EC1002 Introduction to Economics

UNIVERSITY OF LONDON
PRELIMINARY EXAM 2021
MODULE CODE : EC1002
MODULE TITLE : Introduction to Economics
DATE OF EXAM : 5 March 2021
TOTAL NUMBER : 6
(INCLUDING
THIS PAGE)
——————————————————————————————————-
INSTRUCTIONS TO CANDIDATES :-
The paper consists of THREE sections.
Section A (40 marks): 10 multiple choice questions, each worth 4 marks. Answer all questions. No explanation is required.
Section B (30 marks): Answer one of two questions on microeconomics. Explanations are essential.
Section C (30 marks): Answer one of two questions on macroeconomics. Explanations are essential.
You may use any calculator for any appropriate calculations. Credit will only be given if all workings are shown.
SINGAPORE INSTITUTE OF MANAGEMENT
EC1002 Introduction to Economics Page 2 of 6
SECTION A: MULTIPLE CHOICE QUESTIONS
Answer ALL questions. Each question is worth 4 marks.
Choose one answer for each question; no explanation is required.
1. Consider the following information
Price
Quantity Demanded
8
160
10
120
Price elasticity of demand, if price rises from 8 to 10 is:
a. -20
b. 0.05
c. -1
d. None of the above
2. What is the likely effect of an increase in the price of Coke on demand for Pepsi?
a. Demand for Pepsi is not affected.
b. Demand for Pepsi increases.
c. Demand for Pepsi decreases.
d. Whether demand for Pepsi increases or decreases depends on how much the price of coke changes.
3. Which of the following statements is correct?
a. If MC is rising, ATC must also be rising.
b. If MC is above AVC then ATC must be rising.
c. If MC is above ATC then ATC must be rising.
d. ATC only rises if MC falls.
4. Assuming that in the short run a firm in monopolistic competition makes profit, in the long run equilibrium demand for this firm:
a. Will shift to the right and become steeper.
b. Will shift parallel to the right.
c. Will shift parallel to the left.
d. Will shift to the left and become flatter.
5. Assuming price is on the vertical and quantity is on the horizontal axis demand for a public good is:
a. The horizontal sum of all individual demand curves.
b. Equal to each individual demand curve.
c. The vertical sum of all individual demand curves.
d. None of the above.
EC1002 Introduction to Economics Page 3 of 6
6. The J curve implies that, given a fixed exchange rate:
a. Devaluation does not affect the current account.
b. Devaluation immediately deteriorates the current account but improve it after a time.
c. Devaluation immediately improves the current account but deteriorates it after a time.
d. Devaluation deteriorates the current account.
7. Consider the neoclassical growth model where we have two countries, R (rich) with a higher capital per labour ratio and P (poor) with a lower capital per labour ratio. The production function and all parameters of the two countries are identical except that the savings rate of the poor country is lower than that of the rich country and neither country is in steady state equilibrium. Under these circumstances in the long run:
a. Because P can grow faster it will have a higher income per worker than R.
b. P will catch up to R and both will have the same income per worker.
c. Each will achieve its own steady state equilibrium, but R will have a higher level of income per worker.
d. We cannot say which country will have a higher level of income per worker in the long run.
8. Considering the information in the table below what is the growth rate of real GDP?
Year
Nominal GDP
GDP deflator
2018
4000
100
2019
4800
120
a. 0%
b. 1.2%
c. 20%
d. 10%
9. Which one of the following statements is true?
a. The inflationary gap occurs when aggregate demand is smaller than potential output.
b. The inflationary gap occurs when aggregate demand is equal to potential output.
c. The inflationary gap occurs when consumption is greater than savings.
d. The inflationary gap occurs when aggregate demand is greater than potential output.
EC1002 Introduction to Economics Page 4 of 6
10. Assuming we have perfect capital mobility, a flexible exchange rate and the government wishes to increase the level of output then:
a. Expansionary monetary policy is better than expansionary fiscal policy.
b. Expansionary fiscal policy is better than expansionary monetary policy.
c. Both will achieve the government’s objective.
d. Neither will achieve the government’s objective.
SECTION B: Microeconomics long questions
Answer one of the following two long questions (30 marks each). It is essential you explain your answers.
11. Consider the case of a consumer that consumes two goods, X and Y and has money income equal to I.
a. (2marks) Define the price elasticity of demand for X.
b. (2 marks) Assuming that Px and PY are prices of goods X and Y respectively, show the equation of the budget constraint for this consumer.
c. (8 marks) Using income-substitution analysis show that the demand for good X is more inelastic if X is an inferior good than if it is a normal good.
d. (6 marks) Define a Giffen good and use income-substitution effect to show that the price elasticity of demand for X is positive if X is a Giffen good.
Assume that the individual is getting money income equal to a fixed bundle E(x1,y1).
e. (4 marks) Show the effect of a fall in the price of X on the budget line.
f. (8 marks) In this case show that for a normal good it is possible for the demand curve to have a positive income elasticity (i.e. be upward sloping).
Y
y1 E(x1,y1)
x1 X
EC1002 Introduction to Economics Page 5 of 6
12. Consider a perfectly competitive market in equilibrium. Now assume the government awards each firm in this market a per unit subsidy, s.
a. (5 marks) Using an appropriate diagram show the effect of this subsidy on the firm’s marginal cost (MC), average total cost (ATC) and output.
b. (5 marks) What is the long run effect of this subsidy on the market output?
Assume the inverse demand function is P = 1000 – 2Q and the supply function is P = 100.
c. (5 marks) What is the market price and output?
Now assume that this market is monopolised by a single firm. The demand function remains the same but now the MC is constant and equal to 100.
d. (7 marks) What is the profit maximising price and output of this monopoly?
e. (8 marks) Calculate the deadweight loss of this monopoly.
SECTION C: Macroeconomics long questions
Answer one of the following two long questions (30 marks each). It is essential you explain your answers.
13. Consider a closed economy. Consumption C is given by the consumption function
where
denotes autonomous consumption demand and c is the marginal propensity to consume (0 < c < 1). Investment, I, is given by , where is autonomous investment demand and b is the sensitivity of investment to the interest rate, . Government spending is autonomous so and there is no tax. Assume initially wages and prices do not adjust. a. (6 marks) Derive the IS curve in this case. b. (4 marks) Assume there is an increase in G (fiscal expansion) at a constant interest rate. Calculate the multiplier if c is 0.75. What is the increase in Y (GDP) if G rises by 100? c. (8 marks) Now assume the interest rate can rise when we have fiscal expansion (LM is upward sloping). Using the IS-LM diagram explain clearly why the increase in Y is less than that in part (b). EC1002 Introduction to Economics Page 6 of 6 Suppose now we have an open economy with perfect capital mobility. Assume that there is an exogenous increase in autonomous expenditure (rise in exports or G rising). d. (6 marks) What is the impact on output if the exchange rate is fixed? e. (6 marks) What is the impact on output if the exchange rate is flexible? 14. a. (4 marks) What are the main costs of inflation if there is complete adaptation and full anticipation? b. (2 marks) Explain what is meant by hysteresis. c. (6 marks) Explain the short run relationship between inflation and unemployment (the short run Phillips curve). d. (6 marks) What is the relationship between inflation and unemployment in the long run? Clearly explain why the shape of the long run Phillips curve is different to that of the short run Phillips curve. e. (6 marks) Derive the dynamic aggregate demand curve (AD curve where inflation is on the vertical axis and output on the horizontal axis) using the ii curve. f. (6 marks) Assume there is a positive demand shock not caused by monetary policy. Using the AD, short run aggregate supply and long run aggregate supply curves show how long run equilibrium may be achieved after the shock. END OF PAPER Order Now

Calculate a fair price for your paper

Such a cheap price for your free time and healthy sleep

1650 words
-
-
Place an order within a couple of minutes.
Get guaranteed assistance and 100% confidentiality.
Total price: $78
WeCreativez WhatsApp Support
Our customer support team is here to answer your questions. Ask us anything!
👋 Hi, how can I help?