a low
savings rate.


32. If the government has a smaller surplus compared to the year before, keeping
everything else constant, national savings will
a. not change since the government has nothing to do with national savings.
b. may increase or decrease.
c. decrease, since government surplus is part of national savings.
d. increase since government surplus is part of national savings.
e. increase, since tax revenues must be greater than expenditures.


33. If the government experiences a deficit compared to a surplus the year before,
keeping everything else constant, this will
a. shift the demand for loanable funds to the right and increase the interest rate.
b. shift the demand for loanable funds to the left and decrease the interest rate.
c. shift the supply for loanable funds to the right and decrease the interest rate.
d. shift the supply for loanable funds to the left and increase the interest rate.
e. decrease the quantity supplied of loanable funds and increase the interest rate.


34. Initially, the supply and demand of loanable funds is in equilibrium. However, the
uncertainty created by the potential Greek default on its debts has created a loss of
business confidence for Canadian firms. As a result, these firms decrease their
spending on plant and equipment in Canada. In the long run, this loss of confidence
would?
a. decrease the demand for loanable funds, increase the interest rate and increase
the quantity supplied of loanable funds.
b. decrease the demand for loanable funds, decrease the interest rate and decrease
the supply of loanable funds.
c. decrease the supply of loanable funds, increase the interest rate and decrease the
quantity demanded of loanable funds.
d. increase the demand for loanable funds, increase the interest rate and increase
the quantity supplied of loanable funds.
e. decrease the demand for loanable funds, decrease the interest rate and decrease
the quantity supplied of loanable funds.


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Version A
35. Consider an economy in which capital is being used at a high degree, firms have
little excess capacity in their manufacturing plants, shortages in skilled labour have
developed and cost are rising. Which of the following terms best describes this
phase of the business cycle?
a. inflationary phase.
b. the trough.
c. the recovery phase.
d. the peak.
e. the recessionary phase.


36. If real GDP has been falling for 2 years, this is known as a
a. depression.
b. trough.
c. recession.
d. vicious circle.
e. virtuous circle.


37. The demand of Loanable funds will decrease if:
a. households decide to save more of their income.
b. the government runs higher surpluses.
c. population increases in the country.
d. the interest rate increases.
e. the government reduces the investment tax credit for firms.


38. When estimating national accounts, personal income (PY) consists of:
a. consumption + personal savings + capital consumption allowance.
b. consumption + personal savings.
c. consumption + personal savings + personal taxes.
d. consumption + personal savings + personal taxes - transfer payments.
e. consumption, personal saving minus transfer payments.


39. One of the problems with the Consumer price index as a measurement for inflation
is that:
a. quantities used in the index change over time.
b. prices used in the index change over time.
c. Stats Canada only compiles this data once per year.
d. the basket contains products that many Canadians may not purchase.
e. it only contains about 65 items that a typical household would purchase.


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Version A
40. In 1985, Wayne Gretzky was earning $800,000 per year with the Edmonton Oilers.
The consumer price index in 1985 was 75.4 and the base year was 1992. If the
consumer price index in 2005 was 189, what is the value of Waynes Gretzkys
salary in 1992?
a. $2,005,305.
b. $1,061,008.
c. $8,000,000.
d. $15,120,000
e. none of the above.


41. An efficiency wage is a wage that
a. causes cyclical unemployment to go to zero.
b. is determined in the labour markets when the economy reaches its natural rate
of unemployment.
c. is the above market wage rate that employers pay to increase labour
productivity.
d. is just high enough to induce a worker to take a job.
e. is determined in all labour markets that would employ everyone in the labour
force.


42. When a union negotiates a wage settlement that is higher than the market clearing
wage rate, this creates
a. frictional unemployment.
b. cyclical unemployment.
c. no change in the unemployment rate since these unemployed workers will
eventually get hired once productivity increases.
d. structural unemployment.
e. none of the above.


43. A money substitute
a. serves as a medium of exchange but not a store of value.
b. serves as a store of value but not a medium of exchange.
c. serves as a store of value but not a unit of account.
d. is the same as money since you can buy goods and services with a money
substitute.
e. serves as a unit of account.






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Version A
44. Economist Robert Fogel, focused on which of the following factors as one
determinant of long run economic growth?
a. education.
b. research and development.
c. trade restrictions.
d. nutrition and body size.
e. free trade.


45. Which of the following is NOT correct?
a. a countrys standard of living and productivity are closely related.
b. productivity relates to output produced per hour of work.
c. increase in productivity can lead to an increase in output and an increase in
average incomes.
d. countries that have higher increases in real GDP per person have typically done
so with increases in natural resource discoveries and not increases in
productivity.
e. small changes in productivity and real GDP per person can have a large effect
on a countrys standard of living over long periods of time.


46. Your authors make the observation that when a country saves a larger portion of
its GDP, it will have
a. less investment since consumption is less, and so have more capital and higher
productivity.
b. less investment, and so have less capital and higher productivity.
c. more investment, and so have more capital and lower productivity.
d. more investment, and so have more capital and more productivity.
e. all of the above.


47. Suppose that in a closed economy with no trade, GDP is equal 36,000, Taxes are
equal to $7,500, Consumption equals $20,400 and Government Expenditures are
equal to $10,500. What is national savings?
a. $12,600.
b. $15,600.
c. $5,100.
d. $8,100.
e. $3,000

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48. Suppose that in a closed economy with no trade, GDP is equal 30,000, taxes are
$6,000 and consumption is $19,500. What value of government expenditures would
make national savings equal to $7,500 and at that value would the government have
a deficit or surplus?
a. $9,000 and a deficit.
b. $9,000 and a surplus.
c. $1,500 and a deficit.
d. $3000 and a deficit.
e. $3,000 and a surplus.


49. In a modern economy, the barter system is
a. inefficient because the transaction costs are very high.
b. efficient since the production of these goods creates employment and thus
stimulates economic growth compared to a monetary based system.
c. efficient because all goods can be produced locally, which reduces
transportation costs.
d. inefficient because trade must consist of a double coincidence of wants.
e. both a and d.


50. Suppose there are only two goods produced in our economy snowplows and
helicopters. If there is always a two-for-one tradeoff between the production of
these two goods (in terms of opportunity cost), then the production possibilities
boundary between these two goods are
a. a downward sloping curve convex to the origin.
b. circular from the origin.
c. a downward sloping curve concave to the origin.
d. a downward sloping straight line.
e. a downward sloping straight line with slope equal to -1.




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