Macro Economics EXAM Study questions

Suppose banks hold reserves for 15% of deposits. Further suppose that the public has a preference for holding cash money of 25%. How much must the money base be if the central bank aims to realize a money supply of 5000. 2500 1600 2200 1250

1600

If the reserve ratio is 0.05 (5%), and the public does not hold money in cash (i.e. kappa = 0), the money multiplier can be as high as: 5 50 20 10

20

With 125 million people working, 8 million out of work and looking for work, and 147 million neither working nor looking for work the unemployment rate would be 2.9% 55.5% 6.4% 6.0%

6.0%

Suppose a 1 pound steak sells at a grocery store is for $7. Suppose that the grocery store purchased it from a butcher for $4. Suppose the butcher bought cattle from farmers for $2 per sellable pound and paid their labor approximately $1 for pound of sellable beef labor, and made $1 in profit. What is the GDP contribution of the steak? a) 7$ b) 4$ c) 11$ d) 14$

7$

If the inflation rate is 5% and the real interest rate is 4%, then the nominal interest rate is around a) -1% b) 20% c) 9% d) 1%

9%

The crowding-out effect following from budgetary expansion is stronger when: a) investments are less interest sensitive b) household consumption is less income sensitive c) money demand is less interest sensitive d) money demand is more sensitive to changes in income

money demand is more sensitive to changes in income

Ceteris paribus, during a recession ... a) money demand will rise and so will interest rates b) money supply will drop and so will interest rates c) money demand will drop and so will interest rates d) money supply will drop and interest rates will rise

money demand will drop and so will interest rates

If an economy is confronted with inflation, than ... a) nominal GDP, i.e. GDP in fixed prices, will grow faster than real GDP, i.e. GDP in nominal prices b) nominal GDP, i.e. GDP in current prices, will grow slower than real GDP, i.e. GDP in fixed prices c) nominal GDP, i.e. GDP in current prices, will grow faster than real GDP, i.e. GDP in fixed prices d) this will not influence the difference between real and nominal GDP

nominal GDP, i.e. GDP in current prices, will grow faster than real GDP, i.e. GDP in fixed prices

Which part of fiscal policy refers to the 'automatic stabilizers' a) discretionary policy b) only the revenue side of the government budget c) nondiscretionary policy d) both discretionary and nondiscretionary policy

nondiscretionary policy

Which part of fiscal policy refers to the 'automatic stabilizers' a) nondiscretionary policy b) both discretionary and nondiscretionary policy c) discretionary policy d) only the revenue side of the government budget

nondiscretionary policy

With 125 million people working, 8 million out of work and looking for work, and 147 million neither working nor looking for work, "underemployment" would be illustrated by a) part of the 125 million holding part time jobs when they were qualified for full-time jobs. b)8 million ending their search for work c) 125 million losing their jobs d) part of the 125 million holding part time jobs when they were qualified for only part-time jobs.

part of the 125 million holding part time jobs when they were qualified for full-time jobs.

If in a certain period both real GDP and the general price level double, than the nominal GDP in this country will:

quadruple

A drop in the reserve coëfficient of banks leads to a ... in money supply and a ... in the number of loans banks offer. a) rise / decrease b) fall / increase c) rise / increase d) fall / decrease

rise / increase

Last year's public debt in a country is assumed to be 90% of GDP. The real interest rate on this outstanding debt is 3%, the real growth rate is 0%. If the primary balance in this country is 1% of GDP, than the public debt ratio (i.e. debt-to-GDP ratio) this year will: a) rise by 3.7 %-points b) rise by 27.1 %-points c) rise by 1.7 %-points d) rise by 1.7 %

rise by 3.7 %-points

If the ECB wished to increase interest rates using open market operations, it would a) buy European government securities b) sell European government securities c) buy gold d) buy corporate stocks

sell European government securities

If real money supply increases, the LM-curve will: a) not shift. b) shift below because on the money market, there will be a money supply surplus which will lead to a drop in the interest rate. c) shift to the left because the interest rate will probably be lower, hence foreign investors do not want to invest in our country anymore, which is bad for output. d)shift up because on the money market a money demand surplus will exist, leading to a rise in the equilibrium interest rate.

shift below because on the money market, there will be a money supply surplus which will lead to a drop in the interest rate.

Look at the following structural model: Y = TV TV = C + I + G Yb= Y - T T = -TR + tY C = C0+cYD a) all variables are endogenous b) TV, C, Yd, T and Y are endogenous, and I, G and TR are exogenous c) TV, C, Yd and TR are exogenous and Y and T are endogenous d) all variables can either be endogenous or exogenous

TV, C, Yd, T and Y are endogenous, and I, G and TR are exogenous

If a business makes the determination that an investment makes sense at the current interest rate but before they can act the interest rates fall a) they will go ahead with the investment because interest rates have nothing to do with whether an investment makes sense. b) they will have to recalculate whether it still makes sense. c) it will only make the situation better so they will clearly make the investment. d)it will cause them to not make the investment regardless of the decrease.

it will only make the situation better so they will clearly make the investment.

Use the AD-AS model to determine which of the following will lead to higher aggregate output: a) a cut in interest rates b) a tax increase c) a cut in government spending d) a spike in world oil prices

a cut in interest rates

Remember the equation for the IS-curve in a closed economy. A rise in the interest sensitivity of investments will lead to: a shift to the right of the IS-curve a more steep IS-curve a shift to the left of the IS-curve a flatter IS-curve

a flatter IS-curve

Which of the following policy measures influences the long run AS-curve: a) additional government expenditures b) a renewed focus of the government on lifelong learning and innovation c) an oil price shock d) quantitative easing

a renewed focus of the government on lifelong learning and innovation

A rise in consumer confidence will lead to: a) no shift in IS b) a shift in IS to the right c) a shift in IS to the left d) an IS-curve that is more steep

a shift in IS to the right

The fiscal government has control of the tax system and government spending. As a result, their policies will directly impact: a) residual demand b) the demand for loanable money c) aggregate supply d) aggregate demand

aggregate demand

Narrow money (M1) consistst of: a) all bank coins and notes created by the central bank that are in the vaults of the commercial banks b) all bank coins and notes created by the central bank in the hands of the public c) all bank coins and notes created by the central bank d) all bank coins and notes created by the central banks in the hands of the public and the immediately available checkings deposits of the public at financial institutions.

all bank coins and notes created by the central banks in the hands of the public and the immediately available checkings deposits of the public at financial institutions.

A budget deficit is the a) total amount owed by the federal government b) amount by which revenues exceed expenditures c) amount by which revenues fall short of projections d) amount by which expenditures exceed revenues.

amount by which expenditures exceed revenues.

Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher prices: a) an increase in government spending b) a fall in world oil prices c) an increase in interest rates d) a tax increase

an increase in government spending

Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher prices: a) an increase in interest rates b) an increase in government spending c) a tax increase d) a fall in world oil prices

an increase in interest rates

If an investment (where the costs are incurred before then profits) makes sense when the interest rate on the borrowed money to pay for it is 10% a) an increase in the interest rate will cause the investment to lose money. b) a decrease in the interest rate will cause the investment to be less profitable, but it still may make money. c) a decrease in the interest rate will cause the investment to lose money. d) B) an increase in the interest rate will cause the investment to be less profitable, but it still may make money.

an increase in the interest rate will cause the investment to be less profitable, but it still may make money.

If the interest rate is positive, the present value of $1000 to be received in ten years is A) equal to $1000. b)either greater than $1000 or less than $1000, depending upon the interest rate c) less than $1000. d) greater than $1000.

less than $1000.

Any event that creates a "crisis in confidence" is likely to lead to a) higher aggregate output b) higher aggregate prices c) inflation d) lower aggregate prices

lower aggregate prices

Which of the following situations will unequivalently lead to a drop in the money base? a) a drop in the money multiplier b) the government lends money abroad and converts this foreign currency for domestic currency at the central bank c) bank XYZ takes up a new loan from the central bank d) bank XYZ pays back a previous loan to the central bank

bank XYZ pays back a previous loan to the central bank

Which of the following situations will unequivalently lead to a drop in the money base? a) bank XYZ takes up a new loan from the central bank b) the government lends money abroad and converts this foreign currency for domestic currency at the central bank c) a drop in the money multiplier d) bank XYZ pays back a previous loan to the central bank

bank XYZ pays back a previous loan to the central bank

The money base consists of: a) Government securities and loans to financial institutions b) cash, coins and checking accounts (CH) and international reserves held by the central bank (IR) c) Cash and banknotes (CH) and deposits at financial institutions (D) d) bank notes held by the public (CH), financial reserves (BR1) and deposits of financial institutions at the central bank (BR2)

bank notes held by the public (CH), financial reserves (BR1) and deposits of financial institutions at the central bank (BR2)

Money supply increases while the money base remains unchanged if: a) banks increase the reserve coëfficient b) the central bank buys foreign currency and sells domestic currency c) the preference for holding cash money increases d) banks reduce the reserve coëfficient

banks reduce the reserve coëfficient

The reason that only final sales are counted in GDP is a) to avoid double counting goods that are sold so as to be resold b) because the government can't get records on intermediate sales c) to simplify the computation and no other reason d) to not count production in other countrie

because the government can't get records on intermediate sales

In the market for money the demand curve is made up of a) neither borrowers nor savers b) savers c) borrowers d) a combination of borrowers and savers

borrowers

In a market for money a) borrowers are the consumers and lenders are the suppliers b) both borrowers and lenders are the suppliers c) borrowers are the suppliers and lenders are the consumers d) both borrowers and lenders are the consumers

borrowers are the consumers and lenders are the suppliers

A decrease in the interest rate will a) change neither the demand nor the supply of money; reather it will only affect the quantity demanded and quantity supplied b) increase the demand for money alone c) decrease the demand for money and incraese the supply of money d) increase the demand for money and decrease the supply of money

change neither the demand nor the supply of money; reather it will only affect the quantity demanded and quantity supplied

A decrease in the interest rate will a) increase the demand for money and decrease the supply of money b) change neither the demand nor the supply of money; reather it will only affect the quantity demanded and quantity supplied c) decrease the demand for money and incraese the supply of money d) increase the demand for money alone

change neither the demand nor the supply of money; reather it will only affect the quantity demanded and quantity supplied

The AD-curve shifts to the right whenever: a) consumer confidence increases b) domestic prices drop c) all answers are correct d) the real interest rate drops

consumer confidence increases

In measuring Gross Domestic Product, goods produced by foreign firms in Belgium are a) not counted, but goods produced by Belgian firms in foreign countries. b) counted, but goods produced by Belgian firms in foreign countries are not counted c) not counted, and goods produced by Belgian firms in foreign countries are also not counted. d) counted, and so are goods produced by Belgian firms in foreign countries.

counted, but goods produced by Belgian firms in foreign countries are not counted

The behaviour of the public (i.e. how much money they want to keep in cash) is measured by a) the reserve coëfficient 'phi' b) the size of the money base multiplier c) the amount of base money d) the preference parameter 'kappa'

d) the preference parameter 'kappa'

Economists consider deflation a) to be a normal part of the economy, not necessarily healthy or unhealthy b) to be generally healthy for the economy c) dangerous, as it can lead to a depression d) to be no better and no worse than inflation

dangerous, as it can lead to a depression

An economist worrying about the economic impact of environmental regulations would model that impact with a: a) increase in aggregate supply b) decrease in aggregate supply c) decrease in aggregate demand d) increase in aggregate demand

decrease in aggregate supply

The form of risk to the lender associated with a borrower not paying their debt is called a) complete risk b) market risk c) default risk d) overall risk

default risk

If the unemployment rate falls because the number of people not working but searching for work falls, economists would attribute this to the a) discouraged worker effect b) fallacy of composition c) none of the options are correct d) encouraged worker effect

discouraged worker effect

If the central bank increases the money supply, then, ceteris paribus, the interest rate will a) drop b) rise or drop, depending on the amount of the increase in the money supply c) stay unchanged d) rise

drop

Gross Domestic Product is counted using different methods: one which counts all the ways people _____ money and another which counts all the ways people _____ money. a) loan; borrow b) earn; spend c) spend; save d) earn; save

earn; spend

Open market operations refer to the buying and selling of: a) government securities b) corporate equities c) gold d) commodities

government securities

A producer of wooden furniture buys its wood at total cost C. He sells his production for a price P, pays a wage W and realised a profit π. In which of the following cases will the firm not realise a higher value added: a) he asks his employees to hand in some wage so that his profit increases, all else equal b) it can buy the wood elsewhere at a lower price C', while keeping the price at P, all else equal c) the firm finds a new market where it receives a higher price P'' for its good, which it completely awards to higher wages, all else equal d) the firm finds a new market where it receives a higher price P' for its goods, which it completely awards to a higher profit, all else equal

he asks his employees to hand in some wage so that his profit increases, all else equal

A higher interest rate a) decreases the motivation to delay consumption and, therefore, borrow. b) decreases the motivation to delay consumption and, therefore, save. c) increases the motivation to delay consumption and, therefore, save d) increases the motivation to delay consumption and, therefore, borrow

increases the motivation to delay consumption and, therefore, save

A higher interest rate a) decreases the motivation to delay consumption and, therefore, save b) increases the motivation to delay consumption and, therefore, save c) increases the motivation to delay consumption and, therefore, borrow d) decreases the motivation to delay consumption and, therefore, borrow.

increases the motivation to delay consumption and, therefore, save

Real Gross Domestic Product is Gross Domestic Product adjusted for.. a) inflation b) charges in interest c) impact of pollution d) after eliminating sales of intangible things like services

inflation

A surplus on the current account of the balance of payments unequivalently implies that this country: a) imports foreign capital b) invests less than private savings c) invests less than national savings d) is very competitive vis-a-vis foreign countries

invests less than national savings

A surplus on the current account of the balance of payments unequivalently implies that this country: a) invests less than private savings b) imports foreign capital c) is very competitive vis-a-vis foreign countries d) invests less than national savings

invests less than national savings

When evaluating a business decision, an economist will often resort to the use of present value because a) the investment is often in one currency and the profits in another. b) the investment is often under one set of managers and the profits under another. c) the investment occurs in one time period and the profits in another. d) the profits may not be large enough to warrant the time and attention of the investor.

the investment occurs in one time period and the profits in another.

When evaluating a business decision, an economist will often resort to the use of present value because a) the profits may not be large enough to warrant the time and attention of the investor. b)the investment is often in one currency and the profits in another. c) the investment is often under one set of managers and the profits under another. d) the investment occurs in one time period and the profits in another.

the investment occurs in one time period and the profits in another.

If a person is going to pay $500 per month every month for 5 years, what do you know about their car loan (if the interest rate is positive)? a) the loan amount was less than $ 30.000 b) the loan amount was exactly than $ 30.000 c) Nothing d) the loan amount was morethan $ 30.000

the loan amount was less than $ 30.000

What is the effect of a drop in autonomous household consumption on the budget balance? a) the discretionary part of the budget balance deteriorates b) the nondiscretionary part of the budget balance deteriorates c) the budget balance does not change d) the nondiscretionary part of the budget balance improves

the nondiscretionary part of the budget balance deteriorates

Dividing the number seventy-two by an interest rate yields a) the annual payment required to pay off a loan at that interest rate. b) the number of years it would take an investment to double in value. c) You Answered a good measure of the level of risk in the investment proposal. d) all of these options are correct.

the number of years it would take an investment to double in value.

Inflation is measured using ..... in a price index. a) a multi-year weighted average increase b) the percentage year-to-year increase c) logarithm adjusted absolute increase d) the absolute increase

the percentage year-to-year increase

Inflation is measured using ..... in a price index. a) the absolute increase b) the percentage year-to-year increase c) a multi-year weighted average increase d) logarithm adjusted absolute increase

the percentage year-to-year increase

The government definitely has an actual budgetary deficit (and thus has to lend on the financial markets) when: a) The private sector saves more than it invests and there is a deficit on the current account b)the private sector saves more than it invests and there is a surplus on the current account c) the sum on government consumption and public intvestments is smaller than net taxes d) net savings of the government are larger than government investments

the private sector saves more than it invests and there is a deficit on the current account

Suppose your grandmother told you (today) that she had set aside an amount of money in a savings account bearing 3% interest that was sufficient to give you a $5,000 graduation present in exactly four years. How much would she have had to set aside? a) $5000 b) $5000 / (1.03)^4 c) $5000 x (1.03)^4 d) $5000 / (1+.034)

$5000 / (1.03)^4

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the price index for the base year is a) (11000/10000)*100=110 b) None of these c) 100 d) (10000/11000)*100=90.9

100

Suppose this is the base year and there are only two goods (Good A and Good B) and the average person buys 4 of Good A in a year and 3 of Good B. If the Price of Good A is $5 and the Price of Good B is $10, the price index a) is 50 b) is 20 c) is 100 d) is 30

100

The ECB has indirect control over the short term interest rates, and thus her possibility to influence economic activity runs through: a) AA b) the exchange rate c) government expenditures d) AD

AD

One of the reasons that Real GDP is not synonymous with social welfare is a) domestic production (cooking, laundry and such) are not counted b) environmental quality is ignored c) All of the options are correct d) it ignores the value of leisure

All of the options are correct

If Real GDP contracted by more than 10%, economists would label that a a) Expansion b) Recovery c) Recession d) Depression

Depression

The process of seasonal adjustment is important because: a) Economic variables rarely change from season to season b) Economic variables are politically determined. c) Economic variables may predictably change from season to season, but those changes are not significant. d) Economic variables predictably change from season to season, so to understand the economic importance of month-to- month changes you need to account for it.

Economic variables predictably change from season to season, so to understand the economic importance of month-to-month changes you need to account for it.

How does GDP account for something that was produced for sale in one year and sold in the next year? a) It is counted in the second year. b) It is counted twice. c) It is counted as an addition to inventory (which is in business investment) in the year it. was produced and the markup is counted in the year in which it is sold. d) It is counted in the first year and anything that happens latter does not count.

It is counted as an addition to inventory (which is in business investment) in the year it. was produced and the markup is counted in the year in which it is sold.

How does GDP account for something that was produced for sale in one year and sold in the next year? a) It is counted twice. b) It is counted as an addition to inventory (which is in business investment) in the year it. was produced and the markup is counted in the year in which it is sold. c) It is counted in the first year and anything that happens latter does not count. d) It is counted in the second year.

It is counted as an addition to inventory (which is in business investment) in the year it. was produced and the markup is counted in the year in which it is sold.

If GDP is $10 trillion, Personal Consumption Expenditure is $6.5 trillion, Gross Private Investment is $2.0 trillion, and Government Consumption and Investment Expenditures together are $2.0 trillion a) Indirect business Taxes are $ 0.5 trillion b) Net exports are $ 0.5 trillion c) Depreciation is $ 0.5 trillion d) Net exports are $-0.5 trillion

Net exports are $-0.5 trillion

In which of the following cases does the debt-go-GDP-ratio automatically drop: a) When the nominal interest rate is lower than the nominal growth rate b) When the government has a primary deficit c) When the economy is on an expansionary path d) When the nominal interest rate is larger than the nominal growth rate

When the nominal interest rate is lower than the nominal growth rate

A reduction in govenrment consumption leads to what effect on IS: a) a shift to the right because at unchanged interest rates, demand for goods and services increases b) shift to the left because at unchanged interest rate, demand for goods and services reduces c) shift below because lower government consumption will lead to a drop in the interest rate d) a shift to the right because lower government expenditures means taxes can be reduced in the future

shift to the left because at unchanged interest rate, demand for goods and services reduces

If a country's government wants to realise an actual budget balance (=0), it: a) the government acts neutral with respect to the business cycle b) stimulates economic activity in a boom and slows down economic activity in a bust, i.e. procyclical policy c) stimulates economic activity in a bust an slows down economic activity in a boom, i.e. anticyclical policy d) there is no pattern in fiscal policy

stimulates economic activity in a boom and slows down economic activity in a bust, i.e. procyclical policy

In 2005, General Motors announced a 20% reduction in its staffing levels and the closure of many assembly plants. Those laid off as a result would likely be classified as a) frictionally unemployed b) cyclically unemployed c) structurally unemployed d) seasonally unemployed

structurally unemployed

Quantitative easing means: a) that the monetary government uses newly created money to buy existing (also risky) bonds on financial markets b) every increase in the money base c) that limitations on the import and export of capital are reduced d) that the monetary government directly finances new government loans

that the monetary government uses newly created money to buy existing (also risky) bonds on financial markets

Conventional monetary policy usually refers to: a) the ECB's marginal lending facility b) the ECB's main refinancing operations c) Open market operations d) Quantitative easing

the ECB's main refinancing operations

The primary deficit can best be defined as: a) the interest payments on outstanding debt b) the total deficit of the government c) the budget deficit excluding interest payments on outstanding debt d) the deficit before taking into account debt rescheduling

the budget deficit excluding interest payments on outstanding debt

The fiscal government has control of the tax system and government spending. As a result, their policies will directly impact: a) aggregate demand b) the demand for loanable money c) aggregate supply d) residual demand

the demand for loanable money

A positive output gap shows that: a) the economy is in a boom b) economic growth in the country is strong c) real GDP is below the maximum attainable product when all production factors are maximally used d) the economy is in a recession

the economy is in a boom

The IS-LM model is an analysis in which: a) both the general price level and the interest rate are exogenous b) the general price level is exogenous and the interest rate is endogenous c) both the general price level and the interest rate are endogenous d) the general price level is endogenous and the interest rate is exogenous

the general price level is exogenous and the interest rate is endogenous

To an economist a "market basket" is made up of a) Group of answer choicesthe goods people should buy and the quantities they should buy them in. b) the goods and services people will buy next year. c) the goods average people buy and the quantities in which they buy them. d) only things like cars and not services like cell phone service.

the goods average people buy and the quantities in which they buy them.

The government definitely has an actual budgetary deficit (and thus has to lend on the financial markets) when: a) net savings of the government are larger than government investments b) the private sector saves more than it invests and there is a surplus on the current account c) the sum of government consumption and public investments is smaller than net taxes d) the private sector saves more than it invests and there is a deficit on the current account

the private sector saves more than it invests and there is a deficit on the current account

More money is needed when: a) the volume of transactions is lower, and the money value of the transactions is higher b) the volume of transaction is higher and the money value of the transactions are higher c) the volume of transactions is lower, and the money value of the transactions is higher d) both the volume of transactions and the money value of the transactions are lower

the volume of transaction is higher and the money value of the transactions are higher

Which measure of productivity is calculated as a residual? a) total factor (or multifactor) productivity b) real GDP c) Labor force participation d) Labor force productivity

total factor (or multifactor) productivity

The difference between GDP and GNAI is equal to: a) depreciation and the balance on the current acount b) total net received international transfers c) the depreciation of fixed capital d) total net received international transfers and total net received foreign factor incomes

total net received international transfers and total net received foreign factor incomes

Disagreements about the shape of the AS curve focus on the degree of ... in the economy. Fill in the blank. a) confidence b) unemployment c) inflation d) fraud

unemployment

As women entered the force in the 1950s through the 1990s, the a)unemployment rate steadily fell b) labor force participation rate steadily fell c) labor force participation rate steadily rose d) unemployment rate steadily rose

unemployment rate steadily fell

If consumption is 75 while available income is 100, than the marginal consumption quote is: unknown 0.5 0.25 0.75

unknown

The relationship between the rate of return earned on a bond and the length of time until the bond matures is called the a) calender b) real interest rate c) yield curve d) interest rate

yield curve