Question

SECTION A.

MULTIPLE CHOICE QUESTION : ANSWER ALL QUESTIONS

1. The opportunity cost of holding money _________

A. is zero because money is not an economic resource.

B. varies inversely with the interest rate.

C. varies directly with the interest rate.

D. varies inversely with the level of economic activity.

2. The consumer price index is used to ___________

A. monitor changes in the level of wholesale prices in the economy.

B. monitor changes in the cost of living over time.

C. monitor changes in the level of real GDP over time.

D. monitor changes in the stock market.

3. Gross domestic product measures __________

A. income and expenditures

B. income but not expenditures.

C. expenditures but not income.

D. neither income nor expenditures.

4. According to the circular-flow diagram GDP ______________

A. can be computed as the total income paid by firms or as expenditures on final goods and services.

B. can be computed as the total income paid by firms, but not as expenditures on final goods and services.

C. can be computed as expenditures on final goods and services, but not as the total income paid by firms.

D. cannot be computed as either total income paid by firms or expenditures on final goods and services.

5. Which of the following is not a question that macroeconomists address?

A. Why is average income high in some countries while it is low in others?

B. Why does the price of oil rise when war erupts in the Middle East?

C. Why do production and employment expand in some years and contract in others?

D. Why do prices rise rapidly in some periods of time while they are more stable in other periods?

6. The term “recession” describes a situation where _____________

A. inflation rates exceed normal levels.

B. output and living standards decline.

C. an economy’s ability to produce is destroyed.

D. government takes a less active role in economic matters.

7. Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as _________

A. cyclically unemployed.

B. frictionally unemployed.

C. structurally unemployed.

D. employed

8. Inflation means that ____________

A. all prices are rising, but at different rates.

B. all prices are rising and at the same rate.

C. prices on average are rising, although some particular prices may be falling.

D. real incomes are rising.

9. Macroeconomics is mostly focused on _____________

A. the individual markets within an economy.

B. only the largest industries in the economy.

C. the economy as a whole.

D. why specific businesses fail.

10. The phase of the business cycle in which real GDP declines is called _____

A. the peak.

B. an expansion.

C. a recession.

D. the trough.

11. Inflation affects ______

A. both the level and the distribution of income.

B. neither the level nor the distribution of income.

C. the distribution, but not the level, of income.

D. the level, but not the distribution, of income.

12. The curve that shows the quantity of goods and services that firms produce and sell _________.

A. as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-demand curve

B. as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-supply curve

C. as it relates to the overall price level is called the aggregate-demand curve

D. as it relates to the overall price level is called the aggregate-supply curve

13. The unemployment rate measures, at a point in time, the ________.

A. percentage of workers who do not have a job

B. percentage of workers who do not have a job but are looking for work

C. percentage of workers who stop working

D. percentage of workers who are looking for work

14. When households have very low savings ________.

A. investment decreases

B. they are less able to cope with severe economic downturns

C. bankruptcies increase

D. all of the above

15. Which of the following would an economist consider to be investment?

A. Boeing building a new factory

B. Oprah buying a $10 million home from a fellow celebrity

C. A stockbroker buying 10,000 shares of Starbucks stock

D. Tony Fernandes sold Air Asia to the Malaysian government

16. Other things the same, as the price level decreases it induces greater spending on ____.

A. both net exports and investment

B. net exports but not investment

C. investment but not net exports

D. neither net exports nor investment

17. Productivity is defined as the quantity of ___________________________.

A. labor required to produce a nation’s GDP

B. labor required to produce one unit of goods and services

C. goods and services produced from each unit of labor input

D. goods and services produced per unit of time

18. A recession is always associated with __________

A. the end of a war.

B. slowly growing real GDP.

C. rising inflation.

D. declining real GDP.

19. GDP is defined as the ___________________

A. value of all goods and services produced within a country in a given period of time.

B. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

C. value of all final goods and services produced within a country in a given period of time.

D. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

20. In a simple circular-flow diagram, total income and total expenditure are _________

A. never equal because total income always exceeds total expenditure.

B. seldom equal because of the ongoing changes in an economy’s unemployment rate.

C. equal only when the government purchases no goods or services.

D. always equal because every transaction has a buyer and a seller.

21. In a simple circular-flow diagram, firms use the money they get from a sale to _____

A. pay wages to workers.

B. pay rent to landlords.

C. pay profit to the firms owners.

D. All of the above are correct.

22. The labor force includes ____________

A. employed workers and persons who are officially unemployed.

B. employed workers, but excludes persons who are officially unemployed.

C. full-time workers, but excludes part-time workers.

D. permanent employees, but excludes temporary employees.

23. A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a ________.

A. bond

B. stock

C. mutual fund

D. All above are correct

24. Which of the following is not included in GDP?

A. carrots grown in your garden and eaten by your family

B. carrots purchased at a farmer’s market and eaten by your family

C. carrots purchased at a grocery store and eaten by your family

D. None of the above are included in GDP.

25. Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

A. Why do prices in general rise by more in some countries than in others?

B. Why do wages differ across industries?

C. Why do national production and income increase in some periods and not in

others?

D. How rapidly is GDP currently increasing?

Answer 1

1. The correct answer is varies directly with the interest rate. This is because more the interest rate, more is the money lost on the savings. Hence, the opportunity cost rises as the rate of interest increases.

2. The correct answer is that Consumer Price Index monitors the changes in cost of living over time. This is because CPI is calculated on the basis of prices of basket of goods. Changes in CPI measures changes in the prices of these goods. Changes in prices suggest the affect on purchasing power which also affects the living standards or cost of living.

3. The correct answer is incomes and expenditutes. This is because GDP can be calculated using the three approaches: income approach, expenditure approach and value addition approach. The value of GDP comes out to be similar from all three approaches.

4. The correct answer is A. The reasoning is the same as guven in 3rd question.

(Only 4 questions in detail as per guidelines.)

5. B. This is because the question of oil is regarding one industry only.

6. B. Recession is when output and living standards decline.

7. B. Frictionally unemployed.

8. C. Prices on average are rising but some might be declining.

9. C. The economy as a whole.

10. C. A resession.

11. A. Both the level and distribution of income.

12. D. Aggregate supply curve

13. B. Who do not have a job but are looking for it.

14. A. Investment decreases. This is because in equilibrium, savings equal investment.

15. A. Building a new factory. This is because addition of physical stock of capital is inveatment.