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MANAGEMENT ADVISORY SERVICES – MACRO & MICRO ECONOMICS JACF

1. Which one of the following would not be included m the calculation of the domestic product (GDP)?
a. Purchase of a new home
b. An automotive worker's wages
c. A doctor’s fee
d. Purchase of common stock

2. Under the income approach, gross domestic product (GDP) is measured as

a. Depreciation charges and indirect business Taxes + Wages + Rents + Interest + Profits
b. Wages + Rents + Interest + Profits.
c. Depreciation charges and indirect business taxes + Wages + Rents - Interest + Profits.
d. Wages + Rents + Interest – Profit + Net Philippine income earned abroad

3. Assume that real gross domestic product (GDP) measure in Year 1 peso rose from P3,000
billion in Year 1 to P4,500 billion in Year 10. Assume also that the price index rose from 100
to 200 during the same period. The GDP for Year 1 expressed in terms of Year 10 prices is
a. Pl,500 billion
b. P3,000 billion
c. P4,500 billion
d. P6,000 billion

4. When the addition to capital goods in an economy exceeds the capital consumption

a. Negative net investment

b. Equilibrium investment
c. Positive gross investment
d. Positive net investment

5. When gross investment < List A> depreciation, the capital stock of the economy is <List B>.

List A List B
a. Exceeds Shrinking
b. Equals Shrinking
c. Equals Growing
d. Is less than Shrinking

6. In national income terms, aggregate demand is the

a. Demand for money by the community in a period of full employment
b. Total expenditure on capital goods by entrepreneurs during a period of full employment
c. Demand that is needed if a country's economy level of investment is to be raised
d. Total expenditure on consumer goods and investment, including government and foreign expenditure, during a given
period.

7. Assume an economy has a real gross domestic product (GDP) of P900 billion and an annual growth rate of 3%. Real GDP, over a
two year period, will increased by
a. P27 billion
b. P27.81 billion
c. P54 billion
d. P54.81 billion

Questions 8 through 11 are based on the following information. The financial transactions a country with values stated is
billions of pesos appear below:

Gross domestic product (GDP) P4,000

Transfer payments 500
Corporate income taxes 50
Social Security contributions 210
Indirect business taxes 200
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Personal taxes 250
Undistributed corporate profits 25
Depreciation 500
Net income earned abroad for the country 0

a. P3,500
b. P3,450
c. P3,290
d. P3,475

9. National income is
a. P3,500
b. P3,290
c. P3,515
d. P3,265

10. Personal income is

a. P3,500
b. P3,290
c. P3,265
d. P3,515

12, For a given level of tax collection, prices and interest rates, a decrease in g overnmental
a. Increase in aggregate demand.
b. Increase in aggregate supply.
c. Decrease in aggregate demand.
d. Decrease in aggregate supply.

13. The trough of a business cycle is generally characterized by

a. Shortages of essential raw materials and rising costs.
b. Increasing purchasing power and increasing capital investments
c. Rising costs and an unwillingness to risk new investments
d. Unused productive capacity and an unwilling to risk new investments.

14. During the recessionary phase of a business cycle.

a. The purchasing power of money is likely to decline rapidly.
b. The natural rate of unemployment will increase dramatically.
c. Potential national income will exceed actual national income.
d. Actual national income will exceed potential national income.

15. Approximately how many years will it take for real gross domestic product (GDP) to double
if a nation's real GDP is growing by 3% per year?
a. 20 years
b. 23 years
c. 36 years
d. 40 years

16. Which of the following may provide a leading indicator of a future increase in gross

a. A reduction in the money supply

b. A decrease in the issuance of building permits
c. An increase in the timeliness of delivery by vendors
d. An increase in the average hours worked per week of production workers.

Questions 17 through 19 are based on the following information. The following data are based on a private economy model and
therefore ignores government expenditures and taxes.
Real GDP Consumption and Investments Net Exports
P500 P512 P4
520 528 4
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540 544 4
560 560 4
580 576 4
600 592 4
620 608 4
640 624 4

17. The real domestic product has an equilibrium of

a. P560
b. P580
c. P600
d. P640

18. What is the equilibrium real GDP if net exports are increased by P3 at each level of GDP?
a. P520
b. P580
c. P600
d. P620

19. If the marginal propensity to consume is 0.4, a P20 increase in net exports will cause an
increase in equilibrium real GDP of
a. P 30.00
b. P 33.40
c. P 50.00
d. P100.00

20. A consumer has the following consumption patterns at different income levels:

Level of Income Consumption

P250 P130

P300 P160

P350 P190

At an income level of P300, this consumer has a marginal propensity to consume of < List A> and an average
propensity to save of <List B>

List A List B
a. 0.40 0.47
b. 0.40 0.53
c. 0.60 0.47
d. 0.60 0.53

21. Economist and economic policy makers are interested in the multiplier effect because the
multiplier explains why
a. A small change in investment can have a much larger impact on gross domestic product.
b. Consumption is always a multiple of savings.
c. The money supply increases when deposits in the banking system increase.
d. The velocity of money is less than one.

22. Unemployment that is caused by a mismatch between the composition of the labor force (in
terms of skills, occupation, industries, or geographic location) and the makeup of the demand
a. Real wage unemployment
b. Deficient-demand unemployment
c. Friction unemployment
d. Structural unemployment
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23. What is the rate of Inflation from one year to the next if the consumer price index was 110 in one year and 118 in
the next year?
a. 7.0%
b. 7.3%
c. 8.0%
d. 18.0%

24. The most effective fiscal policy program to help reduce demand pull inflation would be to
a. Decrease the rate of growth of the money supply
b. Increase both taxes and government spending
c. Decrease taxes and increase government spending
d. Increase taxes and decrease government spending

25. Chihuahua Bank is willing to lend a business firm PI million at an annual real and nominal
Interest rate of 10%. What is the annual interest rate Chihuahua Bank will charge the
business firm if instead the rate of inflation is anticipated to be 6%?
a. 4%
b. 6%
c. 10%
d. 16%

26. A period of rising inflation

a. Increases the price levels which benefits those who are entitled to receive specific amounts of money.
b. Enhances the positive relationship between the price level and the purchasing power of money.

c. Will not be affected by contracts that include the indexing of payments.

d. Increase the price level, which is negatively related to the purchasing power of money.

27. The term stagflation refers to the simultaneous occurrence of:

a. recession and deflation.
b. rising unemployment and a depression.
c. increasing inflation rates and rising unemployment rates.
d. severe stagflation and a deepening recession.

28. If the aggregate price level declines, real disposable income increases and people buy more
goods and services. This phenomenon is known as the:
a. price level effect
b. real balance effect
c. income effect.
d. interest rate effect.

29. All of the following are reasons why people might hold money in the Keynesian model
except one, which one?
a. The transactions motive.
b. The equivalence motive.
c. The precautionary motive.
d. The portfolio motive.

30. The motive for holding money to use in making planned exchanges is called the:
a. portfolio motive.
b. liquidity motive.
c. transactions motive.
d. precautionary motive.

31. Other things remaining constant, an increase in income will normally:

a. increase the demand for money.
b. decrease the demand for money
c. lead to an decline in the money supply.
d. lead to an increase in the money supply.
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32. Which of the following will increase the quantity of money demanded by individuals?
a. A decrease in income.
b. An increase in the nominal interest rate.
c. A decrease in the supply of money.
d. A decline in the nominal interest rate.

33. Which of the following factors would cause the demand for money to increase?
a. A decline in income.
b. An increase in saving.
c. Higher interest rates.
d. An increase in income.

34. The demand for money will:

a. increase if income increases but decreases if nominal interest rates increase.
b. increase when income and the nominal interest rate both increase.
c. decrease if income increases but increase if the nominal interest rate rises.
d. decrease if income increases but decrease if nominal interest rates increase.

35. The cost of holding money balances increases when:

a. the purchasing power of money increases
b. the nominal interest rate increases
c. the price level declines
d. the economy is not at foil employment

36. When the interest rate is extremely high:

a. the opportunity cost of holding mosey is low
b. the opportunity cost of holding money is high.
c. there is no cost to holding mosey because its purchasing power remains constant.
d. the supply of money will be relatively small

37. As increase in the money supply leads to:

a. a decline in interest rates, investment, aggregate expenditures, and real income.
b. a decline in interest rates, and an increase in investment and aggregate expenditures and
c. an increase in interest rates, investment, aggregate expenditures and real income.
d. an increase in interest rates, a decrease in investment, and an increase in aggregate expenditures and real income.

38. Economists use the term “business cycle” to refer to:

a. the evolution of small business firms into large companies
b. changes in output which occurs because of technological changes
c. fluctuations in aggregate real income above or below its long-run growth path
d. periods of price changes because of inflation or deflation

39. The type of unemployment caused by fluctuations in aggregate economic activity is:
a. structural unemployment
b. natural unemployment
c. fictional unemployment
d. cyclical unemployment

40. Economists use the term "recession" to refer to:

a. any slowdown in aggregate economic activity.
b. zero growth in aggregate real income.
c. at least two consecutive quarterly declines in real GDP.
d. a decline in real GDP that lasts at least one month.

41. The point along a business cycle at which real GOP is at its lowest-level relative to the long-run natural GDP level is called the:
a. contraction.
b. trough.
c. recession.
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d. depression

42. A depression is defined as:

a. at least two consecutive quarterly declines in real GDP
b. an especially severe recession
c. the point along a business cycle at which real GDP is at its lowest level
d. any slowdown in aggregate economic activity

43. The possibility mat fluctuations in exchange rates can cause variations in the market value of assets refers to:
a. fixed exchange rate risk.
b. foreign exchange risk.
c. possible effects of domestic demand management policies on the price level in other
countries,
d. time inconsistency risk.

44. The possibility that the market value assets denominated in foreign currencies may vary as a result of changes in exchanges in
exchange rates when the underlying interest returns are unaffected is referred to as:
a. transaction risk b. currency risk
b. policy risk d. accounting risk

45. Hedging refers to the act of adopting strategies to:

a. eliminate the uncertainty associated with conducting transactions.
b. the process of selling calls on stock that you expect to increase in price.
c. reduce the overall risk resulting from fluctuations the market value of assets.
d. counteract the macroeconomic policies of government

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