Economics 105

Fall 2019

Dr. Martin Santamaria

Student Name:_____________________________________

Student ID:________________________________________

Economics 105
1st Midterm Examination
Fall 2019

Instructions:

a. You have 1 hour and 50 minutes to finish your exam. Write your name and ID number on the
upper left corner of this page.
b. Confirm that your test has 11 pages. The last two pages can be used as scratch paper. You may
detach any of the two last pages.
c. Use a pen to write your answers. You give up your right to a regrade if you choose to use a
pencil. With you, you should only have a pen, and a calculator.
d. Show ALL your work.
e. The table below indicates how points will be allocated on the exam. You can answer the
questions in any order you like. Use your time carefully and efficiently.

Question Points Your Score

MC 48
SA 1 14
SA 2 20
SA 3 10
SA 4 8
Exam Total 100

f. You are not allowed to use your cell phone during the exam. Please, turn off your cell phone
and put it away. If you are found using a cell phone during the examination, you will be
considered in violation of academic integrity, and you will be reported to the Academic Integrity
Office.
g. Once you started the exam you are not allowed to leave the room until you turn in your exam.
h. KEEP YOUR EYES ON YOUR OWN PAPER, AND KEEP YOUR PAPER OUT OF VIEW OF YOUR
NEIGHBORS.
 Economics 105

Fall 2019

Dr. Martin Santamaria

Part I. Multiple Choice Questions (48 points total, 3 points each)

Please, write your answers on the space provided below:

1.______ 2. ______ 3.______ 4._______ 5._______ 6.________

7.______ 8.______ 9._______ 10.______ 11.______ 12._______

13._____ 14.______ 15._______ 16.______

1. The average rent in Vancouver in October 2008 was 950 CAD per month, in October 2018 the average
rent had increase to 1400 CAD per month a 48% increase. During the same period the inflation rate in
Vancouver was 13%. The real cost of housing in the period increased by:

A. 48%.
B. 35%.
C. 15%.
D. None of the above.

2. An economy produces 500 tables in a given year and each table cost $100. Household purchase 100
tables out of which 50 are imported. Business purchase 200 domestically produced tables. The
government buys 100 domestically produce tables and 50 domestically produced tables are sold abroad.
Then the change in inventories by firms is given by

A. +10,000
B. -10,000
C. +30,000
D. None of the above

3. A farmer sells $100 worth of corn to a tortilla factory. The tortilla factory sells $500 worth of tortillas
to a taco restaurant and the restaurant sells $1000 worth of tacos to its customers. Then the value
added by the tortilla factory is ________ and the GDP of the economy is given by _________.

A. $500, $1600
B. $500, $1000
C. $400, $1600
D. $400, $1000
 Economics 105

Fall 2019

Dr. Martin Santamaria

4. GDP equals the market value of:

A. intermediate goods
B. final goods
C. intermediate goods and services
D. final goods and services
E. all goods and services

5. Which of the following would be included in the domestic product of the USA.

A. Toyota cars produced in USA bought by Canadian consumer.

B. Toyota cars produced in Japan sold in USA.
C. Maple syrup produced in Canada sold in USA.
D. Ford cars produced and bought in Mexico.

6. Real GDP measures the _________ of production and nominal GDP measures the __________ of
production:

A. current dollar value; physical volume

B. current dollar value; current dollar value
C. physical volume; current dollar value
D. physical volume; physical volume

7. The unemployment rate increasing could be a sign of:

A. The economy is entering a recession.

B. It has become increasingly difficult to find jobs.
C. Due to hard economic conditions people drop out of school to look for jobs
D. All of the above

8. The CPI was 270 in 2013, 320 in 2018. The starting salary for an accountant was $40,000 a year in 2013.
How much is that in 2018 $ (to the nearest $)?

A. $40000
B. $47407
C. $39,835
D. $48,949
E. None of the above.
 Economics 105

Fall 2019

Dr. Martin Santamaria

9. Suppose the number of people ages 16 years and older in different categories is as follows:

Working full-time 100

Working part-time 30

Not currently employed, but actively looking for work 7

Retired 15

Housewife 40

What is the unemployment rate in this economy?

A. 5.4 %
B. 7.7 %
C. 7.1 %
D. 3.6 %
E. 5.1%

10. The CPI in year one equaled 100. The CPI in year three equaled 121. The yearly rate of inflation
between years one and three was _________ percent.
A. 21
B. 10.5
C. 10
D. None of the above.

11. Suppose the nominal interest rate is 7% and the rate of inflation is 3%. Then the real interest rate is
approximately:

A. 10 %
B. 4%
C. 21 %
D. 0%

12. A country’s average annual growth of GDP is 3% per year. At this rate, approximately how long will
it take GDP to double?

A. 7 years
B. 22 years
C. 33 years
D. 200 years
E. Not enough information is given to answer this question
 Economics 105

Fall 2019

Dr. Martin Santamaria

13. If the actual inflation rate is higher than expected, this:

A. This will benefit lenders and hurt borrowers in the economy

B. It will benefit borrowers and hurt lenders in the economy
C. Both borrowers and lenders will be worse off.
D. Both borrowers and lenders will be better off.

15. A reason why some economies have a higher income per capita growth than others is :

A. Higher level of Human Capital

B. Higher Population growth.
C. The income share of labor is higher than income share of capital
D. All of the above

16. If the employment-population ratio is growing at 2 percent per year and average labor productivity
is growing at 3 percent per year, how fast is GDP per capita growing?

A. Not enough information is given to answer this question

B. 1%
C. 2%
D. 5%
E. 6%
 Economics 105

Fall 2019

Dr. Martin Santamaria

Short Answer Questions (52 points)

Question 1 (14 points)
a) (6 points) Name and explain two of the costs associated with high inflation that we discussed in class?
Explain.

b) (4 points) What is deflation? Is deflation beneficial to society? Discuss.

c) (4 points) What is the goal of the monetary authority (FED, Bank of Canada, etc…) when trying to
influence the inflation? Explain
 Economics 105

Fall 2019

Dr. Martin Santamaria

Question 2 (20 points)

Suppose we are given the following information on production and prices of Econlandia:

Year Hair Cuts Price of a Hair Hamburgers Price of a

Cut Hamburger
2009 100 10 dollars 200 5 dollars
2019 120 20 dollars 240 10 dollars

a) (5 points) What is the Nominal GDP of Econlandia in 2009?

b) (5 points) What is the Real GDP of Econlandia in 2019 in 2009 USD?

c) (10 points) Suppose that a typical consumer of Econlandia buys 20 hamburgers and 1 haircut per
month. What is Econlandia’s Consumer Price Index (CPI) in 2019 using 2009 as base year?
 Economics 105

Fall 2019

Dr. Martin Santamaria

Question 3 (10 points)

Based on the following information

Population 16 and older 10,000

Participation rate 60%
Employed population 5,400

a) (5 points) What is the unemployment rate in this town?

b) (5 points) Is it possible for the unemployment rate to go down even if the economy is not
experiencing a strong economic recovery? Explain
 Economics 105

Fall 2019

Dr. Martin Santamaria

Question 4 (8 points)

You are appointed as Argentina’s new president and your goal is to put the country on a path to
economic development. This means you would like to implement policies that increase the countries
income per capita over time

Name two policies that you would implement and discuss why you think your policies will be successful
in increasing income per capita.
 Economics 105

Fall 2019

Dr. Martin Santamaria

SCRATCH PAPER
 Economics 105

Fall 2019

Dr. Martin Santamaria

SCRATCH PAPER