SCHOOL OF ACCOUNTING, ECONOMICS, AND FINANCE

ECON102/ECON106
TEST 1: MONDAY 5 AUGUST 2019

DURATION: 45 MINUTES TOTAL MARKS: 100

INSTRUCTIONS:
1. The test comprises 20 multiple choice questions.
2. Choose the most correct answer.
3. Enter your multiple choice answers on the MCQ answer sheet provided, using an HB pencil
only. Entries in pen will not be recorded by scanner and thus marks will be lost.
4. Each correct answer earns 5 marks. There is no negative marking.
5. Please ensure that your student number and seat number are correctly entered in the spaces
provided on the MCQ answer sheet. You should also colour in the blocks corresponding to
your student number.
1. During the 1960s and 1970s, the main economic problems of concern to policymakers
were inflation, ____ economic growth, and ____ unemployment rates.

A) slow; high
B) slow; low
C) high; high
D) high; low
E) accelerated; high

2. A nation's Gross Domestic Product (GDP):

A) is given by the market value of all the final goods and services produced in the
borders of the nation within a specific time period.
B) is given by the market value of all final goods and services produced by the
citizens, regardless of where they are living.
C) can be calculated by summing the total consumption, investment spending,
savings and net exports.
D) is always some amount less than the total consumption, investment,
government expenditure and net exports.
E) All of the above.

3. Which of the following will NOT be included in the calculation of Gross Domestic Product
(GDP)?

A) The haircut I got this morning at the campus salon.

B) The bag of wheat used by the bakery to make the bread I bought this morning.
C) The tomatoes which I ate at lunch today, picked by agricultural workers in
KwaZulu-Natal.
D) The wine produced by a winery based in Cape Town.
E) Virgin Active gym sessions provided for by their trainers.

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4. The production of products such as computers and smartphones by Apple (a United States
owned company) in China forms part of ____. The profits of Apple, which are
transferred to the United States, are part of the United States’ ____ but not the United
States’ ____.

A) China’s GNP, GDP; GNP

B) China’s GDP; GDP; GNP
C) US GDP; GNP; GDP
D) US GNP; GNP; GDP
E) China’s GDP; GNP; GDP

5. A junior researcher notices that over the last nine months the unemployment rate has
increased from 24.6 percent to 29.7 percent. During the same period, the rate of growth
in actual gross domestic product has become negative. From this information we might
conclude that:

A) inflation is probably extensive in this economy.

B) a recession is occurring in this economy.
C) the economy is at the expansionary phase of the business cycle.
D) a peak in the business cycle will soon be reached.
E) actual GDP exceeds potential GDP.

6. It is often true that as the economy enters a recession the total level of output declines
while the unemployment rate rises. Which of the following statements would be the
best explanation for this?

A) The unemployment rate increases because as the economy enters a recession,

the demand for goods and services fall, companies generate less revenue and lay
off workers to cut costs.
B) As the economy enters into a recession, workers who were previously
discouraged about their chances of finding a job will begin to look for work again.
C) The unemployment rate seems to rise as the economy enters into a recession
because of errors in the way which data is collected.
D) In a recession, firms never lay off workers as the recession may be short in
duration.
E) None of the above.

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7. Which of the following statements is TRUE about the circular flow of expenditure and
income?
I. ʺAggregate incomeʺ is the flow of income earned by firms.
II. Retained earnings are considered income earned by firms rather than part of
householdsʹ income.
III. The government, households, firms and the rest of the world all have
transactions in the goods market.

A) I only.
B) I and II.
C) I and III.
D) III only.
E) None of the above.

8. To move from GDP at market prices to Net Domestic Income at factor cost, the following
adjustments must be made:

A) add subsidies, add indirect taxes, add depreciation.

B) add indirect taxes, subtract subsidies, add depreciation.
C) subtract indirect taxes, add subsidies, subtract depreciation.
D) add indirect taxes, add subsidies, subtract depreciation, subtract dividends.
E) subtract indirect taxes, subtract subsidies, subtract depreciation, add dividends.

9. To move from Net Domestic Income at factor cost to Net Domestic Income at market
prices, the following adjustments must be made:

A) subtract indirect taxes, add subsidies.

B) add indirect taxes, subtract subsidies, add depreciation.
C) add indirect taxes, subtract subsidies.
D) add indirect taxes, add subsidies, subtract depreciation, subtract dividends.
E) subtract indirect taxes, subtract subsidies, subtract depreciation, add dividends.

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Use the table below to answer the questions 10, 11, and 12 that follow:

Component Amount (billions of Rands)

Proprietors’ income 380
Indirect taxes less subsidies 210
Gross private domestic investment 1230
Rental income 100
Personal consumption expenditures 1830
Capital depreciation 5
Government expenditure on goods and services 1540
Net interest 230
SA imports 450
SA exports 230
Compensation of employees 3095
Dividends 280

10. From the data in the above table, Net Domestic Product (using the expenditure approach)
equals:

A) R4049 billion.
B) R4079 billion.
C) R4054 billion.
D) R4300 billion.
E) R4375 billion.

11. From the data in the above table, GDP (using the income approach) equals:

A) R3880 billion.
B) R4085 billion.
C) R4295 billion.
D) R4300 billion.
E) R4375 billion.

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12. From the data in the above table, Net Domestic Income at factor cost equals:

A) R3880 billion.
B) R4085 billion.
C) R4440 billion.
D) R5210 billion.
E) R8520 billion.

13. If the value of real GDP is R4450.12 billion in 2005 and the value of real GDP is R4795.53
billion in 2019, then economic growth rate between 2005 and 2019 equals?

A) 3.45%
B) 7.76%
C) 12.91%
D) 50.00%
E) Impossible to calculate with real GDP values given.

14. Which of the following statement(s) about the limitations of real GDP is NOT correct?

A) Real GDP does not account for the deteriorating air people breath as a result of air
pollution.
B) Economists express real GDP per person in South Africa as a ratio of some reference year
to compare long-term trend living standards.
C) Real GDP overstates true economic welfare due to measurement error.
D) Real GDP measurements account for all environmental damages.
E) All of the above statements are correct.

15. A discouraged worker:

A) is definitely permanently unemployed.

B) has been looking for a job for the past reference week but been unable to find one.
C) is willing to work if a job is available and may have looked for a job, but, being unable to
find one, has stopped seeking work for the past 4 weeks.
D) is an individual who is institutionalized.
E) only works part time and seasonal jobs because of other full time commitments.

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Use the information below to answer question 16.
Thabo graduated with an Honours degree in Computer Science. Because he could not find a job
immediately after completing his Honours degree, he enrolls for a full-time, 2-year course in
Marketing. He is not looking for a job, but if something part-time comes up he is willing to work
if he can find time given his full-time studies. On the other hand, Lerato has a BSc in Economics
and has struggled to find a job for two years. She now volunteers for a community project three
times a week.
16. Which of the following statements is TRUE?

A) Thabo and Lerato are both discouraged work seekers.

B) Thabo is marginally unemployed.
C) Thabo and Lerato are both institutionalized.
D) Thabo and Lerato are both structurally unemployed.
E) Both Thabo and Lerato have lost their human capital.

17. Unemployment that increases due to a downturn in the business cycle is known as:

A) long-term unemployment.
B) structural unemployment.
C) youth unemployment.
D) cyclical unemployment.
E) frictional unemployment.

18. The inflation rate in 2018 was 4.7% while the CPI for t 2017 was 109.5. The CPI for 2018
is therefore:

A) 100.
B) 104.7.
C) 114.65.
D) 115.2.
E) 104.8.

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 19. Which of the following statements regarding the Gini coefficient is FALSE?

A) The Gini Coefficient is constructed from the Lorenz curve.

B) A small Gini Coefficient would coincide with a Lorenz curve that is very close to the line
of equality.
C) The Gini Coefficient is a ratio of the area between the Lorenz Curve to the entire area
beneath the line of inequality.
D) The smaller the Gini Coefficient, the greater the degree of inequality.
E) If income is equitably distributed, the Gini Coefficient would be zero.

Consider the following table and answer question 20.

20. Choose the correct statement regarding the table above.

A) The bottom 60% of all the households have 60% of all the income generated.
B) The Gini Coefficient from the above income distribution is 1.
C) The bottom 50% of the population have less than 50% of the entire income.
D) The cumulative income for the top 40% of the households is greater than 80%.
E) The income distribution presented above is typical of all developed countries.

The end