TUM Total Production GDP And Production Question
Description
1 attachmentsSlide 1 of 1attachment_1attachment_1.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }
Unformatted Attachment Preview
Semester 2, 2021
***Practice Exam***
(Solutions)
As the title states, this is only a practice exam. In addition to this practice exam,
it is HIGHLY RECOMMENDED that you also cover all weekly problem sets
(tutorial question), associated video lectures and lecture notes, textbook
readings, etc.
Remember, your actual exam is and an e-exam and done via e-Assessment
platform. Go to: https://www.monash.edu/exams/electronic-exams/about
Page 1 of 16
Section A: 30 Multiple choice questions
Q1. 1. Total production in the economy is measured as the:
A)
B)
C)
D)
total number of goods and services produced in the economy.
market value of all final goods and services produced in the economy.
total number of goods produced in the economy.
total number of services produced in the economy.
Q2. If a German firm produces cars in the United States of America (USA), that
production should count toward:
A)
B)
C)
D)
the USA’s GNI.
Germany’s GDP.
the USA’s GDP.
It will not affect either the USA’s GNI or the USA’s GDP.
Q3. 6. If real GDP increases, we know for sure that:
A)
B)
C)
D)
prices have risen.
output has risen.
prices have risen but output has remained constant.
prices have remained constant.
Q4. Which of the following is most likely to be able to sustain economic growth in an
economy?
A)
B)
C)
D)
Sustained increases in the labour force participation rate.
Technological change.
Increases in capital per hour worked.
The accumulation of economic resources.
Q5. The demand for loanable funds has a ________ slope because the lower the
interest rate, the ________ number of investment projects are profitable, and the
________ the quantity of loanable funds demanded.
A)
B)
C)
D)
negative; greater; greater
negative; greater; lesser
negative; lesser; greater
positive; lesser; lesser
Q6. An increase in the real interest rate does which of the following?
A)
B)
C)
D)
Reduces the demand for loanable funds.
Reduces saving.
Reduces consumption spending.
Increases the demand for loanable funds.
Page 2 of 16
Q7. If firms are anticipating that the profitability of new investments will be lower in
the future, then the ________ curve for loanable funds will shift to the ________.
A)
B)
C)
D)
supply; right
supply; left
demand; right
demand; left
Q8. 13.Knowledge capital is ________ in production and ________. As a result,
firms ________ free ride.
A)
B)
C)
D)
non-rival; non-excludable; can
non-rival; excludable; can
rival; non-excludable; cannot
non-rival; non-excludable; cannot
Q9. Xavier lost his job for 6 months during a recession and has now been actively
looking for a new job ever since. How would the Australian Bureau of Statistics
classify Xavier?
a)
b)
c)
d)
out of the labour force
a discouraged worker
unemployed
None of these options are correct.
Q10. People who lost their jobs as hand-drawn animators because of the popularity
of computer-generated 3D animation are examples of people who are experiencing:
A)
B)
C)
D)
frictional unemployment.
structural unemployment.
cyclical unemployment.
seasonal unemployment.
Q11. If the CPI rises from 206.7 to 212.7 between two consecutive years, by how
much has the cost of living changed between these two years?
A)
B)
C)
D)
The cost of living has increased by 6%.
The cost of living has increased by 2.9%.
The cost of living has increased by 12.7%.
The cost of living has decreased by 6%.
Q12. Inflation that is ________ than what is expected benefits ________ and hurts
________.
A)
B)
C)
D)
less; creditors; debtors
less; debtors; creditors
greater; creditors; debtors
greater; creditors; no-one
Page 3 of 16
Q13. Which of the following statements is true?
A) When unanticipated inflation occurs regularly, the degree of risk associated
with investments in the economy decreases.
B) Inflation that is higher than expected benefits debtors, and inflation that is
lower than expected benefits creditors.
C) Inflation improves the balance of trade as exports appear relatively cheaper to
overseas buyers and imports become relatively more expensive.
D) There are no costs or losses associated with inflation when it is fully
anticipated
Q14. An increase in taxes will ________ consumption spending, and a decrease in
transfer payments will ________ consumption spending.
A)
B)
C)
D)
increase; increase
decrease; increase
increase; decrease
decrease; decrease
Q15. If firms are more optimistic that future profits will rise and remain strong for the
next few years, then:
A)
B)
C)
D)
investment spending will fall.
investment spending will rise.
investment spending will remain unaffected.
investment spending will rise at first, then fall.
Q16. On the 45°-line diagram, for points that lie above the 45° line:
A)
B)
C)
D)
planned aggregate expenditure is greater than GDP.
planned aggregate expenditure is less than GDP.
planned aggregate expenditure is equal to GDP.
planned aggregate expenditure is less than aggregate income.
Q17. How does a decrease in government spending affect the aggregate
expenditure line in Figure 1:
Page 4 of 16
A)
B)
C)
D)
It shifts the aggregate expenditure line upward.
It shifts the aggregate expenditure line downward.
It increases the slope of the aggregate expenditure line.
It decreases the slope of the aggregate expenditure line.
Q18. Which of the following correctly describes how an increase in the price level
affects consumption spending?
A) An increase in the price level raises real wealth, which causes consumption to
increase.
B) An increase in the price level decreases the amount of money a household
needs to buy goods and so raises the interest rate, which causes
consumption to increase.
C) An increase in the price level increases the amount of money a household
needs to buy goods and so raises the interest rate, which causes
consumption to increase.
D) An increase in the price level lowers real wealth, which causes consumption
to decrease.
Q19. If the price level in the domestic economy rises relative to the price level of
other countries, ceteris paribus, ________ will rise, ________ will fall, and ________
will fall.
A)
B)
C)
D)
imports; exports; net exports
net exports; imports; exports
net exports; exports; imports
exports; imports; net exports
Q20. The impact of a natural disaster on consumers in the economy can make them
very pessimistic about their future incomes. How would an increase in pessimism
affect the aggregate demand curve?
A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand
curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.
Q21. If more workers leave Australia to seek out better opportunities in another
country than new workers arriving into Australia, then this will:
A) shift the short-run aggregate supply curve of Australia to the left.
B) shift the short-run aggregate supply curve of Australia to the right.
C) move the Australian economy up along a stationary short-run aggregate
supply curve.
D) move the Australian economy down along a stationary short-run aggregate
supply curve.
Page 5 of 16
Q22. Which of the following will not shift the short-run aggregate supply curve?
A)
B)
C)
D)
A change in the price level.
Technological change.
A reduction in the price of raw materials.
A change in the wage rate.
Q23. Which of the following is the main goal of monetary policy in Australia?
A)
B)
C)
D)
Lowering the rate of unemployment.
Increasing the value of the Australian dollar relative to other currencies.
Economic growth.
Price stability.
Q24. Which of the following would be considered a fiscal policy action?
A) A city changes its rates of land tax.
B) A federal government subsidy for hybrid cars to encourage the purchase of
fuel-efficient cars.
C) Foreign aid given to Indonesia.
D) A tax cut designed to stimulate spending during an economic contraction.
Q25. Active changes in tax and spending by government intended to smooth out the
business cycle are called ________, and changes in taxes and spending that occur
passively over the business cycle are called ________.
A)
B)
C)
D)
automatic stabilisers; discretionary fiscal policy
discretionary fiscal policy; automatic stabilisers
automatic stabilisers; monetary policy
discretionary fiscal policy; conscious fiscal policy
Q26. Refer to Figure 2 below.
Page 6 of 16
If fiscal policy successfully moves the economy from point B to equilibrium at
potential GDP, this will:
A)
B)
C)
D)
increase the price level from P2 to P3.
increase the price level from P1 to P2.
decrease the price level from P3 to P2.
decrease the price level from P2 to P1.
Q27. Refer to Figure 3 below.
Given that the economy has moved from A to B in the graph above, which of the
following would be the appropriate fiscal policy to achieve potential GDP?
A)
B)
C)
D)
Increase interest rates.
Increase government spending.
Decrease interest rates.
Increase taxes.
Q28. The current account balance equals:
A) exports of goods – imports of goods + net primary income + net secondary
income.
B) exports of services – imports of services + net primary income + net
secondary income.
C) balance of trade on goods and services + net primary income + net secondary
income.
D) exports of services – imports of services + balance of trade on goods and
services + net secondary income.
Q29. In an open economy, expansionary monetary policy will cause:
A)
B)
C)
D)
consumption, investment, and net exports to rise.
consumption and investment to rise, but net exports will fall.
consumption to rise, but investment and net exports will fall.
consumption to fall, but investment and net exports will rise.
Page 7 of 16
Q30. Assume the exchange rate between the dollar and yen is ¥80= $1. Suppose
that the exchange rate changes to ¥105 = $1. As a result of the change, there will
be:
A. more Japanese goods sold in Australia and the same amount of Australian
goods sold in Japan.
B. more Japanese goods sold in Australia and less Australian goods sold in
Japan.
C. less Japanese goods sold in Australia and more Australian goods sold in
Japan.
D. the same number of Japanese goods sold in Australia and less Australian
goods sold in Japan.
Page 8 of 16
Section B: Short-answer questions
Question 1
Q1 (a). An artist buys scrap metal from the local steel mill as raw material for her
metal sculptures. Last year she bought $5000 worth of scrap metal. During the year
she produced 10 metal sculptures that she sold for $800 each to the local art gallery.
The gallery sold all of them to local art collectors at an average price of $1000 each.
For the 10 metal sculptures, what was the total value added of the artist and what
was the total value added of the gallery? [Enter your responses as integers].
Value added of the artist = ($800 x 10) – $5000 = $3000.
Value added of the local art gallery = ($1000 x 10) – ($800 x 10) = $2000.
Q1 (b). The following table illustrates values for real GDP for the year 2016 to 2019:
Year
2016
2017
2018
2019
(i)
Real GDP (in bill.)
1,256
1,289
1,278
1,298
Calculate the annual growth rate in real GDP for each year in the table
above. [Enter your response rounded to two decimal places]
annual growth rate in real GDP per capita in 2017 = 2.63%
annual growth rate in real GDP per capita in 2018 = -0.85%
annual growth rate in real GDP per capita in 2019 = 1.56%
Q1 (c). Use the following graph to answer the questions:
(i)
With the shift in the demand for loanable funds, what happens to the
equilibrium real interest rate and the equilibrium quantity of loanable
funds?
Page 9 of 16
Both the equilibrium interest rate and the quantity of loanable funds
increase.
(ii)
How can the equilibrium quantity of loanable funds increase when the real
interest rate increases? Doesnt the quantity of loanable funds demanded
decrease when the interest rate increases?
The demand for loanable funds increased. For a given demand for
loanable funds, an increase in the interest rate does decrease the
quantity of loanable funds demanded. In the figure, we see this effect
by the movement from point B to point C on demand curve D2,
following the shift in the demand curve from D1.
(iii)
How much would the quantity of loanable funds demanded have increased
if the interest rate had remained at i1?
If the interest rate had remained at i1, the quantity of loanable funds
demanded would have increased from L1 to L3.
(iv)
How much does the quantity of loanable funds supplied increase with the
increase in the interest rate from i1 to i2?
With the increase in the interest rate from i1 to i2, the quantity of
loanable funds supplied increases from L1 to L2
Q1 (d). Imagine you own a business and that during the next economic contraction
you lay off (sack) 10 per cent of your workforce. Once economic activity picks up,
why might you not immediately start re-hiring workers?
Your firm will most likely still be operating below capacity. Also, before rehiring
workers you will want to make sure that the increase in economic activityand
sales of your productcontinue for a significant period.
Page 10 of 16
Question 2
Q2 (a). Suppose between 2017 and 2018 the total number of people employed and
the unemployment rate both fell. Briefly explain how this is possible
This would be possible if there were a prolonged economic downturn
and the people who had been persistently unemployed (long-term
unemployed) took themselves out of the labour force.
They would then be classified as discouraged workers who are no
longer actively looking for paid employment.
This scenario could explain the fall in employment and the fall in the
unemployment rate at the same time
Q2 (b). Discuss the likely impact of each of the following on the unemployment rate:
(i) The length of time workers are eligible to receive unemployment benefit
payments doubles.
This is likely to increase the unemployment rate. Lengthening the time
workers are eligible to receive unemployment benefit payments lowers
the opportunity cost of job search.
(ii) The minimum wage is abolished.
This is likely to reduce the unemployment rate. Abolishing the minimum
wage lowers the wage from above the market wage for some workers.
(iii) Most workers join trade unions.
This is likely to increase the unemployment rate. An increase in union
membership pushes more wages above market wages.
(iv) More companies make information on job openings easily available on
Internet job sites.
This is likely to reduce the unemployment rate. Making information on job
openings more available reduces the search time involved in frictional
unemployment.
Q2 (c). Which is a greater problem: anticipated inflation or unanticipated inflation?
Briefly explain
Unanticipated inflation is the greater problem. Anticipated inflation can be
incorporated into nominal interest rates and nominal wage contracts.
Unanticipated inflation causes the actual real interest rate and actual real wage
rate received to differ from the expected real interest rate and the expected real
wage rate.
Page 11 of 16
Question 3
Q3 (a). For the following, indicate whether it would be larger or smaller
(i)
An increase in real GDP that increases imports will cause the value of the
multiplier to be ________: smaller
(ii) An increase in real GDP that increases the marginal propensity to consume
will cause the value of the multiplier to be ________: larger
(iii) An increase in real GDP causes the average tax rate paid by households to
decrease will cause the value of the multiplier to be ________: larger
Q3 (b). Use the diagram to answer the following:
(i)
What is the equilibrium value of real GDP [Enter your response as an
integer]: ________: 1200 billion
(ii) What is value of the MPC [Enter your response rounded to two decimal
places]: ________: 0.75
(iii) What is the value of the multiplier [Enter your response rounded to one
decimal place]: ________: 4.0
Q3 (c). Explain how each of the following events would affect the LRAS curve.
(i)
The price level increases in 2018, decreases in year 2019, then decreases
even further in 2020.
A higher/lower price level would cause a movement up (down) along the
LRAS.
(ii) The Australian government decides to increase migration into Australia in
order to increases the level of human capital.
Page 12 of 16
This is representative of an increase in the labour force would cause the
long-run aggregate supply curve to shift to the right.
(iii) Newer and improved machinery are imported into the economy
This is representative of an increase in the quantity of capital goods
would cause the long-run aggregate supply curve to shift to the right.
(iv) Artificial intelligence significantly increases productivity in the economy over
the next five years.
This is representative of technological change and would cause the longrun aggregate supply curve to shift to the right.
Q3 (d). In the early to mid-2000s the Australian economy was experiencing rapid
economic expansion, leading to an economic boom. By 2007, data indicated that
actual real GDP had exceeded potential GDP, and the unemployment rate was the
lowest it had been in over 30 years. Explain how it was possible for actual real GDP
to be greater than potential GDP at this time.
If firms operate beyond their normal capacity and structural and
frictional unemployment drop below their normal levels, then actual real
GDP can be above potential GDP.
During this period, actual real GDP was higher than potential GDP due to
rapidly expanding aggregate demand, in part due to the mining boom in
Australia.
The mining boom was fuelled by rising mineral prices and strong demand
for Australias minerals from China and India. In turn, this led to an
increase in investment and consumption (due to higher wages) and
higher net exports, which increased aggregate demand above the level of
potential GDP.
Eventually, when the economy is above long-run equilibrium, output must
fall to potential GDP, and the only lasting effect of increased aggregate
demand is a higher price level.
Page 13 of 16
Question 4
Q4 (a). If the RBA did not act to sterilise overnight liquidity changes, what would be
the likely effect on nominal interest rates caused by the following?
(i) The federal government transfers the Goods and Services Tax receipts to the
governments of the Australian states and territories.
The transfer of GST revenue to the state and territory governments
increases financial liquidity in financial markets. If the RBA did not act
to sterilise this effect the cash rate would fall and nominal interest rates
would fall.
(ii) There is a withdrawal of funds by bank customers on pay days.
The withdrawal of funds from banks on pay days would lead to a
shortage of funds on the overnight money market, which would cause
the cash rate to rise, leading to higher interest rates.
(iii) A shortage of funds arises due to an increase in loan defaults.
An increase in loan defaults means that banks as financial institutions
would not be receiving as many loan repayments as expected. This
would lead to a shortage of funds on the overnight money market, which
would cause the cash rate to rise, leading to higher interest rates.
Q4 (b). Suppose the following table illustrates the values of real and potential GDP
and the price level, if the Reserve Bank of Australia (RBA) does not change its
current policy to be more contractionary or expansionary.
Year
2017
2018
Potential GDP
$1.51 trillion
$1.54 trillion
Real GDP
$1.51 trillion
$1.56 trillion
Price level
150
155
(i) If the RBA wants to keep real GDP at its potential level in 2018, should the
RBA use a contractionary or expansionary policy?
The information in the table indicates that if the RBA does not change
their current policy to be more contractionary or expansionary, then real
GDP will rise above potential GDP in 2018. To keep the economy at
potential GDP in 2018, the RBA should use contractionary monetary
policy.
(ii) Should it raise or lower its interest rate target?
The RBA should sell financial securities to decrease the supply of cash
and increase the cash rate and other interest rates.
Page 14 of 16
(iii) How should it conduct open market operations to achieve its goal?
The higher interest rates should reduce the rate of growth in consumer
and investment spending and may also decrease net exports. Aggregate
demand will increase by less than it otherwise would have.
Q4 (c). Give examples of automatic stabilisers. Explain how automatic stabilisers
work when there is an economic boom
Examples of automatic stabilisers are unemployment benefit payments
and income taxes.
Automatic stabilisers change tax receipts and government spending
automatically as a result of fluctuations in the business cycle. This
occurs without discretionary actions on the part of government.
In the case of an economic boom, they would change automatically to
dampen spending in the economy. During a boom, unemployment
declines and government spending on unemployment benefits falls.
Real income tax receipts rise as incomes and company profits rise. This
automatic rise in income tax revenues keeps disposable income and
consumer spending from rising as much as they would without
automatic stabilisers.
Q4 (d). Refer to the figure below. If government purchases increase by $100 billion
and lead to an ultimate increase in aggregate demand as shown in the figure, by
how much will real GDP increase from point A to point B? What do we call this
effect?
While there are no specific values given that relate to the level of real GDP, we
know for certain that the increase in real GDP (difference in real GDP between
point A and point B) will be more than $100 billion. This is known as the
multiplier effect, either via the government purchases multiplier or the tax
multiplier.
Page 15 of 16
Question 5
Q5 (a). Historically speaking, why has the net primary income component in
Australias current account persistency been negative over the years?
As Australias domestic saving is low, Australians borrow from overseas. The
interest repayments on these borrowings are the largest component of net
primary income and are measured as an outflow of funds from Australia.
Australia is also a net recipient of foreign investment, and the net outflow of
profits and dividends usually exceeds the inflow.
Q5 (b). The following are hypothetical data for a countrys balance of payments.
Account
Exports of Goods
Imports of Goods
Exports of Services
Imports of Services
Net primary income
Net secondary income
Capital Inflows
Capital Outflows
Billions of Dollars
$866
-$1118
$335
-$266
$76
-$59
$1191
-$1050
You can assume the balance on the capital account is zero. Use the data to
calculate the following [Enter your response as integers. Some values may be
negative, so dont forget to put the - sign in front of the value. Show your workings
out].
(i)
The balance on the current account
$866 – $1 118 + $335 – $266 + $76 – $59 = -$166
(ii) The balance of trade on goods and services
($866 – $1 118) + ($335 – $266) = -$252 + $69 = -$183
(iii) The balance on the financial account
The balance on the financial account is found by summing capital
inflows and capital outflows = $1191 – $1050 = $141
(iv) Net errors and omissions
Since the balance of payments must equal zero, net errors and
omissions is $25, the difference between the financial account and the
current account.
[End of practice exam]
Page 16 of 16
Purchase answer to see full
attachment
Tags:
GDP
total production
User generated content is uploaded by users for the purposes of learning and should be used following Studypool’s honor code & terms of service.
