Practice Exam 2 Questions Macro
If real GDP is $6,460 billion, the population is 184.6 million people, and total labor hours are 170 billion, labor productivity is
$38.00 an hour.
the tax multiplier is 5 and, as a result of a change in taxes, equilibrium real GDP changes by $200 billion. What was the initial change in taxes?
$40 billion
f an increase of $10 billion of government spending results in an increase in equilibrium real GDP of $40 billion, the multiplier equals
$40 billion ÷ $10 billion = 4
n a small nation to the South, labor productivity last year was $25 per hour and total labor hours were 300 hours. Hence, real GDP was
$7,500
The potential GDP line shows the level of real GDP
-Equal to potential GDP -produced when the labor market is in equilibrium. -when there is full employment.
New growth theory asserts that
-Human capital grows because of choices -Discoveries result from choices
Once supply side effects are taken into account, tax cuts for labor income can change
-the supply of labor -potential gdp
If real GDP was $16 billion last year and $18 billion this year, what is the growth rate?
12. 5 percent
In an economy with no income taxes or imports, the marginal propensity to consume is 0.80. The expenditure multiplier is
5.00.
Suppose the economy was initially at potential GDP. Then the world economy expands so that foreign incomes rise. Which of the following is true?
Aggregate demand within the U.S. increases and in the long-run, money wage rates will rise
Which of the following policies would you recommend if an economy has an inflationary gap?
An increase in the income tax rate.
Which growth theory predicts that even when technology advances, real GDP per person always returns to a subsistence level of income?
Classical growth theory
Which of the following policies encourages economic growth?
Creation of tax free savings accounts.
Which of the following events will result in an increase in equilibrium real GDP but a decrease in the equilibrium price level?
Prices of crude oil decrease.
Which of the following scenarios will result in an increase in both real GDP and the aggregate price level?
The latest round of WTO talks significantly increases trade barriers which reduces imports.
A minimum wage rate that is set ________ the equilibrium real wage rate creates a ________ of labor
above; surplus
Job rationing occurs when the real wage is ________ the equilibrium level and there is a ________ of labor.
above; surplus
The figure above shows the market for fast food restaurant employees in a college town. The local Taco Bell pays its workers $9 an hour. This wage rate is
an efficiency wage aimed at reducing employee turnover.
Moving along the aggregate demand curve, a decrease in the quantity of real GDP demanded is a result of
an increase in the price level.
Which of the following is true
at full employment, aggregate supply is equal to potential GDP
If the minimum wage is
at the equilibrium wage in the labor market, it will create neither a shortage nor a surplus of labor
In an expansion, federal tax receipts increase proportionally more than real GDP without the need for any government policy. This increase is an example of
automatic fiscal policy.
In the labor market, the income tax creates a tax wedge which raises the ________ wage rate, reduces the ________ wage rate, and ________ employment.
before-tax; after-tax; decreases
A change in the full-employment quantity of labor shifts
both the aggregate supply curve and the potential GDP line
in 2001, U.S. real GDP decreased by 3 percent and the population grew by 1 percent. Thus, real GDP per person
decreased 4 percent
In Brazil last year, the growth rate of real GDP was 3.5 percent and the population grew from 1,000 million people to 1,100 million. Real GDP per person
decreased by 6.5 percent.
If capital per hour of labor decreases, real GDP per hour of labor
decreases for a given level of technology
The government collects tax revenues of $100 million and has $105 million in outlays. The budget balance is a
deficit of $5 million.
Automatic stabilizers decrease the impact of a recession on the level of economic activity because they
imply that disposable income does not change by as much as real GDP.
A rise in the expected future inflation rate
increases aggregate demand.
The supply-side effects show that a tax cut on labor income ________ the supply of labor and ________ employment.
increases; increases
The government could increase aggregate demand by $1 trillion by
increasing its purchases by less than $1 trillion.
A recessionary gap means that short-run macroeconomic equilibrium GDP
is less than full-employment GDP.
if the stock of physical capital (that is machinery, equipment, etc.) and human capital remain the same and the population increases, then
labor productivity will decrease
Classical growth theory predicts that increases in real GDP per person will
not last because higher income leads to a population explosion
One reason that the aggregate demand curve has a negative slope is because
people buy more foreign goods when the domestic price level rises
if the economy is in the expansion phase of a business cycle and investment increases, when the multiplier effect kicks in, the expansion
picks up speed.
Population growth directly brings growth in ____ because aggregate hours increase
real GDP
The productivity curve is a relationship between ________ and _______
real GDP per hour of labor; capital per hour of labor
The real wage rate is $35 an hour. At this wage rate there are 100 billion labor hours supplied and 200 billion labor hours demanded. There is a
shortage of 100 billion hours of labor.
Needs-tested spending is defined as
spending on programs for people qualified to receive benefits.
Although ________ initially proposes and ultimately approves the budget, the discussion and amendment process rests with ________.
the President; Congress
A change in money wages shifts
the aggregate supply curve but not the potential GDP line.
The national debt can only be reduced if
the federal budget is in surplus.
If workers are successful in obtaining 6 weeks of paid vacation where 2 weeks used to be the norm, then most likely
the price level will increase
Moving along a aggregate supply curve, as the price level falls
the real wage rate increases