NAME: ______________________________________ STUDENT NO.: ________________
THE UNIVERSITY OF WESTERN ONTARIO
L. MacDonald Economics 152B-003 February 2007
MIDTERM 1- Version 222
1. The exam is two hours long.
2. The exam consists of 25 multiple choice questions (some with 4 options, some with 5
options) worth 2 marks each and 14 problem questions, worth 38 marks in total The
marks for each problem appear in brackets beside each question. The exam is worth 88
3. Record your name, student number and section number on the exam paper, Scantron
sheet and the work booklet. The code 222 should be pre-printed on your scantron
sheet. Make sure it matches the code on your exam. Any attempt to change the
code will be viewed as an attempt to cheat and you will receive zero on this exam.
Answers to the multiple choice should go on the Scantron sheet provided IN PENCIL
ONLY. Answers to the problems should go directly on the exam paper in the space
provided. Show all other work in the work booklet provided (this is for your reference
only – it will not be marked.)
4. Answers to the multiple choice should be recorded in your work booklet as these answer
sheets will not be returned. The work booklet can be collected after the exam paper is
returned to you.
5. When doing the problems, marks will be allotted for correct labelling of graphs, so
remember to label the axes as well as the curves you have drawn.
6. Unless told otherwise, you many assume that leisure and consumption are normal goods.
7. Please hand in all materials to the proctors. The exam paper will be returned to you after
it has been marked. You can collect the work booklet after the exam has been marked.
8. Calculators are allowed. Programmable calculators, graphing calculators and cell phone
calculators are NOT allowed. English dictionaries are NOT allowed.
9. There will be no bathroom breaks allowed.
10. To be fair to all students, no questions are allowed.
11. GOOLUDCK! 2
PART I. MULTIPLE CHOICE. CHOOSE THE BEST ANSWER AND ENTER
YOUR ANSWER ON THE SCANTRON SHEET PROVIDED.
1. If there is a decrease in real dividend income minus taxation, the rational consumer
A) increases consumption and increases labor supply.
rBdccensumption and reduces labor supply.
rCdccensumpation nd increases labor supply.
iDcreasnsumption and reduces labor supply.
E) none of the above
2. An increase in the real wage
A) represents a pure income effect.
B) represents a pure substitution effect.
C) causes a parallel shift in the consumer's budget line.
D) represents a combination of income and substitution effects.
E) both C and D are true
3. In recent years in Canada
A) there has been no difference between GNP and GDP.
B) GDP has been higher than GNP.
C) the difference between GNP and GDP has been very volatile.
D) GNP has been higher than GDP.
E) None of the above.
4. Business cycle persistence refers to the property that
A) real GDP is rarely exactly at trend.
B) when real GDP is above trend, it tends to stay above trend, and when it is below
trend, it tends to stay below trend.
C) booms and recessions last a long time.
D) business cycles are persistently hard to predict.
E) A and B
5. Improvements in a county's standard of living are brought about in the long run
B) constructing more machines and buildings.
D) growth in the population.
E) all of the above 3
6. An increase in total factor productivity shifts the production function
A) downward and decreases the marginal product of labor.
B) upward and increases the marginal product of labor.
C) upward and decreases the marginal product of labor.
D) downward and increases the marginal product of labor.
7. As the quantity of capital increases the marginal product of labor _______ and the
marginal product of capital ________
D) may either increase or decrease, decreases.
E) is constant, increases.
8. Suppose that the government collects $6 million in taxes, pays $4 million in
Employment Insurance benefits, pays $1 million in interest on the national debt,
and pays workers $2 million to sit at their desks and work as little as possible. The
government’s contribution to GDP is
B) $1 million.
C) $3 million.
D) $7 million.
E) $2 million
9. Problems with interpreting the unemployment rate as a measure of labour market
A) biases in the CPI and dissatisfied workers.
B) dissatisfied workers and discouraged workers.
C) discouraged workers and variations in how intensively the unemployed search
D) variations in how intensively the unemployed search for work and biases in the
10. In a one-period economy, all of the following are equivalent expressions of the
budget constraint except
A) C = w(N +l)+ π−T
B) C = wN + π−T
C) C = w(h−l)+ π−T
D) C + wl = wh + π −T 4
11. At the optimal consumption bundle, the marginal rate of substitution of leisure for
consumption is equal to
A) the real wage and the budget line is tangent to an indifference curve.
B) minus the real wage and the budget line is tangent to the indifference
C) The real wage and the budget line intersects the indifference curve.
D) minus the real wage and the budget line intersects the indifference curve.
12. A Pareto optimum requires all of the followingxcept
A) MP N= − slope of PPF.
B) MRS l,C= MRT l,C
C) MRT = MP
D) MP N= w.
E) none of the above
13. An increase in government spending
A) increases consumption, increases hours worked, and increases the real
B) reduccessumptiinc,reases hours worked, and increases the real
C) reduces consumption, increases hours worked and reduces the real wage.
D) reduces consumption, reduces hours worked, and reduces the real wage.
E) increases consumption, reduces hours worked, and reduces the real wage
14. Changes in government spending are not likely causes of business cycles because
government spending induced business cycles would, counterfactually predict
A) countercyclical real wages.
B) procyclical real wages.
E) none of the above.
15. In order to get a backward-bending labour supply curve
A) the substitution effect must dominate the income effect.
B) the income effect must dominate the substitution effect.
C) the substitution effect and the income effect must work in the same