MCQs ECON B

Question 1

2. If nominal GDP in 2018 is greater than nominal GDP in 2017, but real GDP in 2017 is equal to real GDP in 2018 then prices:a. must have fallen.
   b. must have risen.
   c. must have stayed the same.
   d. may have risen, fallen, or stayed the same
   because there is not enough information to
   determine what happened to real output

Answer 1

b

Question 2

3. Which of the following is an example of a “perverse good” that is captured in GDP? 

   a. New building projects that result from destruction in a war.
   b. Record shops closing down due to competition with itunes
   c. Pollution from cars in traffic jams
   d. All of the above

Answer 2

a

Question 3

10. In the exogenous growth model studied in class, long run growth in living standards must come from:
    a. Responsible monetary policy
    b. Constant increases in the capital stock
    c. Advances in productivity due to technological innovation
    d. Transfer of resources from poor to rich countries

Answer 3

c

Question 4

11. According to the production function studied in class, why might two countries have the same level of capital, but different output per person.
    a. The “richer” country has a lower savings rate than the poorer one.
    b. The richer country has a different, and more productive, production technology than the poorer one.
    c. The richer country had a better starting level of capital than the poorer one.
    d. Any of these may explain this.

Answer 4

b

Question 5

12. Which of the following would be a Keynesian prospective on business cycles.
    a. Business cycles are a fact of life. Because they are unpredictable the government cannot do anything about them.
    b. The economy is inherently stable and the government should get out of the way of business.
    c. The economy is inherently stable, bad monetary policy is at fault, and should be fixed to address the problem.
    d. The economy is inherently unstable, we need government to intervene with taxes and spending to stabilise it

Answer 5

d

Question 6

15. When and where did living standards start to rise permanently above subsistence levels?
    a. In the Middle East, around 9000BC, when the first cities were founded
    b. England, the mid 1600s AD during the industrial revolution and colonization
    c. Rome, circa 100BC, as the Roman Empire started expanding
    d. China, roughly 1000AD, when paper money was invented
    e. England, about 1800AD, during the industrial revolution

Answer 6

e

Question 7

17. In what way is the Malthusian economy “self correcting”?
    a. Increased output leads to population increases, eroding per person living standards.
    b. Increased output encourages decreased population, eroding per person living standards.
    c. Irrational exuberance, coming from rapid growth forms bubbles that eventually burst.
    d. None of the above

Answer 7

a

Question 8

18. If the European Central Bank purchases €1 Million in assets on the open market we would expect that the money supply will:
    a. Increase, by exactly €1 Million
    b. Decrease, by exactly €1 Million
    c. Increase, by more than €1 Million
    d. Decrease, by more than €1 Million

Answer 8

c

Question 9

20. What policy did Paul Volcker pursue in the early 1980s United States to fight inflation:
    a. Small increases in interest rates
    b. Small decreases in interest rates
    c. Large increases in interest rates
    d. Large decreases in interest rates

Answer 9

c

Question 10

21. Which of the following best describes a nominal anchor:
    a. Central banks hold nominal variables fixed to gain credibility.
    b. Central banks target a nominal variable in the long run consistently over time.
    c. Tight money supply weighs the economy down, slowing growth
    d. Central banks tighten money supply consistently to hold back inflation.

Answer 10

b

Question 11

22. Which of the following is not a cause of bubbles we discussed in class:
    a. Rapid improvements in production technology leading to an overheating of the economy.
    b. Herding behaviour by investors.
    c. Over-confidence about ability to beat the market
    d. Financial innovations that are poorly regulated

Answer 11

a

Question 12

24. What do we mean when we say “real” money balances relative to nominal money balances
    a. “Real” money refers to the actual currency rather than money that is created through fractional reserve banking.
    b. “Real” money is money backed by a physical commodity, like gold, rather than operating based on faith alone.
    c. “Real” refers to the actual spending power of money in goods and services.
    d. “Real” money refers to only liquid assets like demand deposits and currency and excludes other financial assets that take time to be converted to cash.
    e. None of the above

Answer 12

c

Question 13

27. In the money market discussed in class, what is the “price” of money?
    a. The current exchange rate
    b. The level of the consumer price index
    c. The real interest rate
    d. Unemployment caused by increasing the money supply

Answer 13

c

Question 14

28. Which of the following variables typically move together in a positive manner?
    a. A rise in consumption /A rise in GDP
    b. A rise in employment/A rise in GDP
    c. A rise in exports/A rise in GDP
    d. A rise in investment/A rise in GDP
    e. All of the above

Answer 14

e

Question 15

29. Define in algebraic terms private savings:
    a. Private Savings = C + I + G
    b. Private Savings = Y – C – I
    c. Private Savings = Y – C - G
    d. Private Savings = C + I + G + NX
    e. Private Savings = T – G

Answer 15

c

Question 16

30. Where M is quantity of money, P the price level, r interest rate and Y output, the price and quantity axes of the money market and AS/AD diagrams are respectively:
    a. r, Y and P, M
    b. r, M and P, Y
    c. r, M/P and P, Y
    d. P, Y and r, M

Answer 16

c

Question 17

31. According to the Solow Model of Growth why might a poor country have a lower GDP per capita than a rich country?
    a. Because the poor country started with a lower level of capital and has not yet reached long run equilibrium.
    b. Because the rich country has a higher savings rate.
    c. Because capital depreciates faster in the poor country.
    d. All of the above.

Answer 17

d

Question 18

Which of the following is a potential drawback of real GDP per capita as a measurement of relative wellbeing?

a. GDP in general correlates poorly with other measures of standard of living like health
b. real GDP per capita fails to account for changes in the price level
c. real GDP per capita doesn’t account for the overall size of GDP across countries
d. If not adjusted for purchasing power parity, real GDP per capita may not fully capture the difference in relative cost of living between two countries

Answer 18

d.

Question 19

What is meant by purchasing power parity

a. Purchasing power parity means two countries have reached equality, or parity, in their income.
c. Purchasing power parity reflects differences in income between two economies.
b. Purchasing power parity compares the cost of hamburgers between countries.
d. Purchasing power parity is used to adjust for differences in costs of living from one economy to another.

Answer 19

d

Question 20

Which of the following could not explain persistent (long run) differences in per-capita income according to the Solow growth model

a. Differences in savings rates between countries.
b. Differences in depreciation between countries.
c. Differences in physical capital between countries.
d. All of these could explain long run differences according to the Solow model.

Answer 20

c

Question 21

Which of the following would be most likely shift the aggregate demand curve:

a. Fears by firms of an upcoming recession reducing future investments
b. A new innovation leading to vastly higher productivity
c. Emigration of a large number workers
d. The new discovery of oil reserves within the country
e. Not of the above

Answer 21

a

Question 22

Based on our discussion of monetary policy in class, which of the following would you recommend a central bank do in response to a financial crisis?

a. Increase government spending projects, to prop up expenditure
b. Contract the money supply in order to keep inflation low
c. Expand the money supply to increase output, and loosen credit markets
d. Expand the money supply to increase interest rates, increasing investment returns
e. Contract the money supply to increase interest rates, increasing investment ret

Answer 22

c

Question 23

In response to a downturn, expansionary monetary policy aims to affect:

a. Only AS
b. Only AD
c. Both AS and AD
d. The production possibilities frontier
e. None of the above

Answer 23

b

Question 24

Why is central bank independence important?

a. Politicians would seek to boost the economy in the short-run by printing money
b. If politicians promised not to print money the public would not believe them because of time inconsistency
c. Politicians are focused on winning the next election and so will do whatever it takes to win, including printing money to build schools, hospitals etc.
d. All of the above
e. None of the above

Answer 24

d

Question 25

Using the money multiplier we derived in class if the central bank requires that banks hold 20% of money in reserve. Then what will be the effect of a €10Million open market sale on the money supply? a. Increase by €10Million b. Increase by €50Million c. decrease by €50Million d. decrease by €200Million e. Increase by €200Million f. Decrease by €10Million

Answer 25

d

Question 26

If interest rates rise then the demand for real money balances will: a. Rise, because people need more money to invest b. Rise, because people are wealthier c Fall, because the cost of holding money is higher d. Fall, because people are poorer

Answer 26

c