Unit Title: Introduction to Macroeconomics University of Bristol

Unit Code: ECON10011

Unit Director: Dr. Katerina Raoukka
Lecturers: Dr. Luis Correia (3E1), Dr. Katerina Raoukka (2E8)
Problem Set 1
To be submitted on Monday 14th October 2013 at 10:00. Make sure that your work is
submitted to the right tutor.
Week 3 Starting: 14 October, 2013 Covering: Lectures 1-2

Section A: Multiple Choice
For questions 1-10, choose your answer and write the letter that represents it in the box
provided below. Where necessary choose the answer that fills in the blanks. No explanation
is needed for your answer.
Multiple
Choice
Answers
1 2 3 4 5 6 7 8 9 10


1. The ____________ economists believe that aggregate demand needs active guidance,
whereas the ____________ economists believe that aggregate demand can take care
of itself
a. Keynesian, Classical
b. Classical, Keynesian
c. Austrian, Classical
d. Monetarist, Keynesian
2. Which of the following is NOT a topic studied in Macroeconomics?
a. Gross Domestic Product
b. The unemployment rate
c. The price of IBM computers
d. The inflation rate
3. When economic activity declines, usually measured by a fall in real GDP for two
consecutive quarters, the economy is said to be in:
a. an expansion
b. a recovery
c. a recession
d. none of the above
4. An increase in the overall price level is known as
a. deflation.
b. recession.
10 marks
c. inflation.
d. stagflation.
5. Which of the following best describes aggregate demand for a closed economy in
the traditional macroeconomic models? Assume there is no government spending.
a. The amount firms and households are willing to spend on consumption and
investment.
b. The actual level of spending done in the economy by firms and households on
consumption and investment.
c. The summing up of all the spending on goods and services in the economy by
firms and households.
d. The average level of spending on goods and services in the economy by firms
and households.
6. Unlike Classical economists, Keynes thought that after a sudden fall in investment
spending:
a. The economy would quickly return to full-employment equilibrium.
b. The economy could contract by even more than the initial fall in spending
and get stuck there.
c. The market mechanism would automatically pull the economy out of a
recession.
d. None of the above.
7. In a closed economy with no government expenditure, aggregate behaviour is
a. the behaviour of each household and firm.
b. the behaviour of each individual.
c. the behaviour of all households and firms together.
d. none of the above.
8. Which of the following equals AD in an open economy
a.
b.
c.
d.
9. The fundamental principle in national income accounting is that:
a. production = expenditure = income
b. production = expenditure
c. expenditure = income
d. none of the above
10. Usually, the biggest component of AD is
a. investment.
b. government.
c. consumption.
d. exports.

Section B: Numerical Questions
For the following mathematical questions provide your workings and the result. Show all your
workings.
11. Nominal and Real GDP (I), 20 marks
Assume that a country produces only two goods: apples and oranges. The table below
provides information on the prices and quantities of the goods in period 2010-2012.

Year

2010 1 2 1 2
2011 2 2 2 4
2012 3 1 2 3

i) Compute the nominal GDP for each year. (2)
ii) Compute the real GDP for each year using 2010 as your base year. (4)
iii) Compute the real GDP for each year using 2011 and 2012 as your base years. (4)
iv) Compute the GDP deflator for each year using 2011 as a base year. (5)
v) Could the GDP deflator be used to measure inflation? If yes, show how. (5)

12. Nominal and Real GDP (II), 30 marks
Below is data for country A in 2010 at current prices (). Use this data to complete the
table below.

Consumption: 361,550
Investment: 125,710
Government Expenditure: 88,952
Exports: 146,776
Imports: 155,768
Variable 2010 2011 2012 2013
Nominal GDP (1) 609,319 (7) (11)
Real GDP
(2006 base
year)
(2) 528,439 (8) 553,403
%growth of
nominal GDP
n/a (3) 6.95% (12)
% growth of
real GDP
n/a (4) (9) (13)
Deflator 111.43 (5) (10) 124.99
%growth of
deflator
n/a (6) 4.16% (14)


50 marks
Section C: Short Answer
Decide whether each statement is true or false and briefly justify your answer.
13. Macroeconomics is concerned with inflation or deflation, output growth and
unemployment.
14. Hyperinflation and stagflation are two different names which refer to identical
economic conditions.
15. Nominal GDP is the best measure of economic activity
16. GDP deflator is an index of price inflation
17. The aggregate demand equation is the same when applied in an open or a closed
economy
Section D: Going On-Line
Pick a country that you find interesting and learn some basic facts about its economy. Summarise
these facts in a half-page essay.
Here are some websites you might find useful:
- CIA Factbook: www.cia.gov/cia/publications/factbook
- World Bank Dataset:
http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?source=wo
rld-development-indicators
- BBC Country Profiles: http://news.bbc.co.uk/1/hi/country_profiles/default.stm
Hint: Basic facts include a countrys
a. GDP, GDP per capita
b. Inflation rates
c. Unemployment rate
d. Aggregate Demand
etc.
End of Problem Set 1





25 marks
15 marks