THE INTERNATIONAL UNIVERSITY (IU) – VIETNAM NATIONAL UNIVERSITY – HCMC
FINAL EXAM – TEST A
Date: August, 2014
Duration: 120 minutes
Name : ..................................
Student ID:............................................
SUBJECT: MICROECONOMICS
Dean of School of Business
Signature:
Lecturer
Signature:
Full name:
Full name: Dr. Tu Van Binh
GENERAL INSTRUCTION(S)
1 This is a half opened book examination (Students are allowed to bring one A4 page (both sizes)
of handwriting in the exam room).
2. No talking during the exam.
3. No cell phone, laptop and PDAs are used during the exam.
4. No dictionary.
5. This exam includes two parts.
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Part I: 60 multiple choice questions (60 marks)
1. Which of the following is a major source of inflation in Vietnam?
a. faster growth of the money supply than growth in GDP
b. monopoly power
c. low productivity
d. government regulation
2. If a government supplies more money than the quantity people want to hold
a. spending will decrease and the price level will fall.
b. spending will increase and the price level will rise.
c. spending will remain constant but the price level will rise.
d. there will be no change in the level of economic activity or prices; money is neutral.
3. The inflation tax is
a. a tax on windfall profits.
b. a special tax imposed on owners of shares of stock.
c. a special tax imposed on profits when inflation is over 10% per year.
d. the loss incurred when inflation reduces the purchasing power of money.
4. The beneficiaries of the inflation tax are
a. those who borrow money.
b. all corporations.
c. all multinational corporations that can shift assets into alternative currencies.
d. exporters of goods and services.
5. The supply of foreign exchange is
a. determined by the real exchange rate.
b. independent of the real exchange rate.
c. determined by central bankers.
d. determined by the President.
6. The exchange rate is the
a. value of money.
b. quantity of dollars, yen, etc., that are traded on currency markets.
c. amount of foreign currency that is used to buy goods made in your country.
d. number of units of a foreign currency that can be bought with one unit of your own
currency.
7. Currencies depreciate and appreciate all the time. Who gains and who loses when the Vietnam
Dong depreciates?
a. Americans holding VN Dong gain, U.S. tourists to Vietnam lose.
b. U.S. exporters to Vietnam gain, Vietnamese holding US Dollars lose.
c. Vietnamese exporters gain, Vietnames importers lose.
d. Vietnames importers gain, Vietnames exporters lose.
8. When Italy devalues its currency
a. the dollars per Italian lira will increase.
b. the drain of U.S. reserves on Italian lira will fall.
c. U.S. exports to Italy will increase.
d. the price of imported Italian olive oil in the United States will fall.
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9. When fewer U.S. dollars are needed to buy a unit of Japanese yen, the dollar
a. is devalued.
b. is inflated.
c. appreciates.
d. depreciates.
10. If one country has a lower inflation rate than other countries, its
a. currency tends to appreciate.
b. currency tends to depreciate.
c. real interest rate will be higher than in other countries.
d. nominal interest rate will be higher than in other countries.
11. In the long run, exchange rates
a. are determined by business cycle fluctuations.
b. are determined by movements of Eurodollars.
c. will adjust until the price of a bundle of goods is the same in both countries.
d. will reflect economic fluctuations in both countries.
12. If you were told that the exchange rate was 1.5 U.S. dollars per 1 Canadian dollar (CDN), that
would mean that Canadians would have to spend __________ to by a $12 watch in New York
City.
a. $18 CDN
b. $15 CDN
c. $1.5 CDN
d. $12 CDN
13. 8.
a.
b.
c.
d.
Studies of money demand indicate that the nominal demand for money
does not depend on interest rates.
does not depend on the price level.
is proportional to the price level.
is proportional to the nominal interest rate.
14. In 1985, the U.S. government indexed the federal personal income tax system. With indexing,
households are pushed into a higher tax bracket only if their nominal income
a. rises as fast as the rate of inflation.
b. rises slower than the rate of inflation.
c. rises faster than the rate of inflation.
d. decreases by the amount of inflation.
15. Investors criticize the federal income tax system because they must pay taxes
a. on gains that merely reflect the effects of inflation.
b. only on gains that exceed the effects of inflation.
c. on losses as well as gains.
d. on losses but not on gains.
16. Which of the following would be classified as a direct foreign investment?
a. a purchase of 100 shares of British Petroleum stock
b. a loan of $1 million to a Brazilian utilities firm
c. a loan of $1 million from the World Bank to Vietnam
d. building a new Pizza Hut in HCM City, Vietnam
17. 12. Net capital outflow measures
a. the flow of goods and services between countries.
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b. the flow of assets between countries.
c. government budget surpluses and deficits relative to those experienced in other countries.
d. the amount of physical capital built in foreign countries.
18. 13.
a.
b.
c.
d.
U.S. trade deficits are a sign of
reduced national savings.
reduced production of manufactured goods.
an over reliance on the service economy.
high rates of unemployment in the U.S. economy.
19. After reunification, Germany experienced a tremendous increase in the demand for loanable
funds as many rebuilding projects were initiated. As a result, interest rates
a. rose, there was a decrease in net capital outflow, there was a decrease in the supply of
marks, and the real exchange rate fell.
b. rose, there was a decrease in net capital outflow, there was a decrease in the supply of
marks, and the real exchange rate rose.
c. fell, there was an increase in net capital outflow, there was a decrease in the supply of
marks, and the real exchange rate rose.
d. fell, there was an increase in net capital outflow, there was an increase in the supply of
marks, and the real exchange rate fell.
20. Japan has historically had a high savings rate relative to other countries. This means that the
a. supply of loanable funds is larger, interest rates are lower, and net capital outflow is higher.
b. supply of loanable funds is smaller, interest rates are lower, and net capital outflow is
higher.
c. demand for loanable funds is larger, interest rates are lower, and net capital outflow is
higher.
d. government must subsidize production in order to encourage international trade.
21. Gaussland has net exports of $400 million and buys $300 million of goods from overseas.
Gaussland has
a.
$700 million of imports, and $700 million of exports.
b.
$300 million of imports, and $700 million of exports.
c.
$300 million of imports, and $400 million of exports.
d.
None of the above are correct.
22. In the second quarter of 2000, U.S. net exports were about -$380 billion and imports were
about $1,380 billion. Therefore, exports were about
a.
$1,720 billion.
b.
$1,000 billion.
c.
$340 billion.
d.
None of the above are correct.
23. A country sells more to people overseas than it buys from them. It has
a.
a trade surplus and positive net exports.
b.
a trade surplus and negative net exports.
c.
a trade deficit and positive net exports.
d.
a trade deficit and negative net exports.
24. International trade
a.
lowers the standard of living in all trading countries.
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b.
c.
countries.
d.
leaves the standard of living unchanged.
raises the standard of living for importing countries and lowers it for exporting
can raise the standard of living in all trading countries.
25. Exports are
a.
domestic stocks and bonds sold abroad.
b.
foreign stocks and bonds sold domestically.
c.
foreign-produced goods and services sold domestically.
d.
None of the above are correct.
26.
Imports are
a.
domestic stocks and bonds sold abroad.
b.
foreign stocks and bonds sold domestically.
c.
domestically produced goods and services sold abroad.
d.
foreign-produced goods and services sold domestically.
27. The trade balance
a.
must be zero.
b.
must be greater than zero.
c.
can be less than, greater than or equal to zero.
d.
None of the above are correct.
28.
If exports are less than imports, the trade balance
a.
is in deficit.
b.
is balanced.
c.
is in surplus.
d.
cannot be determined from this information alone.
29.
An open economy's GDP is given by
a.
Y = C + I + G + S.
b.
Y = C + I + G + NX.
c.
Y = C + I + G.
d.
Y = C + I + G + T.
30. Which of the following factors affects a country's net foreign investment?
a.
real interest rates paid on foreign assets
b.
the perceived economic and political risks of holding assets abroad
c.
government policies that affect foreign ownership of domestic assets
d.
All of the above are correct.
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31. The open-economy macroeconomic model takes
a. GDP as given.
b. the price level as given.
c. Both a and b are correct.
d. None of the above are correct.
32. In the open-economy macroeconomic model, the supply of loanable funds comes from
a. national saving.
b. foreign saving.
c. domestic investment.
d. the sum of domestic investment and net foreign investment.
33. A higher real interest rate raises the quantity of
a. loanable funds demanded.
b. loanable funds supplied.
c. domestic investment.
d. net foreign investment.
34. A fall in the real interest rate
a. encourages investment and so increases the quantity of loanable funds demanded.
b. encourages investment and so decreases the quantity of loanable funds demanded.
c. discourages investment and so increases the quantity of loanable funds demanded.
d. discourages investment and so decreases the quantity of loanable funds demanded.
35. In the figure shown, if the real interest rate is 3 percent, there will be
a.
b.
c.
d.
equilibrium.
a shortage of 25.
a shortage of 50.
None of the above are correct.
36. Net foreign investment = net exports implies that
a. national saving equals domestic investment.
b. the volume of exports equals the volume of imports.
c. the supply of dollars equals the demand for dollars in the foreign-currency exchange
market.
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d.
All of the above are correct.
37. The price that balances supply and demand in the market for foreign-currency exchange is the
a. real exchange rate.
b. real interest rate.
c. nominal exchange rate.
d. nominal interest rate.
38. According to theory of purchasing-power parity, a person should be able to purchase
a. The same amount of foreign currency with a dollar whatever country they travel to.
b. The same amount of goods with a dollar whatever country they travel to.
c. Both a and b are correct.
d. None of the above are correct.
39. Suppose that the U.S. imposes an import quota on Vietnamese Catfish. The quota makes the
real exchange rate of U.S. dollars
a. appreciate and the real interest rate in the U.S. increase.
b. depreciate and the real interest rate in the U.S. decrease.
c. appreciate but does not change the real interest rate in the U.S.
d. depreciate but does not change the real interest rate in the U.S.
40. Trade policies that directly affect a country’s exports or imports have no effect on that
country’s
a. net foreign investment.
b. real interest rates.
c. national saving.
d. Trade policies have no effect on any of the above.
41. During recessions
a. firms may find they are unable to sell all they produce.
b. workers are laid off.
c. factories are idle.
d. All of the above are correct.
42. Most economists use the aggregate demand and aggregate supply model primarily to analyze
a. fluctuations in the economy.
b. the bond and money markets.
c. the long-run effects of international trade.
d. the demand for particular products such as automobiles.
43. Real GDP
a. is not adjusted for inflation.
b. not measures income.
c. moves in the same direction as unemployment.
d. None of the above are correct.
44. The classical dichotomy refers to the separation of
a. real and nominal variables.
b. changes in money and changes in government expenditures.
c. endogenous and exogenous variables.
d. business cycle and other variables.
45. According to classical economic theory, changes in the money supply
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a.
b.
c.
d.
affect nominal variables and real variables.
affect nominal variables, but not real variables.
affect exogenous variables, but not endogenous variables.
affect real variables, but not nominal variables.
46. Which of the following shows the total quantity of goods and services that people throughout
the economy want to sell?
a. the aggregate demand curve
b. the market demand curve
c. the aggregate supply curve
d. the market supply curve
47. The downward slope of the aggregate demand curve shows that an increase in the
a. money supply causes the aggregate quantity of goods and services demanded to increase.
b. money supply causes the aggregate quantity of goods and services demanded to decrease.
c. price level causes the aggregate quantity of goods and services demanded to increase.
d. price level causes the aggregate quantity of goods and services demanded to
decrease.
48. Aggregate demand shifts right when the government
a. raises personal income taxes.
b. increases the money supply.
c. repeals an investment tax credit.
d. All of the above are correct.
49. The aggregate supply curve is vertical
a. in the short and long run.
b. in neither the short nor long run.
c. in the long run, but not the short run.
d. in the short run, but not the long run.
50. The sticky wage theory of the short-run aggregate supply curve says that when the price level
rises more than expected, the real wage
a. rises, so employment rises.
b. rises, so employment falls.
c. falls, so employment rises.
d. falls, so employment falls.
51. Aggregate demand is affected by
a. monetary and fiscal policy.
b. spending by households and firms.
c. Both of the above are correct.
d. None of the above are correct.
52. Policymakers might try to offset the changes created by a change in household spending by
changing
a. government expenditures.
b. the money supply.
c. Changing either of the above.
d. Changing neither of the above.
53. Which of the following is not a reason the aggregate demand curve slopes downward? As the
price level increases
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a.
b.
c.
d.
real wages decline.
real wealth declines.
the interest rate increases.
the exchange rate increases.
54. Liquidity preference refers directly to Keynes’s theory concerning
a. an explanation for sticky wages and prices.
b. an explanation for the existence of foreign trade.
c. the effects of changes in money demand and supply on interest rates.
d. the effects of changes in money demand and supply on exchange rates.
55. If expected inflation is increase, then when the nominal interest rate increases, the real interest
rate
a. increases.
b. decreases.
c. is unchanged.
d. might do any of the above.
56. According to the theory of liquidity preference, the money supply is
a. independent of the interest rate.
b. positively related to the interest rate.
c. negatively related to the interest rate.
d. positively related to the interest rate at low interest rates, and negatively related at higher
rates.
57. Assume the money market is initially in equilibrium. If the price level decreases, according to
liquidity preference theory there is
a. excess supply of money until the interest rate increases.
b. excess supply of money until the interest rate decreases.
c. excess demand for money until the interest rate increases.
d. excess demand for money until the interest rate decreases.
58. An increase in the MPC
a. increases the multiplier, so that changes in government expenditures have a larger
effect on aggregate demand.
b. increases the multiplier, so that changes in government expenditures have a smaller effect
on aggregate demand.
c. decreases the multiplier, so that changes in government expenditures have a larger effect
on aggregate demand.
d. decreases the multiplier, so that changes in government expenditures have a smaller effect
on aggregate demand.
59. Friedman and Phelps argued that
a. Classical theory was flawed, so there was a logical explanation for a long-run tradeoff
between inflation and unemployment.
b. there was neither a short-run nor long-run tradeoff between inflation and unemployment.
c. in the long run, monetary growth did not influence those factors that determine the
economy’s unemployment rate.
d. the Phillips curve could be exploited in the long run by using monetary, but not fiscal
policy.
Most economists believe that a tradeoff between inflation and unemployment exists
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a.
b.
c.
d.
only in the short run.
only in the long run.
in both the short and long run.
in neither the short nor long run.
Part II: Problem Solving or Essay Questions (40 marks)
Students choose to answer TWO of Three questions.
Question 1: For various reasons, fiscal policy changes automatically when output and employment
fluctuate.
a. Explain why tax revenue changes when the economy goes into a recession
b. Explain why government spending changes when the economy goes into a recession
c. If the government were to operate under a strict balance-budget rule. What would it have to
do in a recession? Would that make the recession more or less severe?
Answer:
a. Tax revenue declines when the economy goes into a recession because taxes are
closely related to economic activity. In a recession, people's incomes and wages fall,
as do firms' profits, so taxes on these things decline.
b. Government spending rises when the economy goes into a recession because more
people get unemployment-insurance benefits, welfare benefits, and other forms of
income support.
c. If the government were to operate under a strict balanced-budget rule, it would have
to raise tax rates or cut government spending in a recession. Both would reduce
aggregate demand, making the recession more severe.
Question 2: Suppose the Government reduces taxes by VND 2000 Billion, and there is no
crowding out. The marginal propensity to consume (MPC) is 0.75.
a) What is the initial effect of the tax reduction on aggregate demand?
b) What additional effect follow this initial effects? What is the total effect of the tax cut
on aggregate demand?
c) How does the total effect of this VND 2000 Billion tax cut compare to the total effect of
a VND 2000 Billion increase in government purchases? Why?
Answer: Dr. Trieu
a) VND 2000B tax reduction will increase households take-home income by 2000B. And because
MPC = .75, Consumption will increase 1500B, therefore AD initially increases by only 1500B.
b) The following effect will be the multiplier effect which increase further AD up to 6000B
[1500*1/(1-MPC)].
c) This total effect is smaller the the effect of an increase of 2000B G purchases. When G increases
2000B, AD increases initially by 2000B and therefore its total effect will be 8000B increase in AD.
Question 3: Based on questions related to ‘the monetary system) as below, please present your
answers
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Gold has been called “the ultimate burglar alarm.” Explain what this expression means?
Answer: Government ‘Burgle” holders of their currencies by printing more money and
subjecting holders to an ‘inflation tax.” Since gold prices responds quickly to evidence of
inflation of an increase in inflation will cause a jump in gold prices. In this way, gold serves
as a burglar alarm to warn that politicians are tampering with fiat money.
a. Suppose Vietnam attempt to pursue independent monetary and fiscal policies. How will
exchange rates behave?
Answer: Independent monetary and fiscal policies will lead to volatile exchange rates as
market participants receive and assess new information on these policies.
b. “For a fixed exchange rate system to work the government must be able to make tight
budget and monetary policies stick from the outset.” Comment
Answer: A government that runs budget deficits and a lax monetary policy is unlikely to be
able to maintain its commitment to a fixed exchange rate. Hence, one that starts out on the
wrong foot will appear to observers to be willing to make exchange rate policy subservient
to other national interests. Recognizing this apparent lack of government commitment to a
fixed exchange rate, speculator are more likely to attack its currency, making its ability to
maintain the fixed exchange rate even more doubtful.
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