University of the Philippines

SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

MULTIPLE CHOICE
Instructions: Choose the letter of the best answer to each question.

1. Macroeconomics is the study of the economy as a whole. Which of the following questions is NOT
primarily addressed by macroeconomics?

A. How do taxes levied on fuel products affect consumption in an economy?

B. Why do prices sometimes rise rapidly while at other times they are more stable?
C. Why do production and employment expand in some years and contracts in others?
D. How can the government promote rapid growth in incomes and low inflation?

2. In an attempt to understand the Great Depression in the 1930s, a British economist named John
Maynard Keynes developed a macroeconomic theory that would explain short-run economic
fluctuations. Which of the following statements does NOT support Keynes’ approach to
macroeconomic policy?

A. Macroeconomic equilibrium can still be achieved even if aggregate demand appeared

insufficient to maintain production at its full-employment level.
B. A combination of fiscal and monetary policies can stabilize aggregate demand, and
thereby, production and unemployment.
C. Greater levels of government intervention, especially in a recession, are needed for
government spending to offset the fall in private sector investment.
D. Cyclical imbalances in employment and output would create opportunities that, if
pursued by individuals and entrepreneurs, would induce the economy to return to a
natural state of equilibrium.

3. Bong, a Keynesian, thinks that the economy will not return automatically to its full potential
because of the pandemic. Which of the following measures should the government do under an
unemployment equilibrium in order to spur aggregate demand?

A. Increase income taxes to support the lifestyle of politicians

B. Increase investment to productive activities like farm to market roads
C. Raise interest rates to make consumer and corporate debt more expensive
D. Lower the tax on critical components like medical equipment

4. The aggregate demand curve represents the total amount that different sectors willingly spend in
a given period of time at different aggregate price levels. Which of the following might cause a
leftward shift in the aggregate demand curve?

A. Greater spending on infrastructure

B. Pessimism about future economic conditions
C. Decrease in the availability of natural resources
D. Tax cuts
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

5. Which of the following is a likely result if the actual level of output falls short of its potential level?
A. High employment
B. High price level
C. High unemployment
D. High inflation rate

6. Which of the following current events corresponds to a monetary policy implemented by the
present administration?

A. The Bangko Sentral ng Pilipinas (BSP) recently hiked its inflation forecasts for 2018 to
further anchor inflation expectations.
B. Both the upper and lower chambers of Congress are pushing for the suspension of the fuel
tax.
C. The National Wages and Productivity Commission (NWPS) has yet to approve the
reported ₱ 25 increase in workers’ wages in Metro Manila.
D. The DSWD is set to distribute cash transfers amounting to 500 pesos to the 10 million
poorest Filipino families.

7. If the price of a pancake is ₱ 20 and the price of a hamburger is ₱ 25, then 5 pancakes contribute as
much to GDP as _____ hamburgers using the expenditure approach.

A. 2
B. 4
C. 6
D. 8

8. According to aggregate data, which is the largest component of GDP?

A. Investment
B. Government expenditures
C. Private consumption
D. Net exports

9. The ratio between nominal and real GDP is given by the:

A. Potential GDP
B. Actual GDP
C. GDP deflator
D. Gross national income
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

10. The difference between a nation’s gross domestic product (GDP) and its gross national product
(GNP) is given by:

A. Depreciation
B. Net factor income from abroad
C. National saving
D. Imports

11. While GDP is considered the most comprehensive measure of a nation’s economic output, it still
has its fair share of limitations. Which of the following is not included in the standard calculation
of GDP but is likely to be counted in the augmented national accounts?

A. Research and development

B. Infrastructure
C. Paid maternal leaves
D. Corporate profits

12. If you’re an economist from Tokyo, which of the following is/are included in Japanese GNP?

A. Toyota cars manufactured in Japan

B. Japanese expat working in Davao and sending money to his wife in Osaka
C. Chinese cartel selling drugs in Tokyo via the Yakuza
D. Earnings of locally owned restaurants in Hokkaido from American tourists

13. Bong, a special assistant, earns ₱ 1,000,000 a month. He spends ₱ 900,000 a month for the love of
his life. Which of the following is/are true?

A. The disposable income (𝒀𝒅 ) of Bong, a tax evader, is ₱ 1,000,000.

B. If Bong’s income increased by ₱ 100,000 and he uses all of it to pamper the love of his life,
his marginal propensity to save is equal to 1.
C. If Bong’s income increased by ₱ 100,000 and he uses all of it to pamper the love of his
life, his marginal propensity to consume is equal to 1.
D. Tatay Rudi, Bong’s partner, wants the government to remove all taxes. The heartbroken
Bong, believing that their ideological differences might mean he’s not enough for Rudi,
followed his lover and stopped paying taxes. If all people and firms follow Bong, the GDP
in the closed economy without government (assuming the government falls due to lack of
revenue) is 𝑌 = 𝐶 + 𝐼 + 𝐺 + 𝑁𝑋.
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

14. Using the graph below that shows the consumption of a representative individual, which of the
following statements is true?

A. At points X and Z, the individual’s disposable income is spent entirely on consumption.

B. The 45-degree line represents the corresponding savings the individual can make for each
level of consumption.
C. The savings function can be derived by taking the difference between the 45-degree line
and the consumption function C.
D. The vertical distance of point X from the horizontal axis is equal to savings.

15. The slope of the consumption function represents:

A. The fraction of an extra peso of income that the family would spend on consumption
B. The rule the family follows in deciding how much to consume
C. The amount of consumption expenditure associated with different levels of income
D. The considerable spread of consumption around the average level

16. Which of the following events might cause a reduction in personal consumption?
A. A stock market boom that makes people wealthier
B. An increased concern on retirement
C. A cut on value-added taxes
D. A receipt of income support from the government
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

17. Which of the following is an example of real private investment spending?

A. Governments when they purchase cement mixers for future road construction projects
B. Businesses when they build warehouses to store their produced goods
C. Households when they purchase houses that will appreciate in value over time
D. Investors when they buy or sell a section of a whole corporation

18. These factors might lead to an increase in investment spending, except:

A. Improvements in total production in the economy
B. Investment tax credits given to businesses
C. New technological inventions
D. Heightened political conflicts in the country
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

SHORT ANSWERS
Instructions: Give short answers (in 2 to 3 sentences if possible and/or with the required graph/s) to the
following questions. Be sure to put your complete answers in your answer sheet, including all graphs.

1. The Central Statistics Authority (CSA) and the Federal Bank of Oikoland jointly released a record
of the island’s output (in real terms) and price levels given by the table below:

Year Real GDP* CPI

2008 $2,950 84.44

2009 $2,680 106.30

2010 $2,700 100.00

2011 $3,540 88.89

2012 $3,620 91.85

*Using 2010 as the base year

a. Calculate the growth rate of real GDP between 2009 and 2010.
𝑅𝐺𝐷𝑃2010 − 𝑅𝐺𝐷𝑃2009
⟹ % RGDP Growth2010 = × 100%
𝑅𝐺𝐷𝑃2009
$2,700 − $2,680
⟹ % RGDP Growth2010 = × 100%
$2,680
⟹ % 𝐑𝐆𝐃𝐏 𝐆𝐫𝐨𝐰𝐭𝐡𝟐𝟎𝟏𝟎 = 𝟎. 𝟕𝟓%
b. Calculate the growth rate of real GDP between 2011 and 2012.
𝑅𝐺𝐷𝑃2012 − 𝑅𝐺𝐷𝑃2011
⟹ % RGDP Growth2012 = × 100%
𝑅𝐺𝐷𝑃2011
$3,620 − $3,540
⟹ % RGDP Growth2012 = × 100%
$3,540
⟹ % 𝐑𝐆𝐃𝐏 𝐆𝐫𝐨𝐰𝐭𝐡𝟐𝟎𝟏𝟐 = 𝟐. 𝟐𝟔%
c. What is the inflation rate for 2009?
𝐶𝑃𝐼2009 − 𝐶𝑃𝐼2008
⟹ % Inflation Rate2009 = × 100%
𝐶𝑃𝐼2008
106.30 − 84.44
⟹ % Inflation Rate2009 = × 100%
84.44
⟹ % 𝐈𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐑𝐚𝐭𝐞𝟐𝟎𝟎𝟗 = 𝟐𝟓. 𝟖𝟖%
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

d. What is the inflation rate in 2011?

𝐶𝑃𝐼2011 − 𝐶𝑃𝐼2010
⟹ % Inflation Rate2011 = × 100%
𝐶𝑃𝐼2010
88.89 − 100
⟹ % Inflation Rate2011 = × 100%
100
⟹ % 𝐈𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐑𝐚𝐭𝐞𝟐𝟎𝟏𝟏 = −𝟏𝟏. 𝟏𝟏%

2. Answer the succeeding questions using the table given below that shows some aggregate data for
the Philippines in 2011. Be sure to indicate the corresponding units of measure.

Gross Domestic Product of the Philippines (2011)

Private Consumption ₱ 7.18 trillion

Government Expenditures ₱ 0.93 trillion

Investment ₱ 2.11 trillion

Exports ₱ 3.02 trillion

Imports ₱ 3.51 trillion

Nominal GNI ₱ 12.88 trillion

Source: PIDS Database

a. Calculate the value of net exports.

⟹ NX 2011 = Exports − Imports
⟹ NX 2011 = ₱ 3.02 trillion − ₱ 3.51 trillion
⟹ 𝐍𝐗 𝟐𝟎𝟏𝟏 = − ₱ 𝟎. 𝟒𝟗 𝐭𝐫𝐢𝐥𝐥𝐢𝐨𝐧

b. Compute for nominal GDP in 2011.

⟹ NGDP2011 = C + I + G + NX
⟹ NGDP2011 = ₱ 7.18 trillion + ₱ 2.11 trillion + ₱ 0.93 trillion − ₱ 0.49 trillion
⟹ 𝐍𝐆𝐃𝐏𝟐𝟎𝟏𝟏 = ₱ 𝟗. 𝟕𝟑 𝐭𝐫𝐢𝐥𝐥𝐢𝐨𝐧

c. What is the value of net factor income from abroad (NFIA) in 2011?
⟹ NFIA2011 = NGNI2011 − NGDP2011
⟹ NFIA2011 = ₱ 12.88 trillion − ₱ 9.73 trillion
⟹ 𝐍𝐅𝐈𝐀 𝟐𝟎𝟏𝟏 = ₱𝟑. 𝟏𝟓 𝐭𝐫𝐢𝐥𝐥𝐢𝐨𝐧
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

d. With a GDP deflator of 164 in 2011 (with 2000 as the base year), compute for real GDP in
2011.
NGDP2011 ₱ 9.73 trillion
⟹ RGDP2011 = =
GDP Deflator 164
⟹ 𝐑𝐆𝐃𝐏𝟐𝟎𝟏𝟏 ≈ ₱ 𝟓𝟗 𝐛𝐢𝐥𝐥𝐢𝐨𝐧 𝐢𝐧 𝐜𝐨𝐧𝐬𝐭𝐚𝐧𝐭 𝟐𝟎𝟎𝟎 𝐩𝐫𝐢𝐜𝐞𝐬
e. With a GNI deflator of 165 in 2011 (with 2000 as the base year), compute for real GNI in
2011.
NGNI2011 ₱ 12.88 trillion
⟹ RGNI2011 = =
GNI Deflator 165
⟹ 𝐑𝐆𝐍𝐈𝟐𝟎𝟏𝟏 ≈ ₱ 𝟕𝟖 𝐛𝐢𝐥𝐥𝐢𝐨𝐧 𝐢𝐧 𝐜𝐨𝐧𝐬𝐭𝐚𝐧𝐭 𝟐𝟎𝟎𝟎 𝐩𝐫𝐢𝐜𝐞𝐬
3. Suppose that a rise in income from ₱ 50,000 to ₱ 60,000 leads to an increase in consumption from
₱ 40,000 to ₱ 48,000.

a. Showing your solution, solve for the marginal propensity to consume (MPC) and marginal
propensity to save (MPS).

The marginal propensity to consume (MPS) is the additional amount that people consume when
they receive an additional peso of disposable income:
𝐶2 − 𝐶1 ₱ 48,000 − ₱ 40,000
⟹ MPC = =
𝐷𝐼2 − 𝐷𝐼1 ₱ 60,000 − ₱ 50, 000
₱ 8,000
⟹ MPC =
₱ 10,000
⟹ MPC = 𝟎. 𝟖

Meanwhile, the marginal propensity to save (MPS) is the fraction of an additional peso of
additional income that goes to additional saving:
𝑆2 − 𝑆1 (𝐷𝐼2 − 𝐶2 ) − (𝐷𝐼1 − 𝐶1 )
⟹ MPS = =
𝐷𝐼2 − 𝐷𝐼1 𝐷𝐼2 − 𝐷𝐼1
(₱ 60,000 − ₱ 48,000) − (₱ 50,000 − ₱ 40,000) ₱ 12,000 − ₱ 10,000
⟹ MPS = =
₱ 60,000 − ₱ 50, 000 ₱ 10,000
₱ 2,000
⟹ MPS =
₱ 10,000
⟹ 𝐌𝐏𝐒 = 𝟎. 𝟐

b. In a closed economy, what is the mathematical relationship between MPC and MPS? What
explains such relationship?

In a closed economy, 𝐌𝐏𝐂 + 𝐌𝐏𝐒 = 𝟏 since an increase in one unit of income can only be either
consumed or saved.
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #2

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

c. What is the slope of the consumption function that could be derived from the given values?

The slope of the consumption function tells us how much consumption increases when
disposable income increases by one peso, which is also of the definition of the marginal propensity
to consume (MPC). Thus, the slope of the consumption function is 𝐌𝐏𝐂 = 𝟎. 𝟖.

d. Explain the following statement by illustrating each case: “Changes in disposable income lead
to movements along the consumption function, whereas changes in wealth or other factors lead to a
shift of the consumption function.”

The consumption function comprises of paired values of disposable income and consumption,
ceteris paribus, representing a correspondence between the two. By this, a new disposable income
corresponds to a new consumption level represented by another point in the consumption function.
Hence, a change in disposable income leads to a movement along the consumption function.

Meanwhile, changes in factors other than disposable income changes the entire relationship between
consumption and disposable income. For example, increases in wealth increases consumption at
each level of disposable income, shifting the entire consumption function outwards.

4. Assume no government and no international trade in a country. Show that measured savings is
equal to measured investment.

Let 𝒀 denote output (national product) in a simple closed-economy model (i.e. no international trade) with
no government. Since this is a closed economy, national income is equal to national output.

On the income side, earnings from producing output are either consumed or saved; hence:
⟹𝒀= 𝑪+𝑺
On the expenditure side, all output produced is defined either consumer goods or capital goods, where
consumption (𝑪) represents spending on consumer goods and investment (𝑰) denotes spending on capital
goods:
⟹𝒀= 𝑪+𝑰
Combining these equalities yields:
⟹𝒀≡ 𝑪+𝑺 =𝑪+𝑰
⟹𝑺=𝑰