Name: ________________________

Student ID: _____________________

Seat NO: _______

Midterm Test (C03&CA3)

NOT TO BE TAKEN AWAY

Course code

CB2402: Macro-Economics

Session

Semester A 2015/16

Time allowed

90 minutes

This paper has 10 pages (including this cover page).

1. This paper has 40 multiple choice questions (2.5 points each, total 100 points)
2. Please write your name and student ID on the multiple choice answer sheet AND exam paper
3. Please answer all questions on the multiple choice answer sheet provided
4.

Choose only one answer, the best answer

5. Please return the multiple choice answer sheet AND exam paper at the end of the exam

This is a closed-book examination.

Candidates are allowed to use the following materials/aids:

1. Approved calculator.
Materials/aids other than those stated above are not permitted. Candidates will be
subject to disciplinary action if any unauthorized materials or aids are found on them.

1 / 12

1. If property rights are not enforced in a country,

A) the market system will still work smoothly.
B) that country's growth rate will not be affected.
C) that country will grow more rapidly because of the reduction of law suits.
D) entrepreneurs are unlikely to risk their own funds investing in such an economy.
2. A policy that offers parents a tax reduction based on how much they are saving for their
children's college education should ________ the equilibrium level of loanable funds and
________ the rate of long-term growth.
A) decrease; increase
B) decrease; decrease
C) increase; increase
D) increase; decrease
3. In a small Asian country, it is estimated that changing the level of capital from $8 million to
$12 million will increase real GDP from $4 million to $6 million. What level of GDP would
you expect the economy to be able to reach if spending on capital continued to rise to
$16 million, assuming no technological change and no change in the hours of work?
A) GDP would increase further by exactly $2 million.
B) GDP would increase further by more than $2 million
C) GDP would increase further, but by less than $2 million.
D) GDP would increase further by exactly $6 million.
4. Firms free ride on the research and development of other firms when they
A) choose a level of research and development that is inefficiently high.
B) license a new technology from a firm that developed the new technology.
C) buy a firm's newly developed product, and then give it away to consumers.
D) use knowledge other firms have developed without paying for that knowledge.

5. Which of the following is not one of the three sources of technological change?
A) increases in human capital
B) better machinery and equipment
C) additional amounts of existing capital
D) better means of organizing and managing production

2 / 12

6. Consumption is $5 million, planned investment spending is $8 million, government

purchases are $10 million, and net exports are equal to $2 million. If GDP during that same
time period is equal to $27 million, what unplanned changes in inventories occurred?
A) There was no unplanned change in inventories.
B) There was an unplanned increase in inventories equal to $2 million.
C) There was an unplanned decrease in inventories equal to $2 million.
D) There was an unplanned decrease in inventories equal to $19 million.
7. Firms in a small economy planned that inventories would grow over the past year by
$300,000. Over that year, inventories actually grew by $400,000. This implies that
A) there was a planned decrease in inventories that year.
B) there was an unplanned decrease in inventories that year.
C) aggregate expenditure that year was equal to GDP that year.
D) aggregate expenditure that year was less than GDP that year.
8. Which of the following will raise consumer expenditures?
A) an increase in interest rates
B) an increase in the price level
C) a general decline in housing prices
D) an increase in expected future income
9. U.S. net export spending rises when
A) the value of the U.S. dollar increases relative to other currencies.
B) the inflation rate is higher in the United States relative to other countries.
C) the price level in the United States rises relative to the price level in other countries.
D) the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries.
10. If inflation in Hong Kong is higher than inflation in other economies, what will be the effect
on net exports for Hong Kong?
A) Net exports will rise as HK exports increase.
B) Net exports will rise as HK imports decrease.
C) Net exports will decrease as HK exports decrease.
D) Net exports will decrease as HK imports decrease.

3 / 12

11. Which of the following is counted as a part of the GDP?

A) Household production
B) Underground economy
C) Hamburger purchased by a student
D) All of the above
12. Population of China stands close to 1.4 billion while its GDP stands at $US 10 trillion. What
is per-capita GDP of China?
A) $US 14,000
B) $US 14,284
C) $US 7,142
D) $US 10,000
13.
Product

Quantity

Price

Smartphones

35

$2,000

Movie tickets

80

150

Textbooks

10,000

132

Suppose that a simple economy produces only three goods and services: smartphones, movie
tickets and textbooks. Using the information in the above table, nominal GDP for this
simple economy equals to
A) 10,115 units
B) $1,332,000
C) $1,402,000
D) $2,282
14. The purchase of a new cell phone is included in
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.
15. Real GDP stands for:
A) The value of final goods and services evaluated at current-year prices
B) A measure of the price level, calculated by dividing nominal GDP by real GDP and
multiplying by 100
C) The value of final goods and services evaluated at base-year prices
D) A measure of the average value of goods and services in the economy
4 / 12

16. A very simple economy produces three goods: smartphones, laptops, and chairs. The
quantities produced and their corresponding prices for 2011 and 2015 are shown in the
table below.
2011

2015

Product

Quantity

Price

Quantity

Price

Smartphones

100

$1,500

110

$1,200

Laptops

75

4,500

80

5,200

Chairs

2000

225

2100

245

What is real GDP in 2015, using 2011 as the base year?

A) $165,000
B) $360,000
C) $997,500
D) $832,500
17. If GDP deflator for China in the last year was 110 and real income was $US 11 Trillion, then
nominal GDP was:
A) $US 11 Trillion
B) $US 10 Trillion
C) $US 12.1 Trillion
D) $US 9.1 Trillion
18. The class of 2010 has 750 alumni. If the number of unemployed alumni is 25 and the
number of employed alumni is 325. What is the unemployment rate in the class of 2010?
A) 7.14%.
B) 7.69%.
C) 3.33%.
D) 8.11%.
19. Suppose that Blackberry lays-off 4,000 workers from its production process primarily
because its smartphone making technology is outdated. How would you classify the
reasons that these workers are unemployed?
A) Frictional.
B) Structural.
C) Cyclical.
D) All of the above.
5 / 12

20. Cyclical unemployment is a condition where usually

A) everyone who wants a job has a job.
B) frictional unemployment equals zero.
C) is the unemployment caused when the economy experiences recessions
D) All of the above
21. The Consumer Price Index is calculated with 2014 as the base year. If the value of the
same basket that costs $HK 4,000 in 2014 becomes $HK 4,200 in 2015, what is the value
of CPI in 2015?
A) 100
B) 101
C) 105
D) 95.2
22. If CPI level in 2014 is 115 and in 2015 is 107, then from 2014 to 2015 the economy
experienced
A) No changes in inflation rate
B) Inflation of 7.5%
C) Inflation of 6.96%
D) Deflation of 6.96%
23. When the actual real GDP is higher than then potential real GDP, the economy experiences
A) Recession
B) Expansion
C) Cyclical unemployment
D) Very high interest rates
24. Which of the following, strictly speaking, is NOT considered as a financial intermediary
A) Stock market
B) Mutual Fund
C) Bank
D) Pension fund

6 / 12

25. Using the table below, what is the growth rate of real GDP in 2013?
Year

Real GDP (billions of 2010 dollars)

2011

$15,700

2012

15,875

2013

15,875

2014

17,462

A) 1.00%
B) 0.007%
C) 10.00%
D) 0.00%
26. The property/function of financial system that allows savers to quickly convert their
investments into cash is called
A) Risk-sharing
B) Liquidity
C) Information transfer
D) Intermediation
27. When public savings is equal to zero, then government runs:
A) Budget surplus
B) Budget deficit
C) Balanced budget
D) None of the above
28. The market for loanable funds determines the market interest rate and the quantity of
loanable funds exchanged. The crowding out effect in loanable funds market happens
A) when the government runs budget deficit
B) when net exports are positive
C) when disposable income of households increases
D) when interest rates decrease
29. The increase in the desire of households to consume today would shift supply of the
loanable funds to the ________, causing real interest rate to ________ and investment
to ________.
A) right; increase; decrease;
B) left; increase; decrease;
C) left; decrease; decrease;
D) left; increase; increase;
7 / 12

30. If real GDP in the United States standing at $US 16 trillion in 2015, is growing at an annual
rate of 3.5% each year and China's real GDP, standing at $US 10 trillion in 2015, is growing
at a rate of 7%, which of the following would we expect in the long run?
A) Real GDP of China would be approximately $US 20 trillion in 2025
B) Real GDP of the United States would be approximately $US 22.57 trillion in 2025
C) Real GDP of China would be higher than real GDP of the US in 2030
D) All of the above
31. If planned aggregate expenditure is below potential GDP and planned aggregate
expenditure equals GDP, then
A) the economy is in a recession.
B) the economy is at full employment.
C) actual inventory investment will be less than planned inventory investment.
D) actual inventory investment will be greater than planned inventory investment.
32. If an increase in autonomous investment spending of $10 million results in a $40 million
increase in equilibrium real GDP, then the marginal propensity to consume is
A) 0.5.
B) 0.75.
C) 0.8.
D) 0.9.
33. An increase in the price level results in a(n) ________ in the quantity of real GDP
demanded because ________.
A) decrease; a higher price level increases consumption, investment, and net exports.
B) decrease; a higher price level reduces consumption, investment, and net exports.
C) increase; a higher price level increases consumption, investment, and net exports.
D) increase; a higher price level reduces consumption, investment, and net exports.
34. German luxury car exports were hurt in 2009 as a result of the recession. How would
this decrease in exports have affected Germany's aggregate demand curve?
A) The aggregate demand curve would have shifted to the left.
B) The aggregate demand curve would have shifted to the right.
C) The aggregate demand curve would not have shifted, but there would have been a
movement down the aggregate demand curve.
D) The aggregate demand curve would not have shifted, but there would have been a
movement up the aggregate demand curve.

8 / 12

35. Suppose a developing country 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 but the short-run aggregate
supply curve will not change.
B) the short-run aggregate supply curve will shift to the right but the long-run aggregate
supply curve will not change.
C) the long-run aggregate supply curve and the short-run aggregate supply curve will shift to
the right.
D) the economy will move up along the long-run aggregate supply curve and the short-run
aggregate supply curve.
36. After an unexpected ________ in the price of oil, the long-run adjustment decreases the
price level and ________ the unemployment rate as they return to their original levels.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
Figure 1:

In the figure above, AD1, LRAS1 and SRAS1 denote the curves of Aggregate Demand, LongRun Aggregate Supply and Short-Run Aggregate Supply respectively in year 1, while AD2,
LRAS2 and SRAS2 denote the curves of Aggregate Demand, Long-Run Aggregate Supply and
Short-Run Aggregate Supply respectively in year 2. The economy is at point A in year 1. Please
refer to Figure 1 to answer questions 37-40 on the next page.
9 / 12

37. Given the economy at point A in year 1, what is the actual growth rate in GDP in year 2?
A) 2.5%
B) 7.3%
C) 8.0%
D) 10.0%
38. Given the economy at point A in year 1, what is the growth rate in potential GDP in year
2?
A) 2.5%
B) 7.3%
C) 8.0%
D) 10.0%
39. Given the economy at point A in year 1, what will happen to the unemployment rate in
year 2?
A) It will fall.
B) It will rise.
C) It will remain constant.
D) Not enough information to answer the question
40. Given the economy at point A in year 1, what is the inflation rate in year 2?
A) 0.2%
B) 0.9%
C) 1.8%
D) 2.0%

-END-

10 / 12

Midterm Test (C03&CA3)

Answers:
1. D
2. C
3. C
4. D
5. C
6. B
7. D
8. D
9. D
10. C
11. C
12. C
13. C
14. A
15. C
16. C
17. C
18. A
19. B
20. C
21. C
22. D
23. B
24. A
25. D
26. B
27. C
28. A
29. B
30. D
31. A
32. B
33. B
34. A
35. C
36. B
11 / 12

37. B
38. D
39. B
40. C

12 / 12