Independent University, Bangladesh

MBA 510(01): Macroeconomics

Autumn 2020; FINAL Examination (ONLINE)
Time allowed: 2.0 hours; Total marks: 100 (25% of the final grade)

Your Name: Tayabur Rahman ID: 2021685

Section-A (Maximum 61 marks in this section)

TRUE/FALSE Questions (14x 1.5 = 21 marks)

1) The classical theory of employment held that an excess of saving over investment at any given interest rate
would cause the interest rate to fall.

2) As disposable income goes up, the average propensity to save (APS) falls.

3) If a consumption schedule shifts upward, this necessarily means that the average propensity to consume (APC) is
now higher at each level of disposable income.

4) The equation C = 35 + .75Yd ; where, C = consumption and Yd = disposable income tells us that households will
consume three-fourths of whatever level of disposable income they receive.

5) The multiplier will be greater, the smaller the slope of the saving schedule.

6) A “recessionary gap” in a private, closed economy can be measured as the excess of saving over planned
investment at the full-employment GDP.

7) If disposable income (DI) is 275 billion and the average propensity to consume (APC) is 0.8, it can be concluded
that saving is 55 billion.

8) If the marginal propensity to consume (MPC) is constant at various levels of DI, then the APC must also be
constant at all these income levels.

9) For a closed private economy aggregate expenditure (AE) is composed of, C + Ig.

10) The equilibrium level of GDP always coincides with the full-employment GDP.

11) The downward slope of the aggregate demand (AD) curve is explained by declining production costs as output
increases.

12) If the MPC equals zero, then the multiplier would be 1.

13) The wealth or real balances effect indicates that a higher price level will decrease the real value of money and
other financial assets which will cause a decline in spending.

14) The interest-rate effect suggests that an increase in the price level will increase the demand for money, reduce
interest rates, and decrease consumption and investment spending.
 Page-2

Next three questions are based on the following graph:

15) The change in aggregate demand

from AD1 to AD2 would increase real domestic output but not the price level because this change occurs in the
Keynesian range of the aggregate supply curve.

16) The change in aggregate demand from AD3 to AD4 might be caused by increase in labour productivity.

17) The vertical range of the aggregate supply indicates that the economy has reached the full-employment level of
domestic output.

MULTIPLE CHOICE Questions (20x2 = 40 marks):

1) An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a:
a) rightward shift of the aggregate demand curve. b) leftward shift of the aggregate demand curve.
c) movement downward along a fixed aggregate demand curve. d) decrease in aggregate supply.

2) Other things being equal, serious recession in the economies of our major trading partners will tend to:
a) have no perceptible impact upon our economy. b) cause inflation in our economy.
c) depress real output and employment in our economy. d) stimulate real output and employment in our economy.

Page-3

3) An expansionary fiscal policy can be partially offset by:

a) an increase in aggregate demand.
 b) an increase in aggregate supply.
c) a depreciation of Taka against dollar.
d) a decrease in net exports.

4)The greater is the marginal propensity to consume (MPC):

a) the smaller is the average propensity to save (APS). b) the lower is the price level.
c) the higher the value of multiplier. d) the larger is the marginal propensity to save (MPS).

5) At the break-even level of income, the average propensity to save (APS) is:
a) equal to one. b) equal to APC. c) less than one. d) equal to zero.

The next THREE questions are based upon the following data of a hypothetical economy.
Disposable Income Saving
Tk. 0 billion Tk. -10 billion
50 0
100 10
150 20
200 30

6) The marginal propensity to consume (MPC) is:

a) .80 b) .75 c) .20 d) .25 e) .10

7) At the Tk.100 billion level of income, the APS is:

a) .10 b) .20 c) .25 d) cannot be determined from the data given.

8) If plotted on a graph, we would expect the slope of the saving schedule to be:
a) .80 b) .10 c) .20 d) .15

9)The simple (expenditure) multiplier may be calculated as:

a) 1 / (MPS + MPC). b) 1 – MPC = MPS. c) 1 / (1 – MPC) d) MPC / MPS.

10) Other things being equal, if the interest rate falls and business taxes fall, investment:
a) is likely to decrease. b) is likely to increase.
c) is not likely to change. d) may increase, decrease, or stay the same.

11) Assume the MPC is .6. If investment spending increases by Tk. 8 billion, the level of GDP will increase by:
a) Tk. 8 billion. b) Tk. 13.3 billion. c) Tk. 15 billion. d) Tk. 20 billion.

Page-4

The next THREE questions are based upon the following two graphs:
12) Graph A illustrates:
a) the Keynesian view of the
macroeconomy. b) the classical view of the macroeconomy.
c) the supply side view of the economy. d) cost-push inflation.

13) Graph B illustrates:

a) the Keynesian view of the macroeconomy. b) the classical view of the macroeconomy.
c) the supply side view of the economy. d) the ratchet effect.

14) In graph A, a decline in aggregate demand from AD1 to AD2 will:

a) decrease real domestic output and employment at Qf. b) increase the price level from P2 to P1.
c) temporarily cause an excess supply of AB. d) produce a new price-output equilibrium at B.

15) Say’s Law states that:

a) any equality of aggregate expenditures and aggregate output is accidental:
b) investment supplements total consumption so that aggregate spending tends to exceed total output.
c) the production of any level of output will generate sufficient demand to purchase that output.
d) because people save, aggregate spending will tend to fall short of (buying back) the total output.

16) The value of money varies:

a) directly with the price level. b) inversely with the price level.
c) directly with the volume of employment. d) directly with the interest rate.

17)Which of the following is not a tool of monetary policy?

a) open market operations. b) changes in reserve requirements.
c) changes in taxes. d) changes in discount rate.

Page-5

18)The purpose of a contractionary monetary policy is to:

a) alleviate recessions.
b) to raise interest rates and restrict the availability of bank credits.
c) shift the aggregate expenditures schedule upward.
d) increase investment spending.
19) ) Inflation caused by an increase in aggregate spending is referred to as:
a) cost-push inflation. b) demand-push inflation. c) demand-pull inflation. d) hyperinflation.

20) A large GDP gap implies:

a) excess of imports over exports. b) a low rate of unemployment.
c) a high rate of unemployment. d) a sharply rising price level.
e) that the structure of consumer demand has changed from goods to services.

21) All of the following would affect the position of a country’s production possibilities curve, except:
a) the quantity of labor. b) the level of unemployment.
c) the quantity of accumulated capital. d) technological progress.

22) The amount of real domestic output that will be purchased at each possible price level is shown by the:
a) aggregate supply curve. b) aggregate demand curve.
c) business cycles graph. d) difference between real and nominal GDP.

The next TWO questions are based upon the following graph:

Page-6

23) In the graph above it is assumed that investment, net exports, and government expenditures:
a) are all negative. b) vary inversely with GDP.
c) vary directly with GDP. d) are independent of GDP.

24) If this was an open economy without a government sector, the level of GDP would be:
a) 100 billion. b) 200 billion. c) 300 billion. d) 400 billion.
___

Continue to the next page

Answer Sheet

YOUR NAME: Tayabur Rahman ID # 2021685

Instruction: Use the tick mark (√) to indicate the correct answer.
True False Multiple Choices
(a) (b) (c) (d) (e)
1) O√ O 1) O√ O O O O

2) O O√ 2) O O O√ O O

3) O√ O 3) O O O O√ O

4) O√ O 4) O O O√ O O

5) O O√ 5) O O O√ O O

6) O O√ 6) O√ O O O O

7) O O√ 7) O√ O O O O

8) O O√ 8) O O O√ O O

9) O√ O 9) O O O√ O O

10) O O√ 10) O O O O√ O

11) O√ O 11) O O O O√ O

12) O O√ 12) O O√ O O O

13) O√ O 13) O√ O O O O

14) O√ O 14) O O O O√ O

15) O√ O 15) O O O√ O O

16) O O√ 16) O O√ O O O

17) O√ O 17) O√ O O O O

18) O O√ O O O

19) O O O√ O O

20) O O O√ O O

21) O O O O√ O

22) O O√ O O O
 23) O O O O√ O

24) O O O√ O O

Continue to the next page

Section B (39 marks in this section)

Question #1
Examine the following statements and state whether they are TRUE or FALSE. You must justify
your answer by explaining clearly. Choose any 5 (five) out of the following six statements.
(5x6 marks = 30
marks)

a) An “inflationary gap” can best be described as the amount by which aggregate expenditures exceed the full
employment level of domestic output (9 marks).

Ans: “True”

This statement is True. An inflationary gap exists when the demand for goods and services exceeds production due
to factors such as higher levels of overall employment, increased trade activities, or elevated government expenditure.
The inflationary gap represents the point in the business cycle when the economy is expanding.

b) The shape of the aggregate supply curve is determined by what happens to aggregate demand as real domestic
output expands (9marks).

Ans: “True”

This statement is True. A short-run aggregate supply curve is the capital stock, the stock of natural resources, the level of
technology, and the prices of factors of production. A change in the price level produces a change in the aggregate
quantity of goods and services supplied. Aggregate supply, or AS, refers to the total quantity of output—in other words,
real GDP—firms will produce and sell. The aggregate supply curve shows the total quantity of output—real GDP—that
firms will produce and sell at each price level.

c) Open Market Operations (OMO) is known as the most powerful tool of monetary policy (9 marks).
Ans: “True”

This statement is True. The use of open market operations as a monetary policy tool ultimately helps the Fed pursue its
dual mandate—maximizing employment, promoting stable prices—by influencing the supply of reserves in the banking
system, which leads to interest rate changes.

d) An economy can temporarily achieve some combination of goods outside of its production possibility curve by
importing more goods than it exports.

e) The Keynesian range of the aggregate supply curve implies that output could be increased without increasing
the price level.

Ans: “False”

This statement is False. The Keynesian zone occurs at low levels of output on the SRAS curve where it is fairly flat, so
movements in aggregate demand will affect output but have little effect on the price level.

f) The average propensity to consume (APC) declines continuously as the level of real income in the economy
increases owing to the ‘Psychological Law of Consumption’.

Ans: “False”

This statement is False. The average propensity to consume (APC) measures the percentage of income that is
spent rather than saved. This may be calculated by a single individual who wants to know where the money is
going or by an economist who wants to track the spending and saving habits of an entire nation. In either case,
the propensity to consume can be determined by dividing average household consumption, or spending, by
average household income, or earnings

Question #2

1) Given the following data for a hypothetical economy, answer the three questions that follow.
 (9 marks)
Quantity of inputs Consumption
(in billion Tk.) (in billion Tk.)
100 200
150 300
200 400

a) The level of productivity in this economy is = 2

b) If the price of each input is Tk. 5, per unit cost of production would be = 10 ?

c) If the input price rises from Tk. 5 to Tk. 8, the per unit cost of production rises by = 55% ?

End