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Econ141: Review questions
Note: These questions are meant to help you prepare for your exam. They are not exam questions. You are
also strongly advised to use the "Study Guide"
1. Place each of the following transactions (sells) in one of the four components of expenditure: C, I, G and
NX.
(a) Bahrain Oven manufacturer sells an oven to the Bahrain Defense Force (BDF).
(b) Bahrain Oven manufacturer sells an oven to a private company Bahrain Bakery making cakes using
the oven.
(c) Bahrain Oven manufacturer sells an oven to Mrs. Mariam (a housewife).
(d) Bahrain Oven manufacturer sells an oven to Saudi Arabia.
(e) Bahrain Oven manufacturer makes an oven to be sold next year.
2. (a) A country had C equal to $1 billion, G equal to $700 million, I equal to $500 million, and imports were
$200 million less than exports, what was the country's GDP?
(b) A country had C equal to $1 billion, G equal to $700 million, I equal to $500 million, and imports
were $300 million more than exports, what was the country's GDP?
3. A country had the following data: income (Y) = $200,000, taxes (T) = $60,000, government purchases (G) =
$45,000, consumption (C) = $120,000, exports (X) = $65,000 and imports (M) = $70,000.
a.
b.
c.
d.
e.
f.
What was the country's private saving or households and businesses saving?
What was the government saving (or government surplus)?
What was the national saving?
Is the country lending or borrowing from the rest of the world and by how much?
What was the country's investment?
How much investment is financed by national saving and how much investment is financed by the lending
or borrowing from the rest of the world?
4. Suppose the 2004 GDP deflator is 100, and 2008 deflator was 107 and nominal GDP per person was
$214,000. What was the real GDP per person in 2008?
5. Which of the following is a stock variable?
(a) GDP
(b) Investment (c) Income
(d) Saving
(e) Wealth (f) Capital (g) Both (e) and (f).
6. Suppose a country's taxes (T) were $90,000, government purchases (G) were $75,000 and the national
saving was $50,000, how much were households and businesses saving?
(a) $65,000
(b) $35,000
7. Pollution __________ economic welfare
(a) Increases
(b) reduces
(c) does not affect
8. Another name of depreciation is
(a) the value added
(b) additional expenditure
(c) capital consumption expenditure
9. If Europe's imports are greater than Europe's exports, the
(a) rest of the world borrows from the Europe
(b) Europe borrows from the rest of the world
(c) Europe' s NX is negative
(d) Both (b) and (c) are true
10. If Bahrain's exports are BD2400 million and imports are BD2,134
. (a) Bahrain borrowing BD266 from the rest of the world
(b) Bahrain lending BD266 to the rest of the world
(c) Bahrain lending -BD266 to the rest of the world
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11. Investment is financed by
(a) national saving
(b) government spending
(c) borrowing from rest of the world
(d) by (a) and (c).
Questions 12-15 refer to the following problem.
Suppose the only goods produced and consumed in an economy are food and clothing.
The following table shows data on the quantities and prices of output in different years:
Prices are in $ per unit. Take 2004=100.
.
Year
2004
2005
Food
(quantity)
1000
1200
Price of
Food
$5
$5
Clothing
(quantity)
500
550
Price of
clothing
$6
$8
12. What was the nominal GDP for 2005?
(a) 10,400 (b) $10,400
(c) 12,400 (d) $12,400
13. What was the real GDP for 2005?
(a) $9,300
(b) 9,300
(c) $9,900 (d) 9,900
14. Refer to above table, what was the GDP deflator for 2005?
(a) $125.2
(b)125.2
(c) $111.8
(d)111.8
15..Refer to above table, what was the economic growth rate during 2005?
(a) 16.25%
(b)30%
(c)10%
(d)15%
16. Real GDP is criticized as a measure of economic welfare because:
(a) real GDP omits underground economic activity
(b) real GDP does not take account of the pollution (or degradation of the
environmental quality)
(c) real GDP does not include leisure time available to a society
(d) all of the above answers are correct
17. In calculating GDP, the purchase of new house counts as:
(a) an addition to inventory
(b) investment
(c) consumption expenditure
18. Underground economic activity:
(a) is production of illegal goods such as illegal drugs
(b) exists because of avoidance of taxes
(c) exists to avoid government regulation
(d) all of the above answers are correct
19. Which of the following transactions would be included in 2005 GDP?
(a) 2005 purchase of a house built in 2000
(b) 2005 purchase of a famous old painting
(c) the purchase of a car produced in 2005
(d) 2005 purchase of a used car
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Consider the following data (in million dinars) for a country in 2005:
Personal consumption expenditure
1380
Compensation of employees (wages)
1400
Corporation Profits
300
Net interest
100
Government purchases of goods and services
590
GDP
2435
Gross private domestic investment
415
Net taxes
700
Rental income
150
Depreciation
90
Proprietor's income
220
GNP
2359
For questions 20 - 26 refer to the table above
20. What was the country's net domestic product (NDP)?
(a) 2435
(b) 2345
(c) 1735
(d) 2525
21. What was the country's net export (NX)?
(a) 50
(b) 40
(c) -40
22. The country is a:
(a) borrower
(d) -50
(b) lender
23. What was the country's net domestic income (NDI)?
(a) 2178
(b) 2165
(c) 2170
(d) 2175
24. How much were households and businesses saving?
(a) 1055
(b) 355
25. How much were the national saving?
(a) 465
(b) 355
(c) 820
(d) 512
26. What is the country's net factor income (NFI)?
( a) 76
(b) -76
(c) -54
(d) 54
27 What is the country's net indirect tax?
( a) 175
(b) 150
(c) 700
(d) 100
28. The circular flow of income involves the principle that
(a) in every economic exchange one party takes advantage of the other party
(b) the seller of a good receives less than the buyer spends
(c) the seller of a good receives more than the buyer spends
(d) the seller of a good receives the same amount as the buyer spends
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29. If exports are $100 less than imports, how much is the net exports (NX)?
(a) $100 million
(b) -$100 mill ion
(c) zero
(d) cannot be answered
30. For the following time periods, describe Ahmed's labor market status. When Ahmed is
unemployed, tell whether it is frictional, structural, or cyclical unemployment.
(a) When Ahmed was 17 years old, he started last year of his school from September
23, 2004 to June 15, 2005.
(b) He started looking for a job beginning from July 1, 2005. On September 15, he
received a job in a private company.
(c) From September 15, 2005 to April 30, 2006 he worked full-time.
(d) On April 30, 2006 the company employed him as a part-time worker even though
Ahmed wanted a full-time job.
(e) On June 30, with worsening economic conditions (recession) of the country,
Ahmed got fired (lost job) and started looking for a new job till September 30.
(f) On October 1, Ahmed became convinced that he could not get a job, so until
November 30; he only socialized with his friends, troubling his parents and did not
look for a job.
(g) On December 1, his uncle gave him a job which he accepted.
31. A country in 2005 had 5% unemployment rate out of 20,000 in labor force. In the same year the
country's total number of people not in the labor force was 13,330. What was the country's
labor participation rate?
(a) 60%
(b) 71%
32. Working age population are:
(a) people who are over the age 16 years and has full-time job.
(b) people who have job or looking for job.
(c) people over the age 15 who are not in hospital, jail, mental hospital and other institutions.
33. A country's potential GDP is $4000 million. Its real GDP is now $3500 million. This means, the
country's
(a) Frictional unemployment increased.
(b) Cyclical unemployment increased.
(c) Structural unemployment increased.
34. Who of the following is frictionally unemployed?
(a) Beth, who lost her job because of foreign competition and is unemployed until retrained
(b) John, a fishery worker who is searching for a better job closer to home
(c) Bob, a steelworker who lost his job but has stopped looking for a job because he thinks he
won't be able to find a job now.
(d) Amanda, an office worker who lost her job because of a slowdown in the economy
35. Aggregate hours
(a) are the total number of hours worked by people working full-time.
(b) are the total number of hours worked by all people employed.
36. Which of the following is not part of the labor force
(a) a person who will start a new job in one month time.
(b) a discouraged worker.
(c) a person not working and has not tried to find a job
(d) both (b) and (c)
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37. Which of the following is called unemployed?
(a) Has no work, want to work but no longer looking for work.
(b) Not working and looking for work.
Component
Number of people (millions)
Employed (full-time)
105
Employed (part-tune)
30
Under 15
60
Unemployed
15
Housewives and retired
50
Important note: sometimes exam question says under 15 and other tunes under 16. Both are
acceptable because in some countries people under 1 5 are not included in working age population
and other countries people under 16 are not included in working age population.
38. Referring table above, the unemployment rate is
(a) 8%
(b) 10%
39. Referring table above, how many people are not in labor force
(a) 50
(b) 110
40. Referring table above, the labor force participation rate is
(a) 75%
(b)70%
41. Price index in year 2 is 1 17 and year 3 is 125. What is the inflation rate in (during) year 3?
(a) 17%
(b) 6.8%
42. GDP declines during
(a) the movement from below potential GDP back to the potential GDP.
(b) the movement from peak to trough
43. The CPI
(a) Compares the cost in the current period to the cost in the reference base period of a basket
of goods typically consumed in the base period
(b) Measures the increase in the price of the goods included in GDP
44. A country's natural rate of unemployment is 6%, and its structural rate of unemployment is 2%.
This means the country has:
(a) 4% of cyclical unemployment
(b) 4% of frictional unemployment
(c) zero percent cyclical unemployment
45. A country's natural rate of unemployment is 6%, its structural rate of unemployment is 2% and
the current unemployment 7%. This means the country has
(a) 1% of cyclical unemployment
(b) 4% of frictional unemployment
(c) both (a) and (b) are true.
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46. Indicate whether the following statements are true or false
(a)
(b)
(c)
(d)
(e)
(f)
Along a LAS curve, price level increases but prices of labor (nominal wages) do not change.
Along a LAS curve, firms profit increases or decreases.
A change in nominal wage shifts both LAS and SAS curves.
Along a SAS curve, nominal wages remain the same.
As one moves upward along a SAS curve, firms profit increases.
The term "monetary policy" refers to the government's spending more money to purchase
more goods and services.
(g) If the price level increases, real wealth decreases and when real wealth decreases, people
save more.
(h) When the price level rises and other things remain the same, interest rates rise.
(i) When price level increases, SAS increases.
(j) When price level increases, AD decreases.
47. Suppose that the money wage in the economy increases by 8 percent. As a result
(a) the SAS will decrease
(b) the LAS will decrease
(c) the LAS will increase and the SAS will decrease
48. If the economy is at the natural rate of unemployment,
(a) real GDP > potential GDP
(b) real GDP = potential GDP
(c) real GDP < potential GDP
(d) all of the above can occur when the economy is at the natural rate of unemployment
49. Along a "SAS, quantity of real GDP supplied increases as the price level increases because
(a) total revenue increases more than the increase in cost of production and as a result profit
increases.
(b) prices of goods and services and prices of factors production change in the same proportion.
(c) total revenue increases more than the increase in cost of production and as a result profit
decreases.
(d) prices of goods and services increase but prices of factors production decrease.
50. A downward shift in the aggregate demand (AD) curve could be caused by
(a) a decrease in the future expected inflation.
(b) a decrease in expected future income.
(c) a decrease in government expenditure (G).
(d) all of the above.
51. If LAS curve shifts more than the increase in AD curve, the result will be
(a) no inflation in the economy.
(b) there will be a negative inflation (or deflation) in the economy.
(c) there will be inflation hi the economy.
(d) none of the above is true.
52. Suppose the price level rises and the nominal wage remains constant. This is represented by
(a) an upward movement along the LAS curve
(b) an upward movement along the SAS curve
(c) a leftward shift of the SAS curve and the LAS curve
53. If firms expect that their future profit will be higher, then
(a) the SAS curve will shift to the right.
(b) the AD curve will shift to the right
(c) the AD curve will shift to the left
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54. A country has more than potential (or above full employment) equilibrium in the short run. The
country will
(a) eventually adjust to a long run equilibrium with a higher price level
(b) eventually adjust to a long run equilibrium with a lower price level
55. A country has less than potential (or below full employment) equilibrium in the short run. The country will
(a) eventually adjust to a long run equilibrium with a higher price level
(b) eventually adjust to a long run equilibrium with a lower price level
56. Equilibrium real GDP increases while the equilibrium price level does not change. This
could happen as a result of a simultaneous
(a) increase in both AD and SAS curves.
(b) decrease in both AD and SAS curves.
(c) increase in AD and decrease in SAS curve.
(d) decrease in AD and increase hi SAS curve.
57. A fall in the foreign exchange rate (Ej) of the national currency
(a) increases AD
(b) increases NX
(c) both (a) and (b) are true
LAS
SAS
SAS
2000
5000
Real GDP
58. Refer to the figure above. Suppose the economy is now at point B. The economy will be in
a long-run equilibrium at a price of
(a) 120
(b) 110
(c) 100
59. Refer to the figure above, Suppose the economy is now at point A. As the time
passes, the economy will be in an equilibrium at a price of
(a) 120
(b) 110
(c) 100