ECON105 Final Exam Multichoice

Which of the following is a "stock" type of variable? 1. The money supply. 2. Retail sales. 3. GDP. 4. Milk production.

1

One of the reasons why governments are slow to change tax thresholds in a progressive tax system is that 1. the phenomenon of fiscal drag leads to increased tax revenues. 2. it would increase taxes on low income earners. 3. threshold changes would reduce economic growth. 4. changing thresholds would go against the concept of vertical equity.

1

A Lorenz curve that follows the 45 degree line means that 1. income is distributed exactly equally. 2. there is no income to distribute. 3. income distribution is highly unequal. 4. the government has redistributed income from the high income earners to the low income earners

1

Being without a paid job is only part of being counted as officially unemployed. To qualify as being officially unemployed you must also be 1. available to start a job if one was offered to you and actively looking for paid employment. 2. collecting the unemployment benefit. 3. registered with Work and Income NZ. 4. actively seeking

1

Compared to poor countries, rich countries tend to have 1. a greater amount of capital per worker. 2. a larger work force. 3. weaker property rights. 4. poorly developed financial capital markets.

1

Deregulation of the transport sector in the 1980s was designed to 1. introduce competition and lower prices for consumers. 2. reduce government expenditure. 3. promote the use of rail transport over road transport. 4. make it easier for transport companies to be profitable

1

Horizontal equity in a taxation system means that 1. all those with the same ability to pay are treated the same. 2. those with a greater ability to pay will pay more. 3. everyone has the same average tax rate. 4. the taxation system is fair to everyone.

1

If US$1=£0.5 and £1 = ¥60, what is the US$‐Yen exchange rate? 1. US$1 = ¥30 2. US$1 = ¥60 3. US$1 = ¥120 4. US$1 = ¥180

1

If the growth in the labour force is less than the job creation rate then the unemployment rate 1. will fall. 2. will rise. 3. is unchanged. 4. may rise or fall but there is insufficient information to say for sure.

1

If the nominal exchange rate ($US per $NZ) rises by 10%, New Zealand's price level rises by 10%, and the price level in the rest of the world is unchanged, then 1. New Zealand has become less competitive. 2. New Zealand has become more competitive. 3. New Zealand's competitiveness is unchanged. 4. New Zealand is worse off.

1

In a fractional banking system we would usually see 1. notes and coins being only a small fraction of the total money supply. 2. some fraction of monetary assets held as gold. 3. frequent bank runs as depositors try and take their money out of their accounts but are unable to. 4. the frequent collapse of finance companies as there is insufficient money in the system.

1

In the Great Depression, economic adjustments had to come via domestic prices. The main reason for this was 1. the gold standard which meant fixed exchange rates. 2. monetary policy that kept interest rates too high. 3. the lack of a welfare state. 4. protectionist policies that governments put in place.

1

In which of the following occupations would it be most likely that minimum wage laws are "binding"? 1. Supermarket check-out operators. 2. Lawyers. 3. Nurses. 4. Truck drivers

1

Microfinancing is an attempt to close the credit gap for the poorest in the world. One of the main reasons why the poor in many developing countries cannot access more established financial services is that 1. they lack assets against which to secure the loan. 2. there is no profit in providing small loans. 3. established financial institutions simply don't care about the poor. 4. the poor don't know how to fill in a loan form.

1

One of the impacts of deflation in the Great Depression was that 1. real wages rose making workers more expensive to hire. 2. wealth was transferred from savers to borrowers. 3. the value of money that people held decreased. 4. real incomes fell.

1

One of the well known problems with the CPI is that 1. the weights go out of date as expenditure patterns change. 2. it understates inflation. 3. it is not a good measure of the standard of living as it omits several important aspects of the quality of life. 4. being an index number where the actual number means nothing it is not possible to use it to calculate price changes

1

Suppose that in 2017 nominal GDP was unchanged and real GDP increased. Which of the following is certainly correct? 1. The quantity of final goods and services increased and the price level decreased. 2. The quantity of final goods and services increased and the price level increased. 3. The quantity of final goods and services was unchanged and the price level decreased. 4. The quantity of final goods and services was unchanged and the price level increased.

1

Telephone calls used to be connected manually by switchboard operators. When telephone exchanges became automatic many of these operators lost their jobs. Those who became unemployed would be classified as 1. structural unemployment. 2. frictional unemployment. 3. cyclical unemployment. 4. natural unemployment.

1

The 1991 Employment Contracts Act 1. shifted the focus from centralised wage bargaining to workplace negotiations. 2. re-instated compulsory union membership. 3. allowed for a 90 day trial period where an employee could be dismissed and no grievance case could be brought. 4. lowered minimum wages.

1

The 1991 Employment Contracts Act 1. shifted the labour market away from national agreements towards individual agreements. 2. introduced the concept of good faith bargaining. 3. made the use of non-union workers legal. 4. increased the average number of days lost due to industrial action.

1

The Reserve Bank Act is an example of which role of government? 1. Stabilisation. 2. Ensuring markets operate efficiently. 3. Income redistribution. 4. Provision of public goods.

1

The impact of progressive tax rates and welfare redistribution on the Gini coefficient is 1. to lower it. 2. to raise it. 3. to leave it unchanged. 4. impossible to determine.

1

The short run Philips curve illustrates that 1. there is a short run trade off between inflation and unemployment. 2. there is no long run trade off between inflation and unemployment. 3. policy makers can permanently lower unemployment simply by accepting a little more inflation. 4. high inflation and high unemployment don't occur together.

1

The spot exchange rate 1. is the rate at which currency is bought and sold for today. 2. is the rate at which currency is bought and sold in exactly one week. 3. is always higher than the forward rate. 4. is used by businesses to hedge against foreign currency risk.

1

The world economy between the two world wars could be broadly described as 1. relatively restricted in terms of trade between countries when compared to now. 2. open with the free movement of labour between countries. 3. highly integrated with low tariffs. 4. a period of low inflation, low unemployment and strong growth

1

Which of the following is true about the balance of payments? 1. X - M + NFI + capital account balance + financial account balance = 0 2. X - M + NFI - (capital account balance + financial account balance) = 0 3. X - M + NFI = 0 4. X - M - NFI = 0

1

Which of the following statements is correct for an economy where GDP is currently at full employment GDP and there is an increase in AD? 1. There will be some increase in GDP and the price level but the increase in GDP will be temporary and we expect further price level increases to follow. 2. There will be no increase in GDP as the economy is already at full employment. 3. The price level will rise and so will the level of GDP because full employment GDP will adjust to the new level of demand in the economy. 4. The changes to the price level and GDP are hard to determine without knowing the exact value of full employment GDP.

1

The long run aggregate supply curve is vertical because 1. in the long run there is an infinite trade off between inflation and growth. 2. full employment GDP is independent of the price level. 3. real GDP is determined by real and not nominal variables. 4. at higher price levels the real wage is lower meaning SAS slopes upwards

2

The mercantilists held the view that 1. nations should specialise and trade. 2. accumulating gold was the path to prosperity. 3. the government should own the means of production. 4. free markets were the best means to organise an economy

2

The interaction of the NZ taxation and welfare (benefits) systems creates 1. greater inequality. 2. an incentive to work. 3. high effective marginal tax rates. 4. government deficits.

3

Suppose that seasonally adjusted real retail spending increases from September 2018 to December 2018. Which of the following reasons could not be used to explain this increase? 1. Christmas spending was greater than usual. 2. December is always higher than September due to Christmas spending. 3. A change in tax laws meant that retails stores wanted to have very low stocks at the end of the year and so cut prices to increase sales volumes. 4. The winter quarter (June) is always a low point in the year.

2

The Commerce Commission is an example of where the role of government is to 1. assign property rights. 2. ensure markets are efficient. 3. provide public goods. 4. re-distribute income.

2

The idea that population growth is limited by the ability to grow food and would therefore be subject to a cycle of famine, misery and plague is associated with 1. Adam Smith. 2. Thomas Malthus. 3. John Stuart Mill. 4. Karl Marx.

2

A useful insight from the equation of exchange is that 1. %∆M is proportional to %∆Y 2. %∆P is proportional to %∆M 3. %∆V is proportional to %∆P 4. %∆Y is proportional to %∆V

2

An increase in government expenditure on goods and services will 1. increase the price level and decrease GDP. 2. increase the price level and increase GDP. 3. decrease the price level and decrease GDP. 4. decrease the price level and increase GDP.

2

Between the mid 1970's and the mid 1980's the value of the $NZ fell from about US$1.40 to about US$0.50. The main reason for this was 1. New Zealand's lower interest rates. 2. New Zealand's higher inflation rate. 3. a lack of confidence in the $NZ. 4. a rise in the world price of oil which increased imports.

2

Dividends paid by New Zealand firms to foreign shareholders would be counted in the Balance of Payments as 1. a current account receipt. 2. a current account payment. 3. a capital or financial account receipt. 4. a capital or financial account payment.

2

If Australian interest rates rise then, everything else held constant, we would expect 1. the value of the $NZ to rise. 2. the value of the $NZ to fall. 3. the value of the $NZ to remain unchanged. 4. the value of the $NZ to change but the direction of change is unclear

2

If the government wishes to have a fixed exchange rate and independent monetary policy then it must not have 1. a budget surplus. 2. free financial flows. 3. a balanced current account. 4. high interest rates.

2

If the value of the CPI falls from 100 to 90, then it must be true that 1. all commodities in the CPI basket fell in price. 2. at least one commodity in the CPI basket fell in price. 3. some commodities in the CPI basket rose in price. 4. at least one commodity in the CPI basket fell in price by 10%.

2

In September 2019 the nominal rate of interest for 12 month deposits was 2.75% per annum. The expected annual inflation rate for the year ended September 2020 1.5%. What is the before tax expected real interest rate for the year ended September 2020? 1. 1.0% 2. 1.25% 3. 1.5% 4. It is not possible to tell because one figure is for September 2019 and the other is for September 2020

2

In a feudal economic system 1. slavery was the most common form of labour. 2. serfs (or peasants) were tied to the land that belonged to a land owner. 3. factories were the most common way to organise production. 4. land was owned communally and output was shared equally among the owners.

2

In a fixed exchange rate regime, if there is excess supply of the domestic currency then the central bank will 1. accumulate foreign reserves. 2. run down foreign reserves. 3. close the exchange market. 4. devalue the domestic currency.

2

In general, when the world is more open to trade 1. economic growth is lower overall. 2. economic growth is higher overall. 3. poverty rates rise quickly as wages fall. 4. countries are more likely to run current account deficits.

2

In order for something to function as money it must be 1. portable. 2. able to hold its value (i.e. worth something at a later date). 3. issued by a central bank. 4. backed by gold or some other commodity.

2

The long run Phillips curve is based on the idea that 1. there is a trade off between inflation and unemployment. 2. the trade off between inflation and unemployment exists only in the short run. 3. as inflation rises, unemployment falls. 4. governments can set policy to achieve desired inflation and unemployment rates

2

The reason why the Reserve Bank makes strong statements about their commitment to keeping inflation low is that 1. it's in the Reserve Bank Governor's contract to do so. 2. if people believe that the RBNZ is not committed to the task of controlling inflation then they will act in such a way that inflation does rise. 3. by doing so the Reserve Bank Governor doesn't then actually need to change interest rates when wanting to control inflation. 4. they wish to maintain a high value of the $NZ.

2

The standard growth model showing K/L and Y/L suggests that poor countries should grow faster than already rich countries. The fact that they don't is partly due to 1. a lack of domestic savings. 2. corruption. 3. strong property rights. 4. high taxes.

2

Which of the following statements is true about how land was transferred from one party to another in the middle ages? 1. Land was readily bought and sold. 2. Land was usually inherited and rarely sold. 3. There was no concept of ownership so land could not be transferred. 4. Land was only ever transferred by conquest.

2

Which of the following statements is true? 1. The pursuit of economic growth harms children by encouraging child labour industries and discouraging school attendance. 2. Wealthy countries tend to score highest on the "least corrupt" scale. 3. Poor countries are poor because they lack resources. 4. Poor countries are likely to remain poor because when one country's economy grows, it is at the expense of some other country's economy

2

Which one of the following is NOT a cost of inflation? 1. Money assets lose their value. 2. Borrowing is discouraged. 3. The real value of fixed incomes is eroded. 4. Important price signals become hard to read

2

Why is seasonality a problem in data analysis? 1. The presence of seasonality means that any increases or decreases in data could be due to prices or quantities. 2. A data series with a high level of seasonality makes comparison of consecutive time periods difficult. 3. Seasonally adjusted series do not include the trend. 4. Values recorded in the December quarter are always higher.

2

Why was the assumption that house prices would continue to rise a significant contributor to the 2008 Global Financial Crisis? 1. It lead to exchange rates being over‐valued. 2. It made banks more willing to lend to risky clients than they should have been. 3. It made homeowners likely to spend too much money on goods and services. 4. No‐one really knows why - it just simply was important.

2

A fall in consumer confidence will lead to 1. lower inflation and higher economic growth. 2. higher inflation and higher economic growth. 3. lower inflation and lower economic growth. 4. higher inflation and lower economic growth.

3

A policy of government spending in order to reduce unemployment would be most closely associated with 1. (Adam) Smith. 2. Marx. 3. Keynes. 4. Friedman

3

China runs a current account surplus. What must also be true? 1. China is a net borrower from the rest of the world. 2. Every other country in the world must owe China money. 3. China's domestic savings exceeds their investment (I). 4. The value of the Chinese currency is under-valued.

3

Economists use the term "effective marginal tax rate" to refer to 1. the marginal tax rate paid on income. 2. the average tax rate. 3. total losses (e.g. tax, welfare abatements) from an extra dollar of earned income. 4. the rate of GST.

3

If domestic savings is not sufficient to fund the desired level of investment then in a small, open economy 1. the value of the currency must fall to stimulate exports. 2. the government will fund any short-fall. 3. rest of the world savings will make up the difference. 4. households must increase their consumption to boost firms' profits.

3

If the NZ TWI rises then it must be true that 1. the value of the $NZ increased against all currencies. 2. the value of the $NZ increased against more currencies than it fell against. 3. the value of the $NZ increased against at least one currency. 4. the value of the $NZ increased against the $US.

3

In approximately which year did world GDP start to increase above its previous long term trend of about 0.05% per annum? 1. 100 A.D. 2. 1500 A.D. 3. 1800 A.D. 4. 1950 A.D.

3

New Zealand consistently runs a current account deficit. This means that 1. New Zealand is importing more goods and services than they are exporting. 2. New Zealand is accumulating foreign currency reserves. 3. the rest of the world is building up savings. 4. the value of the New Zealand dollar is too low.

3

One of the key aspects of settlement accounts held by registered banks at the Reserve Bank is that 1. they cannot be overdrawn. 2. the interest rate is zero. 3. there is no limit on the amount of funds available via a bank's settlement account. 4. the Reserve Bank dictates what balance must be held by registered banks.

3

Poverty in developed economies is usually measured 1. by counting how many children go to school without having eaten. 2. in absolute terms by taking a fixed income threshold and comparing to that. 3. in relative terms by defining a poverty line as some fraction of median income. 4. using a deprivation index where a person is considered in poverty if they do not have access to a list of "basic needs".

3

Suppose you undertake a study comparing Sweden (which has a large welfare state that substantially redistributes income) and India (which does not to the same extent). What would be reasonable values for the Gini coefficients for Sweden and India respectively? 1. 0 and 1. 2. +0.5 and -0.5 3. 0.3 and 0.7 4. 0.1 and 0.95

3

The large spike in the inflation rate in the mid 1970s was mainly caused by 1. the onset of the Great Depression. 2. the Korean War. 3. the actions of OPEC and the resulting oil crisis. 4. government borrowing to fund "Think Big" projects

3

The long run aggregate supply curve is vertical because 1. the economy is always at the full employment level of GDP. 2. economists can only guess at where the LAS curve might be. 3. full employment GDP is independent of the price level. 4. the Reserve Bank maintains inflation at the target rate.

3

The main advantage of a Laspeyres index formula for compiling a price index is 1. the weights used are regularly updated. 2. it neither over or under states inflation. 3. it is cheap to compile as only prices need be collected regularly. 4. the public is able to understand what is being measured.

3

The ownership of national parks by the government is an example of what role of government in the economy? 1. Stabilization policy. 2. The allocation of property rights. 3. The provision of public goods. 4. Regulation of markets to ensure efficient outcomes.

3

The short run Phillips curve implies that a tightening of monetary policy to lower inflation will 1. bring about a fall in unemployment. 2. have no impact on unemployment. 3. raise unemployment temporarily. 4. raise unemployment permanently.

3

The unemployment rate is defined as 1. (number of unemployed) / (population) 2. (number of unemployed + number of employed) / (labour force) 3. (number of unemployed) / (labour force) 4. (number of unemployed) / (number of working age adults)

3

When economists refer to "full employment" they are generally referring to an unemployment rate 1. of zero. 2. that is lower than our trading partners. 3. where all cyclical unemployment (which results from GDP being different to Yf) has been eliminated. 4. that is the lowest ever achieved.

3

When used in economics, the word "investment" means 1. money invested for interest that can be used to finance loans to borrowers. 2. the purchase of shares. 3. spending on capital that will be used to produce future goods. 4. the purchase of government bonds.

3

Which of the following economists is most well-known for advancing theories about trade and for attacking the "corn laws"? 1. Adam Smith. 2. Thomas Malthus. 3. David Ricardo. 4. Karl Marx.

3

Which of the following groups is likely to be the most affected by increased unemployment in an economic downturn? 1. Middle managers. 2. Tradespeople. 3. 15 - 19 year olds who are in the work force. 4. University students.

3

Which of the following policies is aimed at reducing cyclical unemployment? 1. Re-training schemes for workers whose skills are no longer useful. 2. Job search services to match workers to jobs. 3. Expansionary fiscal policy to create jobs. 4. Minimum wage laws.

3

Which of the following statements is correct? 1. Neither nominal or real interest rates can be negative. 2. Nominal interest rates can be negative but real interest rates cannot. 3. Real interest rates can be negative but nominal interest rates are usually positive. 4. Both nominal and real interest rates are often negative.

3

Which one of the following events shifts both SAS and LAS? 1. A fall in the value of the $US. 2. An increase in government spending. 3. The adoption of more efficient farming techniques. 4. An increase in wages.

3

A number of developed economies undertook substantial reform during the 1980s. For example, in New Zealand the monopoly of Air New Zealand was removed and other competitors were allowed to fly domestic routes. Such reforms were designed to 1. drive inefficient firms out of business. 2. improve the tax base by increasing the number of companies that could be taxed. 3. reduce the need for government subsidies. 4. lower prices and improve the quality of goods and services.

4

A significant problem with deflation such as that seen in The Great Depression is that 1. goods and services become more expensive which makes people worse off. 2. the exchange rate cannot adjust. 3. the real wages of workers falls making them poorer. 4. the real value of debt rises making it harder for borrowers to repay loans.

4

A tightening of monetary policy is represented in the market for money as 1. a right shift of the money demand curve. 2. a left shift of the money demand curve. 3. a right shift of the money supply curve. 4. a left shift of the money supply curve

4

Between 1975 and 1985, the value of the $NZ fell substantially against the $US. The reason for this was 1. falling demand for the agricultural products that NZ produced. 2. the oil crisis. 3. high US interest rates. 4. high inflation in NZ relative to the US.

4

Combining different types of mortgages in one financial asset (a Mortgage Backed Security or MBS) was supposed to make it less risky by diversifying the asset. However, in the lead up to the 2008 Global Financial Crisis, this turned out not to be true because 1. no-one understood what an MBS was. 2. house prices did not continue to rise. 3. the use of leverage to buy financial assets made them risky and left firms with large losses. 4. different types of mortgages turned out to be vulnerable to the same shock.

4

Economic growth has positive impacts (in the sense that these indicators improve) on which of the following statistics? 1. Life expectancy. 2. Infant mortality. 3. Child labour participation rates. 4. All of the above.

4

Firms sometimes sign contracts where they will receive payment of a foreign currency amount at some point in the future. To reduce risks these firms should 1. sell domestic currency on the spot market. 2. buy foreign currency on the forward market. 3. buy foreign currency on the spot market and sell it on the forward market. 4. sell foreign currency on the forward market.

4

Fiscal drag (or bracket creep) occurs when 1. tax rates are dragged up by ongoing inflation. 2. the government accounts move from deficit to surplus as the economy grows. 3. the average tax rate increases. 4. workers move up tax brackets which are not indexed to inflation

4

If US$1 = £0.50 and £1 = €0.40 then what is the value of €1 in US$'s? 1. US$0.80 2. US$2.00 3. US$2.50 4. US$5.00

4

If inflation is 3 percent then which of the following is true? 1. If nominal wages rise by 3 percent then workers are definitely better off. 2. Real wages must be falling. 3. The prices of all goods and services are rising. 4. If nominal wages rise by enough then real wages can still increase

4

If the Gini co-efficient for New Zealand increases from 0.7 to 0.8 then we can conclude that 1. New Zealanders have become wealthier. 2. New Zealanders have become poorer. 3. income distribution has become more equal. 4. income distribution has become less equal.

4

New Zealand has a current account deficit. If the government of New Zealand were to pursue a policy of having a balanced current account then 1. New Zealand savings (S) would fall. 2. New Zealand investment (I) would have to remain unchanged. 3. net foreign income (NFI) would increase due to an rise in exports and a drop in imports. 4. New Zealand savings (S) would have to rise or investment (I) would fall.

4

One of the reasons why world-wide economic growth has been higher since the Second World War compared to the period 1918 - 1939 is that 1. tax rates have been lower. 2. international aid has increased. 3. exchange rates have been allowed to adjust. 4. international trade has been more open.

4

Prior to the 1990's wage negotiations tended to be 1. conducted at the level of the individual firm. 2. non-existent as wages were set by the Government. 3. conducted between the employer and the employee. 4. conducted centrally by employer, union and government representatives

4

Suppose New Zealand faces two simultaneous shocks: (i) a recession in the rest of the world; and (ii) a sharp increase in the price of oil. Which of the following will certainly happen with both of these shocks occurring compared to if they had not? 1. Inflation will be higher than it otherwise would have been. 2. Inflation will be lower than it otherwise would have been. 3. Economic growth will be higher than it otherwise would have been. 4. Economic growth will be lower than it otherwise would have been.

4

The Reserve Bank gets inflation under control in roughly which year? 1. 1961 2. 1973 3. 1984 4. 1992

4

The minimum wage 1. is unlikely to be binding in the market for accountants. 2. is likely to be binding in the market for supermarket check out operators. 3. is a form of price control. 4. All of the above.

4

The reforms of the 1980's in the developed world generally saw a move towards 1. protectionist trade policies. 2. more government controls. 3. fixed exchange rates. 4. market based policies.

4

The rise of the union movement in the late 19th and early 20th centuries reflects the ideas of 1. Adam Smith. 2. Thomas Malthus. 3. David Ricardo. 4. Karl Marx

4

The standard growth model showing K/L and Y/L suggests that poor countries should grow faster than already rich countries. This is due to 1. increasing returns to scale. 2. the use of better quality capital. 3. more abundant labour. 4. diminishing returns to capital

4

Which of the following combinations would the Reserve Bank be most concerned about in terms of the lower bound of their inflation target range? 1. an increase in wages and a decline in productivity. 2. a decrease in wages and a decline in productivity. 3. an increase in wages and a rise in productivity. 4. a decrease in wages and a rise in productivity.

4

Which of the following economic policies was not a feature of the 1984-1990 New Zealand Government? 1. Sale of state assets. 2. Deregulation of industry. 3. Removal of import restrictions. 4. A wage/price freeze.

4

Which of the following groups would benefit from a higher rate of inflation? 1. Super-annuitants (pensioners) on fixed incomes. 2. Savers. 3. Exporters. 4. A government running a budget deficit.

4