BSP2001 – FINAL REVIEW SAMPLE MCQS       Sem 2 2016/2017 

[Table 1]

Consumption expenditures 1000

Investment expenditures 500
Government purchases 200
Government transfer payments 100
Exports 300
Indirect business taxes 75
Net factor income 80
Imports 50

1) [Refer to Table 1]. What is Gross National Product for this economy?
A) 1400
B) 1850
C) 1875
D) 1950
E) 2030

2) Consider the following statement:

“If inflation this year is higher than expected, then everyone loses.”

This statement is _______.

A) false because both lenders and borrowers will gain and only the government will lose.
B) false because lenders will gain at the expense of borrowers.
C) false because borrowers will gain at the expense of lenders.
D) true because both lenders and borrowers will lose.
E) true because nobody benefits from inflation.

 
3) An increase in consumption tax will lead to ________.
A) an increase in the supply of loanable funds and an increase in overall equilibrium
quantity of national saving and investment.
B) a decrease in the supply of loanable funds and a decrease in overall equilibrium
quantity of national saving and investment.
C) an increase in the demand of loanable funds and an increase in overall equilibrium
quantity of national saving and investment.
D) a decrease in the demand of loanable funds and a decrease in overall equilibrium
quantity of national saving and investment
E) an increase in the both the demand and supply of loanable funds and ambiguous
changes to overall equilibrium quantity of national saving and investment.

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BSP2001 – FINAL REVIEW SAMPLE MCQS       Sem 2 2016/2017 
 

4) Which of the following statements about unemployment is true?

<1> The natural rate of unemployment occurs at the level where GDP is at its potential
level.
<2> Cyclical unemployment is the difference between natural rate of unemployment and
actual unemployment.
<3> Unemployment increases when output increases.
<4> Frictional unemployment occurs when there is a mismatch of skills between the job
requirements and skills of the labor force.

A) Only <1> is true.

B) Only <2> and <4> are true.
C) Only <1> and <2> are true.
D) Only <1>, <2> and <4> are true.
E) All statements are true.

5) Providing a constant number of workers with additional capital with which to work will
_______ average labor productivity at a(n) _______ rate.
A) increase; increasing
B) increase; decreasing
C) increase; constant
D) decrease; increasing
E) decrease; decreasing

6) If all prices adjusted immediately to balance the quantities demanded and supplied for all
goods and services, you will expect that _______.
A) potential output will rise more quickly.
B) output gaps will be negative more often than they would be positive.
C) output gaps will be positive more often than they would be negative.
D) output gaps will not exist.
E) cyclical unemployment will be positive.

7) If the Federal Reserve wants to increase the money supply, it should _______.
A) increase reserve requirements.
B) increase the discount rate.
C) conduct open market purchases.
D) All of the above.
E) None of the above.

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BSP2001 – FINAL REVIEW SAMPLE MCQS       Sem 2 2016/2017 
 

8) If the marginal propensity to save is 0.2 and the marginal propensity to import is 0.2, the
multiplier for autonomous consumption is approximately _______.
A) 1
B) 2
C) 2.5
D) 4
E) 5

9) Assuming that the economy is initially at its potential output level, which of the following
explains the adjustments in the ASAD model?
(1) An increase in the budget deficit increases price level and output level in the short run;
over time, the AS curve shifts left to achieve potential output level.
(2) A decrease in the budget deficit reduces price level and output level in the short run;
over time, the AS curve shifts left to achieve potential output level.
(3) A decrease in oil price increases price level and output level in the short run; over
time, the AS curve shifts right to achieve potential output level.
(4) An expansionary monetary policy increases price level with output remaining at
potential level in the long run.

A) (1) only.
B) (2) and (4).
C) (1) and (4).
D) (1), (3), and (4).
E) (2), (3), and (4).

10) An increase in domestic interest rate will result in _______ of the domestic currency, thus
making _______ cheaper.
A) depreciation; exports
B) depreciation; imports
C) appreciation; exports
D) appreciation; imports
E) appreciation; exports and imports

11) An increase in the preferences for Chinese goods by Americans will ______ the supply of
US dollars (USD) in the foreign exchange market and ______ the USD against the
Chinese yuan.
A) decrease; appreciate
B) decrease; depreciate
C) increase; not affect
D) increase; appreciate
E) increase; depreciate

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BSP2001 – FINAL REVIEW SAMPLE MCQS       Sem 2 2016/2017 
 

12) The purchasing power parity theory is a reasonably good explanation for nominal
exchange rate determination:
A) when there are significant volumes of non-traded goods and services.
B) when there are fixed exchange rates.
C) in the short run.
D) in the long run.
E) All of the above.

13) An increase in the trade deficit will cause interest rates to _______and the price level to
_______ in the short run.
A) rise; rise
B) rise; fall
C) fall; fall
D) fall; rise
E) change ambiguously; fall

14) Under a fixed exchange rate system, monetary policy _______.

A) is effective in changing both the output level and the interest rate level.
B) is not effective in changing both the output level and the interest rate level.
C) is not effective in changing the output level but is effective in changing the interest
rate level.
D) is not effective in changing the interest rate level but is effective in changing the
output level.
E) is more effective in changing the output level than the interest rate level.

15) What of the following would most likely have the most severe effect on an economy?
A) A large drop in exports.
B) A large reduction in the country’s reserves.
C) A large increase in oil prices.
D) A failure of the financial sector.
E) A sudden depreciation of the domestic currency in the forex market.

16) Towards the end of 2007, many borrowers defaulted on subprime mortgages that
ultimately disrupted financial markets in the USA. Which of the following is a likely
result of this financial disruption in the short run?
A) Price level decreased and an economic expansion occurred.
B) GDP increased and inflation increased.
C) Price level decreased and unemployment decreased.
D) Price level decreased and interest rate decreased.
E) No changes to any macroeconomic variables as there were immediate government
fiscal stimulus and quantitative easing.

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BSP2001 – FINAL REVIEW SAMPLE MCQS       Sem 2 2016/2017 
 

17) Benefits of a Free Trade Area (FTA) include:

A) Greater foreign investment opportunities
B) Increase business travel convenience
C) Free transfer of capital and funds
D) All of the above.
E) None of the above.

[Article X]

LONDON—The Bank of England's preferred measure of broad money supply picked up in

November although the pace of growth remained weak, underscoring the likelihood that the
central bank will keep policy on hold for some time.

Figures released by the BOE Tuesday showed that broad money supply, excluding those
financial institutions whose activities distort underlying trends, rose 3.5% in November in
three-month annualized terms. The pace was faster than the 2.7% monthly-rise in
October…The BOE has highlighted growth in broad money supply as a key indicator of the
effectiveness of its £200 billion ($309.46 billion) quantitative easing policy of buying U.K.
government bonds with freshly created central bank money…

Analysts said the figures reinforced the view that the U.K. economy is gradually healing, but
that the central bank is likely to remain in wait-and-see mode until the recovery strengthens…

Meanwhile, a YouGov poll published Tuesday showed U.K. public inflation expectations for
the year ahead rose to a two-year high in the last month of 2010 as price growth remained at
elevated levels. The poll found that average annual inflation expectations were 3.5% in
December, up from 3.3% in November and the fastest rate of growth since September 2008.

The BOE pays most attention to measures of long-term inflation expectations, which tend to
be less volatile. But five-to-10-year expectations also reached their highest rate since May
2008, increasing to 3.8% in December from 3.5% in November.

Source: Wall Street Journal, 2011

 
18) [Refer to Article X]. Which of the following is true?
A) The growth in UK money supply causes a rightward shift of the AD curve.
B) The growth in UK money supply causes a rightward movement along the AD curve.
C) The growth in UK money supply causes a leftward shift of the AD curve.
D) The growth in UK money supply causes a rightward shift of the AS curve.
E) The growth in UK money supply causes a leftward shift the AS curve

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BSP2001 – FINAL REVIEW SAMPLE MCQS       Sem 2 2016/2017 
 

19) [Refer to Article X]. Following BOE’s policy implementation, what will most likely
occur?
A) The British pound will depreciate thus resulting in a decrease in net exports and
income.
B) The British pound will depreciate thus resulting in an increase in net exports and
income.
C) The British pound will appreciate thus resulting in a decrease in net exports and
income.
D) The British pound will appreciate thus resulting in an increase in net exports and
income.
E) Capital flows into and from UK will result in ambiguous changes to the British pound
exchange rate and net exports.

20) [Refer to Article X]. Assuming that UK is initially at its potential output level. The BOE’s
policy would most likely lead to _______ in the long run equilibrium.
A) an increase in output level and an increase in price level
B) an increase in output level and a decrease in price level
C) a decrease in output level and an increase in price level
D) an unchanged output level and a decrease in price level
E) an unchanged output level and an increase in price level

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