178.

200 Intermediate Macroeconomics

Tutorial (1)

Introduction

1
 Multiple Choice Question

1. A market-clearing model is one in which

b. supply equals demand.
c. prices are sticky.
d. prices adjust to equilibrate supply and demand.
e. price are flexible.

Answer: c

2
 Multiple Choice Question

2. Most macroeconomists believe that price

flexibility is a reasonable assumption for
studying
b. long-run issues.
c. short-run issues.
d. both long-run and short-run issues.
e. none of the above.

Answer: a
3
 Multiple Choice Question
3. Real GDP is measured in ____ prices while
nominal GDP is measured in ____ prices.
b. current year; base year
c. base year; current year
d. intermediate; final
e. domestic; foreign
f. foreign; domestic
Answer: b

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 Multiple Choice Question

The following table contains information about an

economy that produces only BigMac and cloths.
The base year is 2000. Use this information for
questions 4 through 9.

Price of Quantity of Quantity of

Year Price of Cloths
BigMac BigMac Cloths
2000 $3 100 $20 50
2001 $3 120 $22 70
2002 $4 120 $24 70

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 Multiple Choice Question

Year
Price of Quantity of 4. What is the value of
BigMac BigMac
2000 $3 100
nominal GDP for
2001 $3 120 2001?
2002 $4 120
b. $1,300
Quantity of c. $1,060
Year Price of Cloths
Cloths
2000 $20 50 d. $1,900
2001 $22 70
2002 $24 70 e. $1,640
f. None of the above
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Answer: c

$3•120 + $22 •70 = $1,900

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 Multiple Choice Question

Year
Price of Quantity of 5. What is the value of
BigMac BigMac
2000 $3 100
real GDP for 2001?
2001 $3 120 b. $1,900
2002 $4 120
c. $1,760
Year Price of Cloths
Quantity of d. $1,200
Cloths
2000 $20 50 e. $1,560
2001 $22 70
2002 $24 70 f. none of the above

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Answer: b

$3 •120 + $20 •70 = $1,760

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 Multiple Choice Question

Year
Price of Quantity of 6. What is the value of
BigMac BigMac
2000 $3 100
the GDP deflator in
2001 $3 120 2001?
2002 $4 120
b. 100
Quantity of c. 108
Year Price of Cloths
Cloths
2000 $20 50 d. 116
2001 $22 70
2002 $24 70 e. 119
f. 138
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Answer: b

Nominal GDP in 2001 = $1,900

Real GDP in 2001 = $1,760
GDP deflator in 2001 = (1900 / 1760) •100
= 108

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 Multiple Choice Question

Year
Price of Quantity of 7. What is the percentage
BigMac BigMac
2000 $3 100
increase in prices
2001 $3 120 from 2000 to 2001?
2002 $4 120
b. 0%
Quantity of c. 8%
Year Price of Cloths
Cloths
2000 $20 50 d. 16%
2001 $22 70
2002 $24 70 e. 22%
f. 38%
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Answer: b

The value of the GDP deflator in 2000 = 100

The value of the GDP deflator in 2001 = 108

Then the percentage increase in prices from

2000 to 2001 is (108 – 100) / 100 = 0.08 =
8%

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 Multiple Choice Question

Price of Quantity of 8. What is approximate

Year
BigMac BigMac percentage increase
2000 $3 100
2001 $3 120 in prices from 2001
2002 $4 120 to 2002?
b. 0%
Year Price of Cloths
Quantity of
Cloths
c. 13%
2000 $20 50 d. 16%
2001 $22 70
2002 $24 70 e. 14%
f. 50%
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Answer: d

The value of the GDP deflator in 2002 is

[($4 •120 + $24 •70) / ($3 •120 + $22 •70)]
•100 = 114
Therefore, the percentage increase in prices
from 2001 to 2002 is
(114 – 100) / 100 = 14%

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 Multiple Choice Question

Year
Price of Quantity of 9. What is the percentage
BigMac BigMac
2000 $3 100
increase in real GDP
2001 $3 120 from 2001 to 2002?
2002 $4 120
b. 0%
Quantity of c. 13%
Year Price of Cloths
Cloths
2000 $20 50 d. 16%
2001 $22 70
2002 $24 70 e. 22%
f. 38%
16
Answer: a

Real GDP in 2002 is

$3 •120 + $20 •70 = $1,760

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 Multiple Choice Question
10. Abby consumes only apples. In year 1, red
apples cost $1 each, green apples cost $2 each,
and Abby buys 10 red apples. In year 2, red
apples cost $2 each, green apples cost $1 each,
and Abby buys 10 green apples. A consumer
price index for each year is
b. 1 and 2.
c. 1.5 and 1.5.
d. 1.5 and 3.
e. 3 and 3.
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Answer: a

For the year 1, the value of the basket is

$1 •10 = 10. Then the CPI of the year 1 is
10/10 = 1.
For the year 2, the value of the basket is
$2 •10 = 20. Then the CPI of the year 2 is
20/10 = 2.

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 Multiple Choice Question

Use the following table for questions 11

through 12. The base year is 2000.
Quantity of Price of Quantity of
Year Price of Potato
Potato Tomato Tomato
2000 $2.00 200 $1.00 200
2001 $2.50 80 $0.90 110
2002 $2.75 105 $1.00 130

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 Multiple Choice Question

Quantity of
Year Price of Potato
Potato 11. What the value of the
2000 $2.00 200 basket in the base
2001 $2.50 80
2002 $2.75 105 year?
b. $300
Price of Quantity of c. $600
Year
Tomato Tomato
2000 $1.00 200
d. $418
2001 $0.90 110 e. $459
2002 $1.00 130
f. none of the above
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Answer: b

$2 •200 + $1 •200 = $600

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 Multiple Choice Question

Quantity of 12. What are the values

Year Price of Potato
Potato
2000 $2.00 200 of the CPI in 2000,
2001 $2.50 80 2001, and 2002
2002 $2.75 105
respectively?
b. 100, 111, 140
Price of Quantity of c. 100, 109, 116
Year
Tomato Tomato d. 100, 113, 125
2000 $1.00 200
2001 $0.90 110 e. 84, 94, 100
2002 $1.00 130
f. none of the above
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Answer: c
CPI in 2000: (600 / 600) •100 = 100

CPI in 2001:
[($2.5 •200 + $0.9 •200) / 600] •100 = 113

CPI in 2002:
[($2.75 •200 + $1 •200) / 600] •100 = 125
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 Multiple Choice Question
13. Suppose that the market-clearing model for pizza involves
the following variables: the supply of pizza (Q s ), the
d
demand of pizza ( Q ), the price of pizza (P), the price
of materials ( Pm ) and aggregate income (Y). The model
can be used to investigate
• the effect of a change in P on Pm
• the effect of a change in Pm on P
• the effect of a change in Y on Pm
• the effect of a change in Pm on Y

Answer: b

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 Multiple Choice Question
14. According to the following simple equations
P = a − bQ d , P = c + dQ s
d s
a, b, c, and d are parameters. P, Q and Q are price,
quantity demand and quantity supply respectively.
_________ are exogenous to the model since they are
determined by forces external to the model. In contrast,
________ are endogenous to the model because they are
determined within the solution to the model.
d s
• a, b, c, and d ; P, Q and Q
d s
• P, Q and Q ; a, b, c, and d
• a and c; b and d
• b and d; a and c

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Answer: a
 Multiple Choice Question

15. A person is counted as unemployment if he or

she
b. Is on temporary layoff.
c. Is looking for a job.
d. Is waiting for the start date of a new job.
e. a, b, and c.
f. None of the above.
Answer: d
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 Multiple Choice Question

16. According to Okun’s law, if the unemployment

is assumed to decrease from 7% to 5%, the real
GDP would be
b. - 7%.
c. - 1%.
d. 1%.
e. 7%.

Answer: d
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