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 7 and 8 from 6th Canadian Edition of Principles of Macroeconomics by Mankiw, Kneebone and McKenzie. You may try Midterm I 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 I | Final Exam

Economics (ECON 203-UCAL) Midterm Exam II

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Question 1

Suppose there is a decrease in the interest rate. This effect would have which of the following? (ID-MA2-49)

A	An increase in demand for loanable funds and a decrease in supply of loanable funds.
B	A decrease in supply of loanable funds.
C	A decrease in demand for loanable funds.
D	None of the answers are correct.
E	An increase in demand for loanable funds.

Question 2

National savings can be best defined as the, (ID-MA2-50)

A	total amount of money that deposited in the bond market.
B	total amount of money that is injected into the financial markets.
C	total income in an economy that remains after paying for consumption and government purchases.
D	differences between government spending and its tax revenue.
E	total income in an economy after firms pay for capital goods.

Question 3

What is the growth rate of a country if it increases the Real GDP from 10 trillion to 20 trillion in one year? (ID-MA2-44)

A	100%
B	10%
C	5%
D	2.5%

Question 3 Explanation:

Growth rate = (20-10/10) x 100 = 100%

Question 4

Economic growth rate measures which of the following? (ID-MA2-12)

A	Rate of change in inflation per capita.
B	Rate of change in nominal GDP per capita.
C	Rate of change in nominal GDP.
D	Rate of change in real GDP
E	Rate of change in real GDP per capita.
F	Rate of change in inflation.

Question 5

Which of the following four graph (A, B, C, D) represents the effect of lowering the income tax and increasing the national sales tax? (ID-MA2-51)

A	Graph D
B	Graph B
C	None of the above graphs are correct.
D	Graph A
E	Graph C

Question 6

If a government (let's say Canada) is running a surplus, which of the government policy makes more sense? (ID-MA2-26)

A	Reduce interest rates across all levels of funds.
B	Increase government spending on small scale projects but at large volumes.
C	Encourage Canadians to invest outside of the country.
D	Increase tax on individuals and on industry.

Question 7

The economic catch-up effect is more likely to effect which of the following country? (ID-MA2-21)

A	Country E with a very low GDP and a very high emigration of highly educated workers.
B	Country B with a very low GDP with a rapid economic growth.
C	Country D with a very low GDP with a slow economic growth.
D	Country C with a very high GDP with a slow economic growth.
E	Country A with a very high GDP with a rapid economic growth.

Question 8

If the market interest rate is above the equilibrium level, then... (ID-MA2-45)

A	the equilibrium conditions would not change.
B	the supply for lonable funds would be lower than the demand for lonable funds.
C	the equilibrium of lonable funds would be lower than that of the supply of lonable funds.
D	the equilibrium interest rate would increase.

Question 9

In a factory far far away in Utopian land, workers are making wings for the fairies. Last week, there was an audit on productivity by the overlords. They found Sanuja made 20 wings in 5 hours, Manuja made 30 wings in 6 hours, Steven made 60 wings in 20 hours, Erica made 12 wings in 8 hours and Lauren made 55 wings in 20 hours. Who has the greatest productivity? (ID-MA2-35)

A	Manuja
B	Sanuja
C	Steven
D	Lauren
E	Erica

Question 9 Explanation:

Productivity assessment:
Sanuja = 20/5 = 4 wings/hr
Manuja = 30/6 = 5 wings/hr
Steven = 60/20 = 3 wings/hr
Erica = 18/8 = 1.5 wings/hr
Lauren = 55/20 = 2.75 wings/hr
Therefore, Manuja has the highest productivity.

Question 10

What would happen in the market for lonable funds if the government were to decrease the tax on interest income? (ID-MA2-52)

A	There would be a reduction in the amount of lonable funds borrowed.
B	The change in lonable funds borrowed would be ambiguous.
C	There would be an increase in the amount of lonable funds borrowed.
D	There would be no change in the amount of lonable funds borrowed.

Question 11

Most economists agree that large population will lead to... (ID-MA2-23)

A	decrease in GDP.
B	advancement in technology.
C	decrease in productivity.
D	decrease in long term economic growth.

Question 12

How would you calculate productivity from Y = A F(L,K,H,N) equation? (ID-MA2-19)

A	By dividing the entire equation by the quantity of labour, L.
B	By dividing the entire equation by the quantity of human capital, H.
C	By dividing the entire equation by the quantity of natural resources, N.
D	By dividing the entire equation by the quantity of physical capital, K.

Question 12 Explanation:

Y/L = productivity because by definition productivity is the output per worker.

Question 13

What are private savings? (ID-MA2-24)

A	Investments made by private companies for future gains.
B	Money saved by households after taxes and consumption.
C	Savings made by private companies through profits.
D	Savings made by private financial institutions such as banks.

Question 14

According to your textbook, one of the major problem facing developing world is brain drain. What is brain drain? (ID-MA2-34)

A	Decrease in access to higher education among poor populations.
B	Emergence of a population with unsuitable educational and skills levels due to improper planing. For example, large enrollment in petroleum industry education when that country has no petroleum natural resources.
C	Politicians and policymakers in charge have no or little knowledge and skills in managing the economy.
D	Emigration of highly educated workers to first world countries.
E	Increase in number of people in the workforce while decrease in the quality of education among them.

Question 15

Which of the following is an effect of "crowding out"? (ID-MA2-08)

A	Decrease in price and increase in interest rate.
B	Increase in price and decrease in interest rate.
C	Upward shift in the demand curve.
D	Increase in interest rate.

Question 16

Which of the following is a transfer payment? (ID-MA2-47)

A	Payment of Employment Insurance to people who lost their jobs.
B	Payments for companies who completed a project for the government.
C	Payments made for the Members of the Parliament for their official work.
D	Government salaries paid to individuals.
E	Purchase of military equipment for national armed forces.

Question 17

Given the following information, what is the quantity of loadable funds? (ID-MA2-37)
GDP = $9.5 trillion
Consumption spending = $4.0 trillion
Taxes = $6.4 trillion
Government transfers = $3.6 trillion
Government purchases = $4.0 trillion

A	$2.7 trillion
B	$2.8 trillion
C	$5.5 trillion
D	$1.5 trillion
E	$3.6 trillion

Question 17 Explanation:

I = Y - C - G
Investments = GDP - Consumption - Govt Spending
I = $9.5 - $4 - $4 = $1.5 trillion

Question 18

What is a foreign direct investment? (ID-MA2-20)

A	A capital investment made by individuals using personal wealth in a different country that their own.
B	An investment that is financed with foreign money but operated by domestic residents.
C	An investment made by a country using tax revenue in another country to boost federal reserves.
D	A capital investment that is owned and operated by a foreign entity.
E	A multinational investment in a country where it is operated by the domestic residents.

Question 19

Given the following information, calculate the public savings? (ID-MA2-46)
GDP = $9.5 trillion
Consumption spending = $4.0 trillion
Taxes = $6.4 trillion
Government transfers = $3.6 trillion
Government purchases = $4.0 trillion

A	5.5 trillion dollars
B	0.4 trillion dollars
C	1.9 trillion dollars
D	-1.2 trillion dollars
E	0.6 trillion dollars

Question 19 Explanation:

Public savings = T - G = (Taxes - Transfers) - Government Purchases
Public savings = $6.4 - $3.6 - $4.0 = -$1.2 trillion

Question 20

Which of the following statement is incorrect regrading physical capital? (ID-MA2-13)

A	Production output of a company cannot be used as physical capital.
B	For maximum productivity, the physical capital should satisfy the demands of the human capital.
C	Physical capital is the equipment and structures used to produce goods and services.
D	Having right tool for the right job, in other word, right physical capital, will drastically increase productivity.
E	Technological knowledge is not a form of physical capital.

Question 21

Which of the following type of bonds would you expect to have the greatest interest earning potential? (ID-MA2-43)

A	Bonds from the Federal Government of Canada
B	Bonds from a major established company such as Apple Inc or Google Inc.
C	Bonds from the Federal Government of India
D	Bonds from a Provincial Government in Canada

Question 21 Explanation:

Typically the bonds with higher risks have the highest interest rates. Developing countries pay higher interest because ricks are higher due to economic unpredictability. In fact a bond from an Eastern European country would have even higher interest rate than India.

Question 22

Alberta oil and gas industry is highly successful mostly due to which of the following? (ID-MA2-15)

A	Renewable natural resources
B	Large physical capital
C	Large human capital
D	Nonrenewable natural resources

Question 23

Globalization of the economic activities has both positive and negative impact on highly developed nations such as Canada. One of the negative impacts on Canada is that it is cheaper to obtain human resources in China than in Canada. This caused Canadian manufacturing industry to sink over the last ten years. What is the best method to increase manufacturing for a developed nation such as Canada? (ID-MA2-16)

A	Increase the exploitation of natural resources.
B	Engage in military wars against countries with high manufacturing output such as China.
C	Encourage investments in technology and human capital.
D	Discourage consumers from purchasing products made outside of Canada.
E	Increase the printing of monetary funds (money) using government bonds as collateral to increase investments in manufacturing.

Question 24

The market value (price) of a general bond highly depends on, (ID-MA2-02)

A	duration of the bond.
B	supply and demand.
C	number of coupons in the bond certificate.
D	face value of the particular bond.
E	principle of of the bond.

Question 25

An Economist observed that the public savings are negative for a country. Knowing nothing else about this particular country, which of the following inference can be made with almost 100% certainty? (ID-MA2-48)

A	The government must be running a deficit budget.
B	The country must be experiencing a higher than normal inflation.
C	The market of this particular country must be highly regulated.
D	The manufacturing and services (quantity of output) must be negative.
E	The country must be a developing or poor nation with a low GDP.

Question 26

Ceteris paribus, according to Y = A F(L,K,H,N) if the human capital triples then... (ID-MA2-18)

A	the quantity of output will be increased more than that of human capital increase.
B	the state of technology will also be tripled.
C	the quantity of all other variables will be increased but less than that of human capital.
D	the quantity of output will be increased but less than that of human capital increase.
E	the quantity of output will be tripled.
F	the quantity of all other variables be will increased more than that of human capital.

Question 27

Human capital can be increased by... (ID-MA2-14)

A	decrease taxes imposed on individual workers.
B	increasing (hiring) the number of workers per job.
C	educating the workers.
D	increasing the immigration into a country.
E	decreasing the minimum legal age of work hence increasing the available population for work.

Question 28

What is the condition where increase in capital no longer produce the desired increase in output? (ID-MA2-22)

A	Diminishing returns
B	Return to normal
C	Economies of scale
D	Catch-up effect

Question 29

Which of the following four graph (A, B, C, D) represents the effect of a government budget deficit? Note the y-axis is the Interest Rate not price. (ID-MA2-07)

A	Graph D
B	Graph B
C	Graph A
D	None of the graphs depict the correct answer.
E	Graph C

Question 30

A tax incentive for saving ____ the supply of loanable funds, which ____ the equilibrium interest rates and ____ the equilibrium quantity of loanable funds. Answers are in respective order. (ID-MA2-41)

A	decrease , raises , reduces
B	decrease , reduces , raises
C	decrease , reduces , reduces
D	decrease , raises , raises
E	increase , reduces , raises
F	increase , raises , reduces
G	increase , raises , raises

Question 30 Explanation:

For this question, it is better to draw the graph of Interest Rate verses the Lonable Funds to visually see what is happening.

Question 31

What is national debt? (ID-MA2-09)

A	It is the difference between tax collected and the government spending during a given year or a fixed period.
B	It is the total accumulation of debt for a country since its it has been established.
C	It is the difference between the amount of money printed by the central bank and the total national resources.
D	It is the total amount of debt accumulated by a government between elections. For example, every five years.
E	It is the amount of money and other funds owe by a government to international lenders across the world.

Question 32

Calculate the GDP for Canada in 2040 if current GDP is $1000 million and the growth rate is 2.5%. (ID-MA2-29)

A	$1080 million
B	$1250 million
C	$1050 million
D	$1854 million
E	$1025 million

Question 32 Explanation:

GDP_2040 = GDP_2015 (1+g)^years
GDP_2040 = 1000 (1+0.025)^25 = $1854 million

Question 33

Which of the following will result in a national budget deficit? (ID-MA2-25)

A	Government spending is higher than the tax revenue.
B	Increased in government investments. Hint: If the government investments are balanced by the tax intake, it will not lead to a deficit.
C	Increased in market for loanable funds.
D	Higher productivity level.

Question 34

Increased in population will lead to incresed in scarcity in the economey. This ideology is postulated by which of the folowing economist/ideologist? (ID-MA2-39)

A	David Thompson
B	Gergory Mankiw
C	Thomas Malthus
D	Karl Marx

Question 35

Where does the primary funding for loanable funds come from? (ID-MA2-28)

A	Investments
B	Central banks
C	Funds collected through interest
D	Government funds

Question 36

Typically in most cases, if you want to sell a bond in Canada before its maturity, you would most likely sell at the... (ID-MA2-42)

A	face value.
B	regulated fixed government rate.
C	market price.
D	remaining funds according to interest rates.

Question 37

Suppose a country has experienced average annual growth rates of 6 percent for the last 30 years. Using the rule of 70, how log it take for real GDP per capita to double? (ID-MA2-01)

A	5 years
B	30 years
C	~ 4.3 years
D	~ 11.7 years
E	~ 2.3 years
F	6 years

Question 37 Explanation:

According to to the rule of 70
70 / 6 = 11.6660... years

Question 38

According to Y = A F(L,K,H,N), if the number of workers, physical capital and human capital triples but the available national resources doubles then... (ID-MA2-33)

A	the quantity of physical capital doubles.
B	the quantity of output will be increased by more than triple the original amount.
C	the state of technology will be increased by at least triple the original amount.
D	the quantity of output will be increased by six times the original amount.
E	the quantity of output will be increased by more than double but less than triple the original amount.

Question 38 Explanation:

All other things being equal, minimum the values within the function increase by two times because the lowest increase is by a factor of 2. It won't increased by three times because the national resources doubles hence acting as the limiting factor. The natural resources are often the limiting factor in decline of economic growth in South Asian countries.

Question 39

This type of economic policy by the government will result in increase in foreign investments. (ID-MA2-40)

A	Inward-oriented policies
B	Public market policies
C	Outward-oriented policies
D	Global market policies

Question 40

Given the following information, what is the net tax collected by the government? (ID-MA2-38)
GDP = $9.5 trillion
Consumption spending = $4.0 trillion
Taxes = $6.4 trillion
Government transfers = $3.6 trillion
Government purchases = $4.0 trillion

A	$2.8 trillion
B	$3.1 trillion
C	$3.6 trillion
D	$2.4 trillion
E	$6.4 trillion

Question 40 Explanation:

Net taxes = Taxes - Govt Spending
Net taxes = $6.4 - $3.6 = $2.8 trillion

Question 41

What is the present value of $120 in two years, if the interest rate is 10% per year? (ID-MA2-31)

A	~ $100
B	~ $300
C	~ $140
D	~ $120

Question 41 Explanation:

x/(1+i)^n = $99.17... = ~ $100

Question 42

Ceteris paribus, according to Y = A F(L,K,H,N), the quantity of output double when... (ID-MA2-17)

A	quantity of natural resources doubles.
B	quantity of human capital doubles.
C	quantity of physical capital doubles.
D	quantity of labour doubles.
E	technology for production doubles.

Question 43

What is productivity? (ID-MA2-05)

A	A measure of goods and services produced per person in a given country or population.
B	A measure of goods and services produced for each hour of a worker's time.
C	A measure of goods and services available for consumers within a given economy.
D	The ability of a country to produce goods at the lowest cost.
E	A measure of net output of domestically produced goods.

Question 44

In an economic downturn (recession) policymakers should focus on which of the following? (ID-MA2-06)

A	Domestic markets
B	Productivity
C	Interest rates
D	Net exports
E	GDP

Question 45

Which of the following four graph (A, B, C, D) represents the effect of introducing an investment tax credit? Note the y-axis is the Interest Rate not price. (ID-MA2-27)

A	Graph A
B	Graph D
C	Graph C
D	Graph B

Question 46

What is a financial market? (ID-MA2-30)

A	It is a system fully controlled by the government which keeps the inflation in control.
B	It is a marketplace for international traders can meet national traders.
C	It is a marketplace for companies to exchange their assets.
D	It is a system in which people who wants to save can supply funds for people who wants to borrow money.

Question 47

The national budget is said to be balanced when... (ID-MA2-10)

A	the supply of the available credits are lower than the demand for investments.
B	tax collected by the government is lower than that of government spending.
C	tax collected by the government is equal to that of government spending.
D	tax collected by the government is greater then that of government spending.
E	the supply of the available credits are greater than the demand for investments.

Question 48

A company increased their investments in capitals to increase production. But after they have increased the capitals, the output has only risen by half of the increase in capital. This situation can be best described as... (ID-MA2-36)

A	catch up effect.
B	improvement of productivity.
C	diminishing returns.
D	Malthus effect.
E	constant return to scale.

Question 49

Nation's standard of living is closely associated with which of the following? (ID-MA2-11)

A	Real GDP
B	Nominal GDP
C	Inflation rate
D	Productivity
E	Population growth

Question 50

What is the present value of a fund in one year if present day value is $110 and the interest rate is 10% per year? (ID-MA2-32)

A	~ $120
B	~ $90
C	~ $100
D	~ $80

Question 50 Explanation:

present value = x/(1+i)^n
present value = $110/(1.10)^1 = $100

Question 51

Which of the following statement is true? (ID-MA2-04)

A	The end of a Government of Canada GIC bond period, you will collect only the interest of the face value.
B	Net exports do not include products exported or imported under free trade agreements such as NAFTA.
C	Publicly traded companies are always more stable than private organizations.
D	The primary purpose of a banking system is the distribution of wealth through loans/mortgages.
E	Mutual funds companies buy stocks and bonds to maintain their portfolio.

Question 52

Choose from the following statements. Which of the following is an equity finance? (ID-MA2-03)
I. Buying a house with a mortgage to be paid off later.
II. Buying large volume of dry noodles to be sold at a higher price later.
III. Buying stock from Volkswagen AG to be sold at a higher price later.
IV. Buying government bonds to earn interest and face value later.

A	IV only
B	III and IV only
C	II and III only
D	All of the choices falls under equity finance.
E	III only
F	I and IV only

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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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Sanuja Senanayake

Economics 203 Midterm II-University of Calgary

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Economics (ECON 203-UCAL) Midterm Exam II

Standing on the shoulders of giants

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Economics (ECON 203-UCAL) Midterm Exam II

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Standing on the shoulders of giants