1
NELSON MANDELA METROPOLITAN UNIVERSITY
SUMMERSTRAND CAMPUS (SOUTH) / MISSIONVALE CAMPUS / GEORGE
CAMPUS
EC102 / ECS102 / EC152 / PFEE 222 / MACROECONOMICS
SEMESTER TEST 1
28 AUGUST 2009
TIME: 1 HOUR
MARKS: 60
SPECIAL INSTRUCTIONS
1.
Answer all questions.
2.
Non-programmable calculators may be used.
3.
Answer Section A on the multiple choice answer sheet provided by using a
dark HB pencil to colour-in the correct alternative.
4.
Answer Section B in the exam book provided.
5.
All graphs / diagrams must be fully labelled. Marks will be deducted for
missing labels.
6.
Show any calculations and formulas necessary.
2
SECTION A: MULTIPLE CHOICE
1)
A)
B)
C)
D)
2)
A)
B)
C)
D)
Gross Domestic Product (GDP) includes:
intermediate as well as final goods.
foreign goods as well as domestically produced goods.
used goods sold in the current time period.
only final goods and services.
The Acme Stereo Company had a capital stock of R24 million at the
beginning of the year. At the end of the year, the firm had a capital stock of
R20 million. Thus its
net investment was some amount but we need more information to
determine the amount.
net investment was R4 million for the year.
gross investment was zero.
net investment was –R4 million for the year.
(2)
(2)
Figure 1
3)
A)
B)
C)
D)
In the figure above (i.e. Figure 1), flow A represents ___, while flow C
represents ___.
household borrowing; consumption expenditure.
net taxes; government lending.
net taxes; government purchases.
household saving; government purchases.
(2)
3
4)
A feature of a stock variable and a flow variable is that
a stock is a quantity per unit of time and a flow is a quantity that exists at a
point in time.
a stock is a quantity that exists at a point in time and a flow is a quantity per
unit of time.
a stock only measures the value of goods and services produced in a
country during a given time period.
an example of a stock variable is real GDP and an example of a flow
variable is consumption expenditure.
(2)
A cost of economic growth is
a more equal income distribution.
lower current consumption.
higher spending for environmental protection.
a lower level of future living standards.
(2)
A)
B)
C)
D)
(2)
A)
B)
C)
D)
A popular working definition of a recession is a period with
negative growth rate in real GDP that lasts at least one quarter.
positive growth rate in real GDP that lasts at least one quarter.
positive growth rate in real GDP that lasts at least two quarters.
negative growth rate in real GDP that lasts at least two quarters.
A)
B)
C)
D)
5)
6)
Figure 2
7)
A)
B)
C)
D)
In the above figure (i.e. Figure 2), a trough is at point ___ and a peak is at
point ___.
a; b.
b; c.
b; a.
d; c.
(2)
4
Table 1
Component
Total population
Working-age population
Employed on a full-time basis
Employed on a part-time basis
Unemployed, but looking for work
Unemployed, but no longer looking for work
8)
Number of people (millions)
246
207
113
20
6
2.4
A)
B)
C)
D)
Using the information in the above table (i.e. Table 1), the labour force
participation rate is _____.
67.1 per cent.
64.0 per cent.
95.7 per cent.
56 per cent.
A)
B)
C)
D)
Using the information in the above table (i.e. Table 1), the employment-topopulation rate is _____.
67 per cent.
64 per cent.
50 per cent.
62 per cent.
9)
10)
A)
B)
C)
D)
11)
A)
B)
C)
D)
Suppose that the money wage rate is R5 per hour, and that the price level is
100. If the money wage rate rises to R10 per hour and the price level does
not change, what happens to the real wage rate?
The real wage rate doubles.
The real wage rate rises, but does not double.
The real wage rate does not change.
The real wage rate falls.
Who of the following is frictionally unemployed?
Cara, who lost her job because of foreign competition and is unemployed
until retrained.
Tasneem, an office worker who lost her job because of a slowdown in
economic activity.
Thando, a steelworker who was laid off but has stopped looking for a new
job because the economy is in a recession and he thinks he won’t be able
to find a job.
Stephen, a fishery worker who is searching for a better job closer to home.
(2)
(2)
(2)
(2)
5
Table 2
Item
CDs
Petrol
12)
A)
B)
C)
D)
13)
A)
B)
C)
D)
2003
Quantity
10 discs
200 litres
Price
R16 per disc
R1per litre
2004
Quantity
8 discs
250 litres
Price
R12 per disc
R1.25 per litre
If 2003 is the reference base period, what is the price index for the
Consumer Price Index (CPI) basket of goods for 2004 in the above table
(i.e. Table 2)?
97.3.
102.8.
113.5.
128.
The classical dichotomy is a discovery that states
real and nominal variables are actually the same thing.
when the economy is at full employment, the forces that determine the real
variables are independent of those that determine the nominal variables.
throughout the business cycle, the forces that determine the real variables
are independent of those that determine the nominal variables.
only nominal variables cause business cycles.
(2)
(2)
Figure 3
14)
A)
B)
C)
D)
In the above figure (i.e. Figure 3), for a movement from point b to point c,
the marginal product of labour equals
R75.
R150.
R200.
5 000 000 hours.
(2)
6
15)
A)
B)
C)
D)
A decrease in population shifts the
labour demand curve rightward.
labour demand curve leftward.
labour supply curve rightward.
labour supply curve leftward.
16)
Which of the following explains why the demand for loanable funds is
negatively related to the real interest rate?
Interest rate flexibility in financial markets assures an equilibrium in which
saving equals investment.
A lower real interest rate makes more investment projects profitable and
hence undertaken.
Consumers are willing to spend less and hence save more at higher real
interest rates.
All of the above are correct reasons why the demand for loanable funds is
negatively related to the real interest rate.
A)
B)
C)
D)
17)
A)
B)
C)
D)
18)
A)
B)
C)
D)
19)
A)
B)
C)
D)
20)
A)
B)
C)
D)
Labour growth depends mainly on ___ and labour productivity growth
depends on ___.
population growth; increases in real GDP
growth in real GDP per person; growth rate of capital
population growth; technological advances.
growth in real GDP per person; technological advances
Suppose capital per hour of labour grows at 1.0% per year and
technological change grows at 2.0% per year. Using the one-third rule, the
growth rate of real GDP per hour of labour is ___ per year.
3.00%
9.00%
4.33%
2.33%
Several factors are important for achieving faster economic growth. Which
of the following is one of those factors?
Expansion of international trade.
Increased government spending.
Increased taxes on saving.
Promotion of consumption expenditure.
The ____ growth theory assumes that population growth is not driven by
real GDP per person and the ____ growth theory predicts that differences in
the economic growth rate can last indefinitely.
new; classical
neoclassical; new
classical; neoclassical
neoclassical; neoclassical
(2)
(2)
(2)
(2)
(2)
(2)
[40]
7
SECTION B: LONG QUESTIONS
1.
Consider the table below (i.e. Table 3) which shows the various sources of
national expenditure and income for the year 2008.
Table 3
Component
Amount (in Rands)
Corporate profits
200
Net interest
150
Indirect taxes
300
Subsidies
70
Depreciation
250
Compensation of employees
1 350
Proprietor’s income
150
Rental income
70
Personal consumption expenditures
1 400
Government purchases
500
Net exports
40
a) Using the data in the above table (i.e. Table 3); calculate net domestic
income at factor cost.
b) Calculate gross domestic product (GDP).
c) How much was gross private domestic investment equal to 2008?
d) Suppose that the GDP deflator in 2008 was 150. Calculate the value of real
GDP in 2008.
(Please show all your calculations as well as the formula you used to
perform each calculation.)
(2)
(2)
(2)
(4)
[10]
2.
List the four main sources of bias in the Consumer Price Index (CPI).
[4]
8
3.
The figure below (i.e. Figure 4) describes the labour market on Cocoa
Island. In addition (not shown in the figure), a survey tells us that when
Cocoa Island is at full employment, people spend 1 000 hours a day in job
search.
Figure 4
a) Find the full-employment equilibrium real wage rate and quantity of labour
employed.
b) Calculate the natural unemployment rate.
(Please show all your calculations as well as the formula you used to
perform the calculation.)
c) If the government introduces a minimum wage of R4 an hour, how much
unemployment is created?
(2)
(3)
(1)
[6]
[20]
GRAND TOTAL [60]
9
MEMORANDUM: SEMESTER TEST 1 2009
SECTION A: MULTIPLE CHOICE
Question
1
2
3
4
5
6
7
8
9
10
Answer Workings
D
D
C
B
B
D
C
A
Labour force
 100
Working - age population
113  20  6
* 100
LFPR =
207
67.1%
B
Employment-to-population
Number of people employed
 100
Working - age population
113  20
*100
207
 64.25%
A
Money wage rate (Rands / hour)
Price level
5
*100  5
100
Now
ratio
=
10
*100  10
100
11
12
D
B
1. Find the cost of the CPI basket at base-period
prices.
10*16 + 200*1 = 360
2. Find the cost of the CPI basket at current-period
prices.
10*12 + 200*1.25 = 370
3. Calculate the CPI for the current period.
Cost of basket in current period
*100
Cost of basket in base period
370/360 * 100 = 102.78 = 102.8
(Remember: the technique currently used to calculate the
CPI implicitly assumes that over time consumers buy the
10
same relative quantities of goods as in the base year!)
13
14
B
B
15
16
17
18
D
B
C
D
19
20
A
B
Marginal
product
 in real GDP
 in quantity of labour employed
0.75 billion
5 million
750000000
5000000
150
of
labour
=
The one-third rule tells us that capital growth contributed
1/3 of 1%, which is 0.33%, to labour productivity growth.
The question tells us that technological change contributed
another 2% to labour productivity growth. In total labour
productivity grows by 2%+0.33% = 2.33%.
SECTION B: LONG QUESTIONS
1.
a)
Net domestic income at factor cost
(2)
NDI at factor cost = Corporate profits + Net interest + Compensation of
employees + Proprietor’s income + Rental income. Therefore:
= 200 + 150 + 1 350 + 150 + 70
= 1 920
[1 mark is awarded for the correct method / formula. 1 mark is awarded for
the correct answer. 2 marks are awarded automatically for a correct final
answer.]
b)
GDP
To move from NDI at factor cost to GDP the following procedure is followed
add indirect taxes subtract subsidies and add depreciation.
Therefore:
GDP = NDI + indirect taxes – subsidies + depreciation
= 1 920 + 300 – 70 + 250
= 2 400
[1 mark is awarded for the correct method / formula. 1 mark is awarded for
the correct answer. 2 marks are awarded automatically for a correct final
answer.]
(2)
11
c)
Gross private domestic investment
(2)
Under the expenditure approach, since GDP also equals, Y = C + I + G +
NX. Since the table provides us with C, G & NX, we can work out
investment, I, as follows:
I = Y – C – G – NX [alternatively, I = Y – (C + G + NX)]
=2 400 – 1 400 – 500 - 40
= 460
[1 mark is awarded for the correct method / formula. 1 mark is awarded for
the correct answer. 2 marks are awarded automatically for a correct final
answer.]
d)
Value of real GDP in 2008.
 Nominal GDP 
  100 (1 mark), we can work out
Since the GDP deflator = 
 Real GDP 
real GDP since we know what nominal GDP and the value of the GDP
deflator is.
Hence, real GDP =
 Nominal GDP  100
 Nominal GDP 

 

  100 
 150
GDP
deflator
Real
GDP
1




2400
100 * Nominal GDP 150
*100 


150
Real GDP
1
1600 
100 * 2400 150

or give mark here ( )
x
1
240000 150


x
1
240000  150x
240000
x
150
x  1600 
[1 mark is awarded for the GDP deflator formula. 1 mark is awarded for the
correct manipulation of the formula and 1 mark is awarded for substituting
the correct figures into the manipulated formula. 1 mark is awarded for the
correct answer. 4 marks are awarded automatically for a correct final
answer.]
(4)
12
2.




3)
a)
b)
c)
The main sources of bias in the CPI are:
New good bias
Quality change bias
Commodity substitution bias
Outlet substitution bias
[1 mark per correct answer]
The full-employment real wage rate is R3 (1 mark) per hour and the fullemployment quantity of labour employed is 3 000 (1 mark) per day.
The level of employment is 3 000 hours and the level of unemployment is 1
000. The labour force is 4 000 hours. The unemployment rate is
Number of people unemployed
 100
Labour force
1000
* 100
4000
25%
[1 mark is awarded for the correct method / formula. 1 mark is awarded for
substituting the correct figures into the formula. 1 mark is awarded for the
correct answer. 3 marks are awarded automatically for a correct final
answer.]
If the government imposes a R4 per hour minimum wage, the quantity of
labour supplied is 4 000 hours and the quantity of labour demanded is 2
000. The government’s minimum wage has created an additional 2 000 (1
mark) hours of unemployment.
(4)
(2)
(3)
(1)