University of Alberta Version 1 Department of Economics

ECON 102 Midterm 1 exam Fall 2015

Instructor: Mesbah Sharaf
Allowed time: 50 minutes
Please copy your answer in the multiple choice sheet provided
The exam is 35 multiple choice
You are allowed to use a calculator

1.What are the three major macroeconomic goals of nearly every society?
a. reducing unemployment, reducing interest rates, and achieving a high rate of
economic growth
b. maintaining high levels of employment, increasing the supply of money, and
achieving a high rate of economic growth
c. maintaining stable prices, maintaining high levels of employment, and achieving
a high rate of economic growth
d. maintaining stable prices, reducing interest rates, and achieving a high rate of
economic growth
2.If the unemployment rate is 6 percent and the number of persons unemployed is 6 million, how
many people are employed?
a. 6 million
b. 94 million
c. 100 million
d. 106 million
3.Which of the following will occur if a large number of individuals file unemployment claims and
work in the underground economy?
a. The unemployment rate will decrease.
b. The unemployment rate will overstate the level of unemployment.
c. The unemployment rate will understate the level of unemployment.
d. The unemployment rate will not be affected.
4.What is the term for unemployment resulting from normal turnover in the labour market?
a. structural unemployment
b. frictional unemployment
c. cyclical unemployment
d. season unemployment
5.If the CPI was 100 in the base year and 96 in the following year, what was the inflation rate?
a. 96 percent
b. 4 percent
c. -4 percent
d. 100 percent
6.Who does unexpected inflation generally benefit?
a. lenders
b. low-income earners
c. people on fixed incomes
d. borrowers

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7.If the inflation rate is 6 percent, what is the real interest rate paid on a loan bearing 7 percent
nominal interest per year?
a. 1 percent
b. 6 percent
c. 7 percent
d. 13 percent
8.What is the term for the period of declining growth in real GDP between the peak of the business
cycle and the trough?
a. slowdown phase
b. contractionary phase
c. stagnant phase
d. static phase
9.Which of the following purchases is NOT included in the calculated GDP?
a. a newly-produced Canadian car
b. Papers used to produce books
c. a meal at MacDonald
d. a bottle of Canadian wine
10. GDP equals $1.1 trillion. If consumption equals $690 billion, investment equals $200 billion,
and government spending equals $260 billion, what can we conclude about the value of exports
and imports for the country?
a. Imports exceed exports by $50 billion.
b. Exports exceed imports by $50 billion.
c. Imports exceed exports by $150 billion.
d. Exports exceed imports by $150 billion.
11. How is real GDP defined?
a. the current-year market value of all final goods and services produced domestically
during a given period
b. the current-year market value of domestic production of intermediate goods
c. the base-year market value of domestic production of intermediate goods
d. the base-year market value of all final goods and services produced domestically
during a given period
12. Nominal GDP is $10 000 billion in 2008, but real GDP is only $9000 billion. What is the GDP
deflator equal to?
a. The GDP deflator is equal to 90.
b. The GDP deflator is equal to 100.
c. The GDP deflator is equal to 111.
d. The GDP deflator is equal to 119.
13. What occurred during 2012 if nominal GDP increased and real GDP decreased, relative to the
year 2011?
a. The economy experienced deflation during 2012.
b. Production of intermediate goods and services in the economy increased during
2012.
c. The economy experienced inflation during 2012.
d. Total production of goods and services in the economy increased during 2012.

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14. If real GDP was $800 billion in 2011 and $850 billion in 2012, what likely occurred from 2011
to 2012?
a. Total production of output increased.
b. Either total production rose, or there was inflation, or both.
c. The economy experienced inflation.
d. The value of intermediate production increased.
15. Given a constant rate of growth of real GDP, what would cause a fall in real GDP per capita?
a. a decrease in the capital stock
b. an increase in the size of the labour force
c. a rate of population growth that is less than the rate of growth of real GDP
d. a rate of population growth that is greater than the rate of growth of real GDP
16. What annual growth rate will result in a country roughly doubling its GDP in ten years?
a. 5 percent
b. 7 percent
c. 10 percent
d. 12 percent
17. Which of the following factors will NOT contribute to economic growth?
a. technological advances
b. an increase in minimum wage
c. growth in physical capital
d. an increase in the productivity of labour
18. Why did Malthus’s predictions NOT come to fruition for most of the developed world?
a. Death due to natural disasters slowed the population growth.
b. The law of diminishing returns only applies in theory, not in practice.
c. He implicitly neglected the potential effect of technological advancement.
d. His predictions were only intended to apply to African nations.
19. How do economists define aggregate demand?
a. as the total spending by all consumers, business firms, governments, and foreigners in
Canada
b. as the total amount that all consumers, business firms, governments, and foreigners wish to
spend on all final goods and services at various price levels
c. as the total spending by consumers, business firms, and governments in one year
d. as the total spending by consumers, business firms, and governments on final goods and
services
20. With which of the following marginal propensities to save would a given change in disposable
income have the greatest effect on aggregate demand?
a. 0.2
b. 0.4
c. 0.6
d. 0.8
21. Which of the following changes in disposable income would lead to the smallest increase in
consumption?
a. a $30 000 increase in disposable income, if MPC equals 0.25
b. a $15 000 increase in disposable income, if MPC equals 0.6
c. a $20 000 increase in disposable income, if MPC equals 0.5
d. a $12 000 increase in disposable income, if MPC equals 0.75

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22. Which of the following is likely to reduce investment and, as a result, reduce aggregate demand?
a. higher real interest rates
b. a decrease in inventories
c. decreased business taxes
d. optimistic business forecasts
23. Which of the following will NOT decrease the investment demand curve?
a. business inventories that have risen far above desired levels
b. business expectations of lower future sales and profits
c. an increase in real interest rates
d. higher business taxes
24. When does stagflation occur?
a. when real output rises and the price level rises
b. when real output falls and the price level falls
c. when real output rises and the price level falls
d. when real output falls and the price level rises
25. What impact will a decrease in the Canadian price level have?
a. It will decrease real GDP demanded in Canada.
b. It will decrease Canadian exports.
c. It will increase money demand in Canada.
d. It will decrease Canadian imports.
26. As the price level decreases, what is the impact on interest rates and investments?
a. Interest rates and investments both increase.
b. Interest rates and investments both decrease.
c. Interest rates decrease and investments increase.
d. Interest rates increase and investments decrease.
27. What would be the impact on aggregate demand (AD) if both imports and exports fell?
a. AD would fall if exports fell more than imports.
b. AD would decrease.
c. AD would increase.
d. AD would rise if exports fell more than imports.
28. When the price level rises, what happens to real output in the short run and long run as a result?
a. Real output tends to increase in the short run but not in the long run.
b. Real output tends to increase in the long run but not in the short run.
c. Real output tends to decrease in the short run but not in the long run.
d. Real output tends to increase in both the short run and the long run.
29. What effect explains why the short-run aggregate supply curve is positively sloped?
a. the real wealth effect
b. the misperception effect
c. the interest rate effect
d. the open economy effect
30. Starting from long-run equilibrium, what will a decrease in aggregate demand cause?
a. a recessionary gap in the short run and the long run
b. an inflationary gap in the short run and the long run
c. a recessionary gap in the short run
d. an inflationary gap in the short run

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31. If wages increase 10 percent while worker productivity increases 20 percent, what would we
expect the long-run aggregate supply curve to do?
a. shift left (an increase in aggregate supply)
b. shift right (an increase in aggregate supply)
c. shift right (a decrease in aggregate supply)
d. shift left (a decrease in aggregate supply)
32. In the short run, what is the impact of demand-pull inflation on unemployment and the price
level?
a. It increases unemployment but not the price level.
b. It increases the price level but not unemployment.
c. It decreases unemployment and increases the price level.
d. It increases both unemployment and the price level.

33. During a recession, governments tend to run budget deficits. What is the result of this on the real
interest rate and investment spending?
a. The real interest rate decreases and investment spending increases.
b. The real interest rate increases and investment spending decreases.
c. The real interest rate and investment spending both decrease.
d. The real interest rate and investment spending both increase.

34. In the Keynesian AE model, if the autonomous components of consumption, investment,

government spending, and net export spending total $200 billion, and the MPC is 0.8, what will
unplanned changes in inventory be when output is $990 billion?
a. -$10 billion
b. -$8 billion
c. $8 billion
d. $10 billion

35. Refer to the figure. Which of the following statements best describes output in relation to desired
spending at Y0?
a. Output is greater than desired spending, and inventories will rise.
b. Output is less than desired spending, and inventories will fall.
c. Output is greater than desired spending, and real wealth will fall.
d. Output is less than desired spending, and governments must decrease spending.