THE INTERNATIONAL UNIVERSITY (IU) – VIETNAM NATIONAL UNIVERSITY – HCMC

MIDTERM EXAM
Date: March, 2015
Duration: 90 minutes

Name : .................................. Student ID:............................................

SUBJECT: MICROECONOMICS
Dean of School of Business Lecturer
Signature: Signature:

Full name: Dr. Hồ Nhựt Quang

Full name: Dr. Tu Van Binh

GENERAL INSTRUCTION(S)

1. This is a closed book examination. Only one A4 page (both sides) of hand-written notes is
allowed, without any exception
2. Paper dictionary (no e-dictionary) and calculator are allowed
3. No talking and No mobile phone used during the exam
4. Materials transferred (notes, paper dictionary, calculator…) are strictly prohibited
5. Any violation will be considered as cheating and will receive ZERO of this course
6. Exam includes two parts

GOOD LUCK!

DO NOT WRITE IN THE AREA BELOW:

Part I: .…………………. / 60 points

Part II:.………………….. / 40 points

Problem 1: ………….. / 20 points

Problem 2: ………….. / 20 points

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 ANSWER SHEET (*)
Note:
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Selected Unselected Reselected

Stick ONLY ONE answer for each question

1 a b c d 16 a b c d
2 a b c d 17 a b c d
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15 a b c d 30 a b c d

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Part I: 30 Multiple choice questions (60 marks)

1. Because of the global crisis, Vietnamese people have chosen to cook more at home and eat less
at restaurant. This change in behaviour, by itself, has
a. reduced measured GDP by the full value of the restaurant meals.
b. Not affected measured GDP.
c. Increased measured GDP.
d. Increased measured real GDP by the full value of the restaurant meals but not nominal
GDP.

2. Which of the following equations will always represent GDP in an closed economy?
a. S = I – G
b. I = Y – C + G
c. Y = C + I + G
d. Y = C + I + G + NX

3. If nominal GDP doubles and the GDP deflator doubles, then real GDP
a. remains constant
b. doubles
c. triples
d. is cut in half

4. The total sales of all firms in the economy for a year

a. equals GDP for the year.
b. is larger than GDP for the year.
c. is smaller than GDP for the year.
d. Any of the above is possible.

5. Which of the following statements is correct about the relationship between nominal interest
rate and the real interest rate
a. The real interest rate is the nominal interest rate times the rate of inflation
b. The real interest rate is always higher than the nominal interest rate
c. The real interest rate is the nominal interest rate minus the rate of inflation
d. The real interest rate is the nominal interest rate plus the rate of inflation

6. In the CPI, goods and services are weighted according to

a. whether the goods and services are necessities or luxuries.
b. the levels of production of the goods and services in the domestic economy.
c. a random weighting scheme.
d. how much consumers buy of each item

7. Mr. Dat takes teaching assistant job at International University in 2011 with the salary of
$500/month. By 2014, she has been promoted to full professor, with a salary of $900/month.
The price index in 2011 is 100, and the price index in 2014 is 125.
What is Mr. An salary 2011 in 2014 dollars?
a. $700
b. $500
c. $625
d. $1,000

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8. Mr. Dat earned a salary of $60.000 in 2005 and $80.000 in 2014. The consumer price index was
177 in 2005 and 221.25 in 2014. Mr. Dat’s salary
a. increased in nominal dollars but decrease in real dollars
b. increase in real dollars but decreased in real dollars
c. increased in both nominal and real dollars
d. decreased in both nominal and real dollars

9. Which of the following is not a widely-acknowledged problem with the CPI as a measure of the
cost of living?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. unmeasured price change

10. The inputs used to produce goods and services are also called
a. productivity indicators.
b. capitalization producers.
c. production functions.
d. factors of production.

11. A nation's standard of living is determined by

a. national income.
b. gross domestic product.
c. productivity.
d. how much it has relative to others.

12. You are the owner of a beverage shop. For high demand on Tet holiday, you double all of your
input (labor hours, ice, sugar...). As a result your output is double. Your production function
a. has decreasing returns to scale.
b. has zero returns to scale.
c. has constant returns to scale.
d. has increasing returns to scale.

13. Which of the following is a determinant of productivity?

a. Human capital
b. Physical capital
c. Natural resources
d. All of the above are correct

14. Which of the following statements is correct?

a. The level of real GDP is a good gauge of economic prosperity, and the growth of real GDP
is a good gauge of economic progress.
b. The level of real GDP is a good gauge of economic progress, and the growth of real GDP is
a good gauge of economic prosperity.
c. The level of real GDP is a good gauge of economic prosperity, and the level of real GDP
per person is a good gauge of economic progress.
d. The level of real GDP is a good gauge of economic progress, and the level of real GDP per
person is a good gauge of economic prosperity.

15. In 2007, the imaginary nation of Freedonia had a population of 2,700 and real GDP of
16,200,000. In 2008 it had a population of 2,500 and real GDP of 14,640,000. What was the
growth rate of real GDP per person in Freedonia between 2007 and 2008?
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 a. -2.4 percent
b. -0.7 percent
c. 4.4 percent
d. 5.2 percent

16. The major difference between real and nominal gross domestic product (GDP) is that real GDP
a. excludes government transfer payments
b. is adjusted for price-level changes using a price index
c. measures only the value of final goods and services that are consumed
d. measures the prices of a market basket of goods purchased by a typical urban consumer

17. If the tax revenue of the federal government exceeds spending, then the government.
a. runs a budget deficit.
b. runs a budget surplus.
c. runs a national debt.
d. will increase taxes.

18. In a closed economy, what does (Y-T-C) represent?

a. national saving
b. government tax revenue
c. public saving
d. private saving

19. Federal budget deficits occur when

a. more money is being spent on entitlement programs than has been allocated
b. interest payments on the national debt increase form one year to the next
c. the federal government spends more than it collect in taxes in a given year
d. high levels of unemployment use up tax collects.

20. A higher interest rate induces people to

a. invest less, so the supply of loanable funds slopes downward.
b. save less, so the supply of loanable funds slopes downward
c. save more, so the supply of loanable fund slopes upward
d. invest more, so the supply of loanable funds slopes upward

21. Cyclical unemployment

a. has a different explanation than does the natural rate of unemployment.
b. refers to the year-to-year fluctuation in unemployment around an economy’s natural rate of
unemployment.
c. is closely associated with short-run ups and downs of economic activity.
d. All of the above are correct.

22. The Bureau of Labor Statistics places people in the “employed” category if they
a. are without a job, but are available for work and have tried to find a job during the previous
4 weeks.
b. work without pay in a family member’s business.
c. are waiting to be recalled to a job from which they had been laid off.
d. All of the above are correct.

23. The unemployment rate measures the percentage of

a. People in the labor force who do not have jobs
b. People in the labor force who have a part-time job but are looking for a full-time job
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 c. People who do not have jobs and have given up looking for work
d. People in the adult population who do not have jobs

24. If the labor force participation rate is rising and the working-age population is not changing,
then the
a. number of unemployed people is rising and the size of the labor force is falling.
b. size of the labor force is falling.
c. number of employed people must be increasing.
d. size of the labor force is rising.

25. Gross domestic product (GDP) is

a. the market value of all goods and services produced in a country during a given time period.
b. the market value of all the final goods and services produced in a country during a given
time period.
c. the market value of all the intermediate goods and services produced in a country during a
given time period.
d. the average value of output produced in a country in a given time period.

26. Which of the following would increase productivity?

a. An increase in the physical capital stock per worker
b. An increase in human capital per worker
c. An increase in natural resources per worker
d. All of the above are correct.

27. The slope of the demand for loanable funds curve represents the
a. positive relation between the real interest rate and investment.
b. negative relation between the real interest rate and investment.
c. positive relation between the real interest rate and saving.
d. negative relation between the real interest rate and saving.

28. An increase in productivity (not just production) for an economy can be due to
a. an increase in population.
b. an increase in immigration
c. a technological innovation
d. all of the above.

29. Structural unemployment goes up when:

a. Machine diminish the need for workers
b. A corporation transfers a worker to another city
c. A worker quits one job in order to search for another
d. All of the above

30. Frictional unemployment goes up when:

a. Students quit work to return to school at the end of the summer
b. A corporation transfers a worker to another city
c. A worker quits one job in order to search for another
d. There is inadequate demand for labor

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PART II: PROBLEM SOLVING OR ESSAY (40 POINTS)
(Choose 2 of 3 following problems)

Question 1:

Mr. Hanh and Mr. Phuc meet Mss. Giau, the banker, to work out the details of a mortgage. They all
expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal
interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan.

a. What was the expected real interest rate?

b. What was the actual real interest rate?
c. Who benefited and who lost because of the unexpected inflation?

Question 2:

Let the following equations characterize an economy: (note the addition of a tax rate on output)
Y=C+I+G
Y = 200
C = 23 + 0.8(Y – T)
I = 50 – 9r
G = 60
T = 40 + 0.1Y

a. Calculate national saving, private saving, and public saving.

b. Determine the equilibrium interest rate.
c. Suppose that output increases to 209. Redo the calculations in (a) and (b). Explain (in terms of
savings and investment) the reason for the interest rate change.
d. What caused the change in private savings? Why did public savings change?

Question 3:

Suppose, 4 countries as below are considered to be asked

Country Current real GDP/person Current Growth Rate (%)
Northcountry $15,468 1.98
Southcountry $13,690 3.03
Eastcountry $6,343 3.12
Westcountry $1,098 0.61

a. Which country is richest? How do you know?

b. Which country is advancing most quickly? How do you know?
c. Which country would probably see the greatest benefit from an increase in capital
investment? Why?
d. Referring to (c): Would this country continue to see the same degree of benefits from an
increase in capital investment forever? Why?