Question

Suppose that aggregate investment is equal to 400, the current account deficit is equal to 80,
and the government budget deficit is equal to 50. Private savings must equal .
A. 370
B. 360
C. 320
D. 130

2. Suppose the nominal GDP in an economy was 200 million dollars in 2009 and 240 million dollars
in 2019. The real GDP in 2019 is 234 million dollars at the 2009 prices. The real GDP in 2009
is 201 million dollars at the 2019 prices. Based on this information, if the base year is 2009, the
chain-weighted real GDP in 2019 is million chained (2009) dollars.
A. 233.1
B. 218.5
C. 234.0
D. 236.4

3. Why is forecasting real GDP in the longer term(say two or three years away) difficult?
A. There is no regularity in the frequency and amplitude of fluctuations in real GDP.
B. There is no expertise in forecasting the long-run trend in real GDP.
C. These is an absence of data that provides any information on future trends.
D. Current models are not sophisticated enough to conduct this exercise.

4. One example of a Phillips Curve would be a
A. positive relationship between deviations from trend in real and nominal interest rates.
B. negative relationship between deviations from trend in real and nominal interest rates.
C. positive relationship between deviations from trend in the inflation rate and the level of aggregate
economic activity.
D. negative relationship between deviations from trend in the level of prices and the level of
aggregate economic activity.

5. Which of the following is false about the consumer’s preference?
A. Preference is the rankings of consumption bundles in terms of the consumer’s satisfaction
brought by those bundles.
B. As the quantities of goods in bundles increase to pass certain levels, the consumer’s satisfaction
from the bundles will start to reduce.
C. A consumption bundle with zero amount of one good or both goods ranks lower than any
bundle with a positive amount of both goods.
Page 2 of 5
D. The consumer’s preference over different consumption bundles is never affected by any
change in prices of consumption goods.

6. Which of the following is false about the utility function?
A. The utility function is a mathematical representation of the consumer’s preference over different
consumption bundles.
B. The absolute levels of utility from different consumption bundles alone do not tell the preference,
the relative levels of utility from different bundles do.
C. The utility from a given consumption bundle can differ across different consumers.
D. The utility from a given consumption bundle is higher when prices of goods in the bundle
fall.

7. Two key properties of indifference curves are that .
A. an indifference curve slopes upward and is bowed out from the origin
B. an indifference curve slopes downward and is bowed in toward the origin
C. an indifference curve slopes downward and is bowed out from the origin
D. an indifference curve slopes upward and is bowed in toward the origin.

8. The diminishing marginal rate of substitution of leisure for consumption is equivalent to .
A. the property of indifference curves being bowed in toward the origin
B. the property of preferences that consumers like diversity in their consumption bundles but
can tolerate zero amount of leisure
C. saying that, as leisure increases, it takes fewer amount of leisure to substitute for one unit of
consumption
D. the slope of the indifference curve

9. In the production function of the representative firm, when the total factor productivity rises,
.
A. the marginal product of capital remains unchanged
B. the marginal product of labor decreases
C. the slope of production function with varying labor input and fixed capital is larger
D. output is unaffected since capital and labor input do not change.

10. Suppose that the production function displays constant returns to scale, which of the following
is true about the marginal product of labor MPN?
A. MPN equals to the negative slope of production function when labor input Nd varies while
capital K is fixed.
B. MPN is slightly negative when Nd is infinitely large.
C. MPN is positive and large when labor input Nd is small, and decreases as Nd becomes larger.
D. MPN is smaller if capital stock K becomes larger.

11. In the closed-economy one-period macroeconomic model, which of the following statements
is false regarding the production possibilities frontier (PPF)?
A. When wage rate is at its equilibrium level, the representative firm’s profit is maximized everywhere
on the PPF.
B. The PPF is the technological relationship between consumption and leisure.
C. Points on the PPF show the maximum amount of leisure that can be consumed for given
amounts of consumption good.
D. Points on the PPF show the maximum amount of consumption good that can be produced
for given amounts of leisure.

12. In the closed-economy one-period macroeconomic model, in the presence of a distorting tax
on wage income, .
A. the consumer’s optimal condition no longer holds
B. the firm’s optimal condition no longer holds
C. in competitive equilibrium, the marginal rate of substitution of leisure for consumption is
greater than the marginal rate of transformation of leisure into consumption
D. the outcome implied by competitive equilibrium deviates from that defined by the Pareto
optimality

Answer 1

1) The savings- investment identity in an open economy is given by:

S= I+(X-M)

Investment= 400

Current account deficit= 80

Thus, S= 400- 80= 320

This is the total savings

Now, total savings= private saving +public saving.

Private saving= 320- (-50)= 370

The correct option is a)370

2) The Growth rate using the chain weighted rule is given by the formula

=

Putting the values,

The growth rate becomes= 18.20%

The increase in the nominal GDP= 200*18.20% =36.40

Thus the correct option is 200 +36.4 =236.4

3) Forecasting Real GDP in the lng term is difficult because, it is not possible to predict the fluctuations in the real GDP.

Thus the correct option is c.

4) One example of phillips curve is,  negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.