SIR ALBERT 4 KNH TREASURER

UNIVERSITY OF CAPE COAST

COLLEGE OF HUMANITIES AND LEGAL STUDIES
SCHOOL OF ECONOMICS
DEPARTMENT OF ECONOMIC STUDIES
TUTORIAL SET
MULTIPLE CHOICE QUESTIONS
1) Which of the following is not a topic studied in Macroeconomics? 1) _______
A) gross domestic product B) the unemployment rate
C) the inflation rate D) the price of Dell computers

2) Prices that do not always adjust rapidly to maintain equality between quantity
supplied and quantity demanded are 2) _______

A) market prices. B) administered prices.

C) regulatory prices. D) sticky prices.

3) An increase in the overall price level is known as 3) _______

A) inflation. B) stagflation. C) deflation. D) recession.

4) The term business cycle refers to the 4) _______

A) long-term trends in the level of economic activity.
B) short-term ups and downs in the price level.
C) short-term ups and downs in the level of economic activity.
D) long-term trends in the price level.

5) A period during which aggregate output rises is known as a(n) 5) _______

A) recession. B) hyperinflation. C) inflation. D) expansion.

6) A period when the economy shrinks is known as 6) _______

A) a recession. B) a slump. C) a contraction. D) all of the above.

7) If the labor force is 500 and employment is 450, then the unemployment rate is 7)
_______
A) 100%. B) 90%. C) 10%. D) 0%.

8) Unemployment means that

A) there is excess demand in the labor market.
B) there are some people who will not work at the going wage rate.
C) at the going wage rate, there are people who want to work but cannot find work.
D) people are not willing to work at the going wage rate.

9) The unemployment rate equals

A) labor force/population. B) (labor force - employed)/labor force.
C) unemployed/employed. D) (employed - unemployed)/labor force.

10) If the labor force is 50 million and 48 million are employed then the unemployment
rate is 10) ______
A) 2%. B) 4%. C) 5%. D) 52%.

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11) Unemployment generally rises during ________ and falls during ________. 11) ______
A) peaks; troughs B) recession; expansion
C) inflation; deflation D) booms; busts

12) If the central bank decreases the money supply, it is conducting 12) ______
A) supply-side policy. B) incomes policy.
C) fiscal policy. D) monetary policy.

13) To get the economy out of a slump, Keynes believed that the government should 13)
______
A) increase both taxes and government spending.
B) decrease taxes and/or increase government spending.
C) cut both taxes and government spending.
D) increase taxes and/or decrease government spending.

14) Which of the following is an assumption used by Classical economists? 14) ______
A) Wages adjust downward but not upward.
B) Wages adjust both upward and downward.
C) Wages adjust upward but not downward.
D) Wages are inflexible.

15) According to the Classical model, unemployment 15) ______

A) could be eliminated only through government intervention.
B) could be eliminated through fiscal and monetary policies.
C) could not persist because wages would rise to eliminate the excess supply of labor.
D) could not persist because wages would fall to eliminate the excess supply of labor.

16) According to the Classical economists, the economy 16) ______

A) is self-correcting.
B) will never be at full employment.
C) has sticky prices in many industries.
D) requires fine-tuning to reach full employment.

17) Macroeconomic policies became more influenced by Keynes' theories starting with
17) ______
A) the Great Depression.
B) the OPEC recession.
C) the period of high inflation in the early 1980s.
D) the period of high unemployment and high inflation in the 1970s.

18) Rapid increases in the price level during periods of recession or high unemployment
are known as 18) ______
A) depression. B) inflation. C) stagnation. D) stagflation.

19) John Maynard Keynes sought to solve the economic problem of the Great
Depression, which was the coexistence of 19) ______

A) high production and low inflation. B) low production and low unemployment.
C) high production and high inflation. D) low production and high unemployment.

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20) The number of people unemployed equals 20) ______

A) the labor force minus the number of people employed.
B) the number of people employed divided by the labor force.
C) the number of people employed minus the labor force.
D) the labor force plus the number of people employed.

Refer to the information provided in Table 7.1 below to answer the question(s) that follow.

Table 7.1

21) Refer to Table 7.1. The labor force equals 21) ______
A) 14,000 people. B) 17,000 people. C) 18,000 people. D) 21,000 people.

22) Refer to Table 7.1. The unemployment rate is 22) ______

A) 14.3%. B) 16.7%. C) 17.6%. D) 25.0%.

23) Refer to Table 7.1. The labor-force participation rate is 23) ______
A) 66.7%. B) 75.0%. C) 77.8%. D) 80.9%.

Refer to the information provided in Table 7.2 below to answer the question(s) that follow.

Table 7.2

24) Refer to Table 7.2. The labor force 24) ______

A) equals 130 million.
B) equals 150 million.
C) equals 170 million
D) cannot be determined from this information.

25) Refer to Table 7.2. The total number of people unemployed is 25) ______
A) 13 million. B) 15 million. C) 17 million. D) 20 million.

26) Refer to Table 7.2. The total number of people employed is 26) ______
A) 180 million. B) 153 million. C) 135 million. D) 117 million.

27) If the unemployment rate is 6.2% and the number of people employed is 200,000,
the labor force is approximately 27) ______

A) 210,970 people.
B) 212,400 people
C) 213,220 people.
D) cannot be determined from this information.

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28) Discouraged workers are

A) not considered as part of the labor force. B) considered frictionally unemployed.
C) considered cyclically unemployed. D) considered structurally unemployed.

29) A man is fired from his job because he was late for work too many times. While he is
searching for another job he would be classified as 29) ______

A) structurally unemployed.
B) not in the labor force because his employer had a legitimate reason for firing him.
C) cyclically unemployed.
D) frictionally unemployed.

30) Structural unemployment is the 30) ______

A) unemployment that occurs during recessions and depressions.
B) portion of unemployment that is due to changes in the structure of the economy that
result in a significant loss of jobs in certain industries.
C) portion of unemployment that is due to the normal working of the labor market.
D) unemployment that results when people become discouraged about their chances of
finding a job so they stop looking for work.

31) The natural rate of unemployment is generally thought of as the 31) ______
A) sum of structural unemployment and cyclical unemployment.
B) ratio of the frictional unemployment rate to the cyclical unemployment rate.
C) sum of frictional unemployment and cyclical unemployment.
D) sum of frictional unemployment and structural unemployment.

32. Multiple counting during National Income accounting can be avoided by:
A) including transfers in their calculations.
B) counting both intermediate and final goods.
C) only counting final goods.
D) only counting intermediate goods.
33. By summing the cedi value of all market transactions in the economy we would:
A) be determining the market value of all resources used in the production process.
B) obtain a sum substantially larger than the GDP.
C) be determining value added for the economy.
D) be measuring GDP.
34. Egya Atta grows vegetables at the back of his house for home consumption. This activity
is:
A) excluded from GDP in order to avoid double counting.
B) excluded from GDP because an intermediate good is involved.
C) productive but is excluded from GDP because no market transaction occurs.
D) included in GDP because it reflects production
35. In national income accounting, consumption expenditures include:
A) purchases of both new and used consumer goods.
B) consumer durable goods and consumer nondurable goods, but not services.
C) consumer durable goods, consumer nondurable goods, and services.
D) changes in business inventories.
36. GDP can be calculated by summing:
A) consumption, investment, government purchases, exports, and imports.

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B) investment, government purchases, consumption, and net exports.

C) consumption, investment, wages, and rents.
D) consumption, investment, government purchases, and imports
37. In calculating GDP, government transfer payments, such as SSNIT are:
A) not counted.
B) counted as investment spending.
C) counted as government spending
D) counted as consumption spending
38. Which one among the following is excluded from GDP?
A) the market value of unpaid work in the home.
B) the production of services.
C) the production of nondurable goods.
D) positive changes in inventories.
Answer the next question(s) based on the following data. All figures are in millions of
Ghana cedis.
Gross investment 18
National income 100
Net exports 2
Personal income 85
Personal consumption expenditure 70
Savings 5
Government purchases 20
Net domestic product 105
39. The gross domestic product for the above economy is:
A) ₵100.
B) ₵95.
C) ₵110.
D) ₵107.
40. Consumption of fixed capital is:
A) ₵5.
B) ₵10.
C) ₵20.
D) ₵30.
41. Disposable income is:
A) ₵83.
B) ₵73.
C) ₵75.
D) ₵77.
42. From this information, we can conclude that the sum of indirect business taxes and
net foreign factor income is.
A) ₵5 million.
B) zero.
C) ₵1 million.
D) ₵15 million.
43. Value added can be determined by:
A) summing the profits of all enterprises in the economy.
B) subtracting the purchase of intermediate products from the value of the sales of final
products.

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C) calculating the year-to-year changes in real GDP.

D) deflating nominal GDP.
44. Which of the following best defines disposable income?
A) income received by households less personal taxes
B) the before-tax income received by households
C) all income earned by resource suppliers for their current contributions to production
D) the market value of the annual output net of consumption of fixed capital
45. Real GDP refers to:
A) the value of the domestic output after adjustments have been made for
environmental pollution and changes in the distribution of income.
B) GDP data that embody changes in the price level, but not changes in physical output.
C) GDP data that reflect changes in both physical output and the price level.
D) GDP data that have been adjusted for changes in the price level.
46. Nominal GDP is:
A) the sum of all monetary transactions that occur in the economy in a year.
B) the sum of all monetary transactions involving final goods and services that occur in
the economy in a year.
C) the amount of production that occurs when the economy is operating at full
employment.
D) money GDP adjusted for inflation.
47. In an economy experiencing persistent deflation:
A) potential GDP will necessarily exceed actual GDP.
B) changes in nominal GDP may either overstate or understate changes in real GDP.
C) changes in nominal GDP understate changes in real GDP.
D) changes in nominal GDP overstate changes in real GDP.
48. The growth of GDP may understate changes in the economy's economic well-being over
time if the:
A) distribution of income becomes increasingly unequal.
B) quality of products and services improves.
C) environment deteriorates because of pollution.
D) amount of leisure decreases.
49. GDP data are criticized as being inaccurate measures of economic welfare because:
A) they do not take into account changes in the amount of leisure.
B) they do not take into account all changes in product quality.
C) they do not take into account the adverse effects of economic activity on the
environment.
D) of all of the above considerations.
50. Gross investment is a:
A) flow, as is depreciation.
B) flow, as is capital.
C) stock, whereas depreciation is a flow.
D) stock, whereas capital is a flow
51. Which of the following do national income accountants consider to be investment?
A) the purchase of an automobile for private, nonbusiness use
B) the purchase of a new house
C) the purchase of corporate bonds
D) the purchase of gold coins
52. W hich of the following is true regarding the national income accounts?
A. GDP > GNP

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B. NNP > GNP

C. Personal income > national income
D. National income > NNP
E. Personal income > disposable personal income

53. The most important determinant of consumption and saving is the:

a. level of bank credit. b) level of income. c) interest rate. d) price level.
54. If Smith's disposable income increases from GH₵1,200 to GH₵1,700 and her level of
saving increases from minus GH₵100 to a plus GH₵100, her marginal propensity to:
a. save is three-fifths. c) consume is three-fifths.
b. consume is one-half. d) consume is one-sixth.
55. With an MPS of 0.4, the MPC will be:
a. 1.0 minus 0.4. b) 0.4 minus 1.0. c) the reciprocal of the MPS. d) 0.4
56. Which of the following is correct?
a. APC + APS = 1. b) APC + MPS = 1. c) APS + MPC = 1. d) APS + MPS = 1.
57. The MPC for an economy is:
a. the slope of the consumption schedule or line.
b. the slope of the savings schedule or line.
c. 1 divided by the slope of the consumption schedule or line.
d. 1 divided by the slope of the savings schedule or line.
Use the following to answer questions 6-7:
Answer the next question(s) on the basis of the following consumption schedule: 𝐶 =
20 + 0.9𝑌 , where C is consumption and 𝑌 is disposable income.
58. Refer to the above data. The MPC is:
a. 0.45. b) 0.20. c) 0.50. d) 0.90.
59. Refer to the above data. At an GH₵800 level of disposable income, the level of saving
is:
a. GH₵180. b) GH₵740. c) GH₵60. d) GH₵18.
60. Which one of the following will cause a movement down along an economy's
consumption schedule?
a. an increase in stock prices c) an increase in consumer indebtedness
b. a decrease in stock prices d) a decrease in disposable income
61. The multiplier is useful in determining the:
a. full-employment unemployment rate.
b. level of business inventories.
c. rate of inflation.
d. change in GDP resulting from a change in spending.
62. The multiplier effect indicates that:
a. a decline in the interest rate will cause a proportionately larger increase in
investment.
b. a change in spending will change aggregate income by a larger amount.
c. a change in spending will increase aggregate income by the same amount.
d. an increase in total income will generate a larger change in aggregate
expenditures.

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63. If a GH₵200 billion increase in investment spending creates GH₵200 billion of new
income in the first round of the multiplier process and GH₵160 billion in the second
round, the multiplier in the economy is:
a. 4. b) 5. c) 3.33. d) 2.5
64. In a private closed economy, when aggregate expenditures equal GDP:
a. consumption equals investment.
b. consumption equals aggregate expenditures.
c. planned investment equals saving.
d. disposable income equals consumption minus saving
65. If an unintended increase in business inventories occurs at some level of GDP, then
GDP:
a. entails a rate of aggregate expenditures in excess of the rate of aggregate
production.
b. may be either above or below the equilibrium output.
c. is too low for equilibrium.
d. is too high for equilibrium.
Answer the next question(s) on the basis of the following consumption and investment
data for a private closed economy. Figures are in billions of Ghana Cedis 𝐶 = 60 + 0.6𝑌
and 𝐼 = 𝐼0 = 30
66. Refer to the above data. The equilibrium level of income (Y) is:
a. a) 360. b) 225. c) 200. d) 135.
67. Refer to the above data. In equilibrium the level of consumption spending will be:
a. 170. b) 270. c) 160. d) 195.
68. Refer to the above data. In equilibrium the level of saving will be:
a. 30. b) 26. c) 25. d) 60.
69. Actual investment is GH₵62 billion at an equilibrium output level of GH₵620 billion
in a private closed economy. The average propensity to save at this level of output is:
a. 0.10. b) 10. c) 0.62. d) 0.84.
70. The equilibrium GDP is the level of domestic output:
a. where consumption equals saving. c) which is sustainable.
b. where actual investment equals consumption. d) where full employment
exists.
71. It is true that:
a. equal increases in government spending and taxes do not change the
equilibrium GDP.
b. equal increases in government spending and taxes reduce the equilibrium
GDP.
c. equal increases in government spending and taxes increase the equilibrium
GDP.
d. taxes have a stronger effect upon equilibrium GDP than do government
purchases.
72. If the Brown family's marginal propensity to consume is 0.70, then it will necessarily
consume seven-tenths of its total income. True or False