Final Exam- Econ 102

1) The short-run aggregate supply curve A) shifts whenever the price level changes. B) illustrates the level of potential real GDP. C) shows the impact changes in the price level have on the quantity of real GDP when resource prices are constant. D) is vertical.

C

34) Assume the economy is at long run equilibrium and oil prices rise. As a result, the ________ shifts ________. A) AD; rightward B) AD; leftward C) SAS; leftward D) SAS; rightward

C

4) If disposable income increases, A) there is movement downward along the consumption function. B) the consumption function shifts downward. C) there is a movement upward along the consumption function. D) the consumption function shifts upward.

C

45) A Keynesian economist believes that A) the economy is self-regulating and always at full employment. B) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. C) if the economy was left alone, it would rarely operate at full employment. D) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic.

C

5) 1 - MPC equals A) induced consumption. B) the marginal propensity to save. C) the net national product. D) autonomous consumption.

B

1) The marginal propensity to consume is the A) fraction of a change in disposable income spent on consumption expenditure. B) fraction of a change in saving spent on consumption expenditure. C) fraction of a change in consumption expenditure that is not saved. D) amount saving increases when consumption expenditure decreases.

A

17) An individual holds $10,000 in a checking account and the price level rises significantly. Hence A) the individual's real wealth and consumption expenditure decrease. B) the individual's wealth increases. C) the individual's real wealth decreases but real national wealth increases. D) there is no change in the individual's real wealth.

A

19) In the above figure, equilibrium expenditure is A) $12 trillion. B) more than $12 trillion. C) less than $12 trillion. D) some amount that cannot be determined without more information.

A

2) Disposable income is equal to A) aggregate income minus taxes plus transfer payments. B) aggregate income plus transfer payments. C) consumption expenditure minus taxes plus transfer payments. D) aggregate income minus taxes plus government expenditures on goods and services.

A

20) The U.S. exchange rate rises. As a result, there is a A) leftward shift in the U.S. aggregate demand curve. B) rightward shift in the long-run U.S. aggregate supply curve. C) rightward shift in the U.S. aggregate demand curve. D) movement along the U.S. aggregate demand curve but the curve does not shift.

A

21) Suppose that the slope of the AE curve is 0.80. Then an increase of investment of $10 billion leads to an increase in equilibrium real GDP equal to A) $50.0 billion. B) $10.0 billion. C) $8.0 billion. D) $12.5 billion.

A

24) There are several reasons why the aggregate demand curve is downward sloping. Which of the following correctly describes one of these explanations? A) A fall in the price level, holding foreign prices and the exchange rate constant, increases net exports. B) A rise in the price level lowers the interest rate and increases investment spending. C) A rise in the price level raises the purchasing power wealth and increases desired consumption. D) A rise in the price level raises interest rates and increases investment spending.

A

26) If investment increases by $300 and, in response, equilibrium aggregate expenditure increases by $600, the multiplier is A) 2. B) 0.5. C) 5. D) 0.2.

A

26) The aggregate demand curve illustrates that, as the price level rises, A) the quantity of real GDP demanded decreases. B) the quantity of real GDP demanded increases. C) the AD curve shifts rightward. D) the AD curve shifts leftward.

A

29) If the marginal propensity to import increases, then the A) multiplier will decrease in value. B) multiplier will not change in value. C) multiplier will increase in value. D) effect on the multiplier will depend on what happens to exports.

A

33) In the above figure, point C represents A) an inflationary gap. B) a recessionary gap. C) a full-employment equilibrium. D) a decrease in aggregate demand.

A

37) In an economy, the multiplier is 3. If government expenditure increases by $1 million, then in the short run, the price level ________ and real GDP ________ $3 million. A) rises; increases by less than B) falls; decreases by less than C) rises; equals D) rises; decreases by less than

A

38) After an increase in autonomous spending, in the long run, changes in the price level A) will reduce the effect of the multiplier. B) will make the AE curve steeper. C) will make the AE curve flatter. D) will not affect the multiplier.

A

38) The data in the above table indicate that when the price level is 100, A) firms have unexpectedly low inventories, so prices will rise. B) firms have unexpectedly high inventories, so prices fall. C) firms will plan to decrease the level of output. D) inventories are at levels planned by firms.

A

39) The multiplier measures the A) horizontal shift in the aggregate demand curve from an increase in autonomous spending. B) vertical difference between two points on the same aggregate demand curve. C) horizontal difference between two points on the same aggregate demand curve. D) vertical shift in the aggregate demand curve from an increase in autonomous spending.

A

41) In the above figure, real GDP at full employment is A) $13 trillion. B) $13.5 trillion. C) more than $13 and less than $13.5 trillion. D) None of the above answers is correct.

A

50) Which school of thought believes that recessions are the result of inappropriate monetary policy? A) Monetarist B) only Keynesian C) only classical D) both Keynesian and classical

A

6) Suppose there is a temporary increase in the price of oil. This is represented by A) a leftward shift of the SAS curve. B) a leftward shift of the SAS and the LAS curve. C) a rightward shift of the SAS curve. D) a leftward shift of the LAS curve.

A

8) The curve labeled A in the above figure is a A) long-run aggregate supply curve. B) short-run aggregate demand curve. C) long-run aggregate demand curve. D) short-run aggregate supply curve.

A

10) Which of the following changes does NOT shift the short-run aggregate supply curve? A) an increase in the money wage rate B) an increase in the price level C) an increase in the quantity of capital D) an increase in technology

B

11) Equilibrium expenditure occurs where the aggregate expenditure curve crosses the A) consumption function. B) 45-degree line. C) vertical axis. D) horizontal axis.

B

11) In the above figure, the economy is at point A when the money wage rate and the price level both fall by 10 percent. Firms will be willing to supply output equal to A) less than $13.0 trillion B) $13.0 trillion C) more than $13.0 trillion D) Without more information, it is impossible to determine which of the above answers is correct.

B

12) In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the equilibrium expenditure? A) $700 B) $500 C) $1,000 D) $200

B

15) Induced expenditure includes ________. A) all autonomous expenditure B) induced consumption expenditure and imports C) induced consumption and government expenditure D) induced consumption expenditure and exports

B

17) In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the level of aggregate planned expenditure when real GDP is equal to $900 billion? A) $1,714 B) $796 C) $675 D) $814

B

19) Which of the following does NOT shift the aggregate demand curve? A) a decrease in taxes B) an increase in the price level C) a decrease in the quantity of money D) an increase in investment

B

2) Suppose there is a increase in short-run aggregate supply with no change in long-run aggregate supply. This situation could be the result of A) a technological advancement. B) a decrease in the money wage rate. C) an increase in the quantity of capital. D) an increase in the price of oil.

B

22) A decrease in foreign incomes A) decreases the aggregate quantity demanded in the United States. B) decreases aggregate demand in the United States. C) increases the aggregate quantity demanded in the United States. D) increases aggregate demand in the United States.

B

22) Because of the multiplier, a one-time change in expenditure will A) decrease saving and investment activity and thereby decrease future real GDP. B) generate more additional real GDP than the initial change in expenditure. C) expand real GDP by an infinite amount. D) have little secondary effect on real GDP.

B

25) In an economy with no income taxes or imports, the multiplier equals A) 1/(MPC + MPS). B) 1/MPS. C) 1/(1 - MPS). D) 1/MPC.

B

30) People expect their incomes will decrease next year. As a result, the ________ will shift ________. A) aggregate demand curve; rightward B) aggregate demand curve; leftward C) long-run aggregate supply curve; rightward D) short-run aggregate supply curve; rightward

B

30) The expenditure multiplier equals A) MPC - MPS where MPC is the marginal propensity to consume and MPS is the marginal propensity to consume. B) 1/(1 - slope of AE curve). C) APC - APS where APC is the average propensity to consume and APS is the average propensity to save. D) 1/(slope of AE curve).

B

31) In the above figure, the short-run aggregate supply curve is SAS and the aggregate demand curve is AD. A recessionary gap exists A) if the long-run aggregate supply curve is LAS1. B) if the long-run aggregate supply curve is LAS3. C) if the long-run aggregate supply curve is LAS2. D) All of the above answers are correct.

B

32) The government increases its expenditures. The steeper the SAS curve, the ________ will be the increase in the price level and the ________ will be the increase in real GDP. A) larger; larger B) larger; smaller C) smaller; smaller D) smaller; larger

B

33) The size of the multiplier A) is constant in the long run. B) decreases in the long run. C) increases in the long run. D) is unaffected by the amount of time that elapses.

B

34) The multiplier effect is smallest A) when the price level is fixed. B) in the long run. C) in the short run. D) when the economy is in a recession.

B

35) If investment decreases, the AE curve shifts A) upward and the AD curve shifts rightward. B) downward and the AD curve shifts leftward. C) downward and there is a movement along the AD curve. D) upward and there is a movement along the AD curve.

B

35) In the above figure, as the economy adjusts toward equilibrium, the A) SAS curve will shift rightward. B) SAS curve will shift leftward. C) AD curve will shift leftward. D) AD curve will shift rightward.

B

36) In the short run, a rightward shift of the short-run aggregate supply curve ________ real GDP and ________ the price level. A) increases; raises B) increases; lowers C) decreases; lowers D) decreases; raises

B

36) The intertemporal substitution effect of a change in the price level results from a A) change in the price of foreign goods relative to domestic goods. B) change in the price of current goods relative to future goods. C) change in the purchasing power of wealth. D) Both answers B and C are correct.

B

37) Short-run equilibrium occurs at the intersection of A) the SAS, LAS, and AD curves. B) the SAS and AD curves. C) the LAS and AD curves. D) the SAS and LAS curves.

B

39) In the short run, an increase in aggregate demand A) lowers the price level and decreases real GDP. B) raises the price level and increases real GDP. C) raises the price level and decreases real GDP. D) lowers the price level and increases real GDP.

B

40) The country of Mu has continuous strong economic growth and a steady price level. This situation is most likely the result of aggregate demand growing ________ aggregate supply. A) slower than short-run B) at the same pace as long-run C) faster than long-run D) slower than long-run

B

44) Based on the data in the table above, in the adjustment towards the long-run equilibrium A) the short-run aggregate supply curve will shift leftward. B) the short-run aggregate supply curve will shift rightward. C) money wage rates will rise. D) the aggregate demand curve will shift leftward.

B

47) ________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment. A) All B) Keynesian C) Classical D) Monetarist

B

48) A monetarist economist believes that A) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. B) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic. C) the economy is self-regulating and always at full employment. D) if the economy was left alone, it would rarely operate at full employment

B

14) The long-run aggregate supply curve illustrates the A) amount of products producers offer at various prices when money wages and other resource prices do not change. B) relationship of aggregate supply and aggregate demand. C) relationship of the price level and real GDP when the economy is at full employment. D) surpluses, shortages and equilibrium level of GDP.

C

18) The quantity of real GDP demanded equals $12.4 trillion when the price level is 95. If the price level falls to 90, the quantity of real GDP demanded equals A) less than $12.4 trillion. B) $12.4 trillion. C) more than $12.4 trillion. D) more information is needed to determine if the quantity of real GDP demanded increases, decreases, or does not change.

C

20) In the above figure, autonomous expenditure is A) $12 trillion. B) $4 trillion. C) $8 trillion. D) some amount not given in the above answers.

C

21) If taxes are increased, the AD curve A) shifts rightward and aggregate demand increases. B) does not shift but there is a movement down along the curve. C) shifts leftward and aggregate demand decreases. D) is not affected because a change in taxes is a nominal change not a real change.

C

23) If there are no income taxes or imports, the multiplier equals A) 1/(1 - marginal propensity to import). B) 1/(1 - marginal propensity to invest). C) 1/(1 - marginal propensity to consume). D) 1/(1 - marginal propensity to save).

C

24) In the above table, there are no taxes and no imports or exports. The equilibrium level of expenditure for this economy is A) no level because consumption expenditure is always less than real GDP. B) $3,000. C) $5,000. D) any level because investment always equals government expenditures.

C

27) One reason that the aggregate demand curve has a negative slope is that when the domestic price level rises, A) firms produce fewer goods and services. B) firms produce more goods and services. C) people substitute toward more imported goods and services. D) peoples' wealth increases.

C

28) A decrease in government expenditure shifts the AD curve ________ and a decrease in taxes shifts the AD curve ________. A) rightward; leftward B) rightward; rightward C) leftward; rightward D) leftward; leftward

C

28) Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be A) $440 billion. B) $360 billion. C) $800 billion. D) $600 billion.

C

3) The marginal propensity to import is the ________ that is spent on imports. A) fraction of an increase in potential GDP B) total amount of real GDP C) fraction of an increase in real GDP D) total amount of potential GDP

C

3) The short-run aggregate supply curve is upward sloping because in the short run the A) both the money wage rate and the price level change. B) money wage rate changes but the price level does not. C) price level changes but the money wage rate does not. D) neither the money wage rate nor the price level can change.

C

31) With a steep short-run aggregate supply curve, A) there is a large change in real GDP whenever the price level rises. B) an increase in government expenditure will not have an impact on the price level. C) an increase in taxes that does not change potential GDP will not decrease real GDP by much. D) fiscal policy will be an effective tool to reduce unemployment without raising prices too much.

C

46) A classical economist believes that A) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic. B) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. C) the economy is self-regulating and always at full employment. D) if the economy was left alone, it would rarely operate at full employment.

C

49) In 2009, just after taking office, President Obama approved an $800 billion stimulus package of tax cuts and increased government spending to combat the recession brought on by the financial crisis of 2007. Which group of economists most approved of President Obama's actions? A) monetarists B) free market economists C) Keynesian economists D) classical economists

C

7) The consumption function relates consumption expenditure to A) saving. B) the interest rate. C) disposable income. D) the price level.

C

8) Where the consumption function crosses the 45° line A) consumption expenditure equals saving. B) saving is positive. C) consumption expenditure equals disposable income. D) saving is negative

C

9) If an increase in a household's disposable income from $10,000 to $12,000 boosts its consumption expenditure from $8,000 to $9,000, the A) slope of the consumption function is 0.2 B) household is dissaving. C) slope of the consumption function is 0.5 D) slope of the consumption function is 1000.

C

10) The graph of the consumption function has consumption expenditure on the vertical axis and A) time on the horizontal axis. B) the Consumer Price Index on the horizontal axis. C) the interest rate on the horizontal axis. D) disposable income on the horizontal axis.

D

12) The positive relationship between short-run aggregate supply and the price level indicates that, in the short run, A) lower price levels are more profitable for firms. B) the money wage rate increases when moving along the short-run aggregate supply curve. C) firms produce more output as the price level falls. D) firms produce more output as the price level rises.

D

13) In the above figure, at point d firms would find themselves with inventories ________ their target level and so would ________ production. A) increasing above; increase B) decreasing below; decrease C) decreasing below; increase D) increasing above; decrease

D

13) Moving along the short-run aggregate supply curve, ________. A) the real wage rate is constant B) real GDP equals nominal GDP C) real GDP equals potential GDP D) the money wage rate, the prices of other resources, and potential GDP remain constant

D

14) In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the unplanned inventory change when GDP is equal to $400? A) $5 B) -$5 C) $26 D) -$26

D

15) Which of the following events will increase short-run aggregate supply? A) an increase in resource prices B) an increase in foreign income C) an increase in the natural unemployment rate D) an advance in technology

D

16) In the aggregate expenditure model, when real GDP is greater than aggregate planned expenditure, A) this cannot happen, because the two variables are always equal. B) inventories are being depleted. C) inventories are not being changed. D) unplanned inventories are being accumulated.

D

16) When the price level in France increases while the exchange rate and the price level in the United States remain the same, the result is A) French citizens are more likely to buy U.S.-made goods. B) U.S.-made goods become relatively cheaper compared to French-made goods. C) U.S. citizens are less likely to buy French-made goods. D) All of the above answers are correct.

D

18) Autonomous expenditure is not influenced by A) any other variable. B) the price level. C) the interest rate. D) real GDP

D

9) The supply of real GDP is a function of A) the total expenditures of consumers, investors and government. B) only the state of technology. C) the sum of wages, salaries, corporate profits, rents and interest. D) the quantities of labor, capital and the state of technology.

D

23) Aggregate demand increases if the quantity of money ________. A) or transfer payments decrease B) decreases or tax rates increase C) remains constant or tax rates increase D) increases or tax rates decrease

D

25) According to the intertemporal substitution effect, when the price level increases, the interest rate A) is not affected. B) falls and the quantity of real GDP demanded decreases. C) rises and the quantity of real GDP demanded increases. D) rises and the quantity of real GDP demanded decreases.

D

27) In the above figure, an increase in autonomous expenditure is depicted by the movement from point E to A) point G. B) point H. C) point I. D) point F.

D

29) In the above figure, if the economy is at point a, an increase in ________ will move the economy to ________. A) expected future income; point d B) real wealth; point d C) real wealth from a fall in the price level; point d D) expected future income; point b

D

32) In long-run macroeconomic equilibrium, the A) long-run aggregate supply curve has shifted so that potential GDP equals real GDP. B) real wage rate has adjusted so that the economy is on the short-run aggregate supply curve but not on the long-run aggregate supply curve. C) aggregate demand curve adjusts to the point where the long-run aggregate supply curve and the short-run aggregate supply curve intersect. D) None of the above answers is correct.

D

4) A fall in the money wage rate shifts A) both the SAS and LAS curves rightward. B) both the SAS and LAS curves leftward. C) the LAS curve rightward but leaves the SAS curve unchanged. D) the SAS curve rightward but leaves the LAS curve unchanged.

D

40) The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by A) an increase of 600. B) a decrease of 600. C) a decrease of $200 because the long-run multiplier is 1. D) nothing; that is, in the long run real GDP equals $8,000.

D

42) In the above figure, the economy is at point A when changes occur. If the new equilibrium has a price level of 120 and real GDP of $12.0 trillion, then it must be the case that A) aggregate demand has increased. B) aggregate supply has increased. C) aggregate demand has decreased. D) aggregate supply has decreased.

D

43) If the economy is at long run equilibrium then A) real GDP can be greater than, less than, or equal to potential GDP. B) real GDP cannot be equal to potential GDP. C) nominal GDP equals potential GDP. D) real GDP equals potential GDP.

D

5) In the above figure, the short-run aggregate supply curve is SAS1. If technology advances, there is A) an upward movement along SAS1. B) a downward movement along SAS1. C) a shift to SAS0. D) a shift to SAS2.

D

6) There is a movement along the consumption function if there is ________. A) an increase in the expected future income B) an increase in autonomous consumption C) a decrease in the real interest rate D) an increase in disposable income

D

7) Which of the following changes does NOT shift the long-run aggregate supply curve? A) a rise in number of college graduates in the labor force B) a tax hike that reduces the capital stock C) a decrease in the labor force D) a fall in the price level

D