YOUR NAME: ……………………………………………. ID : ……………………….

IUB Online Class

MBA 510 (Sec. 01): Macroeconomics; Autumn 2021; Mid-term Examination
Time allowed: Maximum 2 hours; Total marks: 100

Section-A
Instructions: Answer all questions of this section on the answer sheet provided below
TRUE/FALSE questions: (Maximum 18 marks)

1) A positive statement is concerned with some goal which is desirable to society.

2) Economics is primarily the study of how to make profitable investments.

3) The production possibilities curve (PPC) illustrates the basic principle that an economy will automatically
seek the level of output at which all of its resources are employed.

4) The process by which capital goods are accumulated is known as investment.

5) Nominal GDP is the sum of all monetary transactions which occur in the economy in a given time period, usually a
year.

6) The “fallacy of composition” is essentially the error of generalizing from the particular to the general.

7) The purchase of the General Motors(GM) stock is a part of gross, but not of net, private domestic

investment.

8) The income received by resource suppliers is measured by disposable income.

9) The two basic markets shown by the simple ‘circular flow’ model are capital goods and consumer goods.

10) In an expanding economy, net exports are a positive amount.

11) Transfer payments are excluded from GDP but included in personal income (PI).

12) The present choice of position on the PPC will not influence the future location of the curve.

13) In economics the term ‘capital’ always means real capital, e.g. machines, tools, factories, etc.

14) The study of inflation is a part of microeconomis.

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MULTIPLE CHOICE questions: (Maximum 32 marks)

1) The safest way for an individual to leave a burning theatre is to run for the nearest exit; it is therefore, also the best
means of escape for a large audience. This illustrates:
a) the “after this, therefore because of this” fallacy. b) the fallacy of composition.
c) Wagner’s law. d) the fallacy of limited decisions.

2) The ordinary equation for an open economy’s Net Domestic Product is:
a) C + Ig – D +G. b) C – Ig + G + X. c) C + In+ G + Xn. d) C + Ig + G + Xn.

3) . Real GDP measures:

a) current output at current prices. b) current output at base year prices.
c) base year output at current prices. d) none of the above.

Next two questions are based on the following graph:

4) At the onset of World War II the United States had large amounts of idle human and property resources. Its economic
adjustment from peacetime to wartime can best be described by the movement from point:
a) c to point b. b) b to point c. c) a to point b. d) c to point d.

5) At the onset of World War II the then Soviet Union was already at full employment. Its economic adjustment from
peacetime to wartime can best be described by the movement from point:
a) c to point b. b) b to point c. c) a to point b. d) c to point d.

6) If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:
a) inflation of 4 percent. b) inflation of 3.33 percent. c) deflation of 3.33 percent. d) deflation of 4 percent.
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7) A business buys Tk. 5,000 worth of resources to produce a product. The business makes 100 units of the product and
each of them sells for Tk. 65. The value added by the business to these products is:
a) Tk. 5000. b) Tk. 6,500. c) Tk. 1,500. d) Tk. 1,000.

8) When gross private domestic investment is positive, net investment:

a) is always zero. b) may be either positive or negative.
c) must be negative. d) must be positive.

9) GDP in an economy is Tk. 4,600 billion. Consumer expenditures are Tk. 3,500 billion, government purchases are
Tk.900 billion, and gross private domestic investment is Tk. 400 billion. Net exports are Taka:
a) +400 billion. b) -400 billion. c) +200 billion. d) -200 billion

10) Adding the market value of all final and intermediate goods and services in an economy in a given year would result
in:
a) the calculation of GDP for that year. b) the calculation of NDP for that year.
c) an amount less than GDP for that year. d) an amount greater than GDP for that year.

11) From an economist’s perspective, which of the following is not considered to be investment?
a) construction of a new factory. b) purchase of shares of common stock.
c) the building of an apartment complex. d) additions to inventories at steel plants.

12) In a declining economy:

a) net private domestic investment is positive. b) net private domestic investment is negative.
c) disposable income exceeds personal income. d) nominal GDP exceeds real GDP.

Answer the next two questions on the basis of the data provided in the table below:

Production Possibilities (alternatives)_________________________

A B C D E F
Capital goods 5 4 3 2 `1 0
Consumer goods 0 5 9 12 14 15

13) If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods
will be:
a) 4 units of capital goods. b) 2 units of capital goods. c) 3 units of capital goods.
d) 1/3 of a unit of capital goods. e) 1 unit of capital goods.

14) As compared to production alternative D, the choice of alternative C would:

a) tend to generate a more rapid growth rate. b) be unattainable.
c) entail unemployment. d) tend to generate a slower growth rate.

15) GDP includes:

a) neither intermediate nor final goods. b) both intermediate and final goods.
c) intermediate but not final goods. d) final but not intermediate goods.
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Next two questions are based upon the graph below.

16) The diagram above is best described as an idealized:

a) seasonal variation. b) activity fluctuation. c) business cycle. d) prosperity cycle.

17) The phases of the cycle from points A to D are, respectively:

a) peak, recession, recovery, trough. b) trough, recovery, expansion, peak.
c) expansion, recession, trough, peak. d) peak, recession, trough, recovery.

18) As defined in national income accounting, investment refers to:

a) business expenditures on machinery and equipment. b) all new construction.
c) changes in business inventories. d) all of the above.

19) Which of the following is a final good or service?

a) diesel fuel bought for a delivery truck. b) fertilizer purchased by a farm supplier.
c) a haircut. d) Chevrolet windows purchased by a General Motors assembly plant.

20) The total population of an economy is 175 million, the labor force is 125 million, and the number of unemployed is 8
million. The unemployment rate in this economy is:
a) 4.6 percent. b) 5.8 percent. c) 6.4 percent. d) 7.8 percent.

N E X T P A G E
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ONLINE ANSWER SHEET (for section A)

MBA 510 (sec. 1), Autumn 2021

YOUR NAME-……………………………… ID # …………………………

Instruction: Check the most appropriate answer usinga tick (√)mark

True False Multiple Choices
(a) (b) (c) (d) (e)
1) O O 1) O O O O O
2) O O 2) O O O O O
3) O O 3) O O O O O
4) O O 4) O O O O O
5) O O 5) O O O O O
6) O O 6) O O O O O
7) O O 7) O O O O O
8) O O 8) O O O O O
9) O O 9) O O O O O
10) O O 10) O O O O O
11) O O 11) O O O O O
12) O O 12) O O O O O
13) O O 13) O O O O O
14) O O 14) O O O O O
15) O O O O O
16) O O O O O
17) O O O O O
18) O O O O O
19) O O O O O
20) O O O O O
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SECTION B
(max. 50 marks)

Problem Solution

Q.1 Use the following data of an economy to answer the next three questions:
(3+3+3 = 9)
Consumption expenditures……………BDT 400 Government purchases………………..BDT 128
Net private domestic investment………… 88 Net exports……………………………………….. 07
Net Bangladeshi income earned abroad….… 0 Capital consumption allowance……….. 43
Indirect business taxes (on production)….... 50 Compensation of employees……………. 369
Rents…………………………………………………………. 12 Interest…………………………………………….. 15
Proprietors’ income…………………………………… 52 Corporate income taxes……………………. 36
Dividends………………………………………………….. . 24 Undistributed corporate profits……….. 22

a) Find the gross domestic product (GDP) for this economy: ……………………….

b) What is the Gross private domestic investment?.......................

c) Compute the national income(NI) in this economy: ………………………..

Q.2 The following are Production Possibilities Curve data of an economy which produces only
two products. Solve the problems that follow: (3+3 = 6)

Production Possibilities
______________________________________________________________________________________
_____Products_______A________ B________C________D________E_______F________
Tanks 0 1 2 3 4 5
Autos 1000 950 850 650 350 0

a) Find the cost of a tank in terms of autos in moving from possibility C to D………………………….

b) What happens to the opportunity cost of each additional tank in terms of autos, and explain your

answer......................………………………………………………………………………………………………………………..
 ………………………………………………………………………………………………………………………………….
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Q.3 The next three questions refer to the following data. Assume the economy is producing only
one product. Treat year-2 as the base year.
(2+2+2 = 6)
Year Units of output Price per unit
1 4 Tk. 4
2 5 5
3 7 8
4 9 9
5 10 10

a) The price index for year 1 is: …………………….

b) Nominal GDP for year 3 is Taka: ………………..

c) Real GDP for year 5 is Taka: ……………………….

Q.4 Examine each of the following SIX statements, and answer whether these are true or false. You must justify
your answer adequately why a statement is TRUE or FALSE. Answer any FIVE of six. 5x6= 30 marks

i) GDP is not widely accepted to be an ‘ideal’ measure of general economic welfare.

ii) The production of more of any one good will eventually require smaller and smaller sacrifices
(opportunity cost) of the other goods.
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iii) In a two-sector economy the simple circular flow model shows that businesses are on the demand side
of the product market and on the supply side of the resource market.

iv) When all types of unemployment are eliminated, we have the situation of full-employment.

v) The simplest way to calculate GDP is to sum up the total sales of all business firms.

vi) In a market economy the concept of “invisible hand” refers to the many indirect controls which the
government imposes for the functioning of the economy.

End

Mail back the entire test to: rkhondker50@gmail.com with a copy to the
Class Representative
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