Intermediate Macroeconomics 
        ECON 302  
         
        Midterm 1 - 2002 
         
        PART 1 
         
        I) Multiple Choice Questions: Choose the most appropriate answer amongst the four 
        available choices. Only one of them is correct. 
        (20 x 3 = 60 points) 
         
         1.  Suppose real GDP equals 160 while nominal GDP equals 200. Then, the implicit 
           GDP deflator is equal to 
            a.  125 
            b.  80 
            c.  320 
            d.  None of the above 
         
         2.  GDP is not a perfect measure of society’s overall well-being because 
            a.  It does not take into account the distribution of income 
            b.  It excludes a variety of non-market goods 
            c.  It assigns no value to leisure time 
            d.  All of the above 
         
         3.  Nominal GDP equals 800 and the implicit GDP deflator, expressed as an index 
           number, equals 125. Then real GDP equals 
            a.  6.4 
            b.  640 
            c.  100000 
            d.  1000 
         
         4.  Any two points on the same indifference curve 
            a.  Show different attainable combinations of work and consumption 
            b.  Measure higher utility as both work and consumption increase 
            c.  Have the same level of utility 
            d.  Must both be attainable by the production function 
         
         5.  Points on different indifference curves 
            a.  Are totally unrelated to one-another 
            b.  May be ranked, with a point on the higher indifference curve preferred to a 
              point on a lower indifference curve 
            c.  May indicate the same level of utility at each point 
            d.  Indicate different combinations of labor and consumption such that the 
              slope of a line between them equals the marginal product of labor 
         
         
         
         6.  Suppose Robinson Crusoe becomes aware that next period his production 
           function will shift upward. Then in the current period, he will 
            a.  Raise his consumption and his labor supply 
            b.  Raise his consumption and decrease his labor supply 
            c.  Change his consumption and labor supply in a way we cannot predict 
            d.  Not change his consumption and labor supply 
         
         7.  Expressions measured in terms of goods, or units of commodities, are 
            a.  Present value terms 
            b.  Real terms 
            c.  Nominal terms 
            d.  Dollar terms 
         
         8.  An increase in the interest rate that causes a pure substitution effect ______ an 
           individual’s current quantity of consumption demanded and ______ his current 
           labor supply. 
            a.  lowers;lowers 
            b.  lowers; raises 
            c.  raises; lowers  
            d.  raises; raises 
         
         9.  The marginal propensity to save resulting from a permanent change in the 
           production function is approximately 
            a.  one 
            b.  zero 
            c.  equal to the marginal propensity to consume 
            d.  the same as the marginal propensity to save from a temporary change in 
              the production function. 
         
         10. All of the following increase current period saving except 
            a.  A permanent, parallel upward shift in the production function. 
            b.  A current period, temporary parallel upward shift in the production 
              function 
            c.  A current period, proportional parallel upward shift in the production 
              function 
            d.  None of the above; that is, they all increase savings. 
             
             
              
              11. People necessarily select the level of consumption and labor supply so that 
                   a.  Each period’s marginal product of labor is as large as it can be 
                   b.  Each period’s total output is as large as it can be 
                   c.  Each period’s marginal product of labor equals the interest rate 
                   d.  None of the above 
             
              12. Which of the following decreases the nominal demand for money? 
                   a.  An increase in the price level 
                   b.  An increase in the interest rate 
                   c.  An increase in the amount of consumption expenditures 
                   d.  An increase in the transactions costs of exchanging bonds for money.  
             
              13. Which of the following increases the real demand for money? 
                   a.  A decrease in the transactions costs 
                   b.  An increase in the interest rate 
                   c.  An increase in real expenditures 
                   d.  All of the above 
             
              14. Which of the following conditions represents someone who has a positive wealth 
                effect from a rise in the price level, P? 
                   a.  m /P>m /P 
                      0   1
                   b.  m /P=m /P 
                      0   1
                   c.  m /P