econ 202 final exam answers

"UK Inflation Surges to 16-year High" According to the story, "High inflation in July will also lead to ... "further rises next January ..." Economists also noted that inflation may get worse because the current data did not yet include "announced rises in gas and electricity prices." www.ft.com, 8/12/2008 The story reflects the concept of A) cost-push inflation. B) the short-run Phillips curve. C) demand-pull inflation. D) the long-run Phillips curve.

a. cost-push inflation

In the long run, an increase in government expenditure on goods and services ________ real GDP and ________ the price level. A) does not change; rises B) increases; falls C) increases; does not change D) decreases; rises

a. does not change; rises

The quantity of real GDP demanded equals $18.2 trillion when the price level is 90. If the price level rises to 95, the quantity of real GDP demanded equals A) less than $18.2 trillion. B) $18.2 trillion. C) more than $18.2 trillion. D) more information is needed to determine if the quantity of real GDP demanded increases, decreases, or does not change.

a. less than $18.2 trillion

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 real wealth decreases but real NATIONAL wealth increases. C) there is no change in the individual's real wealth. D) the individual's real wealth increases.

a. the individual's real wealth and consumption expenditure decreases.

The Fed engages in open market operations and sells government securities. As long as the federal funds rate stays in the corridor, the result is A) a lower federal funds rate. B) a higher federal funds rate. C) an unchanged federal funds rate because other interest rates did not change. D) More information is needed to determine what happens to the federal funds rate.

b. a higher federal funds rate

The price level falls if A) aggregate demand increases more rapidly than aggregate supply. B) aggregate demand increases more slowly than aggregate supply. C) aggregate demand increases and aggregate supply does not change. D) neither aggregate demand nor aggregate supply change.

b. aggregate demand increases more slowly than aggregate supply

Demand pull inflation can be started by A) a decrease in the quantity of money. B) an increase in government expenditure. C) a decrease in net exports. D) an increase in the price of oil

b. an increase in government expenditure

The Fed's goals include A) open market operations. B) price level stability. C) monetary base stability. D) maintaining a low federal funds rate.

b. price level stability

An inflationary gap occurs when A) real GDP is less than potential GDP. B) real GDP exceeds potential GDP. C) real GDP equals potential GDP. D) the economy is at full employment.

b. real GDP exceeds potential GDP

Control of the nation's quantity of money is handled by A) Congress. B) the Federal Reserve System. C) the President of the United States. D) Congress, the Federal Reserve System, and all commercial banks.

b. the federal reserve system

If the expected future inflation rate decreases, then A) aggregate demand increases. B) short-run aggregate supply increases. C) aggregate demand decreases. D) long-run aggregate supply decreases.

c. aggregate demand decreases

Suppose that originally the marginal propensity to consume was 0.75. If the marginal propensity to consume rises, what will happen to the value of the multiplier? A) the aggregate expenditure curve will become flatter. B) no change. C) become larger. D) become smaller.

c. become larger

Bank reserves include I. the cash in the bank's vault. II. the bank's deposits at the Federal Reserve. A) only I B) only II C) both I and II D) neither I nor II

c. both I and II

Open market operations by the Fed lead to A) changes in the number of banks. B) immediate changes in aggregate supply. C) changes in the federal funds rate. D) shifts in the demand curve for reserves.

c. changes in the federal funds rate

A reason the government expenditure multiplier is larger than 1 is because A) investment increases when government expenditure increases. B) government expenditure always increases. C) government expenditure changes generate changes in consumption expenditure. D) taxes are left unchanged.

c. government expenditure changes generate changes in consumption expenditure

Year Gov. Tax Rev.(bil) Gov. Expenditures(bil) 1 240 240 2 250 245 3 260 255 4 300 320 5 325 340 18) The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 2? A) $30 billion B) $-5 billion C) $5 billion D) $20 billion

d. $20 billion

Which of the following would cause an inflationary gap? A) a small increase in the money supply and a large increase in the money wage rate. B) a large increase in the price of oil and a small increase in firms expected profits. C) a small decrease in the money wage rate and a large decrease in government spending. D) a large increase in foreign incomes and a small increase in the price of oil.

d. a large increase in foreign incomes and a small increase in the price of oil

If the marginal propensity to save is 0.2, every $10 increase in disposable income increases A) consumption expenditure by $0.80. B) consumption expenditure by $80.00. C) saving by $0.20. D) consumption expenditure by $8.00.

d. consumption expenditure by $8.00

In the United States today, money consists of A) currency only. B) deposits at banks only. C) coins only. D) currency and deposits at banks.

d. currency and deposits at banks

If the multiplier is 6 and exports decrease by $30, what impact will that have on aggregate expenditure? Aggregate expenditure will A) increase by $30. B) increase by $180. C) decrease by $30. D) decrease by $180.

d. decrease by $180

According to the Laffer curve, raising the tax rate A) always increases the amount of tax revenue. B) always decreases the amount of tax revenue. C) does not change the amount of tax revenue. D) might increase, decrease, or not change the amount of tax revenue.

d. might increase, decrease, or not change the amount of tax revenue

At the start of a cost-push inflation A) productivity rises. B) real GDP increases faster than the quantity of money. C) the short-run aggregate supply curve shifts rightward. D) prices and unemployment are rising.

d. prices and unemployment are rising

As a result of a tax increase A) the aggregate demand curve shifts leftward. B) the aggregate demand curve shifts rightward. C) the aggregate supply curve shifts leftward. D) the aggregate supply curve shifts rightward.

a. the aggregate demand curve shifts leftward

When real GDP is less than potential GDP, an increase in government expenditures will ________ real GDP and ________ the price level. A) increase; raise B) increase; lower C) decrease; raise D) decrease; lower

a. increase; raise

As real disposable income increases, consumption expenditure ________ and saving ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

a. increases; increases

During a cost-push inflation spiral, the money wage rate ________ and the quantity of money ________. A) increases; increases B) increases; does not change C) does not change; increases D) does not change; does not change

a. increases; increases

The Federal Reserve lowers interest rates. As a result, in the short run, real GDP ________ and the price level ________. A) increases; rises B) increases; falls C) decreases; rises D) decreases; falls

a. increases; rises

The software and related services sector has a multiplier effect on the Indian economy with every one-rupee input spent by the" information technology sector" producing an increase in real GDP by two rupees. www.ft.com, 2/28/2008 According to the story, if ________ in the software and related services sector increases by $15 billion, real GDP will increase by ________. A) investment; $30 billion. B) consumption; $30 billion. C) consumption; $2 billion. D) investment; $2 billion.

a. investment; $30 billion

As a unit of account, money is used to A) state prices of all goods and services. B) pay off future debts. C) hold purchasing power over time. D) exchange for goods and services.

a. state prices of all goods and services

Stagflation is the result of A) an increase in aggregate demand. B) a decrease in short-run aggregate supply. C) a decrease in aggregate demand. D) an increase in short-run aggregate supply.

b. a decrease in short-run aggregate supply

Suppose the economy is experiencing a recessionary gap. In the long run, if aggregate demand does not change, the following events happen: the money wage rate ________, unemployment ________, and the price level ________. A) falls; rises; falls B) falls; falls; falls C) rises; rises; rises D) rises; falls; rises

b. falls; falls; falls

Which of the following does NOT shift the short-run aggregate supply curve? A) a change in the money wage rate B) technological progress C) a reduction in the price of a raw material D) a change in the price level

d. a change in the price level

Fiscal policy includes A) only decisions related to government expenditure on goods and services. B) only decisions related to government expenditure on goods and services and the value of transfer payments. C) only decisions related to the value of transfer payments and tax revenue. D) decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue.

d. decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue.

Aside from being a means of payment, the other functions of money are A) medium of exchange and the ability to buy goods and services. B) medium of exchange, unit of account, and means of lending. C) pricing, contracts, and store of value. D) medium of exchange, unit of account, and store of value.

d. medium of exchange, unit of account, and store of value

In recent years, Elsweyr's capital stock has increased by about 6 percent from one year to the next. As a result, we would expect A) a leftward shift in Elsweyr's aggregate demand curve. B) a movement up along Elsweyr's short-run aggregate supply curve. C) only Elsweyr's long-run aggregate supply curve to shift rightward. D) rightward shifts in both Elsweyr's short-run aggregate supply and long-run aggregate supply curves.

d. rightward shift in both Elsweyr's short-run aggregate supply and long-run aggregate supply curves

Real GDP Price Level 2002 2088 102.6 2003 2083 103.6 2004 2105 106 2005 2121 108.2 2006 2182 109.7 2007 2237 109.5 In which of the following year(s) did Germany experience inflation? A) 2003, 2004, 2005 and 2006 B) 2006 and 2007 C) 2007 D) 2002, 2005 and 2006 only

a. 2003, 2004, 2005, and 2006

Aggregate expenditure equals A) C + I + G + X - M. B) C + I + G + X + M. C) C + I + G. D) C + I + G + X.

a. C + I + G + X - M

Who is the current chairman of the Federal Reserve? A) Jerome Powell B) Lebron James C) Kim Kardashian D) Donald Trump

a. Jerome Powell

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because A) only part of the increase in disposable income from the tax cut is spent. B) the amount by which taxes change is affected by the MPC. C) changes in government expenditure do not directly affect consumption. D) tax rates are the same regardless of income levels.

a. only part of the increase in disposable income from the tax cut is spent

Once supply-side effects are taken into account, tax cuts for labor income can change I. the supply of labor. II. potential GDP. A) I only B) I and II C) II only D) neither I nor II

b. I and II

A one-time rise in the price level can turn into a demand-pull inflation when A) the money wage rate continues to increase. B) the quantity of money persistently decreases. C) taxes consistently increase. D) the quantity of money persistently increases.

d. the quantity of money persistently increases

If the economy falls into a recession, which of the following responses constitutes the use of automatic fiscal policy? A) an income tax cut voted on by Congress and quickly signed by the President B) an existing system to make government payments to the growing ranks of unemployed workers C) a new program to fund local governments' hiring of 100,000 street sweepers within a year D) All of the above answers are correct.

b. an existing system to make government payments to the growing ranks of unemployed workers.

Liquidity is the A) degree to which an asset acts as money without a loss of value. B) ease with which an asset can be converted into a means of payment with little or no loss of value. C) degree to which money can be converted into an asset with little or no loss of value. D) ease with which a means of payment can be converted into an asset with little or no loss of value.

b. ease with which an asset can be converted into a means of payment with little or no loss of value

The multiplier effect exists because a change in autonomous expenditure A) leaves the economy in the form of imports. B) leads to changes in income, which generate further spending. C) prompts further exports. D) will undergo its complete effect in one round.

b. leads to changes in income, which generate further spending

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

Between 2015 and 2016 the government reported that disposable income decreased by $400 billion. If the MPC equals 0.8, then consumption expenditure A) decreases by $400 billion. B) decreases by $3,200 billion. C) decreases by $320 billion. D) decreases by $32 billion.

c. decreases by $320 billion

In response to the economic downturn, New Zealand's government had enacted a $3.8 stimulus package. www.iht.com, 11/26/2008 The stimulus plan is considered A) automatic fiscal policy. B) contractionary fiscal policy. C) discretionary fiscal policy. D) needs-tested spending.

c. discretionary fiscal policy

If aggregate demand grows only slightly faster than potential GDP, then the economy will A) experience economic growth with high inflation. B) experience recession. C) experience economic growth with low inflation. D) be at a business-cycle peak.

c. experience economic growth with low inflation

In the first half of 2008, food and energy costs in the United States increased. At the same time, the financial crisis slowed production. As a result, economists warned that the economy would A) suffer an inflationary gap. B) see a decrease in aggregate demand and an increase in long-run aggregate supply. C) experience stagflation. D) see an increase in potential GDP.

c. experience stagflation

If aggregate planned expenditure is less than real GDP then A) consumers increase their planned expenditure until aggregate planned expenditure increases to equal real GDP. B) firms increase their planned expenditure until aggregate planned expenditure increases to equal real GDP. C) firms' inventories will increase and real GDP will decrease as production falls. D) firms' inventories will decrease and real GDP will decrease as production falls.

c. firms' inventories will increase and real GDP will decrease as production falls

Price level AD(tril) SAS(tril) LAS(tril) 130 8 12 10 120 9 11 10 110 10 10 10 100 11 9 10 90 12 8 10 The data in the above table indicate that when the price level is 120 A) inventories fall and the price level rises. B) the economy is in a long-run macroeconomic equilibrium. C) inventories rise and the price level falls. D) the unemployment rate is at its equilibrium level.

c. inventories rise and the price level falls

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

c. people substitute toward more imported goods and services

When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand A) there will be no unemployment. B) workers will overestimate the real wage rate. C) unemployment will be at the natural rate. D) workers will underestimate the real wage rate.

c. unemployment will be at the natural rate