EC1301

NATIONAL UNIVERISTY OF SINGAPORE

EC1301: Principles of Economics
Semester I AY 2006/2007
November 2006
ime Allo!e": 2 #o$rs
INS%&CI'NS ' CAN(I(AES
1. This examination paper comprises )I)EEN *1+, printe
pa!es" inc#$in! this pa!e. There are %& m$#tip#e choice
'$estions. Ans(er A-- '$estions. The tota# mar) *or this
exam is %& mar)s.
+. This is a C-'SE( .''/ examination.
,. Use the comp$ter -$--#e *orm *or .o$r ans(ers.
%. Yo$ m$st s$bmit t#e comp$ter b$bble form0
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.
CM!"E"# AM$"#
%billions of dollars&
"et ta'es 1, 635
!ersonal consumption e'penditure 5,566
(epreciation 622
)overnment purchases 1,784
)ross investment 1,234
E'ports 957
*mports 1,138
+ousehold savin, 1,202
#able 1
1. Refer to #able 1. What is the value of GDP?
. !13,516 "illio#
$. !10,679 "illio#
%. !9,541 "illio#
(. -./003 billion
2. Refer to #able 1. What is the value of #et &o'esti( )ro&u(t?
. !622 "illio#
1. -2/2.1 billion
%. !6,768 "illio#
D. !8,919 "illio#
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3. *u))ose that a +iet#a'ese far'er sells fruits a#& ve,eta"les
&ire(tl- to (usto'ers. .# a&&itio#, the far'er also sells fruits a#&
ve,eta"les to restaura#ts, /hi(h later use the fruits a#& ve,eta"les
i# )re)are& foo& for (usto'ers. De#ote the &ire(t sales of fruits
a#& ve,eta"les to (usto'ers as *, a#& the sales of fruits a#&
ve,eta"les to restaura#ts as **. Whi(h of the follo/i#, /oul& "e
)art of +iet#a'0s GDP?
A. * but not **
1. .. "ut #ot .
C. $oth . a#& ..
(. 1either . #or ..
4. *u))ose that i# 2004 a (ou#tr- )ro&u(e& 20 (o')uters at a )ri(e of
!2,000 ea(h a#& 4 (ars at a )ri(e of !5,000 ea(h. .# 2005 the
(ou#tr- )ro&u(e& 15 (o')uters at a )ri(e of !3,000 ea(h a#& 5
(ars at a )ri(e of !6,000 ea(h. What &o /e 2#o/ has ha))e#e&?
A. 1o'i#al GDP has i#(rease&, a#& real GDP has i#(rease&.
1. "ominal )(! has increased/ and real )(! has
decreased.
C. 1o'i#al GDP has &e(rease&, a#& real GDP has i#(rease&.
(. 1o'i#al GDP has &e(rease&, a#& real GDP has &e(rease&.
5. 3ra#sfer )a-'e#ts are4
. e5(lu&e& /he# (al(ulati#, GDP "e(ause the- o#l- refle(t
i#flatio#.
1. e'cluded when calculatin, )(! because the3 do not
reflect current production.
%. i#(lu&e& /he# (al(ulati#, GDP "e(ause the- are a (ate,or-
of i#vest'e#t s)e#&i#,.
D. i#(lu&e& /he# (al(ulati#, GDP "e(ause the- i#(rease the
s)e#&i#, of re(i)ie#ts.
6. Whe# 100 *i#,a)orea#s /ho /ere )reviousl- loo2i#, for 6o"s sto)
loo2i#, for 6o"s, the4
A. u#e')lo-'e#t rate i#(reases.
1. the si4e of the labor force decreases.
C. la"or7for(e )arti(i)atio# rate &oes #ot (ha#,e.
(. u#e')lo-'e#t rate &oes #ot (ha#,e.
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!opulation 15 3ears old or over
%millions&
207.8
Labor force %millions& 139.4
Emplo3ed %millions& 133.5
$nemplo3ed %millions& 5.9
#able 6
7. Refer to #able 6. 3he #u'"er of )eo)le #ot i# the la"or for(e
e8uals4
A. 5.9.
1. 5..0.
C. 74.3.
(. 201.9.
8. Refer to #able 6. 3he u#e')lo-'e#t rate e8uals4
A. 2.89
1. 0.67
C. 4.49
(. 5.09
9. .f the u#e')lo-'e#t rate i# %hi#a is 9 )er(e#t a#& the #atural rate
of u#e')lo-'e#t is 5 )er(e#t, the# the4
. fri(tio#al u#e')lo-'e#t rate is 5 )er(e#t.
$. (-(li(al u#e')lo-'e#t rate a#& the fri(tio#al u#e')lo-'e#t
rate to,ether are 5 )er(e#t.
C. c3clical unemplo3ment rate is 0 percent.
D. #atural rate of u#e')lo-'e#t /ill eve#tuall- i#(rease.
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EC1301
10.Whi(h of the follo/i#, "est e5)lai#s ho/ e')lo-'e#t (a#
i#(rease as the sa'e ti'e as the real /a,e i# &e(reasi#,?
A. 3he la"or su))l- a#& &e'a#& (urves "oth shift to the ri,ht:
ho/ever, the shift i# the la"or &e'a#& (urve is ,reater tha#
the shift i# the la"or su))l- (urve.
1. 3he la"or su))l- a#& &e'a#& (urves "oth shift to the left:
ho/ever, the shift i# the la"or su))l- (urve is ,reater tha#
the shift i# the la"or &e'a#& (urve.
C. ri,ht/ar& shift of the la"or &e'a#& (urve a#& a 'ove'e#t
alo#, the la"or su))l- (urve o((ur.
(. #he labor suppl3 and demand curves both shift to the
ri,ht8 however/ the shift in the labor suppl3 curve is
,reater than the shift in the labor demand curve.
11. .f -our #o'i#al /a,e rises faster tha# the )ri(e level the# /e (a#
sa- -our real /a,e has ;;;;;;; a#& the )ur(hasi#, )o/er of -our
i#(o'e has ;;;;;;;;.
A. falle#: falle#
1. falle#: rise#
C. risen8 risen
(. rise#: falle#
12..f i#flatio# i# <ala-sia i#(reases u#e5)e(te&l-, the#
A. "orro/ers lose.
1. lenders lose.
C. le#&ers ,ai# a#& "orro/ers ,ai#.
(. #either "orro/ers #or le#&ers lose.
13.*u))ose that #o'i#al GDP i# -ear 1 is 300 a#& #o'i#al GDP i#
-ear 2 is 340. ssu'e that i#flatio# is five )er(e#t a -ear. "out
ho/ fast &i& the e(o#o'- ,ro/ "et/ee# these t/o -ears =usi#,
-ear 1 as the "ase -ear>?
A. 80 )er(e#t
1. 10 )er(e#t
C. . percent
(. 13 )er(e#t
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EC1301
3he follo/i#, ta"le lists the "as2et of ,oo&s i# the 9e,etarian !rice
*nde' =ssu'e 2003 is the "ase -ear>.
Q$A"#*#: 6003
!;*CE
6000
!;*CE
600<
!;*CE
Cucumbers 10 !1.00 !1.50 !2.00
Cabba,es 5 !2.00 !3.00 !2.50
=pinach 5 !2.00 !2.00 !3.00

#able 3
14.?si#, the i#for'atio# i# #able 3, the +e,etaria# Pri(e .#&e5 for
2004 is4
A. 133.
1. 100.
C. 48.
(. 158.
15.# i#(rease i# ;;;;;;;; shifts ;;;;;;;; the )ro&u(tio# fu#(tio#,
a#& 'a2es it )ossi"le to )ro&u(e a hi,her level of GDP /ith
;;;;;;;; (a)ital )er hour /or2e&.
A. te(h#olo,-: &o/#: the sa'e a'ou#t of
1. technolo,38 up8 the same amount of
C. (o#su')tio#: u): a lesser a'ou#t of
(. la"or )ro&u(tivit-: &o/#: the sa'e a'ou#t of
16.s a result of a# i#(rease i# (a)ital, the &e'a#& for la"or /oul&
;;;;;;;;, the su))l- of la"or /oul& ;;;;;;;;, a#& the real /a,e
/oul& ;;;;;;;;;.
A. i#(rease: i#(rease: i#(rease
1. increase8 remain the same8 increase
C. i#(rease: re'ai# the sa'e: &e(rease
(. i#(rease: &e(rease: re'ai# the sa'e
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EC1301
17.*u))ose that Pa2ista#0s real GDP starts at 100 a#& ,ro/s at a rate
of 59 a -ear for t/o -ears. 3he# real GDP after 2 -ears /oul& "e4
A. 105.
1. 150.
C. 110.6<.
(. 200.
18.%a)ital &ee)e#i#, (auses ;;;;;;;;;i# the &e'a#& for la"or.
A. an increase
1. a &e(rease
C. #o (ha#,e
(. either a# i#(rease or &e(rease
19..f the Phili))i#es e(o#o'- is (urre#tl- i# e8uili"riu' at a level of
GDP that is "elo/ )ote#tial GDP, /hi(h of the follo/i#, /oul&
'ove the e(o#o'- "a(2 to )ote#tial GDP?
A. an increase in wealth
1. a# i#(rease i# i#terest rates
C. a &e(rease i# "usi#ess (o#fi&e#(e
(. a# i#(rease i# the value of the Phili))i#es )eso relative to
other (urre#(ies
20.*)e#&i#, o# the /ar i# .ra8 is esse#tiall- (ate,ori@e& as
,over#'e#t )ur(hases. Ao/ &o i#(reases i# s)e#&i#, o# the /ar
i# .ra8 affe(t the a,,re,ate &e'a#& (urve?
A. 3his /ill 'ove the e(o#o'- u) alo#, the a,,re,ate &e'a#&
(urve.
1. 3his /ill 'ove the e(o#o'- &o/# alo#, the a,,re,ate
&e'a#& (urve.
C. 3his /ill shift the a,,re,ate &e'a#& (urve to the left.
(. #his will shift the a,,re,ate demand curve to the ri,ht.
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EC1301
21.*u))ose 3haila#& re(eives 'ore 'a(hi#er- a#& (a)ital e8ui)'e#t
as forei,# e#tre)re#eurs i#(rease the a'ou#t of i#vest'e#t i# the
e(o#o'-. s a result,
A. the lon, run a,,re,ate suppl3 curve will shift to the
ri,ht.
1. the lo#, ru# a,,re,ate su))l- (urve /ill shift to the left.
C. the e(o#o'- /ill 'ove u) alo#, the lo#, ru# a,,re,ate
su))l- (urve.
(. the e(o#o'- /ill 'ove &o/# alo#, the lo#, ru# a,,re,ate
su))l- (urve.
22.Aurri(a#e Batri#a &estro-e& oil a#& #atural ,as refi#i#, (a)a(it- i#
the ,ulf. 3his su"se8ue#tl- &rove u) #atural ,as, ,asoli#e, a#&
heati#, oil )ri(es. s a result this shoul&
A. shift the short run a,,re,ate suppl3 curve to the left.
1. shift the short ru# a,,re,ate su))l- (urve to the ri,ht.
C. 'ove the e(o#o'- u) alo#, the short ru# a,,re,ate su))l-
(urve.
(. 'ove the e(o#o'- &o/# alo#, the short ru# a,,re,ate
su))l- (urve.
23.Whi(h of the follo/i#, (orre(tl- &es(ri"es the auto'ati(
'e(ha#is' throu,h /hi(h the e(o#o'- a&6usts to lo#, ru#
e8uili"riu'?
A. the left/ar& shift i# the short ru# a,,re,ate su))l- (urve that
o((urs after a re(essio#
1. the ri,htward shift in the short run a,,re,ate suppl3
curve that occurs after a recession
C. the left/ar& shift i# the a,,re,ate &e'a#& (urve that o((urs
after a re(essio#
(. the ri,ht/ar& shift i# the a,,re,ate &e'a#& (urve that
o((urs after a re(essio#
24.*ta"ili@atio# )oli(ies are )oli(ies4
A. that o#l- ai' to re&u(e the level of GDP.
1. that o#l- ai' to i#(rease the level of GDP.
C. ta>en to move the econom3 closer to potential output.
(. ai'e& at i#(reasi#, tra&e.
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EC1301
25.3he Presi&e#t of +ul(a# hires -ou as a# e(o#o'i( (o#sulta#t. Ae is
(o#(er#e& that the out)ut level i# +ul(a# is too hi,h a#& this /ill
(ause i#flatio#. Ae feels that it is #e(essar- to re&u(e out)ut "-
!10 "illio# Ae tells -ou that the 'ar,i#al )ro)e#sit- to (o#su'e
i# +ul(a# is 0.6. Whi(h of the follo/i#, /oul& "e the "est a&vi(e
to ,ive to the +ul(a# Presi&e#t?
A. reduce ,overnment spendin, in 9ulcan b3 -0 billion.
1. i#(rease ta5es i# +ul(a# "- !4 "illio#.
C. re&u(e ,over#'e#t s)e#&i#, i# +ul(a# "- !10 "illio#.
(. i#(rease ta5es i# +ul(a# "- !2.5 "illio#.
26.lthou,h ru##i#, a "u&,et &efi(it &uri#, a re(essio# shoul& #ot "e
a sour(e of (o#(er#, ru##i#, a "u&,et &efi(it /he# there is #o
re(essio# is a "a& )oli(- &ue to4
A. crowdin, out.
1. lo#, i#si&e la,s.
C. lo#, outsi&e la,s.
(. (ro/&i#, i#.
27.# i#(rease i# i#terest rates lea&s to4
A. a left/ar& shift i# the &e'a#& for 'o#e- (urve.
1. a ri,ht/ar& shift i# the &e'a#& for 'o#e- (urve.
C. a leftward movement up alon, the demand for mone3
curve.
(. a ri,ht/ar& 'ove'e#t &o/# alo#, the &e'a#& for 'o#e-
(urve.
28.3he &e'a#& for 'o#e- (urve has shifte& left. 3his 'a- "e the
result of4
A. a &e(rease i# the level of )ri(es.
1. a# i#(rease i# the level of )ri(es.
C. a &e(rease i# real GDP.
(. both A and C.
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29..f 'o#e- &e'a#& is e5tre'el- se#sitive to (ha#,es i# the i#terest
rate, the 'o#e- &e'a#& (urve "e(o'es al'ost hori@o#tal. .f the
(e#tral "a#2 e5)a#&s the 'o#e- su))l- u#&er these
(ir(u'sta#(es, the# the i#terest rate /ill
A. fall su"sta#tiall- a#& i#vest'e#t a#& (o#su'er s)e#&i#, /ill
fall su"sta#tiall-.
1. rise su"sta#tiall- a#& i#vest'e#t a#& (o#su'er s)e#&i#,
/ill rise su"sta#tiall-.
C. fall su"sta#tiall- a#& i#vest'e#t a#& (o#su'er s)e#&i#, /ill
(ha#,e ver- little.
(. chan,e ver3 little and investment and consumer spendin,
will chan,e ver3 little.
30.$ase& o# the 'o&el of 'o#e- 'ar2et, /he# the ris2 asso(iate&
/ith hol&i#, other assets i#(reases, the e8uili"riu' i#terest rate
shoul&4
. sta- the sa'e.
1. increase.
%. &e(rease.
D. i#(rease to the sa'e e5te#t that the su))l- of 'o#e-
i#(reases.
31..f a "o#& /as to )a- off o#e -ear fro' #o/ for !110 a#& the
i#terest rate is 10 )er (e#t, /hat is the )ri(e of the "o#&?
A. !11
1. -100
C. !110
(. !121
32.*ta"ili@atio# )oli(-, if /ell7ti'e&, /ill4
A. &o #othi#, to the 'a,#itu&es of e(o#o'i( flu(tuatio#s.
1. dampen the effects of economic fluctuations.
C. 'a,#if- the effe(ts of e(o#o'i( flu(tuatio#s.
(. "e su"6e(t to la,s.
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EC1301
?i,ure 1
33.Refer to ?i,ure 1. Whi(h )oi#t o# the ,ra)h is )ossi"le if )ri(es
rise "ut the (e#tral "a#2 &oes #ot a(t?
A. A
1. $
C. %
(. D
34.Refer to ?i,ure 1. Whi(h )oi#t o# the ,ra)h is )ossi"le if the
(e#tral "a#2 (o#&u(ts o)e# 'ar2et )ur(hases a#& the real i#(o'e
rises?
A.
1. $
C. C
(. D
35.*u))ose that the .#&o#esia# e(o#o'- is )ro&u(i#, "elo/ )ote#tial
GDP a#& the (e#tral "a#2 i')le'e#ts the (orre(t (ha#,e i#
'o#etar- )oli(-, "ut &oes so too late. 3he#
A. the (e#tral "a#20s (o#tra(tio#ar- )oli(- /ill result i# too
lar,e of a &e(rease i# GDP.
1. the (e#tral "a#20s (o#tra(tio#ar- )oli(- /ill result i# too
s'all of a &e(rease i# GDP.
C. the (e#tral "a#20s e5)a#sio#ar- )oli(- /ill result i# too
s'all of a &e(rease i# GDP.
(. the central ban>@s e'pansionar3 polic3 will result in too
lar,e of an increase in )(!.
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36.What /oul& "e a /a- for the (e#tral "a#2 of Ao#, Bo#, to slo/
&o/# the e(o#o'- /he# it is ,ro/i#, too 8ui(2l- or is
i#flatio#ar-?
A. Pri#t 'ore 'o#e-.
1. $u- "a(2 ,over#'e#t "o#&s.
C. =ell more ,overnment bonds.
(. De(rease reserve re8uire'e#ts =or re8uire& reserve ratio>.
37.Whi(h of the follo/i#, )airs of eve#ts /ill &efi#itel- lea& to a#
i#(rease i# the e8uili"riu' i#terest rate?
. 3he )ur(hase of ,over#'e#t "o#&s "- the (e#tral "a#2 a#& a
&e(rease i# the level of real GDP
1. an increase in the discount rate and an increase in the
price level
%. a &e(rease i# the reserve re8uire'e#ts =or re8uire& reserve
ratio> a#& a# i#(rease i# the level of real GDP
D. the sale of ,over#'e#t "o#&s "- the (e#tral "a#2 a#& a
&e(rease i# the )ri(e level
38.*u))ose that .#&ia has "ee# e5)erie#(i#, 39 a##ual i#flatio#. .f
out)ut is less tha# full e')lo-'e#t, )ri(es /ill ,e#erall- rise at4
A. a rate of 39.
1. a rate ,reater tha# 39.
C. a rate less than 37.
(. rate of 09.
39..# the lo#, ru#, a# i#(rease i# the 'o#e- su))l-4
. &e(reases i#terest rates, i#(reases i#vest'e#t, a#& &e(reases
out)ut.
$. &e(reases i#terest rates, "ut has #o effe(t o# i#vest'e#t or
out)ut.
%. i#(reases out)ut, "ut has #o effe(t o# i#terest rates or
i#vest'e#t.
(. has no effect on interest rates/ investment or output.
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?i,ure 6
40.Refer to ?i,ure 6. 'ove'e#t fro' )oi#t to )oi#t $ /oul& "e
the result of the4
A. u#e')lo-'e#t rate e5(ee&i#, the #atural rate, (ausi#,
/a,es to rise.
1. unemplo3ment rate e'ceedin, the natural rate/ causin,
wa,es to fall.
C. #atural rate e5(ee&i#, the u#e')lo-'e#t rate, (ausi#,
/a,es to rise.
(. #atural rate e5(ee&i#, the u#e')lo-'e#t, (ausi#, /a,es to
fall.
41..#vest'e#t is C(ro/&e& outD "- a# i#(rease i# ,over#'e#t
s)e#&i#, "e(ause4
A. an increase in ,overnment spendin, causes output and
prices to rise/ which in turn causes interest rates to rise.
1. a# i#(rease i# ,over#'e#t s)e#&i#, (auses out)ut a#& )ri(es
to fall, /hi(h i# tur# (auses i#terest rates to rise.
C. a# i#(rease i# ,over#'e#t s)e#&i#, (auses out)ut a#& )ri(es
to rise, /hi(h i# tur# (auses i#terest rates to fall.
(. a# i#(rease i# ,over#'e#t s)e#&i#, (auses out)ut a#& )ri(es
to fall, /hi(h i# tur# (auses i#terest rates to fall.
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EC1301
42.*u))ose there are o#l- 2 #atio#s a#& $, a#& o#l- t/o ,oo&s, x
a#& y. .f #atio# )ro&u(es o#l- x, it (a# 'a2e 12x )er &a-. .f
#atio# )ro&u(es o#l- y, it (a# 'a2e 36- )er &a-. .f #atio# $
)ro&u(es o#l- x, it (a# 'a2e 4x )er &a-. .f #atio# $ )ro&u(es o#l-
y, it (a# 'a2e 12y )er &a-. fter tra&e "e,i#s, #atio# ;;;;; /ill
s)e(iali@e i# the )ro&u(tio# of x a#& #atio# ;;;;; /ill s)e(iali@e
i# the )ro&u(tio# of y.
A. : $
1. $: $
C. $:
(. "o trade will occur.
43.s a /hole, #atio#s are "etter off after tra&e a#& s)e(iali@atio#
"e(ause4
A. nations can consume alon, their consumption
possibilities curve/ which is outside of their production
possibilities curve.
1. #atio#s (a# (o#su'e alo#, their (o#su')tio# )ossi"ilities
(urve, /hi(h is i#si&e of their )ro&u(tio# )ossi"ilities (urve.
C. #atio#s (a# (o#su'e alo#, their )ro&u(tio# )ossi"ilities
(urve, /hi(h is outsi&e of their (o#su')tio# )ossi"ilities
(urve.
(. #atio#s e5)erie#(e a# out/ar& shift of their )ro&u(tio#
)ossi"ilities (urve.
44.Whi(h of the follo/i#, situatio#s /ill arise i# the *outh Borea#
&o'esti( 'ar2et follo/i#, the i')ositio# of a# i')ort "a#?
A. i')orts i#(rease, &o'esti( )ro&u(tio# i#(reases, )ri(es
i#(rease
1. i')orts i#(rease, &o'esti( )ro&u(tio# i#(reases, )ri(es
&e(rease
C. imports decrease/ domestic production increases/ prices
increase
(. i')orts &e(rease, &o'esti( )ro&u(tio# i#(reases, )ri(es
&e(rease
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AA!A" $.=.A.

=tereos 50 30
#ractors 25 120
#able 0
45.Refer to #able 0 o# the &ail- out)ut of Ea)a# a#& ?.*.. fter
tra&e "e,i#s, ;;;;;;;;;;; /ill s)e(iali@e i# the )ro&u(tio# of
stereos a#& ;;;;;;;;;;/ill s)e(iali@e i# the )ro&u(tio# of
tra(tors.
. ?.*..: ?.*..
$. ?.*..: Ea)a#
C. Aapan8 $.=.A.
D. Ea)a#4 Ea)a#
E"( ? !A!E;
1+