EC 102.

02
FINAL
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ID:

Instructions:

• Y ou have 80 minutes to complete the exam. There will be no extensions.

• The exam consists of 40 multiple choice questions. Each multiple choice question is worth
1 point for a total of 40 points.

• Use a pencil to mark your answers on the answer sheet. Make sure you write your name
and ID number on the answer sheet as well.

• Please mark the group of your test on the answer sheet under “Test Form.”

• No calculators, dictionaries or formula sheets are allowed.

• The use of cell phones is strictly prohibited. Make sure your cell phone is turned off and
inside your bag. Do NOT use your cell phone even for timekeeping purposes.

• This is a closed books/notes exam.

• Choose only one answer for each question.

• TWO WRONG ANSWERS WILL TAKE AWAY ONE CORRECT ANSWER.

• There is absolutely no talking during the exam.

• The proctors will NOT answer any questions.

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is likely to be true when the economy is in a boom?

A) The size of government expenditure multiplier is large.
B) The size of government expenditure multiplier is small.
C) The unemployment rate is high.
D) The inflation rate is negative.

2) The process by which the stock of equipment and structures available to an economy is increased by investment
is referred to as:
A) capital accumulation. B) investment growth.
C) autonomous growth. D) output expansion.

3) Mike lives and works as a musician in the U.S. However, he sometimes plays in concerts in foreign countries.
The money he earns from these concerts are treated as ________ in the U.S. current account.
A) transfer receipts B) exports
C) factor payments from foreigners D) imports

4) Mark can make 3 tables and 1 chair in a day while John can make 4 tables and 1 chair in a day. Which of the
following is true?
A) Mark has a comparative advantage in making tables.
B) Mark has an absolute advantage in making tables.
C) John has an absolute advantage in making tables.
D) John has a comparative advantage in making chairs.

5) A factory in Techland could not sell 20% of its output during a certain year due to a decrease in demand for its
product. Which of the following would have happened if it produced 20% less?
A) Techland's GDP would have been higher.
B) Techland's GDP would have remained the same.
C) Techland's trade deficit would have been less.
D) Techland's GDP would have been lower.

6) If the expansionary effect of additional government expenditure ________ the contractionary effect of the fall in
private investment, the labor demand curve ________.
A) exceeds; will remain unchanged B) equals; will remain at its initial position
C) exceeds; will shift to the left D) equals; will shift to the right

There are two countries - Earthland and Plutoland - who trade only with each other. Residents in Earthland purchased
buildings worth $10 billion in Plutoland during a certain year. None of the other transactions between the two countries
during that year involved purchase or sale of assets.

7) Refer to the scenario above. Based on this information, it can be concluded that ________.
A) Earthland ran a current account deficit during that year
B) Earthland experienced a current account surplus during that year
C) Plutoland experienced a current account surplus during that year
D) Earthland and Plutoland should stop trading with each other

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Lawland imports cell phones worth $1,000 billion, and exports coffee worth $820 billion in a year.

8) Refer to the scenario above. If Lawland's net factor payments from abroad equals zero and net transfer
payments from abroad is negative, ________.
A) Lawland is likely to experience a net outflow of assets
B) Lawland is likely to stop trading with its trading partners
C) Lawland is likely to experience a current account deficit
D) Lawland is likely to experience a current account surplus

9) If a country wants to keep a foreign currency overvalued against the domestic currency:
A) it will buy both the foreign and domestic currency.
B) it will sell both the foreign and domestic currency.
C) it will buy the domestic currency and sell the foreign currency.
D) it will buy the foreign currency and sell the domestic currency.

10) Which of the following is most likely to restore an economy to full employment, if it is operating below full
employment due to a decrease in net exports?
A) A decrease in investment in the economy
B) An increase in the interest rate
C) A decrease in the demand for goods and services in the economy
D) Devaluation of the domestic currency

11) If the dollar is undervalued against the peso, it implies that:

A) the exchange rate between the dollar and the peso is flexible.
B) quantity supplied of dollar in exchange of pesos is less than the quantity of dollars demanded in exchange
of pesos in the foreign exchange market.
C) quantity supplied of dollar in exchange of pesos exceeds the quantity of dollars demanded in exchange of
pesos in the foreign exchange market.
D) quantity of dollar supplied in exchange of pesos equals the quantity of dollars demanded in exchange of
pesos in the foreign exchange market.

12) Which among the following will happen if the Fed buys bonds from a private bank?
A) The private bank's total assets will decrease. B) The Fed's total liabilities will increase.
C) The Fed's total assets will decrease. D) The private bank's total assets will increase.

13) When a society's economic institutions provide secure property rights, set up a judicial system that enforces
contracts and upholds the law, allow private parties to sign contracts for economic and financial transactions,
and maintain relatively free entry into different businesses and occupations, the institutions in the society can be
said to be:
A) inclusive. B) extractive. C) exogenous. D) exclusive.

14) A bank in Checkland lends a sum of $100 billion to a business firm in Zoroland. Checkland makes a donation of
$5 million to a charity in Zoroland. A retail giant in Zoroland opens a new facility in Checkland that is worth
$100 billion. Total foreign direct investments in Checkland equal:
A) $205 billion. B) $100 billion. C) $200 billion. D) $105 billion.

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15) Identify the correct statement.
A) Countercyclical fiscal policy stimulates the economy during a recession by shifting the labor demand
curve to the left.
B) Countercyclical monetary policy slows down the growth rate of an economy during an expansion by
shifting the labor demand curve to the right.
C) Countercyclical fiscal policy stimulates the economy during a recession by shifting the labor demand
curve to the right.
D) Countercyclical monetary policy stimulates the economy during a recession by shifting the labor demand
curve to the left.

16) Everything else equal, if the dollar depreciates against the peso:
A) the U.S. will export more and import less. B) U.S. exports and imports will both increase.
C) the U.S. will import more and export less. D) U.S. exports and imports will both decrease.

17) If the Fed wants to lower the federal funds rate through open market operations, it ________.
A) increases tax rates B) sells bonds C) decreases tax rates D) buys bonds

18) Edward lives in England, and he makes a donation of $100,000 dollars to Food for the Poor, a charitable
organization in the United States. Edward's donation will be counted as a(n) ________ in England's current
account.
A) transfer payment B) export C) import D) factor payment

19) Gross Domestic Product is a measure of ________, not a measure of ________.

A) sales; production B) sales; consumption
C) income; production D) production; sales

20) If the labor demand curve shifts to the right due to a government policy during a recession, and if wages are
flexible, ________.
A) unemployment will increase B) real wages will increase
C) real wages will decrease D) prices will fall

21) Countries that borrow large amounts of money from foreign lenders prefer to:
A) have a high rate of unemployment. B) hold an overvalued currency.
C) hold an undervalued currency. D) have a low rate of inflation.

22) If the government of a country uses expansionary monetary policy:

A) its currency will depreciate.
B) its currency will appreciate.
C) its currency will initially appreciate and then depreciate.
D) its value of its currency in the foreign exchange market will not be affected.

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23) Which of the following is likely to be true of the nominal and the real exchange rates in the short run and in the
long run, if prices in two countries do not respond to exchange rate changes?
A) The real exchange rate and the nominal exchange rate between the currencies move proportionally in the
short run but not in the long run.
B) The real exchange rate and the nominal exchange rate between the currencies move proportionally in the
long run but not in the short run.
C) The real exchange rate and the nominal exchange rate between the currencies remain constant.
D) The real exchange rate and the nominal exchange rate between the currencies move proportionally in both
the short run and the long run.

24) Which of the following statements is true?

A) It is easier to defend an overvalued currency than an undervalued currency since it is possible to print
domestic currency and not foreign currency.
B) It is easier to defend an overvalued currency than an undervalued currency since it is possible to hold
large reserves of foreign currencies.
C) It is easier to defend an undervalued currency than an overvalued currency since it is illegal to print
domestic currency.
D) It is easier to defend an undervalued currency than an overvalued currency since it is possible to print
domestic currency.

25) Assuming all else equal, the ________, the lower the nominal interest rate.
A) lower the inflation rate B) higher the inflation rate
C) lower the income tax rates D) higher the income tax rates

26) The ________ is defined as the ratio of the dollar price of a basket of goods and services in the U.S., divided by
the dollar price of the same basket of goods and services in a foreign county.
A) ordinal exchange rate B) nominal exchange rate
C) real exchange rate D) expected exchange rate

27) If a $10 increase in government expenditure produces a change of $17 in gross domestic product, the value of
the government expenditure multiplier is ________.
A) 0.7 B) 170 C) 2.7 D) 1.7

28) Assume that the dollar price of a basket of goods in the U.S. is $4 and the Indian price for the same basket is 200
rupees. On the other hand, the dollar price of the Indian basket is $20. Given this information, the Indian price
for the Indian basket will be:
A) $1,200. B) $200. C) $1,000. D) $5.

29) Which of the following is an example of an automatic stabilizer during a recession?

A) An increase in interest rates due to a decrease in investment
B) An increase in money supply due to a decrease in bank deposits
C) A decrease in inflation due to an increase in consumption
D) A decrease in tax revenue due to an increase in unemployment

30) Everything else equal, a depreciation of the dollar will:

A) cause the GDP of the U.S. to fall. B) cause the GDP of the U.S. to increase.
C) cause the inflation rate in the U.S. to decrease. D) cause the net exports of the U.S. to decrease.

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31) ________ is the market value of production generated by the factors of production possessed or owned by the
residents of a particular nation.
A) Total Market Value B) Gross National Product
C) Net domestic product D) Gross domestic product

32) The transfer of short-term liabilities into long-term investments is called:

A) maturity transformation. B) intertemporal transformation.
C) investment restructuring. D) risk transformation.

33) An aggregate production function:

A) shows the relationship between a country's output and its price level.
B) shows the relationship between a country's GDP and its factors of production.
C) shows various quantities of two goods that can be produced at a given cost.
D) shows various combinations of labor and capital that can be used to produce a particular good.

34) ________ occurs when the Fed creates a large amount of reserves to buy long-term bonds from banks.
A) Money illusion B) Budgetary surplus
C) Monetary neutrality D) Quantitative easing

35) Which of the following statements is true?

A) Lack of information relating to the job market can lead to unemployment.
B) If the demand for labor exceeds the supply of labor, wage rates tend to fall.
C) If the supply of labor exceeds the demand for labor, wage rates tend to rise.
D) There is no voluntary unemployment at the equilibrium wage rate.

36) Hyperinflationary episodes are always related to extremely rapid growth of:
A) interest rates. B) money demand. C) real GDP. D) money supply.

37) When the ratio of domestic prices to foreign prices rises:

A) the real exchange rate appreciates even when the nominal exchange rate is constant.
B) the real exchange rate depreciates.
C) the real exchange rate appreciates only when the nominal exchange rate depreciates.
D) the real exchange rate appreciates only when the nominal exchange rate appreciates.

38) A short-run change in ________ is referred to as a business cycle.

A) the growth rate of output B) the currency exchange rate
C) the expenditure incurred by the government D) the aggregate price level

39) Which of the following is an example of a discretionary fiscal policy during a recession?
A) An increase in tax rates to increase revenue
B) A decrease in transfer payments to unemployed workers
C) A decrease in money supply to lower the federal funds rate
D) A temporary tax cut to boost consumption

40) One dollar could be exchanged for 55 rupees in 2013 and for 60 rupees in 2014. This implies that the:
A) dollar appreciated in 2014. B) real exchange rate did not change in 2014.
C) nominal exchange rate did not change in 2014. D) rupee appreciated in 2014.

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Answer Key
Testname: FINAL

1) B
2) A
3) C
4) C
5) D
6) B
7) B
8) C
9) D
10) D
11) B
12) B
13) A
14) B
15) C
16) A
17) D
18) A
19) D
20) B
21) B
22) A
23) A
24) D
25) A
26) C
27) D
28) C
29) D
30) B
31) B
32) A
33) B
34) D
35) A
36) D
37) A
38) A
39) D
40) A

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