University of Sharjah Principles of Macroeconomics

Department of Economics First Mid-term Exam March 9, 2008

Instructor: Dr. Osama Sweidan (40=20 points)
Part One: Circle the Most Appropriate Answer Weight (16/40)

1) The fundamental problem of economics is:

A) The law of increasing opportunity costs.
B) The scarcity of resources relative to human wants.
C) How to get government to operate efficiently.
D) How to create employment for everyone.
Answer: B

2) Opportunity cost may be defined as the:

A) Goods or services that are forgone in order to obtain something else.
B) Dollar prices paid for final goods and services.
C) Dollar cost of producing a particular product.
D) Difference between wholesale and retail prices. Answer:
A

3) A point on a nation's production-possibilities curve represents:

A) An undesirable combination of goods and services.
B) Combinations of production that are unattainable, given current technology and resources.
C) Levels of production that will cause both unemployment and inflation.
D)The full employment of resources to achieve a particular combination of goods and services.
Answer: D

Use the following to answer question 4:

Figure (1)

B
O U TPU T O F M O PS

E
D

O U T P U T O PF P B 1 PR PO 2 O M S

4) Using Figure (1), an increase in the capacity to produce can be represented by a

movement from:
A) Point A to point B. C)Point A to point C.

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B) Point B to point C. D)Point C to point F. Answer: D

5) Suppose SUVs cost consumers (price) $35,000 and trucks cost consumers (price) $20,000.
What contribution does the production of 100 SUVs and 100 trucks make to the GDP?
A) $55,000. B) $3,500,000. C) $5,500,000. D) $550,000. Answer: C

6) Which of the following contributes to the difference between GDP and GNP for the
United States?
A) Goods that are produced by U.S. owned companies operating abroad.
B) Goods that are produced by foreign countries and imported into the United States.
C) Goods that are produced by U.S. owned companies in the United States and exported.
D) All of the above. Answer: A

7) If population and GDP both increase for a particular country over a period of time, but
population grows more rapidly than GDP, then:
A) GDP per capita has decreased. C)All citizens of the country are worse off.
B) The standard of living has increased. D)Real GDP has decreased. Answer: A

8) Which of the following statements is true?

A) The production possibilities of the economy define the limits to real income.
B) Every dollar spent on goods and services becomes income to factors of production.
C) Market value of incomes must equal the market value of total output.
D) All of the above.
Answer: D

9) Which of the following is an income item in the computation of the GDP?

A) Consumer goods and services. C) Rents.
B) Investment in plant and equipment. D)Imports. Answer: C

10) Disposable income is:

A) The amount households have to spend or to save.
B) The amount the household sector earns in producing the GDP.
C) The amount households have left to spend after savings are subtracted.
D) Personal income plus income taxes. Answer: A

11) Unemployment is defined as:

A) The inability of labor force participants to find jobs.
B) The inability of citizens to find jobs that utilize their capabilities.
C) The proportion of the labor force that is unemployed.
D) A decrease in the labor force. Answers: A and
B

12) Okun's Law says:

A) Two percent more unemployment is estimated to equal one percent less output.
B) One percent more unemployment is estimated to equal two percent less output.
C) Supply creates its own demand.

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D) The demand for labor is derived from the goods it produces. Answer: B

13) If the population of a country is 180,000 people, its labor force consists of 95,000 people,
and 27,000 people are unemployed, the unemployment rate is:
A) 15.0 percent. B) 28.4 percent. C) 67.8 percent. D) 6.7 percent. Answer: B

14) Frictional unemployment could result from each of the following except:
A) The reallocation of employees to growing industries.
B) The movement of employees out of declining industries.
C) The opportunity for people to leave jobs in which they are underemployed.
D) The inability of people to find work during certain seasons of the year. Answer: D

15) Find the unemployment rate from the following data: frictional unemployment = 5,
structural unemployment = 16, cyclical unemployment = 15, seasonal unemployment = 4,
discouraged workers = 10, employed workers = 80.
a. 17.5% b. 33.3% c. 38.5% d. 41.6% e. 43.3% E

Use the following to answer question 16:

Table (1) Value of Transaction

of Producing Bread
Stages of Production Value of
Transaction ($)
Farmer 0.24
Miller 0.40
Bakery 0.72
Retail Store (final 0.87
stage)

16) Table (1) shows the value of transaction of producing one kilogram of bread, the value
of the final good (value added)and the value of the intermediate good, respectively, are:

A) ($0.72; $0.87) B) ($0.87; $1.36) C) ($0.87; $2.23) D) ($0.72; $2.23)

Answer: B

Part Two: True / False Questions: State whether the following statements
True or False. Weight (4/40)

1) The difference between gross domestic product (GDP) and net domestic product (NDP) is
called the depreciation.

2) Intermediate goods are included and final goods are not included in calculating gross domestic
product.

3) Structural unemployment is a special type of cyclical unemployment.

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 4) Macroeconomics studies economy wide issues like inflation and unemployment.

Part Three: Solving Problems

Problem Set One: Table below shows the National Income Accounts of the “Northwest”
Country. Weight (10/40)
Amount (Billions of Dollars)
Private Consumption 4000
Gross Private Domestic Investment 1000
Depreciation (Consumption of fixed capital) 500
Income Receipts from abroad (Income Receipts) 400
Government Consumption and Gross Investment 1000
Personal Income Tax 900
Net Export 500
Dividends 100
Indirect Business Taxes 800
Contribution to Social Security 600
Government Transfer Payment 600
Income Payments to abroad (Income Payments) 100
Corporate Profits 1500

1) What is Gross Domestic Product (GDP)? (By using Expenditure Approach)

2) What is Gross National Product (GNP)?
3) What is Net National Product (NNP)?
4) What is National Income (NI)?
5) What is Personal Income (PI)?
Note: SHOW YOUR WORK

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Problem Set Two: The Table below shows the nominal GDP and GDP deflator of “East
Island” for the period 2005-2007. Weight (6/40)
Year Nominal GDP GDP Deflator Real GDP Economic
in Billion U.S. Base Year 2004 Growth
Dollars
2005 115 110
2006 130 120
2007 135 130

Fill in the table (calculate) the following two items:

1) Real GDP for each year?
2) Annual economic growth rate?

Part Four: Essay Answer the following question.

Question one: Does it possible to calculate the economic growth by using NOMINAL GDP?
Why? Weight (4/40)

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 ANSWER SHEET of Part ONE and TWO

Question A,B,C,D,E Question

Number Number
1 9

2 10

3 11

4 12

5 13

6 14

7 15

8 16

Name:--------------------------------------------------- ID No.---------------------------
Part one: Multiple Choices: Write down the letter of the correct answer in the blank opposite to each
question.

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Part Two: True / False Questions: Write down either TRUE or FALSE in the blank opposite
to each question.
Question True / False
1
2
3
4

Good Luck