MID EXAM (EVEN SEMESTER 2019-2020)

S1 Regular Program / International Undergraduate Program

INTRODUCTORY ECONOMICS 2 / INTRODUCTORY MACROECONOMICS

(ECEU 600203)

DAY / DATE : Monday, 6 April 2020

DURATION : 150 minutes (2.5 hours)
MECHANISMS :
a) Open book and free to use any other online and offline resources.
b) Free to use calculator.
c) Work alone. Any similarity of your answers with your friends’ will result
in zero marks for all or will be considered as “fail”.
d) There are two types of questions, i.e. multiple-choices and essays.
Answer all those questions in the hand-written mode on any type of
writing or photo copy papers.
e) Follow the detailed instructions of the submission of your work closely.
The instructions will be shared on-line before the start of the exam.

I. MULTIPLE-CHOICE QUESTIONS:

Read the following questions carefully and choose the letter that best represents
the answer. Each question in Section I has the same weight, i.e. 1.5 points.

1. Which of the following questions refers to microeconomics than macroeconomics?

a. Why do general prices rise faster in some countries than in others?
b. Why do wages differ across industries?
c. Why do production and income increase in some periods and decline in some
others?
d. How rapid does the current GDP grow?

2. Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy
and the unemployment rate.
b. GDP measures the simultaneous flow of money from households to government
and then back to households.

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 c. To a nation’s economy, GDP is similar to household income to household.
d. All the answers above are correct.

3. In a simple circular-flow diagram, the total income and the total expenditure are
a. never equal, as total income always exceeds total expenditure.
b. seldom equal due to the continuing changes in the unemployment rate of the
economy.
c. equal, providing that one dollar spent on goods is every dollar spent on services.
d. always equal because every transaction has a buyer and a seller.

4. Milks produced by Pangalengan farmers are used as intermediary goods for

Silverking chocolate production. Pangalengan farmers sell milks for 10 US dollars
per liter. If they produce 500 liters of milk but manage to sell 450 liters only, how
much is the GDP?
a. GDP is 500 USD, because the unsold 50 liters of milk has currently become the
final goods, not the intermediary goods anymore.
b. GDP is zero because the milks produced are still intermediary goods.
c. GDP is 4,500 USD, because 450 liters of milk are sold.
d. GDP cannot be calculated because we have no information on the cost of
production of the Pangalengan farmers.

5. George Best, the famous football player, earned 240 US dollars per week in 1968.
Today, the best football players can earn 500 times as much as George Best did in
1968. However, prices have also risen since 1968. Base on the information, we can
conclude that
a. the best football players today are about 300 times better off than George Best
did in 1968.
b. because prices have also risen, the standard of living of football stars has not
changed since 1968.
c. one cannot make judgments about changes in the standard of living based on
changes in prices and changes in incomes.
d. one cannot determine whether football stars today enjoy a higher standard of
living than George Best did in 1968 without any additional information regarding
increases in prices since 1968.

6. When the consumer price index rises, the typical family

a. has to spend more money to maintain the same standard of living.
b. can spend less money to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.

7. Which of the followings does the real GDP measure?

a. Total real income
b. Productivity
c. The standard of living

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 d. All the answers above are correct

8. Consider two countries. Country A has a population of 1,000, of whom 800 work 8
hours a day to produce 128,000 final goods. Country B has a population of 2,000, of
whom 1,800 work 6 hours a day to produce 270,000 final good. Which statement
below is true?
a. Country A has higher productivity and real GDP per person than country B.
b. Country A has lower productivity and real GDP per person than country B.
c. Country A has higher productivity, but lower real GDP per person than country
B.
d. Country A has lower productivity, but higher real GDP per person than country
B.

9. Which of the following is a determinant of productivity?

a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. all the answers above are correct.

10. Which of the following is not correct?

a. When a country saves more, it will have more capital.
b. A supplier of loanable funds borrows money.
c. The interest rate adjusts to balance both the quantity supplied and the quantity
demanded of loanable funds.
d. If Fulan buys equipment for her factory, Fulan is engaging in capital investment.

11. In financial market, the correct statement is

a. Adverse selection and moral hazard problem can be eliminated by purchasing
insurance.
b. Diversification could reduce the market risk.
c. Fundamental analysis suggests us to buy financial assets randomly.
d. Market risk will not be eliminated through diversification.

12. In a closed economy, national saving equals

a. investment
b. income minus the sum of consumption and government purchases
c. private saving plus public saving
d. all the answers above are correct

13. Karan is a full-time unpaid homemaker who currently is not looking for another
work. Tina is a full-time student who currently does not look for a job either. Which
one does the Statistical Bureau considered as in the labor force?
a. Karan
b. Tina

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 c. both Karan and Tina
d. neither Karan nor Tina

14. Due to a pandemic disease in her area, one of the university graduates has to wait
longer to get her preferred first job. Is she counted as unemployed during her
waiting period?
a. No, because she has just graduated from her university.
b. Yes, she falls into frictional unemployment.
c. Yes, she falls into structural unemployment.
d. Yes, she falls into cyclical unemployment.

15. Which of the following best illustrates the function of money as a medium of
exchange?
a. You keep some money safe in your shoes.
b. You keep track of the value of your assets in terms of currency.
c. You pay for your double latte using currency.
d. None of the answers above is correct.

16. Which of the following functions of money that is most commonly found in other
financial assets?
a. A unit of account
b. A store of value
c. Medium of exchange
d. None of the answers above is correct.

17. If the reserve ratio is 12.5 percent, $1,000 of additional reserves can create
a. $7,000 of additional money supply.
b. $8,000 of additional money supply.
c. $11,500 of additional money supply.
d. $12,500 of additional money supply.

18. The money supply increases when the central bank

a. buys bonds. The increase will be larger the smaller the reserve ratio is.
b. buys bonds. The increase will be larger the larger the reserve ratio is.
c. sells bonds. The increase will be larger the smaller the reserve ratio is.
d. sells bonds. The increase will be larger the larger the reserve ratio is.

19. If Y and V are constant, while M doubles, the quantity equation implies that the price
level
a. more than doubles.
b. changes but less than doubles.
c. doubles.
d. does not change.

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20. If a country experiences deflation
a. the nominal interest rate would be greater than the real interest rate.
b. the real interest rate would be greater than the nominal interest rate.
c. the real interest rate would equal to the nominal interest rate.
d. None of the answers above is necessarily correct.

II. ESSAY QUESTIONS:

Read the following questions carefully and write your answer concisely but
clearly. Support your answers with relevant and sufficient explanations. Each
question in Section II has the same weight, i.e. 10 points.

1. Manuki buys 20 kilograms of coffee from his supplier that costs him Rp250
thousands per kilogram. Each kilogram of coffee is used to make 30 small bottles
of coffee drink. Normally he gets a revenue of Rp15 millions from selling 600
bottles of coffee drink that he produces. How much is the GDP if Manuki only
manages to sell 540 bottles and generates a revenue of Rp13.5 millions? Explain.

2. Below are some data from the land of milk and honey
Year Price of milk Quantity of milk Price of honey Quantity of honey
2017 $1 100 quarts $2 50 quarts
2018 $2 50 quarts $2 50 quarts
2019 $3 200 quarts $3 100 quarts

1) Compute nominal GDP, real GDP, and the GDP deflator for each year, using
2017 as the base year.
2) Compute the Consumer Price Index for each year, using 2017 as the base year
and 2017 basket as the fixed basket to calculate CPI.
3) Calculate the year-on-year inflation rate in 2018 and 2019 using both GDP
deflator and CPI. Compare the results.

3. Government of Indonesia has adopted several policies to encourage both domestic

and foreign investment. Do you think promoting investment would generate any
impact to our economic growth? Why does the economic growth of many
developed countries that, in the past, have poured more investment than the
developing countries slow down? Explain.

4. Using a graph representing the market for loanable funds, show and explain what
will happen to the interest rate and investment if the government its budget, from
deficit to surplus.

5. 1) The table below uses data for the year 2003 provided by the Bureau of Labor
Statistics, United States and are adjusted to be comparable to US data. All values
are in thousands. Fill in the blank entries in the table.

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 Labor-Force
Adult Labor Unemployment
Country Employed Unemployed Participation
Population Force Rate (%)
Rate (%)
Japan 109,474 62,510 3,500
France 26,870 2,577 57.41
Germany 70,159 39,591 9.69

2) Suppose that there is an excess supply of economics professors. Should it be

necessary for universities to reduce salaries? What does the standard economic
theory suggest? What does the efficiency-wage theory suggest?

6. Explain why banks can affect the money supply if the required reserve ratio is less
than 100 percent.

7. Using separate graphs, demonstrate what happens to the money supply, money
demand, the value of money, and the price level if
a. the central bank increases the money supply.
b. people decide to demand less money at each value of money.

*** Enjoy working alone ***

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