Sample Questions Midterm

1) Your firm has capital stock of $10 million and a depreciation rate of 15%. Gross
investment is $3 million. How much is the net investment?
A) $1.5 million
B) $2.0 million
C) $2.5 million
D) $3.5 million
Answer: A

2) Suppose velocity is 3, real output is 9000, and the price level is 1.5. What is the level of
real money demand in this economy?
A) 2000
B) 3000
C) 6000
D) 30,000
Answer: B

3) If real money demand doubles while the nominal money supply is unchanged, what
happens to the price level?
A) The price level increases by a factor of four.
B) The price level doubles.
C) The price level is unchanged.
D) The price level falls by one-half.
Answer: D

4) Marvin's Metal Company produces screws that it sells to Ford, which uses the screws as a
component of its cars. In the national income accounts, the screws are classified as
A) inventory.
B) final goods.
C) capital goods.
D) intermediate goods.
Answer: D

5) National saving equals private saving plus government saving, which in turn equals
A) C + S + T.
B) GDP + C + G.
C) GDP + NFP.
D) GDP + NFP - C - G.
Answer: D

6) What's the most common way for a central bank to reduce the money supply?
A) Collect higher taxes
B) Sell bonds to the public
C) Buy bonds from the government
D) Buy bonds from the public
Answer: B
7) Which of the following is most likely to lead to a decrease of 10% in the nominal demand
for money?
A) An increase in real income of 5%
B) A decrease in real income of 5%
C) A decline of 10% in the price level
D) An increase of 10% in the price level
Answer: C

8) In the absence of productivity growth, in a steady-state economy

A) output per worker and consumption per worker remain constant over time.
B) output per worker remains constant over time, but consumption per worker grows over
time.
C) output per worker grows over time, but consumption per worker remains constant over
time.
D) output per worker and consumption per worker both grow over time.
Answer: A

9)

Each dot represents Log(Net State Domestic Product per Capita) – Log of NSDPpc for
Indian states over various years.
What can be concluded by looking at the above figure based on the data between 1971-2009?
A) NSDPpc across states diverged
B) NSDPpc across states converged
C) Can’t Say
D) NSDPpc isn’t used for studying convergence
Answer: A
10) If the price index was 100 in 2000 and 120 in 2010, and nominal GDP was $360 billion
in 2000 and $480 billion in 2010, then the value of 2010 GDP in terms of 2000 dollars would
be
A) $300 billion.
B) $384 billion.
C) $400 billion.
D) $424 billion.
Answer: C