Question

1. Consider two countries: Country A and country B. At the begging of year 2017, the GDP per capita in both countries is $10’000. The annual growth rate of output in country A is 3%, while the annual growth rate of output in country B is 5%. Population does not grow. What will be the difference in the GDP per capita of both countries at the beginning of year 2019?

1. $200
2. More than $200
3. Less than $200
4. $2’000

2. Which of the following statements about Keynes’ contribution to macroeconomics is CORRECT?

1. Keynes argued that increasing government expenditure could be an effective way to cure a recession or depression            
2. Keynes argued that depressions and recessions were almost always caused by changes in money supply
3. all of the other answers.
4. Although he published his most important ideas about the economy long before the 1930s, few economists paid attention to Keynes until the Great Depression proved him correct.

3. Among emerging economies, which of the following sources of economic growth is most likely to explain catch-up growth in the medium-run?    

1. none of the other answers.            
2. high demand.             
3. technological improvement.             
4. the level of capital stock.

4. Suppose a painting is produced and sold in 2018 for £5,000. The expenses involved in producing the painting amounted to £2,000. From those £2,000, £500 were spent on paying the model that appears in the painting, £200 for the rental of the studio, and the rest was used to purchase the material (intermediate goods). According to the sum- of-value-added method of calculating GDP, the value added by the final step of creating the painting was:                

1. £4,300.                       
2. £3,700.                       
3. £5,000.                       
4. £2,000.

5. According to Real Business Cycle theorists (New Classical)

1. Changes in aggregate supply explain economic fluctuations.
2. changes fiscal policy that affect aggregate demand explain economic fluctuations.
3. monetary policy explains most changes in output.
4. price and wage rigidity explain most changes in output.

6. The group of models that base the behaviour of the economy on micro principles (utility maximization, profit maximization and rational expectations) is known as                

1. monetarist models
2. Real Business Cycle models               
3. early Keynesian models                    
4. all macro models have always been based on micro principles

7. One key lesson learned for macroeconomic theory after the 2008 crisis is that   

1. the role of the labour market for explaining the behaviour of the economy has been largely underestimated.               
2. macroeconomic models have to include explicitly the rational expectations behaviour of workers and firms.                
3. financial institutions should not be allowed to fail because contagion effects.      
4. macroeconomic theory must make a deeper analysis about the role of the financial system and financial institutions in the economy.

8. The macroeconomic models that are most supportive of the role of government policy aimed at smoothing business cycles                        

1. classical models.                    
2. New Classical models.
3. Keynesian models.                
4. Real Business Cycle models.

9. When a firm produces output,                      

1. the firm’s output will not count as GDP if it is stored as inventory.
2. the value of all output produced is included in GDP.
3. the firm’s output contributes to GDP only to the extent that there is value-added.
4. the firm’s output will not count as GDP if it is exported.

Answer 1

Q1. b. More than $200.

Per capita income in country A and country B is $10,000

Let a be the total population in country A and

b be the total population in country B.

So in 2017, total GDP in country A is 10,000a and total GDP in country B is 10,000b.

Annual growth rate in country A is 3% = 0.03

Annual growth rate in country B is 5% =0.05

In 2019,

GDP in country A = 10,000a*(1+0.03)² = 10,609a

GDP in country B = 10,000b*(1+0.05)² =11,025b

GDP per capita in

Country A = 10,609a/a = $10,609

Country B = 11,025b/b = $11,025

Difference in per capita incomes of countries A and B = 11,025-10,609 = $416 > $200

So, the answer is b.