ECON 2201 Final Exam

Refer to the table above. If planned investment is $25 billion, the equilibrium level of GDP will be: A. $600 billion B. $620 billion C. $640 billion D. $660 billion

c

. Most modern banking systems are based on: A. money of intrinsic value. B. commodity money. C. 100 percent reserves. D. fractional reserves.

d

. In a private closed economy, the equilibrium condition for the economy is: A. AE = C + Ig = GDP B. AE = G + Ig = GDP C. AE = C + Ig + G = GDP D. C + Ig + G + NX = GDP

a

. Refer to row 4 in the above table. The number appropriate for space Z is: A. $10,000. B. $70,000. C. $48,000. D. zero.

a

. John Maynard Keynes developed the aggregate expenditures model in order to understand the: A. Second World War B. Great Depression C. Oil crises of the 1970s and 1980s D. Great Recession of 2007-2009

b

. Refer to the above diagram. The equilibrium level of GDP is: A. Y5. B. Y4. C. Y3. D. Y2.

b

. Refer to the above figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level? A. Real GDP will fall to Y and the price level will fall to P0, assuming a ratchet effect occurs. B. Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs. C. Real GDP will fall to X and the price level will fall to P0, assuming a ratchet effect occurs. D. Real GDP will fall to Y and the price level will remain unchanged, assuming a ratchet effect occurs

b

. The Board of Governors of the Federal Reserve has ____ members. A. 5 B. 7 C. 9 D. 14

b

An increase in the overall level of prices in an economy is called: A. Growth B. Expansion C. Inflation D. Nominal GDP growth

c

Discretionary fiscal policy refers to: A. any change in government spending or taxes that destabilizes the economy. B. the authority that the President has to change personal income tax rates. C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy. D. the changes in taxes and transfers that occur as GDP changes

c

GDP does not include which of the following activities? A. Businesses installing anti-pollution equipment B. Households spending to enhance security of their neighborhoods C. Couples remodeling their own homes D. Families eating out in restaurants

c

If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will: A. Increase the excess reserves of member banks and thus increase the money supply B. Increase the excess reserves of member banks and thus decrease the money supply C. Decrease the excess reserves of member banks and thus decrease the money supply D. Decrease the excess reserves of member banks and thus increase the money supply

c

In which industry or sector of the economy is output least likely to be affected by the business cycle? A. Housing construction B. Automobile production C. Agricultural commodities D. Capital goods production

c

Lowering the discount rate has the effect of: A. Turning required into excess reserves B. Turning excess into required reserves C. Making it less expensive for commercial banks to borrow from central banks D. Forcing commercial banks to call in outstanding loans from their best customers

c

Net exports is a positive number when: A. A nation's exports of goods and services are increasing B. A nation exports goods and services to other nations C. A nation's exports of goods and services exceed its imports D. A nation's exports of goods and services fall short of its imports

c

Overnight loans from one bank to another for reserve purposes entail an interest rate called the: A. prime rate. B. discount rate. C. Federal funds rate. D. treasury bill rate.

c

Personal saving is equal to: A. Disposable income plus consumption B. Consumption minus disposable income C. Disposable income minus consumption D. Consumption divided by disposable income

c

Real gross domestic product is a measure of the: A. Average price level in the economy B. Value of final output produced within a country in one year, using current prices C. Value of final output produced within a country in one year, adjusted for changing prices D. Total value of available resources in a nation

c

Refer to the above data. The national income in this economy can be estimated by adding items: A. 1 through 7 B. 8 through 11 C. 2 through 7 D. 1 through 13

c

Refer to the above data. The net private domestic investment in this economy is equal to: A. $1,793 billion B. -$424 billion C. $200 billion D. $1,643 billion

c

Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400: A. there will be a budget deficit. B. there will be a budget surplus. C. the budget will be balanced. D. the macroeconomy will be in equilibrium

c

Refer to the above diagram. If the full-employment GDP is Y5, government should: A. incur neither a deficit nor a surplus. B. cut taxes and government spending by equal amounts. C. reduce taxes and increase government spending. D. increase taxes and reduce government spending

c

Refer to the above table. What was real GDP in Year 2? A. $4,820 billion B. $4,875 billion C. $4,911 billion D. $5,320 billion

c

Refer to the consumption schedule above. The break-even level of income would be at income level: A. 0 B. 1 C. 2 D. 3

c

. The most basic premise of the aggregate expenditures model is that: A. The total output produced in the economy depends directly on the level of total spending B. The level of employment in the economy depends inversely on the real wage rate C. The total output produced depends mostly on the total capacity of firms to produce D. The unemployment level in the economy is inversely related to the inflation rate

a

7. Refer to the graphs above. Which of the following best represents a positive demand shock when prices are flexible? A. The shift from D2 to D3 in graph B B. The shift from D2 to D3 in graph A C. The shift from D2 to D1 in graph B D. The shift from D2 to D1 in graph A

a

A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

a

A decline in investment will shift the AD curve to the: A. left by a multiple of the change in investment. B. left by the same amount as the change in investment. C. right by the same amount as the change in investment. D. right by a multiple of the change in investment

a

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will: A. Increase by $100 billion B. Decrease by $100 billion C. Increase by $16 billion D. Will not change

a

If consumers become pessimistic, the economy is likely to experience a: A. Negative demand shock B. Positive demand shock C. Negative supply shock D. Positive supply shock

a

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be: A. $200 billion B. $400 billion C. $800 billion D. $3,200 billion

a

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was: A. 20% higher than the average price in the base period 1982-84 B. About $120 per basket of consumer goods and services C. 120% higher than the average price in the base period 1982-84 D. 20% higher than the average price of the preceding year

a

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: A. increasing government spending by $4 billion. B. increasing government spending by $40 billion. C. decreasing taxes by $4 billion. D. increasing taxes by $4 billion.

a

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are: A. Excluded from the labor force B. Included as part of the unemployed C. Treated the same as part-time workers D. Used to determine the size of the labor force

a

In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

a

Refer to the above data. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is: A. $275 billion. B. $100 billion. C. $3,540 billion. D. $230 billion.

a

Refer to the above table. Which of the following schedules constitutes aggregate demand in this country? A. B. C. D.

a

Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then Sm2 will shift to: A. Sm3 and the interest rate will be 4 percent B. Sm3 and the interest rate will be 8 percent C. Sm1 and the interest rate will be 8 percent D. Sm1 and the interest rate will be 4 percent

a

The MPC can be defined as the: A. Change in consumption divided by the change in income B. Change in income divided by the change in consumption C. Ratio of income to saving D. Ratio of saving to consumption

a

The immediate-short-run aggregate supply curve represents circumstances where: A. both input and output prices are fixed. B. both input and output prices are flexible. C. input prices are fixed, but output prices are flexible. D. input prices are flexible, but output prices are fixed.

a

The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation

a

The purchasing power of money and the price level vary: A. inversely. B. directly during recessions, but inversely during inflations. C. directly, but not proportionately. D. directly and proportionately

a

To avoid multiple counting in national income accounts: A. Only final goods and services should be counted B. Intermediate goods and services should be counted C. Both final and intermediate goods and services should be counted D. Primary, intermediate, and final goods and services should be counted

a

Which of the following is the best example of economic investment? A. Apple builds a new plant to manufacture iPads B. Your college purchases a 5-year old building in order to have more classrooms C. A retiree purchases U.S. government bonds D. A company like Bank of America acquires another company like Merrill Lynch

a

Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

a

Which one of the following would not shift the aggregate demand curve? A. a change in the price level B. depreciation of the international value of the dollar C. a decline in the interest rate at each possible price level D. an increase in personal income tax rates

a

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment? A. Structural B. Cyclical C. Frictional D. Natural

b

A nation's real GDP was $250 billion in 2013 and $265 billion in 2014. Its population was 120 million in 2013 and 125 million in 2014. What is its real GDP growth rate in 2014? A. 15.0% B. 6.0% C. 5.7% D. 1.1%

b

As disposable income decreases, consumption: A. And saving both increase B. And saving both decrease C. Increases and saving decreases D. Decreases and saving increases

b

Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

b

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to: A. Consume is .80 B. Consume is .75 C. Consume is .60 D. Save is .30

b

If the monetary authorities want to reduce the monetary multiplier, they should: A. lower the required reserve ratio. B. raise the required reserve ratio. C. increase bank reserves. D. lower interest rates

b

Personal income will equal disposable income when: A. Corporate profits are zero B. Personal taxes are zero C. Transfer payments are zero D. Social Security contributions are zero

b

Refer to the above table. If the investment Ig in this economy is independent of income GDP, then a $10 increase in its net exports would increase its equilibrium real GDP by: A. $25 B. $50 C. $100 D. $200

b

Refer to the above table. What is the GDP price index in Year 1? A. 105.2 B. 108.3 C. 109.6 D. 111.5

b

Refer to the graph above for a private closed economy. At the equilibrium level of GDP, saving will be: A. $50 billion B. $100 billion C. $150 billion D. Cannot be determined from the information given

b

The Federal Reserve System: A. has the same status as the Supreme Court. B. is basically an independent agency. C. has the status of a Congressional committee. D. is an agency of the executive branch of the Federal government

b

The National Income and Product Accounts (NIPA) for the U.S. are compiled by the: A. National Bureau of Economic Research B. Bureau of Economic Analysis C. National Census Bureau D. Council of Economic Advisers

b

The amount by which government expenditures exceed revenues during a particular year is the: A. public debt. B. budget deficit. C. full-employment. D. GDP gap.

b

The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

b

The following data about a hypothetical economy are in billions of dollars. Refer to the above data. GDP in this economy is: A. $6,080 billion B. $6,230 billion C. $6,380 billion D. $6,400 billion

b

The following data show levels of planned variables for an economy. Ig = Investment; Sa = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output? A. Choice A B. Choice B C. Choice C D. Choice

b

The following data show levels of planned variables for an economy. Ig = Investment; Sa = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output? A. Choice A B. Choice B C. Choice C D. Choice D

b

To say that coins are "token money" means that: A. their face value is less than their intrinsic value. B. their face value is greater than their intrinsic value. C. their face value is equal to their intrinsic value. D. they are not legal tender.

b

Which phase of the business cycle would be most closely associated with an economic contraction? A. Peak B. Recession C. Trough D. Recovery

b

. If the consumption schedule is a straight line, it can be concluded that the: A. APC is necessarily constant B. MPC is zero C. MPC is constant at various levels of income D. APC is equal to the MPC

c

. If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would be: A. 4 percent B. 6 percent C. 8 percent D. 10 percent

c

. If you are estimating your total expenses for school next semester, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

c

. Refer to row 1 in the above table. The number appropriate for space W is: A. 4. B. 6. C. 10. D. 12.

c

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is: A. $5,000 B. $6,500 C. $1,500 D. $1,000

c

A consumer holds money to meet spending needs. This would be an example of the: A. Use of money as a measure of value B. Use of money as legal tender C. Transactions demand for money D. Asset demand for money

c

A major advantage of the built-in or automatic stabilizers is that they: A. simultaneously stabilize the economy and reduce the absolute size of the public debt. B. automatically produce surpluses during recessions and deficits during inflations. C. require no legislative action by Congress to be made effective. D. guarantee that the Federal budget will be balanced over the course of the business cycle.

c

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to real GDP? A. Real GDP doubles B. Real GDP is halved C. Real GDP doesn't change D. There is not enough information to determine what happens to real GDP

c

The aggregate supply curve: A. is explained by the interest rate, real-balances, and foreign purchases effects. B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

c

The best example of a "frictionally unemployed" worker is one who: A. Reduces productivity by causing friction in a business B. Is laid off during a recessionary period in the economy C. Is in the process of voluntarily switching jobs D. Is discouraged and not actively seeking work

c

The cyclically-adjusted budget refers to: A. the inflationary impact that the automatic stabilizers have in a full-employment economy. B. that portion of a full-employment GDP that is not consumed in the year it is produced. C. the size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment. D. the number of workers who are underemployed when the level of unemployment is 4 to 5 percent.

c

The level of GDP, ceteris paribus, will tend to increase when: A. Reserve requirements are increased B. There is an increase in the discount rate C. The Federal Reserve buys government securities in the open market D. The Federal Reserve sells government securities in the open market

c

The major statistics that provide macroeconomists a picture of the health of an economy include the following, except: A. Real gross domestic product B. Inflation statistics C. Prices of oil and gasoline D. Unemployment data

c

The recurrent ups and downs in the level of economic activity extending over several years are referred to as: A. Economic phases B. Business startups C. Business cycles D. Noncyclical fluctuations

c

The relationship between the MPS and the MPC is such that: A. MPC - MPS = 1 B. MPS/MPC = 1 C. 1 - MPC = MPS D. MPC - 1 = MPS

c

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of: A. the foreign purchases effect. B. inflexible product prices. C. wage contracts. D. the wealth effect

c

Which event would most likely decrease an economy's exports? A. A decline in the tariff on products imported from abroad B. An increase the prosperity of trading partners for this economy C. An appreciation of the nation's currency relative to foreign currencies D. A depreciation of the nation's currency relative to foreign currencies

c

Which of the following is a measure of economic growth that is most useful for comparing living standards? A. Growth in nominal GDP B. Decreases in the rate of unemployment C. Increases in real GDP per capita D. Increases in real GDP

c

Which of the following is the basic economic policy function of the Federal Reserve Banks? A. holding the deposits or reserves of commercial banks B. acting as fiscal agents for the Federal government C. controlling the supply of money D. the collection or clearing of checks among commercial banks

c

. The real-balances effect indicates that: A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

d

An increase in the money supply is likely to reduce: A. The general price level B. Nominal income C. Money demand D. Interest rates

d

An investment demand curve shows the varying amounts of investment that would be undertaken at various levels of: A. The average price in the economy B. Consumer spending C. Personal saving D. The real interest rate

d

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately: A. Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million B. Increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million C. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million D. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million

d

Expansionary fiscal policy is so named because it: A. involves an expansion of the nation's money supply. B. necessarily expands the size of government. C. is aimed at achieving greater price stability. D. is designed to expand real GDP

d

If the MPC is 0.75, the multiplier will be: A. 2 B. 3 C. 3.5 D. 4

d

In a private closed economy, the two components of aggregate expenditures are: A. Consumption and government spending B. Consumption and net exports C. Consumption, investment, and net exports D. Consumption and investment

d

In the above diagram, the economy's immediate-short-run AS curve is line ___, its short-run AS curve is ____, and its long-run AS curve is line __. A. 1; 2; 4 B. 1; 2; 3 C. 2; 3; 4 D. 3; 2; 1

d

Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of these.

d

One basic assumption of the aggregate expenditures model is that: A. The economy is operating at full employment B. There is inflation in the economy C. There is no public sector in the economy D. The average price level in the economy is fixed

d

Refer to the above data. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: A. 7.5 percent. B. 1.39 percent. C. 2.5 percent. D. 3.9 percent.

d

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by: A. panel (A) only. B. panel (B) only. C. panel (C) only. D. panels (A) and (B).

d

Refer to the above table. A decline in the international value of the dollar would: A. increase the values in columns (5) and (6) and reduce aggregate demand. B. decrease the values in columns (5) and (6) and increase aggregate demand. C. decrease the values in column (5), increase the values in column (6), and reduce aggregate demand. D. increase the values in column (5), decrease the values in column (6), and increase aggregate demand

d

Refer to the consumption schedule above. At income level 3, the amount of consumption is represented by the line segment: A. FG B. FH C. FD D. GH

d

Refer to the diagram above. The phases of the business cycle from points A to D are, respectively: A. Peak, recession, expansion, trough B. Trough, recovery, expansion, peak C. Expansion, recession, trough, peak D. Peak, recession, trough, expansion

d

The U.S. public debt: A. refers to the debts of all units of government—Federal, state, and local. B. consists of the total debt of U.S. households, businesses, and government. C. refers to the collective amount that U.S. citizens and businesses owe to foreigners. D. consists of the historical accumulation of all past Federal deficits and surpluses

d

The fraction, or percentage, of total income which is consumed is called the: A. Break-even income B. Consumption schedule C. Marginal propensity to consume D. Average propensity to consume

d

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: A. the MPS. B. its actual reserves. C. its excess reserves. D. the reserve ratio.

d

When inflation occurs: A. All prices are rising B. Each dollar of income will buy more output than before C. The purchasing power of money increases D. The purchasing power of money decreases

d

Which of the following is not part of the M2 money supply? A. money market mutual fund balances B. money market deposit accounts C. currency D. large-denominated time deposits

d

Which of the following represents the most contractionary fiscal policy? A. a $30 billion tax cut B. a $30 billion increase in government spending C. a $30 billion tax increase D. a $30 billion decrease in government spending

d