Principles of Macroeconomics

Assignment 1

Mr. Trump and Chi Man are roommates. They have 24 hours a day. They sleep 9 hours a
day and spend another 7 hours on studying Economics. They leave the rest of the time (8
hours) for their favourite activities: making pizza and durian salad (one kind of fruit salads).
Mr. Trump makes 3 pizzas per hour and 6 bowls of durian salads per hour. Chi Man makes
1 pizza per hour and 4 bowls of durian salads per hour.

Question 1 Which of the following statement is correct?

A. Chi Man has the absolute advantage and the comparative advantage in producing
durian salads
B. Mr. Trump has the absolute advantage and the comparative advantage in producing
durian salads
C. Chi Man has the absolute advantage and the comparative advantage in producing
pizzas
D. Mr. Trump has the absolute advantage and the comparative advantage in producing
pizzas
E. None of the above is correct

Question 2 What is the opportunity cost of producing 1 pizza for Chi Man?
A. 0.25 bowl of durian salad
B. 0.5 bowl of durian salad
C. 2 bowls of durian salad
D. 4 bowls of durian salad
E. None of the above is correct

Question 3 If trade is allowed, how many bowls of durian salads will Chi Man produce if trade is
allowed?
A. 0
B. 8
C. 32
D. 48
E. None of the above

Question 4 Comparative advantage implies that a country will

A. import those goods in which the country has a comparative advantage.

B. export those goods in which the country has a comparative advantage.

C. import goods produced by domestic industries with higher wages than trading countries.

D. export those goods in which the country has an absolute advantage.

1
 E. export goods produced by domestic industries with lower wages than trading countries.

Suppose good A is an inferior good. Suppose good B is a normal good. Suppose good A and
good C are substitutes. Suppose good B and good D are complements.

Question 5 If an income increases in an economy, how are the equilibrium price of good B and the
equilibrium quantity of good B affected?
A. The equilibrium price of good B goes up & The equilibrium quantity of good B goes
up
B. The equilibrium price of good B goes down & The equilibrium quantity of good B
goes down
C. The equilibrium price of good B goes up & The equilibrium quantity of good B goes
down
D. The equilibrium price of good B goes down & The equilibrium quantity of good B
goes up
E. None of the above is correct

Question 6 If the price of good D decreases, how are the equilibrium price of good B and the
equilibrium quantity of good B affected?
A. The equilibrium price of good B goes up & The equilibrium quantity of good B goes
up
B. The equilibrium price of good B goes down & The equilibrium quantity of good B
goes down
C. The equilibrium price of good B goes up & The equilibrium quantity of good B goes
down
D. The equilibrium price of good B goes down & The equilibrium quantity of good B
goes up
E. None of the above is correct

Question 7 Suppose there is an effective price floor at P1 in the market of good A. If the cost of
production of good A decreases, which of the following statement is correct?
A. The equilibrium price of good A goes up & The equilibrium quantity of good A goes
up
B. The equilibrium price of good A goes down & The equilibrium quantity of good A
goes down
C. The equilibrium price of good A goes up & The equilibrium quantity of good A goes
down
D. The equilibrium price of good A goes down & The equilibrium quantity of good A
goes up
E. None of the above is correct

Question 8 Suppose there is an effective price floor at P1 in the market of good A. If an income
increases in an economy, which of the following statement is correct?

2
 A. Quantity demanded increases at P1 .
B. Quantity demanded decreases at P1 .
C. Quantity supplied increases at P1 .
D. Quantity supplied decreases at P1 .
E. None of the above is correct

Question 9 Suppose there is an effective price ceiling at P1 in the market of good A. If the cost of
production for good A increases, which of the following statement is correct?
A. Quantity demanded increases at P1 .
B. Quantity demanded decreases at P1 .
C. Quantity supplied increases at P1 .
D. Quantity supplied decreases at P1 .
E. None of the above is correct

Statistics Canada announced that in May 2015, of all Canadians aged 15 years and older,
17,953,800 were employed, 1,307,600 were unemployed, and 9,970,800 were not in the labour
force.

Question 10 What was the unemployment rate?

A. 4.47%
B. 6.79%
C. 13.11%
D. 34.11%
E. None of the above

Question 11 In an economy, 175 million people are in the labor force, 140 million are employed, and 200
million are of working age. How many people are not in the labor force?

A. 10 millions

B. 25 millions

C. 35 millions

D. 60 millions

E. 105 millions

The population of a country A is 321 people: 221 of them are infants and the rest are adults.
15 of them are full-time students who are studying Macroeconomics in the University (they
are not interested in working now), 50 work full-time, 3 work half-time but would prefer to
work full-time, 10 would like to work but are so discouraged they have given up looking, 5
are retired, and 17 are actively looking for a job: 8 of them are looking for work for 3 months,
5 of them for 3-6 months, 3 of them for 7-12 months, and the last one is Chi Man who has
been an active job-seeker over a year.

3
 Question 12 What is the labour force participation rate?
A. 50%
B. 60%
C. 65%
D. 70%
E. None of the above

Question 13 If an investment tax credit is introduced to give a tax advantage to any firm building a new
factory or buying a new piece of equipment, which of the following statement is correct in a
loanable fund market?

A. Investment increases & savings decrease.

B. Investment increases & savings increase.

C. Investment decreases & savings decrease.

D. Investment decreases & savings increase.

E. None of the above is correct.

Question 14 If the government reduces government expenditure in a closed economy, which of the following
statement is correct in a loanable fund market?

A. Supply curve shifts to the left.

B. Supply curve shifts to the right.

C. Demand curve shifts to the left.

D. Demand curve shifts to the right.

E. None of the above is correct.

Question 15 If the government reduces government expenditure in a closed economy, which of the following
statement is correct in a loanable fund market?

A. Investment increases & savings decrease.

B. Investment increases & savings increase.

C. Investment decreases & savings decrease.

D. Investment decreases & savings increase.

E. None of the above is correct.