Economics 203 is the Principles Of Macroeconomics class. Depending on the Professor, the exams format may or may not be multiple choice. This quiz only covers materials from Chapters 5 and 6 from 6th Canadian Edition of Principles of Macroeconomics by Mankiw, Kneebone and McKenzie. You may try Midterm II and Final exams for questions from other chapters.

Disclaimer: While every reasonable effort is made to ensure that the information provided is accurate, no guarantees for the currency or accuracy of information are made. It takes several proof readings and rewrites to bring the quiz to an exceptional level. If you find an error, please contact me as soon as possible. Please indicate the question ID-Number or description because server may randomize the questions and answers.

Go to: Midtrem II | Final Exam

Economics (ECON 203-UCAL) Midterm Exam I

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Question 1

What is gross domestic product (GDP)? (ID-MA1-01)

A	A measurement of employed and unemployed persons within a given nation.
B	Total monetary (dollar) value of all goods and services produced by everyone in a particular economy.
C	The average of the net household income in a particular economy.
D	The net exchange of shares at a particular (country specific) stock market.
E	The rate at which the average prices of commodities increase/decrease over a given set period of time.

Question 2

What are the components of GDP? (ID-MA1-14)

A	Investment, distribution of wealth and net exports.
B	Investment, net imports and net exports.
C	Investment, distribution of wealth and government purchases.
D	Consumption, investment, net imports and net exports.
E	Consumption, investment, government purchases and net exports.

Question 3

All of the following regrading inflation is correct except... (choose the best possible answer) (ID-MA1-29)

A	decrease the profits of bankers (lenders).
B	increases the purchasing power of the dollar.
C	decrease the standard of living.
D	decrease the GDP and GNP.

Question 4

In macroeconomics, what are investments? (ID-MA1-16)

A	Money saved within a particular economic system (eg. country).
B	Spending by the government for the well being of their citizens (eg. building roads)
C	Money spent by the consumer on goods and services.
D	Capital spending of companies and cooperation.

Question 5

Which of the following statement is true about GDP? (ID-MA1-13)

A	GDP reflects the market value of all final goods produced among a given population.
B	GDP can be used as a direct indicator of quality of life in a country.
C	GDP reflects the distribution of income among a given population.
D	GDP can be simply summarized as the trade balance of a country.
E	Middle class income earners contributes to GDP more than the upper or lower class income earners.

Question 5 Explanation:

GDP reflect all goods and services.

Question 6

Which of the following statement best describe GDP? (ID-MA1-38)

A	It is a good measurement of society's welfare because it measures a nation's economic stability through assessment of government policies.
B	It measures all transactions within a country including social values such as quality of health and environment.
C	It is not a good indicator of society's welfare because unlike GNP, the GDP does not take into account quality of life attributes such as health care and education.
D	It is a good measurement of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce items that contribute to welfare.
E	It only measures goods and services produced because the other values such as quality of health care and education cannot be measured,

Question 7

Which of the following is true? (ID-MA1-36)

A	The Gross Domestic Product (GDP) is negatively correlated with the life expectancy rate.
B	The Consumer Price Index (CPI) is the best indicator of the economic growth of a nation.
C	The Gross Domestic Product (GDP) is positively correlated with the adult literacy rate.
D	The household activities such as cooking food for your family is included in the Consumer Price Index (CPI).
E	The "catch up" effect mostly observed in the developed world.

Question 8

Given the following data from a small tiny nation, compute the nominal GDP (nominal gross domestic product) of year 2013 using year 2013 as the base year. (ID-MA1-07)

Year	Price of bread	Quantity of bread	Price of butter	Quantity of butter
2012	$1	100	$2	50
2013	$1.50	200	$3	150
2014	$2	250	$4	200

A	$200
B	$650
C	$300
D	$750
E	$850

Question 8 Explanation:

Nominal GDP₂₀₁₃ = ($1.50 x 200) + ($3 x 150) = $750

Question 9

What is nominal GDP (nominal gross domestic product)? (ID-MA1-05)

A	The production of goods and services valued at current prices.
B	The production of goods and services valued at normalized prices.
C	The production of goods and services valued at constant prices.
D	There is no such term used by Economists. Stop making these non existing terms.
E	The production of goods and services obtained during a normal (stable) economy.

Question 10

Which of the following is an intermediate good and therefore, excluded from the Gross Domestic Product (GDP) calculation? (ID-MA1-34)

A	Illegal products purchased in a back alley of the Geoscience building.
B	Shares of a company purchased from a bank by a customer.
C	Paper purchased by Nelson Education to print the Macroeconomics textbook.
D	Government and private sector investments on science and engineering projects at the University of Calgary.
E	Government construction of a railroad across Canada.

Question 10 Explanation:

Two answers are possible. However, the key term "intermediate" is used to narrow down the answer. If you are not sure, read Chapter 5 on GDP definition.

Question 11

Given the following data from a small tiny nation, compute the real GDP (real gross domestic product) for year 2014 using year 2012 as the base year. (ID-MA1-09)

Year	Price of bread	Quantity of bread	Price of butter	Quantity of butter
2012	$1	100	$2	50
2013	$1.50	200	$3	150
2014	$2	250	$4	200

A	$200
B	$750
C	$650
D	$300
E	$850

Question 11 Explanation:

Real GDP₂₀₁₄ = ($1.00 x 250) + ($2 x 200) = $650

Question 12

Which of the following is a government purchase? (ID-MA1-32)

A	Tax breaks for corporations to promote investment.
B	Federal government contributions to Canada Pension Plan.
C	Employment Insurance payments.
D	Purchasing land for municipal recreation facilities.
E	Increased tax funding to Science and Engineering.

Question 13

If not adjusted for change in CPI, the GDP will ____ the cost of living. (ID-MA1-19)

A	overestimate
B	underestimate
C	be reduced dramatically
D	not take into account for

Question 14

When calculating consumer price index, all of the following issues are taken into consideration by Economists except... (ID-MA1-30)

A	increase or decrease in quality of he product over time.
B	introduction of new products to the market.
C	availability of a product within a given market.
D	substitution of products.
E	changes to political or government policies.

Question 15

What is consumer price index or CPI? (ID-MA1-11)

A	A measure of individual economic statuses of a population.
B	A measure which provides the most complete outlook of the entire economy of a nation.
C	A measure of the overall cost of the goods and services bought by a typical consumer.
D	A measure of how much debt a typical person has in a given society.
E	A measure of the ability of a typical person in a society to obtain goods and services.

Question 16

As an macroeconomics student, you purchased a used textbook directly from your friend for $100. If the regular market price of the textbook is $200, during this particular transaction, how much you and your friend has contributed to the GDP? (ID-MA1-27)

A	$200
B	$400
C	$300
D	$0
E	$100

Question 16 Explanation:

GDP does not take in to account for the resale of used or refurbished items.

Question 17

With relative to each other, which of the following countries provide the best standard of living for most of its citizens? (ID-MA1-26)

Country	GDP in millions	Population in millions
A	$10,400	30.1
B	$7,000	12.7
C	$9,000	80.6
D	$15,000	40.5

A	Country B
B	The information provided here is not adequate to answer this question.
C	Country D
D	Country A
E	Country C

Question 17 Explanation:

Please note, the question "with relative to each other..." because the GDP does not properly measures standard of living. But it can be used for general comparison. The country with the highest GDP per capita has the best possibility for providing higher quality of standard of living. Hence, Country B with $7,000 / 12.7 = 551.18 is the best nation.

Question 18

Calculate the CPI for year 2015 using 2010 as the base year using the following information. (ID-MA1-24)
CPI-2015 = $100
CPI-2010 = $75

A	~ 133
B	None of the answers are correct.
C	~ 50
D	~ 75
E	~ 100

Question 18 Explanation:

CPI = (Year in Question / Base year) x 100 = ~133.3

Question 19

Which of the following includes transactions relating to imported goods into Canada? (ID-MA1-31)

A	Real Gross Domestic Products
B	Consumer Price Index
C	Nominal Gross Domestic Products
D	Gross National Products

Question 20

If the Nominal GDP is increased by a factor of two and the Real GDP is increased by a factor of two, the GDP Deflator will... (ID-MA1-18)

A	...double.
B	...quadruple.
C	...remains the same.
D	...triple.

Question 20 Explanation:

GDP deflator = (Nominal GDP)/(Real GDP) x 100

Question 21

Erica is deciding on permanently moving to Vancouver. She is currently earning $60,000 per year in Calgary. Before she moves, she wants to make sure she can maintain the same standard of living in Vancouver. Given the CPI (Consumer Price Index) for Calgary = 120 and the CPI in Vancouver = 190, how much does she has to earn in Vancouver to maintain the same standard of living as Calgary? (ID-MA1-25)

A	$50,000
B	$84,000
C	$95,000
D	$75,000
E	$120,000

Question 22

Given the following data from a small tiny nation, compute the nominal GDP (nominal gross domestic product) of year 2013 using year 2012 as the base year. (ID-MA1-08)

Year	Price of bread	Quantity of bread	Price of butter	Quantity of butter
2012	$1	100	$2	50
2013	$1.50	200	$3	150
2014	$2	250	$4	200

A	$650
B	$750
C	$850
D	$200
E	$300

Question 23

Given a Nominal GDP of $1100 and a Real GDP of $760, compute the GDP deflator. (ID-MA1-22)

A	~ 69
B	~ 145
C	~ 696
D	~ 860, 000
E	~ 63

Question 23 Explanation:

GDP Deflator = (Nominal GDP / Real GDP) x 100
GDP Deflator = ($1100 / $760) x 100 = 144.74

Question 24

Which of the following is an economic investment that contributes heavily to GDP? (ID-MA1-28)

A	A foreign investor buying Canada GIC bonds.
B	Payments made by the government for Canadian Pension Plan.
C	A company buying equipment to open a factory.
D	A family purchasing a house without a mortgage.
E	A Canadian investing in a poor country with lower GDP.

Question 25

Given the following data from a small tiny nation, compute the real GDP (real gross domestic product) for year 2014 using year 2013 as the base year. (ID-MA1-10)

Year	Price of bread	Quantity of bread	Price of butter	Quantity of butter
2012	$1	100	$2	50
2013	$1.50	200	$3	150
2014	$2	250	$4	200

A	$300
B	$850
C	$675
D	$750
E	$975

Question 25 Explanation:

Real GDP₂₀₁₄ = ($1.50 x 250) + ($3 x 200) = $975

Question 26

In the circular-flow diagram of Firms and Household economic activities, which of the following is part of GDP? (ID-MA1-21)

A	Wages, rent and profit
B	Good and services bought by consumers
C	Factors of production
D	Labour, land and capital
E	Goods and services sold by firms

Question 27

What is gross national product (GNP)? (ID-MA1-04)

A	Total net products and services produced by local companies and government agencies as opposed to multinational companies.
B	Total net income earned by a nation's permanent residents regardless of where they were located when the income was earned.
C	Total income of nation's residents minus losses from depreciation.
D	Total income earned by a nation's residents in the production of goods and services.
E	Total net products produced by raw materials that are obtained within the geographic and national boundaries of a nation. For example, Alberta oil obtained within Canada will contribute to GNP, but not oil imports from USA even if they were refined in Canada.

Question 28

Which of the following is the best indicator for the economic health of a country? (ID-MA1-17)

A	Real GDP
B	Nominal GDP
C	CPI
D	Development of natural resources
E	Historical inflation rates
F	Growth of industries

Question 29

Typically, gross domestic product (GDP) deflector is... (ID-MA1-06)

A	...90% lower than the nominal GDP.
B	...exponentially increases over period of time.
C	...50% higher than the nominal GDP.
D	...a negative value.
E	...a positive value.

Question 30

Inflation can be best described as... (ID-MA1-02)

A	A measure of the ability of a population to obtain a certain product or service.
B	Rate of increase in economic pressures on a given system.
C	Rate at which the stock market index increase or decrease.
D	Rate of increase in costs for goods and services.
E	Rate at which the average prices are rising.

Question 31

Which of the following statement is true? (ID-MA1-03)

A	A Canadian who permanently work in Japan will contribute only to the Canadian GDP.
B	GDP includes only the value of final goods.
C	A Canadian who permanently work in Japan will contribute to both Canadian and Japanese GDP.
D	If a Canadian owns a factory in Japan, the output of this Japanese factory will contribute to Canadian GDP.
E	If a Canadian owns a factory in Japan, the output of this Japanese factory will contribute to both Canadian and Japanese GDP.

Question 31 Explanation:

GDP is measured within a country/a particular economy (legal/geographic boundary).

Question 32

Given the following data from a small tiny nation, compute a typical basket price for year 2012, if a basket of goods includes 24 breads and 15 butters. (ID-MA1-23)

Year	Price of bread	Quantity of bread	Price of butter	Quantity of butter
2012	$1	100	$2	50
2013	$1.50	200	$3	150
2014	$2	250	$4	200

A	$35
B	$20
C	$45
D	$54
E	$83

Question 32 Explanation:

($1 x 24) + ($2 x 15) = $54

Question 33

How do you calculate the consumer price index or CPI? (ID-MA1-12)

A	Dividing the base year GDP by the price of basket of goods & services of the current year and multiply by 100.
B	Diving the annual GDP by the price of basket and multiply by 100.
C	Diving price of basket in base year by the price of basket of goods & services of the current year and multiply by 100.
D	Diving the price of basket of goods & services of the current year by the price of basket in base year and multiply by 100.
E	Diving the annual GDP by the price of basket of goods & services of the current year and multiply by 100.

Question 34

What is the first step in computing consumer price index or CPI? (ID-MA1-15)

A	Choose a base year
B	Calculate GDP
C	Determine the basket
D	Compute the basket's cost
E	Find the prices

Question 35

Which of the following is not part of the nominal interest rate? (ID-MA1-20)

A	Interest rates posted by banks
B	Real interest rate
C	Consumer Price Index
D	Inflation rate

Question 36

If the GDP grew by 15 percent during 5-year period while population grew by 5 percent and and the GDP deflator increased by 7 percent, you should conclude that real GDP per person... (ID-MA1-37)

A	decreased.
B	grew, by more than 15 percent.
C	was unchanged.
D	There is not enough information is provided to answer the above question.
E	grew, but by less than 15 percent.

Question 37

In a given country, the gross domestic product (GDP) increased by 12% during the year. At the same time inflation was at 8%. Hence the real GDP was ______ . (ID-MA1-35)

A	decreased by 12%
B	increased by 4%
C	increased by 8%
D	decreased by 8%
E	decreased by 4%
F	increased by 12%

Question 38

Which of the following is not measured by the Gross Domestic Product (GDP)? (ID-MA1-33)

A	Changes in Consumer Price Index (CPI).
B	Economic investments made by individuals.
C	Environmental impact of the economic growth.
D	Household expenditures on day-to-day items.
E	Value of total capital of a company or a corporation.

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Credits: Based on the excellent class notes provided by, Dr. Peter Tracey during Fall 2015 and textbook ISBN-978-0-17-653085-3.
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Economics 203-University of Calgary

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Economics (ECON 203-UCAL) Midterm Exam I

Standing on the shoulders of giants

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Economics (ECON 203-UCAL) Midterm Exam I

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Standing on the shoulders of giants