Econ 202 Final Exam

21) The table above gives GDP and expenditures for an economy with no international trade and with lump-sum taxes. All the numbers are billions of dollars. C is consumption expenditure, I is investment, and G is government purchases. If the government decides to increase its purchases by an additional $450 billion, equilibrium GDP increases to A) $7,250 billion. B) $10,450 billion. C) $5,450 billion. D) $7,450 billion.

A) $7250 billion

25) Suppose that the government decreases its purchases of goods and services. Within the AD-AS model, the result will be ________ in real GDP and ________ in the price level. A) a decrease; a decrease B) an increase; a decrease C) a decrease; an increase D) an increase; an increase

A) a decrease; a decrease

10) In the open economy of Sildavia, government spending during 2005 was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $100 billion. If investment spending in Sildavia during 2005 was $10 billion, we can conclude that Sildavia registered: A. a net capital inflow of $10 billion. B. capital inflows of $10 billion and capital outflows of $20 billion. C. a trade surplus of $20 billion and a financial deficit of $20 billion. D. a net capital outflow of $10 billion.

A) a net capital inflow of $10 billion

11) The most frequently used monetary policy tool is A) buying or selling government securities in the open market. B) raising or lowering tax rates. C) changing the discount rate. D) changing reserve requirements.

A) buying or selling government securities in the open market

20) An economy has no international trade and no income taxes. If lump-sum taxes increase by $40 billion and the marginal propensity to consume was equal to 0.7, then in the short run while prices are constant, real GDP A) decreases by $93 billion. B) increases by $28 billion. C) increases by $12 billion. D) decreases by $28 billion.

A) decreases by $93 billion

6) An increase in the interest rate ________ the quantity of funds supplied and ________ the quantity of funds demanded. A) increases; decreases B) decreases; decreases C) decreases; increases D) increases; increases

A) increases; decreases

31) All other things unchanged, a decrease in the value of the dollar against the euro _______ U.S. net exports and shifts the aggregate demand curve to the _______. A. increases, right B. decreases, right C. increases, left D. decreases, left

A) increases; right

4) If an economy is closed and wishes to increase its investment spending: A. its only source of funding is domestic saving. B. its sources of funding are domestic and foreign saving. C. the government will need to increase its spending to provide for this. D. the government will increase taxes to provide for this.

A) its only source of funding is domestic saving

28) A currency has depreciated when: A. that currency buys less foreign goods than it did previously. B. that currency buys more foreign goods than it did previously. C. one unit of that currency buys more units of a foreign currency than it did previously. D. foreign goods become cheaper to holders of that currency.

A) that currency buys less foreign goods than it did previously

14) Which of the following will occur if the Fed buys $10 million of securities from the University National Bank? A) The Fed will credit the University National Bank's deposit account with the Fed by $10 million. B) The Fed will debit the University National Bank's deposit account with the Fed by $10 million. C) The University National Bank has $10 million less in excess reserves. D) The University National Bank has $10 million more in securities.

A) the fed will credit the University National bank's deposit account with the fed by $10 million

27) When the dollar value of the euro is high: A. travel in the U.S. is less expensive for Europeans. B. travel in the U.S. is more expensive for Europeans. C. the dollar has appreciated. D. travel in Europe is less expensive for Americans.

A) travel in the US is less expensive for Europeans

30) The value of a euro goes from 1€ = US$1.25 to 1€ = US$1.50. In the United States, exports: A. will increase, and imports will decrease. B. and imports will increase. C. will decrease, and imports will increase. D. and imports will decrease.

A) will increase, and imports will decrease

15) If the Fed conducts an open-market purchase: A) bank reserves decrease and the money supply decreases. B) bank reserves increase and the money supply increases. C) bank reserves decrease and the money supply increases. D) bank reserves increase and the money supply decreases.

B) bank reserves increase and the money supply increases

3) If government saving is negative (that is, if government is running a budget deficit), crowding out may occur. Crowding out could lead to all of the following EXCEPT A) higher interest rate. B) decreased private saving. C) decreased quantity of investment. D) a smaller capital stock in the future.

B) decreased private saving

18) In the short run, an increase in government purchases will I. shift the aggregate expenditure curve upward. II. increase real GDP. III. increase the government purchase multiplier. IV. increase the lump-sum tax multiplier. A) I, II and III B) I and II C) I and III D) III and IV

B) i and ii

32) Which of the following helps determine the growth rate of potential GDP? I. capital accumulation II. technology advances III. growth in the quantity of money A) I B) I and II C) I and III D) I, II and III

B) i and ii

5) If capital inflow is negative, this suggests a country is: A. borrowing more than it is lending to other countries. B. lending more than it is borrowing from other countries. C. experiencing balanced trade. D. experiencing a situation where its imports are greater than its exports.

B) lending more than it is borrowing from other countries

13) If the Federal Reserve wanted to increase the quantity of money, it would A) tell the banks to lower interest rates. B) purchase government securities in the open market. C) convince the federal government to run a budget deficit. D) sell government securities in the open market.

B) purchase government securities in the open market

26) In November, 2012, U.S. lawmakers were faced with a "fiscal cliff:" if they did not agree on how to reduce the federal deficit, automatic tax increases and drastic cuts in government spending would take effect. What would happen if the fiscal cliff occurred? A) The aggregate demand curve shifts rightward, the price level rises and real GDP increases. B) The aggregate demand curve shifts leftward, the price level falls and real GDP decreases. C) The short run aggregate supply curve shift leftward, the price level rises and real GDP decreases. D) The short run aggregate supply curve shifts rightward, the price level falls and real GDP increases.

B) the aggregate demand curve shifts leftward, the price level falls and real GDP decreases

12) Which of the following is NOT one of the Fed's monetary policy tools? A) the required reserve ratio B) the income tax rate C) buying and selling U.S. government securities D) the discount rate

B) the income tax rate

7) Which of the following has the least impact on households' saving decisions? A) the real rate of interest B) the quantity of imports entering the country C) expected future income D) the level of disposable income

B) the quantity of imports entering the country

33) Last year in the country of Union, the price level increased and real GDP increased. Such an outcome might have occurred because short-run aggregate supply ________ and aggregate demand ________. A) increased; decreased B) decreased; decreased C) did not change; increased D) increased; did not change

C) did not change; increased

35) In 2007, investment in France increased by 7 billion euros. Which of following occurs? I. an upward shift in the AE curve. II. a leftward shift in the AD curve. III. an increase in the price level and real GDP in the short run. IV. an increase in the price level and no change in real GDP in the long run. A) I, II, III and IV. B) I and III only. C) I, III and IV only. D) III and iv only.

C) i, iii, and iv only

9) If in an open economy, the government's budget deficit increases at the same time as the trade deficit grows, this will lead to a(n) _________ in the demand and a(n) ________ in the supply of loanable funds in domestic markets. A. increase; decrease B. decrease; decrease C. increase; increase D. decrease; increase

C) increase; increase

1) When a nation's international borrowing is positive, then its national saving ________ its national investment. A) exceeds B) equals C) is less than

C) is less than

24) The short-run effect from a decrease in the lump-sum tax rate shifts the AE curve ________ and the AD curve _______. A) downward; rightward B) downward; leftward C) upward; rightward D) upward; leftward

C) upward; rightward

29) The value of a euro goes from 1€ = US$1.25 to 1€ = US$1.50. In Germany, exports: A. will increase, and imports will decrease. B. and imports will increase. C. will decrease, and imports will increase. D. and imports will decrease.

C) will decrease, and imports will increase

19) The economy has no international trade and no income taxes. In the short run, if government purchases were to decrease by $25 billion and the marginal propensity to consume was equal to 0.66 then real GDP would decrease by A) $16.5 billion. B) $37.8 billion. C) $8.25 billion. D) $75 billion.

D) 75 billion

17) If you transfer $1,000 from your checking account to your savings account: A) M1 decreases by $1,000, and M2 increases by $1,000. B) M1 increases by $1,000, but M2 doesn't change. C) M1 and M2 don't change. D) M1 decreases by $1,000, but M2 doesn't change.

D) M1 decreases by $1000, but M2 doesn't change

22) Automatic stabilization occurs A) when the Congress makes changes to transfer payment programs. B) because monetary policy is effective. C) because government purchases fluctuate with real GDP. D) because taxes and transfer payments fluctuate with real GDP.

D) because taxes and transfer payments fluctuate with real GDP

34) As world economies start to recover from the 2008 financial crisis and firms expect profits to increase, A) the U.S. short-run aggregate supply curve immediately will shift rightward. B) investment will increase and there will be a movement up along the aggregate demand curve. C) the price level in the U.S. will decrease as firms increase investment. D) both investment and aggregate demand will increase.

D) both investment and aggregate demand will increase

2) When government purchases exceed net taxes, the government has a budget ________ and government saving is A) surplus; negative B) deficit; positive C) surplus; positive D) deficit; negative

D) deficit; negative

23) The government budget deficit tends to decline during the expansion phase of a business cycle because tax revenues ________ and government transfer payments ________. A) increase; increase B) decrease; decrease C) decrease; increase D) increase; decrease

D) increase; decrease

16) An increase in the quantity of money by the Fed A) raises the interest rate, decreases investment, and shifts the AD curve rightward. B) lowers the interest rate, decreases investment, and shifts the AD curve rightward. C) lowers the interest rate, increases investment, and shifts the AD curve leftward. D) None of the above answers is correct.

D) none of the answers is correct

8) In the loanable funds market, if the interest rate is above the equilibrium level A) there is a shortage of saving. B) expected profit rates fall. C) government purchases decrease. D) there is a surplus of saving.

D) there is a surplus of saving