e Consumption Saving APC APS MPC MPS

200 -200 - - - -
1100 -100 1.1 -0.1 0.9 0.1
2000 ZERO 1 ZERO 0.9 0.1
2900 100 0.97 0.03 0.9 0.1
3800 200 0.95 0.05 0.9 0.1

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 1) The circular flow diagram shows D
A) how nominal GDP is distinct from real GDP.
B) how the prices of factors are determined.
C) the effects of inflation in a simple economy.
D) the flows between different sectors of the economy.
2) The circular flow diagram indicates that A
A) households sell the services of factors of production to firms.
B) firms buy the services of factors of production from the government.
C) households sell goods and services to the government.
D) firms buy goods and services from households.
3) In the circular flow model of an economy, households D
A) receive income from buyers of goods and services.
B) receive income from the sale of factors in the goods markets.
C) pay firms for the use of their factors.
D) receive income from producers for the use of factors in the factor markets.
4) The series of ups and downs the economy tends to move in is called A
A) the business cycle. B) a recession. C) a depression. D) economic growth.
5) The series of ups and downs the economy tends to move in is called A
A) the business cycle. B) a recession. C) a depression. D) economic growth.
6) The four parts of the business cycle occur in the following order: C
A) recession, trough, peak, expansion.
B) expansion, trough, peak, recession.
C) recession, trough, expansion, peak.
D) expansion, trough, recession, peak.
7) A common definition of a recession is a time with C
A) a decline in the price level.
B) a decline in interest rates.
C) a decrease in real GDP for two or more successive quarters.
D) a decrease in real GDP for two or more successive years.
8) country output decreases during C
A) the movement from trough to peak.
B) the movement from below potential GDP back to potential GDP.
C) the movement from peak to trough.
D) a decrease in unemployment.
9) The low point of economic activity during a business cycle is called the A
A) trough.
B) recession.
C) peak.
D) failure.

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 Study the following graph and answer questions from 10 to 12

10) In the above figure, a recession begins at point ________ and an expansion A
begins at point ________.
A) a; b B) b; c C) b; a D) d; c
11) In the above figure, a trough is at point ________ and a peak is at point _____ C
A) a; b B) b; c C) b; a D) d; c
12) The circular flow shows that the household sector earns its income by A
A) selling factors of production.
B) buying factors of production.
C) selling goods and services.
D) selling financial assets.
13) An expansion ends when the economy B
A) hits a trough and then enters a recession.
B) hits a peak and then enters a recession.
C) begins to grow following a peak.
D) has grown for two quarters in a row.
14) An increase in overall price level is called: C
a) deflation b) recession c) inflation d) stagflation
15) A period of very rapid increase in the overall price level is known as: C
a) inflation b) recession c) hyperinflation d) stagflation
16) Depressions is: A
a) A prolonged recession
b) output and employment rise
c) short term recession
d) where prices increase
17) A period when the economy shrinks is known as: E
A) A recession b) a contraction c) a slump d) stagnation e) all the above
18) A period when the aggregate output rise is known as a (n): E
A) A recession b) a contraction c) a slump d) stagnation e) none of the above
19) The term business cycle refers to the: C
a) Short-term ups and downs in the price level
b) Long-term trends in the price level
c) Short-term ups and downs in level of economic activity
d) Long-term trends in level of economic activity

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 20) In a business cycle, a peak represents the end of ………and a trough represents the end A
of……
a) An expansion; a recession
b) A depression, and expansion
c) A trough ; a peak
d) A recession ; an expansion
21) In the business cycle, a peak represents the end of: A
a) An expansion b) a depression c) trough d) a recession
22) In the business cycle, a trough represents the end of: D
a) An expansion b) an increase in price level c) peak d) a recession
23) A prolonged and deep recession is called : B
a) A business cycle b) a depression c) a stagflation d) a hyperinflation
24) Stagflation occurs when the economy`s inflation rate is high and C
A) Employment is high
B) The unemployment rate is low
C) The unemployment rate is high
D) Higher rate of economic activity

both inflation and unemployment could increase together in a given economy at a given T
time
2) for economists, the main measure of how the economy is doing well is the aggregate price F
level in the economy ( )
3) Monetary policy is concerned with tools like government spending and taxes.( ) F
4) The short-run ups & downs in GDP could be presented by a business cycle graph.( ) T
5) The interaction between the different sectors in macro economy could be presented T
by the circular flow diagram. ( )
6) The business cycle shows that an economy could have a constant increasing output over F
time
7) In the great depression period from 1929 to 1933, the government was able to regulate the F
economy affecting prices and unemployment
8) Some unemployment is inevitable ( 7atmy) T
9) The circular flow diagram shows only the aggregate expenditures measure of GDP F
10) Stagnation where unemployment and prices rise F
11) Stagflation where unemployment and prices rise T
12) The business cycle is the long-term ups and downs in the level of economic activities F
13) We can expect the business cycle as it is repeated each year F
14) The duration where the level of economic activity increase is called expansion T
15) The duration where the level of economic activity decrease is called contraction T

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 1) Gross domestic product is the total…………………… produced within a country in a given time D
period.
a) Market value of all final and intermediate goods and services
b) Market value of all goods and services
c) Amount of final and intermediate goods and services
d) Market value of all final goods and services
2) In the definition of GDP `market value ` refers to: B
a) Valuing production in production units
b) Valuing production according to the market price
c) Not counting intermediate products
d) When the production took place
3) The word `final` in the definition of GDP refers to: A
a) Not counting intermediate goods or services
b) The time period when production took place
c) Valuing production at market prices
d) Counting the intermediate goods and services used to produce GDP
4) Intermediate goods are excluded from GDP because A
a) Their inclusion would involve double counting
b) They represent goods that have never been purchased so they cannot be counted
c) Their inclusion would understate GDP
d) None of the above
5) GDP can be computed as the sum of: D
a) All sales that have taken place in an economy over a period of time
b) The total expenditures of consumers and business over a period of time
c) The total expenditures of consumption , investment , government expenditure on goods
and services over a period of time
d) The total expenditures of consumption , investment , government expenditure on goods
and services , and net exports over a period of time
6) Aggregate expenditure includes all of the following except: B
a) Consumption of food
b) Purchases of intermediate goods
c) Purchases of a piece of capital equipment
d) Purchases of guns by the government
7) In calculation of gross domestic product by the expenditure approach , the D
`investment` component is:
a) Net investment
b) Gross investment minus depreciation
c) Gross investment plus depreciation
d) Gross investment
8) Net exports is negative if: B
a) The value of exports exceeds the value of imports
b) The value of imports exceeds the value of exports
c) The tariff payments are included in the value of imported and exported items
d) Too much production occurs in the exporting country during the year

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 9) An increase in the exports of goods or services with no change in imports of B
goods or services:
a) Decrease GDP
b) Increase GDP
c) May increase or decrease GDP
d) Has no effect on GDP
10) IF consumption expenditures are $500 million net investment is $100 million, depreciation equals $5 C
million, imports are $50 million, exports are $55 million, government expenditure on goods and
services is $220 million, and government transfer payments are $20 million, then GDP is :
a)$790 million b) $800 million c) $830 million d) $850 million
11) An U.S firm buys a new industrial sewing machine from a company located in France. Which of the C
following is true?
I. U.S net exports decrease.
II. U.S investment increases.
b) Only I b) only II c) both I and II D) NEITHER I or II
12) Nominal GDP is : B
a) Real GDP adjusted for price changes
b) GDP valued at prices of that year
c) GDP valued at constant prices
d) Real GDP valued at base year price
13) Nominal GDP is the value of final goods and services : A
a) At the prices of that year
b) At the prices of the immediately previous year
c) At the prices of a base year
d) Produced in foreign countries but costumed in the domestic country
14) Of the following which is correct? C
a- Nominal GDP doesn’t change when the production of goods and services increases
b- Nominal GDP is not affected by changes in prices of goods and services
c- Nominal GDP increases when the prices of goods and services increase
d- Real GDP changes only when the prices of goods and services really change
15) Real GDP measures the D
a) Total profits earned by all business valued using prices from a single year
b) Changes in the prices of output measured in dollars
c) General upward drift in prices
d) Value of total production linked to prices of a single year
16) In years with inflation , nominal GDP increases……… real GDP A
a) Faster than
b) Slower than
c) At the same rate as
d) Non of them
17) Which of the following transfer payments is included in GDP? D
a) Social security payments
b) Welfare payments
c) Veteran`s benefits
d) Non of the above

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 18) Component Amount (dollar) D
Personal consumption expenditure 3720
Government expenditures 430
Gross investment 610
Net investment 520
Exports 650
Imports 720
Using the information in the table above, calculate gross domestic product
a) 5,130 b) 5,320 c) 4,760 d) 4,690
19) Using information in the table above , net exports equals: D
a) 1,370 b) 650 c) 20 d) -70
20) Using the information in the table above, depreciation equals B
a) – 90 b) 90 c) -70 d) some amount that cannot be determined
21) Which of the following is not part of government expenditures on goods and B
services in GDP accounts?
a) Gasoline purchases for government carpools
b) Social security expenditures
c) New computer hardware for use by police
d) Lamps to brighten up the president`s office
e) None of the above
22) If no foreign companies produce in a country, but many of the country`s companies A
produce aboard then:
a) The country`s GNP will tend to exceed its GDP
b) The country`s GDP will tend to exceed its GNP
c) The country`s GNP and GDP will tend to be equal
d) The GDP will tend to be equal to domestic income
23) Profits earned in the united states by foreign-owned companies are included in A
a) The U.S GDP but not GNP
b) Neither the U.S GDP nor GNP
c) The U.S GNP but not in GDP
d) Both the U.S GDP and GNP
24) The GDP includes : D
A) The value of all intermediated goods and services
B) The value of all goods and services
C) The value of bother intermediated and final goods
D) The value of all new securities and brokerage commission
25) Income Mexican citizens earn in the U.S counts in: B
a) U.S GNP B) Mexican GNP c) Mexican GDP d) both U.S and Mexican GDP
26) Income Mexican citizens earn in the U.S counts in: D
A) U.S GNP B) Mexican GNP& GDP c) Mexican GDP d) Mexican GNP and U.S GDP

27) Magdy Yacoub is an Egyptian doctor he made a surgery in U.S by 10,000 $ then this B
transaction will be counted as part of :
a) Egyptian GDP & GNP B) U.S GDP & Egypt`s GNP c) Egypt’s GDP d) U.S GNP
28) The equation for GDP using the expenditure approach is: A
a) GDP= C+I+G+EX-IM C)GDP= C+I+G+(IM-EX)
b) GDP= C+I+G+EX+IM D) GDP=C+I+G-EX-IM

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 29) Net investment equals: C
a) GDP minus final sales
b) Gross investment minus final sales
c) Gross investment minus depreciation
d) Depreciation plus GDP
30) If net investment is zero, then : C
a) Gross investment is greater than depreciation
b) Gross investment is less than depreciation
c) Gross investment equals depreciation
d) Depreciation is zero
31) Suppose that net investment in 2010 was $20 billion and depreciation was $4 billion, then C
gross investment in 2010 was:
a) 16 billion b) 10 billion c) 24 billion d) 28 billion
32) The total value of all capital newly produced in a given period is: D
a) The change in business inventories
b) depreciation c) net investment d) gross investment
33) Exports equal: B
a) Imports – net exports
b) Net exports + imports
c) Net exports – imports
d) None of the above
34) When calculating GDP, exports are ……. And imports are….. B
b) Added; added b) added; subtracted c) subtracted ; added d) subtracted ; subtracted
35) If the value of net exports is negative, then: B
a) Exports exceed imports
b) Imports exceed exports
c) Exports equal imports
d) Imports are zero
36) If receipts of factor income from the rest of the world exceed payments of factor income to D
factor income to the rest of the world, then:
a) GDP is greater than GNP
b) GDP equals GNP
c) GNP = NNP
d) GNP is greater than GDP
37) IF GNP is 600$ billion, receipts of factor income from the world are 50$ billion and payments B
of factor income to the rest of the world are 30$ billion, then GDP is:
a) $520 billion b) $580 billion c) $620 billion d) $680 billion
38) Net national product is: B
a) GDP plus depreciation c) GDP minus depreciation
b) GNP minus depreciation d) GNP plus depreciation
39) If personal income is $925 billion and personal income taxes are $70 billion , the value of B
disposable personal income is :
a) $835 billion b) $855 billion c)$ 890 billion d) $995 billion
40) Nominal GDP measures the value of all goods and services : B
A) In constant dollars b) in current dollar c) in fixed dollars d) without inflation
41) Gross domestic product measured in terms of the prices of a fixed or base year is: C
a) Current GDP b) base GDP c) real GDP d) Nominal GDP

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42) Real GDP is gross domestic product measured : B
A) At a constant output level but at current prices
B) At a current output level but at constant prices
C) At a current output level and current prices
D) At constant output level and constant prices
43) The GDP deflator is the: C
a) Difference between real GDP and nominal GDP times 100
b) Difference between nominal GDP and real GDP times 100
c) Ration of nominal GDP to real GDP multiplied by 100
d) Ration of real GDP to nominal GDP multiplied by 100
44) If GDP deflator is greater than 100, then: A
a) Nominal GDP is greater than real GDP
b) Nominal GDP is Lower than real GDP
c) Nominal GDP equals real GDP
d) Prices decreased by more than half
45) The GDP deflator in year 2 is 110 and the GDP deflator in year 3 is 118, the rate of B
inflation between year 2 and 3 is:
a) 4.55% b) 7,27% c) 8% d)18%
46) The GDP deflator in year 2 is 110 using year 1 as base year. This means that , on average B
the price of goods and services is :
A) 110% higher in year 2 than in year 1
B) 10% higher in year 2 than in year 1
C) 5% higher in year 1 than in year 2
D) 110% higher in year 1 than in year 2
47) GDP is not a perfect measure of social welfare and the society`s economic well-being because : D
A) It doesn’t say anything about the distribution of income
B) GDP accounting rules do not adjust for production that causes negative externalities (pollution)
C) It doesn’t include all economic activities in the economy
D) All the above

1) GDP is the market value of all goods and services produced inside the country through certain period F
of time
2) GNP is the total market value of all final goods produced by citizens even inside or outside the country T
through certain period of time
3) GDP in 2001 would not include the resale of a house that was built in 1978 T
4) Paper transaction as well as used cars & houses have to be counted in GDP F
5) If a firm sells its output for 40,000 , pays $22,000 in wages , $10,000 for intermediate inputs purchased T
from other firms $5000 interest, and declares profits of $3000 then the value added is 30,000
6) GDP & GNP are always equal F
7) The net investment couldn’t be negative F
8) The intermediate goods are not counted in GDP to avoid double counting T
9) In the great depression from 1929 to 1933 the government was able to regulate the economy affecting F
prices and unemployment
10) Net investment only should be included in the GDP F
11) IF payments to foreigners inside the country exceed the payments to citizens aboard, then the GNP will F
be greater than GDP

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 12) Even if the prices of many goods and services in the economy increase dramatically, the real T
GDP for the economy can still fall
13) NET national product (NNP or national income ) & GDP are always equals F
14) Personal income and disposable income are always equal F
15) The personal income is greater than the disposable income by the amount of personal income T
taxes
16) If the disposable income = 1000 and the personal income taxes = 120 then the personal F
income taxes = 880
17) If the personal income = 1000 and personal income taxes = 200 while consumption = 800 then T
saving = 0
18) If the personal consumption rate= 75% and disposable income = 1000 then savings = 250 T
19) NET Receipts of factor income is always positive F
20) Net exports is always positive in calculating GDP F
21) Transfer payments should be counted as part of GDP F
22) Transfer payments are counted as a part of an individual`s personal income but not counted as T
part of GDP
23) If the current GDP deflator in 130 , then the country experiencing deflation F
24) Exchange of cars and houses should be included in calculating GDP F
25) If nominal GDP is greater than real GDP then the output prices are falling F
26) If the current GDP deflator in 80 , then the country experiencing inflation F
27) Gifts and disability pensions are included in GDP calculations F
28) GDP is the best measurement of social welfare F
29) Net national product may exceed GDP by the value of net receipts from abroad T
30) If the value of net receipts from abroad is negative, then GDP must be greater than NNP T
Justify your answer:
1.Positive net investment increases the economy’s total stocks of capital, but replacement investment
keeps the existing stock by replacing what has been worn out. ( ) true
2.Net investment only should be included in the GDP. ( )
False : gross investment
3.Transfer payments is a government spending over a given period of time, and it should be included in the
GDP of the same period.( )
False: transfer payments are excluded from the GDP
4.Unemployment benefit it is an important part of GDP. ( )
False: unemployment benefit is a type of transfer payments and it should be excluded
5-The value-added method is used to calculate GDP to avoid double counting.( )
true
6-We can simply calculate the national product by adding up the production of all firms. ( )
False: as national product can be calculated by adding up the production of all national firms even inside
the country or outside the country.
7-Used cars and houses are counted in current GDP.( )
False: as used cars and houses should be excluded from GDP as they were counted in the GDP of their
year`s of production and shouldn`t be counted again to avoid double counting
8- When the value of exports exceeds the value of imports, the net exports should be negative and
reduce the GDP of the country. ( )
False: the net exports should be positive and increases the GDP of the country
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 1) The unemployment rate equals: D
a) Labor force / population
b) Unemployed / employed
c) (employed – unemployed / labor force
d) (labor force -employed ) /labor force
2) The employment rate equals : D
a) Labor force / population
b) Unemployed / employed
c) (employed – unemployed / labor force
d) (labor force -unemployed ) /labor force
3) If the labor force is 50 billion and 48 billion are employed then the unemployment ratio is: B
a) 2% b) 4% c) 5% d) 6%
4) If 20 million workers are unemployed and 180 million are employed, then the unemployment rate is: A
a) 10% b) 15% c)18% d) 20%
5) Unemployed generally ……… during recessions and ……….. during expansions D
a) Falls, rises b) falls; falls c) rises, rises d) rises ; falls
6) Stagflation occurs when the economy’s inflation rate is high and B
a) Employment is high
b) The unemployment rate is high
c) The unemployment rate is low
d) The rate of change in economic activities is positive
7) Which of the following is a good or service counted in GDP? C
a) Tires ford buys to put on a car
b) a used tire you buy for your personal car
c) A new tire you buy for your personal car
d) Used tires bought by a used car dealer to put on car
8) Gross domestic product measures: D
a) The total spending of everyone in the economy
b) The value of all output in the economy
c) The total income of everyone in the economy
d) All the above
9) Which of the following would be counted in 2011`s GDP? C
a) The value of a loan you take in 2011
b) The vale of a TV that was produced in 2010 but not sold until 2011
c) The bonus checks a stockbroker gets from he/her company in 2011
d) The value of a bond sold by federal government
10) Mariam graduated from college a month ago, and is now without work she accepted a job that will B
start next month, today Mariam is:
a) Not in labor force
b) In labor force
c) Employed
d) A discouraged worker

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 11) the number of people unemployed equals : C
a) Number of people employed minus the labor force
b) Labor force plus the number of people employed
c) Labor force minus number of people employed
d) Not in labor force plus labor force
12) Is the most commonly used measure of changes in the cost of living for households: A
A) CPI B) PPI C) GDP deflator d) nominal GDP
13) Inflation redistribute real income from : A
a) People with fixed-income to people with variable income
b) Rich people to poor people
c) People with variable income to people with fixed income
d) None of the above
Refer to the information provided, answer questions from 14 to 17
Employed (14,000 people) unemployed (3000 people) not in labor force (4000 people)
14) The labor force equals: B
a) 14,000 b) 17,000 c) 18,000 d) 21,000
15) Unemployment rate is: C
a) 14.3% b) 16.7% c) 17.6% d) 25.5%
16) Labor force participation rate is: D
a) 66.7 % b) 75% c) 77.8% d) 80.9%
17) Employment rate is : C
a) 85.7% b) 83.3% c) 82.4% d) 75.0%
Refer to the information provided, answer questions from 18 to 20
Labor force participation rate (75%)
Total population 16 years of age and older (200 million)
Unemployment rate (10%)
18) Labor force is: B
a) 130 b) 150 c) 170 d) cannot be determined from this information
19) The total of people unemployed is B
a) 13 b) 15 c) 17 d) 20
20) The total number of people employed is : C
a) 180 b) 153 c) 135 d) 117
21) If the unemployment rate is 6.2% and the number of people employed is 200.000 , the total number D
of people unemployed is approximately:
a) 10.970 people b) 12.4 people c) 12.400 people d) 13.220 people
22) If the unemployment rate is 6.2% and the number of people employed is 200.000 , the labor force is C
approximately:
a) 210.970 people b) 212,400 people c) 213.220 people d) cannot be determined
23) If number of unemployed equals 30.000 , the number of employed equals 60.000 and the number A
not in the labor force is 10.000 , the labor participation rate :
a) 90% b) 88.9% c) 67% d) none of the above
24) The discouraged workers are: D
a) Considered cyclically unemployed
b) Considered structurally unemployed
c) Considered frictionally unemployed
d) Not considered as part of the labor force

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 25) When osama Radman quits his job at a university and start looking for a better job in another A
university he is:
a) Frictionally unemployed
b) Structurally unemployed
c) Cyclically unemployed
d) Not in labor force
26) When Abdalla Arafa is fired from his job because he was late for work too many times, while he is D
searching for another job he would be classified as:
A) Not in labor force because his employer had a legitimate reason for firing him
B) Structurally unemployed
C) Cyclically unemployed
D) Frictionally unemployed
27) If osama Radman cannot find a job because his skills have become obsolete is an example of: B
a) Frictional unemployment B) structural unemployment C) cyclical unemployment
28) The sum of frictional and structural unemployment is thought of as the : A
A) Natural rate of unemployment
B) Normal rate of unemployment
C) Cycle rate of unemployment
D) Seasonal rate of unemployment
29) The increase in unemployment that occurs during recessions and depressions is called …… C
unemployment
a) Frictional B) structural c) cyclical d) normal
30) If the CPI in period 1 is 180 and the CPI in period 2 in 240, then the rate of inflation between period 1 B
and period 2 is:
a) 25.0% b) 33.3% c) 50.0% d) 66.7%
31) The CPI in period 1 is 300 and the CPI in period 2 is 150. The rate of inflation between period 1 and C
period 2 is:
A) -100% b) -60%% c) -50% d) 33.33%
32) If Abdallah is paid an interest rate of 4% on his savings, but inflation rate is 7% , the real interest rate C
for Abdallah`s earnings is:
a)28% b) 4% c) -3% d) -7%
33) Osama wants to make an 6% real return on a loan that he is planning to make and the expected C
inflation rate during the period of the loan is 5%. He should charge an interest rate of:
a) 1% b) 6% c) 11 % d) 16%
34) If the inflation rate is smaller than the nominal interest rate , then the real interest rate: A
a) Positive b) negative c) zero d) either positive or zero
35) CPI includes : B
a) All goods and SERVICES in the country
b) Most common consumed goods that bought by urban consumer
c) Exported goods
d) Producer goods
36) IF CPI in certain year 130 compared to a base year this means the general prices : A
a) Increased b) decreased c) remain constant d) none of the above
37) Changes in PPI predict future changes in: B
a) GDP deflator b) CPI c) nominal GDP d) real GDP e) none of the above
38) GDP deflator includes all the following except : D
a) All producer goods b) all consumer goods c) all exports d) all imports
39) CPI Includes all following except : E
a) All imports b) all consumer goods c) all goods d) all exports e) C& D f) A &B

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 1) The unemployment rate that is above the natural rate is due to structural F
unemployment
2) Some unemployment is inevitable T
3) The unemployment rate could be zero in a given economy F
4) The increase in CPI predicts future changes in PPI F
5) Both GDP deflator and CPI include imports F
6) CPI is the best measurement of the cost of living T
7) Nominal interest rate is much more important than real interest rate F
8) If the labor grows faster than the number of employed, the unemployment rate will increase T
9) Labor force include the unemployed portion of the economy. T
10) If some person stops searching for job, it will decrease both labor force and T
unemployment
11) Sometimes the economy experience unemployment rate equals to zero. F
12) The use of ATMs has caused some bank employees to lose jobs. T
13) if unemployment workers are 2 million while employed workers are 10 million, then the F
unemployment rate equals 20
14) if employed workers are 18 million while unemployment rate is 10 % then unemployed F
workers are 4 million
15) GDP deflator is better than CPI as a measure of the cost of living F
16) nominal interest rate could be negative F
17) real interest rate is always positive F
18) The incentive to lend increase as the real interest rate decreases F
19) no one gain from inflation F
20) if the nominal interest rate is 10% and the price level is expected to decrease by 2%, then F
the real interest rate equals 8%
21) the labor productivity is measured as the ratio of the output to the size of population F
22) the output per worker “labor productivity” must be greater than the output per person “per T
capita output”.
23) if Razan agrees to lend Peter $ 1000 for one year at a nominal interest rate 5% and at the T
end of the year prices rise by 7%, who gain from this transaction?
24) if a lender wants to increase his purchasing power by 4% when making a loan with a nominal T
interest rate 9%, then the expected inflation = 5%
25) If the real GDP grows annually by 3% while the size of population grows annually by 5%, F
then the per capita real GDP is growing annually by 2%.
26) which situation is more preferred to the lenders?? B
a. The interest rate is 9% and the expected inflation rate is 7%
b. The interest rate is 4% and the expected inflation rate is 1%
c. The interest rate is13% and the expected inflation rate is 15%
d. The interest rate is 25% and the expected inflation rate is 50%
27) which situation is more preferred to the borrowers?? D
a. The interest rate is 9% and the expected inflation rate is 7%
b. The interest rate is 4% and the expected inflation rate is 1%
c. The interest rate is13% and the expected inflation rate is 15%
d. The interest rate is 25% and the expected inflation rate is 50%

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 1) If you have the following consumption function: C= 200+0.8y then E
a) The minimum level of consumption = 200
b) MPS= 0.2
c) The breakeven income= 1000
d) At income = 1200 APC= 0.966
e) All the above
2) If you have the following saving function: s= -100 +0.1Y then: B
a) The dissaving level = 200
b) MPC= 0.9 while MPS=0.1
c) The breakeven income = 1500
d) If income = 1000 saving will be positive
e) All the above
Fill the following table then answer questions from 3 to 11
Income Consumption Saving APC APS MPC MPS
1000 A 300 E H - -
1500 900 C F I J L
2000 B D G 0.45 K M
3) Saving at C & D respectively equal: A
a) (600,900) b) (900,600) c) (400,1350) d) (400,1360)
4) Consumption at A & B respectively equal: C
a) (600,1200) b) (120,600) c) (700,1100) d) (1100,700)
5) APC at E&F&G respectively equal: B
a) (0.55 , 0.6 , 0.7) b) (0.7, 0.6, 0.55) c) (0.6, 0.55, 0.7) d) (0.15, 0.75 , zero)
6) APS at H & I respectively equal: A
a) (0.3 , 0.4) b) (zero, 0.075) c) (0.75, 0.925) d) (0.15, 0.175)
7) MPC at J & K respectively: D
a) (0.60, 0.45) b) (0.6 , 0.6) c) (0.45, 0.55) d) (0.4, 0.4)
8) MPS at L &M respectively equal: B
a) (0.60, 0.45) b) (0.6, 0.6) c) (o,45 , 0.55) d) (0.4, 0.4)
9) The consumption function related to this table is: A
a) c= 300+ 0.4y b) c=1000+0.4y c) c= 200+ 0.8y d) c=200+ 0.6y
10) The saving function related to this table is: C
a) s= -1000+ 0.4y b) s= -300 +0.4y c) s=-300 +0.6y d) s= -300 +0.2y
11) The breakeven income equals: D
b) 1000 b) 1500 c) 2000 d) 500 e) none of the previous

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 12) The slope of consumption function is: A
a) Equal MPC and less than 1
b) Equal to MPC and greater than 1
c) Equal to MPS and less than 1
d) Equal to APC and less than 1
13) The average propensity to consume equals 1 when: E
a) Average propensity to save = zero
b) Consumption equals to income
c) Savings equal zero
d) At the breakeven income
e) All the above
14) If you have the following saving function, s= -200 +0.5y , then the A
consumption function related to it is:
a) C= 200 + 0.5y
b) C= -200 + 0.2y
c) C= 100 + 0.8y
d) None of the above
15) If you have the following consumption function c= 100 + 0.75 y then: B
a) When income increases MPC increases also
b) When income increases APC decreases also
c) When y equals zero consumption equals zero also
d) S= -100 + 0.75 y
e) None of the above
16) If you have the following consumption function c= 100 + 0.75 y then: E
A) S= -100 + 0.75Y
B) Breakeven income = 400
C) The dissaving level = -100
D) MPC= 0.25 while MPS = 0.75
E) (C& B)
17) Increasing the consumer`s wealth will: B
a) Shift saving function upward
b) Shift consumption function upward and saving function downward
c) Have the same effect of increasing interest rate
d) Rotates consumption function upward and saving function downward
e) None of the above
18) The MPC is: A
a) The change in consumption divided by the change in income
b) Consumption divided by income
c) The change in consumption divided by the change in saving
d) Is the slope of saving function

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 19) The MPS is: B
a) The rate of change of consumption function
b) The slope of saving function
c) The change in saving to change in consumption
d) Savings divided by income
e) None of the above
20) When expected income increases: E
a) We will move from point to another along the consumption function
b) The consumption function will rotate upward
c) The saving function will rotate downward
d) It has the same effect of increasing interest rate
e) None of the above
21) Saving equals: A
a) Y-C b) Y- planned I c) Y- actual I d) inventory change
22) The Keynesian consumption function assumes that an individual`s desired D
consumption expenditure is:
a) A linear consumption function
b) in part determined autonomously by factors other than income
c) in part induced by increasing in disposable income
d) All the above are correct
23) If saving function is S=-20 + 0.3 y, consumption at Y= 200 IS C
A) 80 B) 120 C) 160 D) 180
24) If saving is s= -150 + 0.5y consumption = income at y of: C
a) 150 b) 225 C) 300 d) 1500
25) If the actual investment = planned investment, then C
a) Unplanned changed in inventory positive
b) Unplanned changed in inventory negative
c) Unplanned changed in inventory zero
d) None of the above
26) Unplanned changed in inventory = A
a) Y- AE B) AE-Y
C) actual investment + planned investment
d) none of above
27) From factors that affect investment: D
a) Increasing interest rate will decrease investment.
b) Increasing level of technology will increase investment.
c) Decreasing expected profitability will decrease investment.
d) All the above

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Refer to the following graph answer questions from 28 to 35
Aggregate
s
savings

-500
Aggregate
output (Y)
1000

28) The MPS for this household is……and the MPC is…….. B
a) 0.4 ;0.6 b) 0.5 ; 0.5 c) 0.2 ; 0.8 d) 0.3 ; 0.7
29) The equation for this household`s saving function is: C
a) S=-200+0.8y b)s=-300+0.25y c) s=-500 +0.5Y d) -1000 +0.8Y
30) At income 1500 this households saving is …………than zero and his household`s consumption is D
………… zero
a) Less than; greater than
b) Equal to ; equal to
c) Greater than ; less than
d) Greater than; greater than
31) This household`s consumption function is: C
a) C= 200 +0.2y b) c= 300 +0.75y c) c= 500+ 0.5y d) c= -500 +0.5y
32) This household saves -300 is at an income of : A
a) 400 b) 300 c) 250 d) 1840
33) This household consumes $2000 at an income of : A
a) 3000 b) 2275 c) 2000 d) 1840
34) Refer to figure. An increase in consumption due to fall in interest will C
a) Makes consumption steeper
b) shifts consumption downward
c) Shifts saving downward
d) Makes saving function more flatter
35) An increase in the MPC B
a) Makes the consumption function flatter
b) Makes saving function flatter
c) C) shifts consumption function upward
d) Shifts saving function downward
36) The fraction of a change in income that is consumed or spent is called: C
a) The marginal propensity of income
b) Marginal propensity to save
c) The marginal propensity to consume
d) Average consumption

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 37) If you save $80 when you experience a $400 rise in income B
a) MPS=0.25 B) MPC=0.80 C) MPC=0.85 D) none of the above
38) If C is $30,000 when income is $35,000 and C increases to $36,000 income B
increase to $43,000, the MPC is:
a) 0.65 b) 0.75 c) 0.80 d) 0.95
39) If C is $10,000 when income is $10,000 and C increase to 11,000 when C
income rise to $12,000 , the MPS is :
a) 0.10 b) 0.25 c) 0.50 d) 0.90
40) Suppose C is $5000 when income is $8000 and the MPC equals 0.9 when C
income rises to 10,000 consumption is:
a) $2700 b) $4500 c) $6800 d) $7200
41) If consumption function is C=80+0.4Y the MPS equals: D
A) -0.6 b) -0.4 c) 0.4 d) 0.6
42) If saving function is s=-20 +0.3Y, consumption at Y=200 is: C
a) 80 b) 120 c) 160 d) 180
43) If consumption is C=100+ 0.8Y , saving =0 at an income level of : B
A) 180 b) 500 c) 800 d) 1500
44) If saving is S= -150 +0.5Y, consumption=income at Y of : C
a) 150 b) 225 c) 300 d) 1500

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Refer to the following graph answer questions from 45 to 48
consumption
C
1500

1000

200
income
1000

45) The consumption function related to this graph is: C

a) C= 200 + 0.9 y b) c= 200 + 0.5y c) c= 200 + 0.8 y d) c= 200 + 0.6y
46) APC at consumption = 1500 equals : B
a) 0.8 b) 0.92 c) 0.75 d) can’t be determined
47) Income at consumption level equals 1500 is: D
a) 2000 b) 1500 c) 1200 d) none of the above
48) The APS at income = 800 is: D
a) O.5 b) -0.5 c) 0.2 d) -0.05

Refer to the following graph answer questions from 49 to 53

consumption
C
1500

1000

income
1500 2500

49) The consumption function related to this graph is: C

a) C= 100 +0.9 y b) c=200 + 0.8 y c) c= 250 + 0.5y d) can’t be determined
50) MPC and MPS respectively equal: C
a) 0.2 ; 0.8 b) 0.8 ; 0.2 c) 0.5 ; 0.5 d) non of the above
51) The dissaving level equals: D
a) -100 b) -200 c) -300 d) none of the above
52) The breakeven income equals: D
a) 1000 b) 1500 c) 2500 d) none of the above
53) IF the breakeven income = 2000 and MPS=0.1 then consumption function is: B
a) C=100+ 0.75y b) C= 200 + 0.9y c) c= 150+ 0.5y d) c=300+0.9y

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 1) MPC & MPS are always constant T
Agree: as they are liner functions
2) The summation of APC and MPC is equal to one F
Disagree: as summation of APC + APS = 1 and MPC+MPS =1
3) As income increases, average propensity to consume increase also. F
Disagree: as income increase APC decreases and APS increases
4) As income increases , MPC will increase as well. F
Disagree: as income increases MPC will still be constant as MPC is the slope of
consumption function and the consumption function is linear function.
5) As income increases, average propensity to save will increase too. T
6) Consumption function starts from the origin point in the short run F
Disagree: consumption function starts from the positive side on the vertical axis from
autonomous consumption
7) Saving function starts from the negative side in the vertical axis T
8) The break-even income is the income where saving equals zero T
9) At breakeven income APC=1 while APS=ZERO T
10) At breakeven income the income is greater than consumption F
11) Increasing consumer`s income will cause an upward shift in the consumption T
function and downward shift in saving function
12) Increasing wealth will decrease consumption and increase saving F
13) Increasing interest rates will decrease the amount of investment T
14) If actual investment greater than planned investment, then unplanned change T
in inventory is positive
15) If unplanned change in inventory is positive, then aggregate income is less F
than aggregate expenditure
16) As income increases both MPC and APC are constant F
17) As income increases both APC and APS increases F
18) As income increases both MPC and MPS are constant T
19) The change in consumption to change in income is the average propensity to F
consume
20) When savings =zero APC = 1 and APS= zero T
21) If MPC=0.75 then MPS should be 0.25 T
22) If APC = 1.3 then APS should be 0.3 F
23) Increasing MPC makes the saving function more flatter T
24) If MPC= 0.7 then any increase in income by 100$ leads to increase in T
consumption by 70$
25) Although interest rate increased but consumption function increased T
Agree: as the other factors are not being constant and this would happen if
wealth increased and expected income increased

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 Problem (1)
Given the following table for an economy that produces gasoline Determine the
value of a gallon of gasoline that should be counted in the GDP by using two
different methods.
Sectors cost of inputs Value of sales Value Added
Wheat 0 5000 5000
Flour 5000 10,000 5000
bread 10,000 30,000 20,000
Total value added 30,000
GDP by value added method should be equal to the value of final product.

Problem (2)

Given the following table for an economy that produces cloth after completing the
table calculate GDP by value added and final product methods.
Sectors cost of inputs Value of sales Value Added
Cotton 0 100 ?
Textile ? 400 ?
cloth ? ? 200
Total value added ?

Problem (3)

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 Problem (4)

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 Problem (5)
Given the following information: personal income is $12,000 billion, the income tax is $
2,000 billion, and personal saving is $ 3,000 billion. What is personal consumption?

Answer
• Disposable income = Personal income - taxes = 12,000- 2,000 = 10,000
• Disposable income = personal consumption + personal saving
• Personal consumption = Disposable income - personal saving = 10,000 - 3,000 = 7,000

Problem (6)
Use the following information in the economy to answer the questions below.
➢ Consumption 400
➢ Exports 20
➢ Imports 10
➢ Net Investment 20
➢ Government purchases 100
➢ Depreciation 20
➢ Payments of factor income to the rest of the world 10
➢ Receipts of factor income from abroad 5
5- Calculate the GDP
6- Calculate the GNP
7- Calculate the NNP(NI)
8- Calculate the gross domestic investment.

Answer
5- GDP = C + Gross I + G + (EX - IM)
Gross I= Net Investment + Depreciation = 20+20= 40
GDP=400 + 40 +100 +20+ 10= 550
6- GNP = GDP+ Payments from abroad - Payments to the rest of the world
GNP= 550+ 5- 10 + 545
7- NNP = GNP- Depreciation
= 545- 20= 525
8- Gross Investment = Net Investment + Depreciation
= 20+ 20 = 40
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 Problem (7) Answer
Given thethe
Given following information
following Calculate
information GNP
Calculate GDP1) NDP= Wages+ Rent+ Interest +Profit
GDP
GNP
Wages
Wages280 280 =280+89+96+ 85+ = 550
Rent 8989
Rent GDP = NDP+ depreciation
Interest
Interest9696 = 550 + 170 =770
Profits 85 85
Profits
Net receipts
Net receiptsfrom abroad
from 24 24
abroad 2-GNP =GDP+ Net receipts from abroad
Depreciation
Depreciation170170 =720+24 = 744

Problem (8)
The following information belongs to an economy that produces only two goods
(bread cars) Assuming that 2008 is the base year
year Quantity produced Prices
Bread Cars Bread Cars
2008 100 20 10 50
2009 110 21 12 55
1- Calculate both nominal GDP & real GDP in each year.
2- Calculate the GDP deflator in each year & explain your answer.
3- What is the rate of inflation in 2009 .

Answer
1- Nominal GDP 2008= Q 2008 × P 2008 = (100 × 10) + (20 × 50) = 2000
Nominal GDP 2009= Q 2009 × P 2009 = (110 × 12) + (21 × 55) = 2475
Real GDP 2008 = Q 2008 × P 2008 = (100 × 10) + (20 × 50) = 2000
Real GDP 2009 = Q 2009 × P 2008 = (110 × 10) + (21 × 50) = 2150

𝒏𝒐𝒎𝒊𝒏𝒂𝒍 𝟐𝟎𝟎𝟖 𝟐𝟎𝟎𝟎

2- GDP deflator in 2008 = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟏𝟎𝟎
𝒓𝒆𝒂𝒍 𝟐𝟎𝟎𝟖 𝟐𝟎𝟎𝟎
𝒏𝒐𝒎𝒊𝒏𝒂𝒍 𝟐𝟎𝟎𝟗 𝟐𝟒𝟕𝟓
3- GDP deflator in 2009 = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟏𝟏𝟓
𝒓𝒆𝒂𝒍 𝟐𝟎𝟎𝟗 𝟐𝟏𝟓𝟎
Then prices increased
𝟏𝟏𝟓−𝟏𝟎𝟎
4- Inflation rate in 2009 = 𝟏𝟎𝟎 = 𝟏𝟓%
𝟏𝟎𝟎

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Problem (9)

Answer
GDP Deflator in 2010 = ( 𝐍𝐨𝐦𝐢𝐧𝐚𝐥𝐆𝐃𝐏𝐢𝐧𝟐𝟎𝟏𝟎 ÷ 𝐑𝐞𝐚𝐥𝐆𝐃𝐏𝐢𝐧𝟐𝟎𝟏𝟎 )× 100 =
( 𝟏𝟒𝟎𝟎𝟎÷ 𝟏𝟑𝟎𝟎𝟎) × 100 = 107.
𝐫𝐞𝐚𝐥 𝐆𝐃𝐏 𝐢𝐧 𝟐𝟎𝟏𝟏×𝐆𝐃𝐏 𝐝𝐞𝐟𝐥𝐚𝐭𝐨𝐫 𝐢𝐧 𝟐𝟎𝟏𝟏 𝟏𝟓𝟎𝟎𝟎×𝟏𝟐𝟎
Nominal GDP in 2011 = = = 𝟏𝟖𝟎𝟎𝟎
𝟏𝟎𝟎 𝟏𝟎𝟎
𝐧𝐨𝐦𝐢𝐧𝐚𝐥 𝐆𝐃𝐏 𝐢𝐧 𝟐𝟎𝟏𝟐 𝟐𝟐,𝟎𝟎𝟎
Real GDP in 2012= × 𝟏𝟎𝟎 = 𝟏𝟎𝟎 = 𝟏𝟔𝟗𝟐𝟑
𝐆𝐃𝐏 𝐝𝐞𝐟𝐥𝐚𝐭𝐨𝐫 𝐢𝐧 𝟐𝟎𝟏𝟐 𝟏𝟑𝟎

Problem (10):
assuming the following information
- Employed workers 100,000
- Unemployed Looking for work workers 20,000
- Population of 16 years old older 135,000
Calculate
1) Labor force 2) Unemployment rate 3) Labor force participation rate

Answer
1- Labor force = 100,000 + 20,000 = 120,000
𝟐𝟎,𝟎𝟎𝟎
2- Unemployment rate =𝟏𝟐𝟎.𝟎𝟎𝟎 × 𝟏𝟎𝟎 = 𝟏𝟔. 𝟕%
𝟏𝟐𝟎,𝟎𝟎𝟎
3- Labor force participation rate =𝟏𝟑𝟓,𝟎𝟎𝟎 × 𝟏𝟎𝟎 = 𝟖𝟖. 𝟗%

Problem (11):
you have been given the following data in a given economy :
Employed: 15,164 million , unemployed: 1,359 million
not in labor force: 8,534 million

Find the labor force , the working age- population , the unemployment rate. And the
labor force participation ration?

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 Answer
Answer:
1) Labor force = employed + unemployed = 15,164 + 1,359 = 16523
2) The working age population =labor force + not in labor force = 16523 + 8534=
25,057
𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒎𝒆𝒏𝒕 𝟏𝟑𝟓𝟗
3) Unemployment rate= ×100= ×100= 8.22%
𝑳𝒂𝒃𝒐𝒓 𝑭𝒐𝒓𝒄𝒆 𝟏𝟔𝟓𝟐𝟑
𝐋𝐚𝐛𝐨𝐫 𝐟𝐨𝐫𝐜𝐞
Labor force participation rate= × 𝟏𝟎𝟎=𝟏𝟔𝟓𝟐𝟑 × 𝟏𝟎𝟎 = %
𝐩𝐨𝐩𝐮𝐥𝐚𝐭𝐢𝐨𝐧 𝐚𝐭 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐚𝐠𝐞 𝟐𝟓𝟎𝟓𝟕

Problem (12):
Suppose the consumer’s basket contains 10 units of oranges and 5 units of Movies
and the prices were 1 $ for a unit of orange & 8$ for a unit of a movie in 2000
(base year) and 2 $ for a unit of orange & 10$ for a unit of a movie in 2001.
• Find the inflation rate between the two years?

Answer
• Cost of basket 2000 (base year) = (10 X 1) + (5 x 8) = 50
• Cost of basket 2001= (10 X 2) + (5 X 10) = 70
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝟓𝟎
CPI in year 2000(base year) = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟏𝟎𝟎
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓 𝟓𝟎

𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝟕𝟎

CPI in year 2001 = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟏𝟒𝟎
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓 𝟓𝟎

𝟏𝟒𝟎−𝟏𝟎𝟎
Inflation rate= × 𝟏𝟎𝟎 = 𝟒𝟎%
𝟏𝟎𝟎

Problem (13):

Suppose the consumer’s basket contains 10 units of bread and 6 units of cars,
Assuming that 2008 is the base year, the prices were as following:

prices
year
Bread cars
2008 1 15
2009 2 20
1-Calculate CPI in each year. 2- What’s the rate of inflation.

Answer

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 • Cost of basket 2008 (base year) = (10 X 1) + (6 x 15) = 100
• Cost of basket 2009= (10 X 2) + (6 X 20) = 140
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝟏𝟎𝟎
CPI in year 2008(base year) = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟏𝟎𝟎
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓 𝟏𝟎𝟎

𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝟏𝟒𝟎

CPI in year 2009 = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟏𝟒𝟎
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒊𝒏 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓 𝟏𝟎𝟎

𝟏𝟒𝟎−𝟏𝟎𝟎
Inflation rate= × 𝟏𝟎𝟎 = 𝟒𝟎%
𝟏𝟎𝟎

Problem (14): If the CPI 2016 = 200 and the CPI2017 = 250, calculate the inflation rate.

Answer
𝟐𝟓𝟎−𝟐𝟎𝟎
Inflation rate= × 𝟏𝟎𝟎 = 𝟐𝟓%
𝟐𝟎𝟎

If the nominal interest rate on loans is 35%, the CPI in year 1 =

Problem (15):
125 and CPI in year 2 = 160. What is the real interest rate?

Answer
Real interest rate = nominal interest rate – inflation rate
𝟏𝟔𝟎−𝟏𝟐𝟓
= 35% - ( ) × 100 = 35% - 28 % = 7%
𝟏𝟐𝟓

Problem (16):
Using the following table:

Year Output (GDP) Population Workers

1 50,000 200 150
2 60,000 210 155
1- calculate the output growth rate between the two years.
2- calculate the per capita output (GDP) in each year.
3- calculate per capita output growth rate between the 2 years.
4- calculate the labor productivity in each year.
5- calculate the labor productivity growth rate between the two years.

Answer

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 𝐨𝐮𝐭𝐩𝐮𝐭 𝐲𝐞𝐚𝐫 𝟐−𝐨𝐮𝐭𝐩𝐮𝐭 𝐲𝐞𝐚𝐫 𝟏 𝟔𝟎,𝟎𝟎𝟎−𝟓𝟎,𝟎𝟎𝟎
1) Output growth rate = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟐𝟎%
𝐨𝐮𝐩𝐭𝐮𝐭 𝐲𝐞𝐚𝐫 𝟏 𝟓𝟎,𝟎𝟎𝟎
𝒐𝒖𝒕𝒑𝒖𝒕
2) per-capita output=
𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒑𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏

𝟓𝟎,𝟎𝟎𝟎
per-capita output in year 1 = = 𝟐𝟓𝟎$
𝟐𝟎𝟎
𝟔𝟎,𝟎𝟎𝟎
per-capita output in year 2 = = 𝟐𝟖𝟓. 𝟕𝟏$
𝟐𝟏𝟎
𝟐𝟖𝟓.𝟕𝟏−𝟐𝟓𝟎
3) per-capita output growth= × 𝟏𝟎𝟎 = 𝟏𝟒. 𝟐𝟗%
𝟐𝟓𝟎
𝒐𝒖𝒕𝒑𝒖𝒕
4) labor productivity =𝒍𝒂𝒃𝒐𝒓 ሺ𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔ሻ

𝟓𝟎,𝟎𝟎𝟎
labor productivity in year 1 = = 𝟑𝟑𝟑. 𝟑𝟑
𝟏𝟓𝟎
𝟔𝟎,𝟎𝟎𝟎
labor productivity in year 2 = = 𝟑𝟖𝟕. 𝟏
𝟏𝟓𝟓
𝐥𝐚𝐛𝐨𝐫 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐲𝐞𝐚𝐫 𝟐−𝐥𝐚𝐛𝐨𝐫 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐲𝐞𝐚𝐫 𝟏
5) labor productivity growth rate= × 𝟏𝟎𝟎
𝐥𝐚𝐛𝐨𝐫 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐲𝐞𝐚𝐫 𝟏

𝟑𝟖𝟕.𝟏−𝟑𝟑𝟑.𝟑𝟑
= × 𝟏𝟎𝟎 = 𝟏𝟔. 𝟏𝟑%
𝟑𝟑𝟑.𝟑𝟑

Problem (17):
If the aggregate output = $1000000 while the population = $1000
1- calculate the per capita output.
2- if output grows 20% annually while population grows 10% annually. calculate the
growth rate in per capita output.
3- if output grows 20% annually while population falls by 10% annually. calculate the
growth rate in per capita output.
4-if output grows 2% annually while population grows 3% annually. calculate the
growth rate in per capita output.

Answer

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 Problem (18):
If you have the following information fill the space:
Income Consumption Saving APC APS MPC MPS
200 260
400 420
500 500
600 580

Answer
Income Consumption Saving APC APS MPC MPS
200 260 -60 1.3 -0.3 - -
400 420 -20 1.05 -0.05 0.8 0.2
500 500 Zero 1 0 0.8 0.2
600 580 20 0.9666 0.0333 0.8 0.2

Problem (19): If you are given the following consumption function

C= 200 +0.9 y
1- Determine the minimum level of consumption.
2- Derive the saving function.
3- Determine the dissaving level at income 0
4- Calculate both C & S at Y= 0 y=1000 y=2000 y=3000 y=4000
5- Calculate the marginal propensity to consume [ the marginal propensity to save [
at each level of income.
6- Calculate the average propensity to consume [ the average propensity to save [ at
each level of income.
7- Determine the breakeven level of income.
8- Show graphically the consumption the saving functions.

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 Answer
1- The minimum level of consumption = 200
2- The saving function is: S= -200 + 0.1 y
3- The dissaving level at y = 0 is: 200

4 & 5 &6
Income Consumption Saving APC APS MPC MPS
0 200 -200 - - - -
1000 1100 -100 1.1 -0.1 0.9 0.1
2000 2000 ZERO 1 ZERO 0.9 0.1
3000 2900 100 0.97 0.03 0.9 0.1
4000 3800 200 0.95 0.05 0.9 0.1
7) the breakeven income when Y=C or saving = zero at 2000
C 45 line

200 S

-200 2000 Y

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 Problem (20):
Study the following graph and answer related questions:

C 45line

500

Y
2500
Determine:
1) MPC and MPS
2) Derive consumption and saving functions
3) Determine the breakeven income
4) If MPC increased to 0.9 determine the new breakeven income

answer:
Answer
1) To determine the MPC we have to get 2 levels of income and 2 levels of
consumption
C Y
500 0
2500 2500

∆𝑪 ሺ𝟐𝟓𝟎𝟎−𝟓𝟎𝟎ሻ
Then MPC = = = 𝟎. 𝟖 then MPS= 0.2
∆𝒀 ሺ𝟐𝟓𝟎𝟎−𝟎ሻ

2) Consumption function is C=500 + 0.8 Y

Then saving function is S=-500 + 0.2 Y
3) Breakeven income is when Y=C
Breakeven income (Y)= 2500
4) If MPC increased to 0.9 then MPS=0.1
Then consumption function will rotate upward (and saving function rotates
down) causes new breakeven income
The new consumption function will be C = 500 + 0.9 Y
The new breakeven income when Y=C
Y= 500 + 0.9 Y y-0.9 Y = 500 0.1 Y = 500 Y=5000
𝒂 𝟓𝟎𝟎
OR breakeven income (Y) = = 𝟎.𝟏 = 𝟓𝟎𝟎𝟎
𝑴𝑷𝑺

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 Problem (21):

Suppose that C= 500 + 0.8 y

1) Calculate MPC
2) Calculate APC when Y=100
3) Derive the saving function from this consumption function
4) Calculate MPS
5) Calculate APS when income is 100
6) Calculate the breakeven level of income and calculate APC & APS at this
level
Answer
Try to answer by yourself

1) MPC= 0.8
2) APC = C/Y C= 500+0.8 (100) = 580
APC = 580 / 100 = 5.8
3) Saving function : S=-500 +0.2Y
4) MPS = 0.2
5) APS = S/Y S= -500 + 0.2 (100) = -480
APS = -480 / 100 = -4.8
6) Break even income when Y=C
Y= 500 + 0.8 Y Y-0.8Y = 500 0.2Y = 500 Y = 500/0.2 =2500
APC = C/Y C= 500 + 0.8(2500) = 2500 APC=2500/2500=1
APS = APC -1 = 1 – 1 = 0

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 Problem (22): General Equilibrium by Table

Answer

2) breakeven income is the income at which Y=C or S=0 or

𝐚
Breakeven income= = 𝟏𝟎𝟎 = 𝟒𝟎𝟎
𝐌𝐏𝐒 𝟎.𝟐𝟓
3) AE= C+I = 100 +0.75Y +25 = 125 +0.75Y
0.75 ‫ بردو‬AE ‫ وميل دالة ال‬0.75 ‫واخد بالك ان ميل دالة االستهالك‬
4) equilibrium when Y=AE or S=I
Y=125+0.75Y -100 +0.25Y=25
0.25Y= 125 0.25Y = 125
Y= 500 Y=500
𝐚+𝐈 𝟏𝟎𝟎+𝟐𝟓
Bene w benak ha the equilibrium output = = 𝟎.𝟐𝟓 = 500
𝐌𝐏𝐒
𝐂 𝟒𝟕𝟓 𝐒 𝟐𝟓
5) MPC=0.75 MPS=0.25 APC=𝐘=𝟓𝟎𝟎 = 𝟎. 𝟗𝟓 APS=𝐘=𝟓𝟎𝟎 = 𝟎. 𝟎𝟓

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 General Equilibrium by Functions
Problem (23):
Suppose the consumption function is given by C= 200 + 0.75 Y and I= 100 Determine:
1- The breakeven level of income (numerically and graphically)
2- The equilibrium level of income (numerically and graphically)
3- Consumption and saving at equilibrium
4- At level of income = 1400 what is the amount of unplanned inventory
5- Derive the Aggregate expenditure function

Answer
𝐚
1- breakeven income = = 𝟐𝟎𝟎
= 𝟖𝟎𝟎
𝐌𝐏𝐒 𝟎.𝟐𝟓
𝐚+𝐈
2- equilibrium income = = 𝟐𝟎𝟎+𝟏𝟎𝟎
= 𝟏𝟐𝟎𝟎
𝐌𝐏𝐒 𝟎.𝟐𝟓

3- C= 200 + 0.75Y then C= 200 + 0.75 ( 1200 ) = 1100

S = -200 + 0.25 Y then S= -200 + 0.25 ( 1200 ) = 100

4- the unplanned change in inventory = Y-AE
Then we have to find AE at income 1400
AE= C + I then AE = 200 + 0.75 Y + 100
AE= 200 + 0.75 ( 1400 ) + 100 = 1350
Then the unplanned change in inventory = Y-AE = 1400 – 1350 = +50
Then firms will react to the unplanned change in inventory by reducing the level of
output (production) to reach the equilibrium
5- AE=(a+I) + b.Y
AE = 200+100 +0.75 Y AE= 300 + 0.75Y

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Problem (24): Multiplier
Suppose you are given the following data of a given economy.
C=200 +0.8Y I = 100
1- Derive the saving function.
2- Determine the values of MPC MPS
3- Calculate the breakeven output (using two methods)
4- Derive the aggregate expenditure function.
5- Calculate the equilibrium output (using two methods)
6- Calculate the value of multiplier.
7- If investment increases by 50 what is the resulted change in output Determine
the new equilibrium output
8- Show your answers graphically.

Answer

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Problem (22):

Answer

1- The equilibrium output (Y)= 900 because Y=AE

∆𝐂 ∆𝐀𝐄 ሺ𝟏𝟐𝟎𝟎−𝟒𝟓𝟎ሻ
2- MPC = 0R = = 0.75
∆𝐘 ∆𝐘 ሺ𝟏𝟑𝟎𝟎−𝟑𝟎𝟎ሻ
MPS =1-MPC = 1- 0.75 = 0.25
3- At Y=300 AE=450 ∴ unplanned investment = Y-AE = 300-450 = -150
∴ actual inv < planned inv ∴ 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐦𝐮𝐬𝐭 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞
At Y=900 AE=900 ∴ unplanned investment = Y-AE = 900-900 = 0
∴ actual inv = planned inv ∴ 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐢𝐬 𝐢𝐧 𝐞𝐪𝐮𝐢𝐥𝐢𝐛𝐫𝐢𝐮𝐦
At Y=1300 AE=1200 ∴ unplanned investment = Y-AE = 1300-1200 = 100
∴ actual inv > planned inv ∴ 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐦𝐮𝐬𝐭 𝐝𝐞𝐜𝐫𝐞𝐚𝐬𝐞

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 The Paradox of Thrift ‫مفارقة التوفري‬

✓ an increase in planned saving from S 1 to S 2 reduces consumption therefore

contraction in the economy which reduces income, which leads to a fall in saving to
its initial level.
✓ The final result is that the effort to increase saving have cause a drop in income
without affecting saving.

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 Problem (23):
Q1: Suppose Consumption is 50 when income is zero and MPC 0 75
1- What is the equation of linear consumption function?
2- What is the equation of linear saving function?
3- At what level of income the consumption function cross 45 line? why?
4- What is the level of APC and APS at the previous level of income?
5- Show your answer graphically in 1 &2& 3
6- If planned investment equal 100 what is the equilibrium level of income?
7- What is the level of investment multiplier?
8- Suppose investment increase by 50 what is the new equilibrium level of income?
9- Draw graph to show your answer in 6 &7 &8

Answer

1-What is the equation of linear consumption function?

C =a +b.Y then C= 50 +0.75 Y
2- What is the equation of linear saving function?
S=a + b.Y then S= -50 +0.25 Y
3- At what level of income the consumption function cross 45 line? why?
consumption function cross 45 line when Y= C
Y=50 +0.75 Y 0.25Y = 50
Y =50 / 0.25= 200
So,at level of income 200 Y=C
4- What is the level of APC and APS at the previous level of income?
APC = C/Y = 200/ 200 = 1
APS= 1 – APC = 1 - 1 = zero
5- Show your answer graphically in 1 2 3

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 6- If planned investment equal 100 what is the equilibrium level of income?
equilibrium income>>>> Y = AE
Note
AE= C+ I
Y=C + I Y=50 +0.75Y+100
Y= 150 +0.75 Y 0.25 Y = 150 Y= 150/0.25= 600
7- What is the level of investment multiplier?
investment multiplier = 1/MPS = 1 /0.25= 4
8- Suppose investment increase by 50 what is the new equilibrium level of income?
∆ Y =∆ I x Multiplier = 50 X 4 = 200
So, the new equilibrium level of income =600 +200= 800
9- Draw graph to show your answer in 6 &7& 8

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Question two: MCQ
1- when aggregate consumption is plotted along a straight line, C =a+ By an increase in
income results in an increase in consumption equal to:
a) b b) b times ∆ Y c) a times ∆ Y d) a + b
2- where the consumption function is below the 45 line, consumption is …………………than
income, and saving is………………….:
a) More , positive b) More, negative c) less , positive d) less , negative
3- the aggregate consumption will increase in all the following, Except:
a- when the household wealth increases
b- when interest rates rise
c- when households form positive expectations about the future
d- when current income increases
4- in simple economy (Y=C+I), when investment rises, equilibrium income will change by:
ΔS 1
a) ΔS/ Δ𝐘 b) 1/𝐌𝐏𝐒 c) ∆ I xΔY d) ∆ I x MPS

5- according to this graph, the size of multiplier

a)1 b) 25 c) 4 d) 16
Answer

∆C
1- MPC (b)=∆Y then ∆C = b. ∆Y answer(b)
2- Answer (c)
3- Answer (B)
4- Answer (D)
5- Multiplier =∆ Y /∆ I = (600 -200) / (100 -75) = 400 /25 = 16 answer (d)

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 Question three: true or false
1- the increase in MPC causes the AE to become steeper and the equilibrium income to
increase ( )
2- firms react to an increase in inventories by reducing output ( )
3- if desired expenditure is greater than output, inventories are accumulated (are building
up), so firms must expand output ( )
4- when output is greater than desired spending, the economy will grow ( )
5- the increase in MPC increases the value of multiplier ( )
6- the increase in investment increases the equilibrium GDP by the same amount ( )
Answer
1- True
2- True : increase in inventories means that (Y > AE) Production must decrease
3- False : if y < AE then inventories are negative or decreasing (not building up), in this case
production ( must expand and economy will grow)
4- False : if y > AE then inventories are positive, in this case production ( must decrease and
economy will shrink
5- True : IF MPC increases multiplier increases ( -ve relation)
6- False : the increase in investment by a given amount (∆ I) increases the equilibrium GDP by ∆Y
=∆ I x Multiplier

Problem (24):

Answer

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Problem (25):
7.consider the following figure for a closed economy without government ; then answer the following
questions (7 to 11):

7. According to the above figure the break even level of income equals;
A)700 B) 600 C)500 D)200 E) 300
8. The equilibrium income equals:
A) 1500
B) 2500
C) 3500
D) 4500
E) 3000
9.the marginal propensity to spend equals:
A) 0.7
B) 0.8
C) 0.2
D) 0 e) None of the above
10.the investment is:
A) Autonomous and equals 200
B) Autonomous and equals 100
C) Autonomous in a part and depends on the income in another part.
D) Autonomous in a part and depends on the interest rate in another part.
E) Induced by income and equals 200
11. According to the above figure saving function is given by:
A)S=-100-0.2Y B)S=-100+0.8Y C)S=100-0.8Y D)S=-100+0.2Y E)S=-100+0.2Y
12. According to the above figure; the following statement is true
A) The AE line has to be parallel to the Consumption line
B) The marginal propensity to spend equals the marginal propensity to consume.
C) The slope of AE function is the same as the slope of the Consumption function
D) All of the above.
E) Nothing from the above.

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 Answer

7) C 8) A 9)B 10)A 11)D 12) D

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 Midterm Exam 2022
QUESTION 1: MULTIPE CHOICE

1. GDP underestimate the total production of the goods and services because of the
following reasons except:

A) Intermediate goods are excluding.

B) illegal activities are not included in GDP estimates.

C) Unreported transactions in the underground economy are omitted from GDP.

D) Nonmarket services of housewives are not included in GDP.

2. Gross domestic product is intended to measure the value of

A) All final goods and services currently produced.

B) All goods and services bought and sold during the year.

C) All consumption by domestic residents during the year.

D) All receipts by individuals in the economy

3.Examples of governments payments that enter the calculation of GDP by the

expenditure approach are

A) Wages paid to military personnel.

B) Social security payments to retirees.

C) Interest paid by the government on national debt.

D) disability pensions.

4. Disposal income is

A) the same as personal income.

B) income that is used only for consumptions.

C) personal income remaining after income taxes.

D) exclusive of social security payments.

5. The most commonly used measure of changes in the cost of living for households

A) Real GDP B) GDP deflator C) Nominal GDP D) The CPI

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6.Which of the following are not included in the consumption component of gross domestic
product

A) Purchases of stocks and bonds B) consumer durable goods

C) nondurable consumption goods D) Consumer services

7. if receipts of income from the rest of the world is more than payments of income to
the rest of the world , therefore we know that :

A) GNP=GDP B) GNP> GDP

C)GDP>GNP D) net receipts is negative

8.In 1994 the US employment was 123 million, unemployment was 8 million and the
unemployment rate was:

A)9% B) 6.5% C)8% D)6.1%

9. In 1994 the US employment was 123 million ,unemployment was 8 million not in labor
force was 60 million , and the labor force participation ratio was:

A)68.6% B)31.4% C)64.4% D) none of the above

Study the consumption function: C = 200+2\3 YD, then answer the questions from 10 to
17 below:

10. The Keynesian consumption function shown above assumes that an individual’s desired
consumption expenditures are

A) in part induced by increases in disposal income

B) in part determined autonomously by factors other than income

C) a linear consumption function D) all of the above are correct

11.the marginal propensity to consume MPC out of disposable income above is

A)200 B)100 C)2/3 D)1/3

12.As disposable income rises from 600 to 1200, then APC

A) Rises from 1/3 to 1 B) falls from 1 to 5/6

C) remains constant D) none of the above

13.If the individual has no current income

A) consumption must be zero B) saving is 200

C) consumption is 200 D) consumption cannot be predicted

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14 .The marginal propensity to save at the level of income equal 600 is

A)1/3 B)2/3 C)1 D) 3

15. When income is 1200, desired consumption is------ and desired saving is ------

A)1000,200 B)600,600 C) 200, 1000 D) all of the above

16.When income is 600

A) Saving=0 B) consumption=600

C) it is break even level of income D) all of the above

17. Which of the following is not a macroeconomic issue?

A) a rise in the consumer price index B) changes in the unemployment rate

C) the change in the price of VCR tapes relative to the price of movie theatre tickets

D) historical trends in the growth of real per capita national income

If Nominal GDP in year 2020 was 8144.8 million $ and GDP deflator was 101.9 in year
2021 Real GDP was 8759.9 million $ and GDP deflator was 103.1. answer from 18 -20.

18.the nominal GDP in year 2021 is

A)8496.5 B)9031.5 C)84.97 D)90.32

19 The real GDP in year 2020 is

A)7992.9 B)8254.7 C)825471.5 D) None of the above

20.Between the two years

A) there is inflation =7.3% B) there is inflation =1.18

C)there is inflation = 7.5% D) there is inflation = 7.5%

Question 2: true and false

1.frictional unemployment will typically be a short term problem for someone between
jobs. T
2.inflation tends to redistribute real income from people with variable income to people
with fixed income. F
3. the most important determinant of the decision to lend or borrow is the nominal rate
of interest. F
4.change in nominal GDP always reflect changes in real output. F
5. increase in capital depreciation reduces net investment. T
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6. Transfer payments should be included in calculating GDP. F
7.the intermediate goods are not included in the calculation of GDP to avoid double
counting. T
8.if the MPC increases, the planned consumption line becomes flatter. F
9.An example of structural unemployment is when teenager quits working at the
McDonald’s to find a better job at a manufacturing plant. F
10. if the disposable income increases , assuming that consumption is a linear function,
APS should decrease. F
11.GDPand GNP for a given country are always equal at a given year. F
12.output and employment grow overtime when the economy moves from peak to trough in
the business cycle. F
13.Exports should be added but imports should be subtracted when calculating GDP. T
14.GDP is not a good measure for social welfare. T
15. The unemployment rate could reach zero in a given economy at a given year. F

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