Macro Exam 2 Review Questions

increase GDP by $20

If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will: - decrease GDP by $20. - decrease GDP by $40. - increase GDP by $20. - increase GDP by $40.

$300.

Refer to the above diagram for a private closed economy. The equilibrium level of GDP is: - $400. - $300. - $200. - $100.

1.6%

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: - 2.8% - 3.4% - 1.6% - 4.1%

a part of frictional unemployment

A college graduate using the summer following graduation to search for a job would best be classified as: - not officially a member of the labor force - a part of structural unemployment - a part of cyclical unemployment - a part of frictional unemployment

a high rate of unemployment

A large negative GDP gap implies: - an excess of imports over exports - a low rate of unemployment - a high rate of unemployment - a sharply rising price level

the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

A recessionary expenditure gap is: - the amount by which the full-employment GDP exceeds the level of aggregate expenditures. - the amount by which equilibrium GDP falls short of the full-employment GDP. - the amount by which investment exceeds saving at the full-employment GDP. - the amount by which aggregate expenditures exceed the full-employment level of GDP.

aggregate expenditures curve upward and the aggregate demand curve rightward.

An increase in net exports will shift the: - aggregate expenditures curve upward and the aggregate demand curve rightward. - aggregate expenditures curve upward and the aggregate demand curve leftward. - aggregate expenditures curve downward and the aggregate demand curve rightward. - aggregate expenditures curve downward and the aggregate demand curve leftward.

.8

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the above table. The marginal propensity to consume is: - .5 - .75 - .8 - .9.

dividing the annual rate of inflation into "70"

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by: - dividing "70" into the annual rate of inflation - dividing the annual rate of inflation into "70" - subtracting the annual change in nominal incomes from "70" - multiplying the annual rate of inflation by "70"

occurs when total spending exceeds the economy's ability to provide output at the existing price level

Demand-pull inflation - occurs when prices of resources rise, pushing up costs and the price level - occurs when total spending exceeds the economy's ability to provide output at the existing price level - occurs only when the economy has reached its absolute production capacity - is also called cost-push inflation

increase by $45 billion.

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to: - increase by $30 billion. - increase by $45 billion. - decrease by $35 billion. - increase by $50 billion

11%

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: - 11% - 33% - 91% - 10%

2.5

If the MPC is .6, the multiplier will be: - 4.0 - 6.0 - 2.5 - 1.67.

reduce worker morale and work effort, and thus lower productivity.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: - reduce per unit production costs. - reduce worker morale and work effort, and thus lower productivity. - increase the firms' cost of raising financial capital. - reduce the demands for their products.

A

Which of the above diagrams best portrays the effects of an increase in resource productivity? -A -B -C -D

D

Which of the above diagrams best portrays the effects of declines in the incomes of U.S. trading partners? -A -B -c -D

C = 40 + .6Yd

Which of the following equations correctly represents the above data? - Yd = 40 + .6C - C = 60 + .4Yd - C = 40 + .6Yd - C = .6Yd

APC + APS = 1.

Which of the following is correct? - APC + APS = 1. - APC + MPS = 1. - APS + MPC = 1. - APS + MPS = 1.

a change in the price level

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

225

[Answer the question on the basis of the following consumption and investment data for a private closed economy. Figures are in billions of dollars. C = 60 + .6YI = I0 = 30] Refer to the above data. The equilibrium level of income (Y) is: - 360 - 225 - 200 - 135

the vertical intercept would be + 20 and the slope would be + .6.

[Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income.] If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed: - the vertical intercept would be +.6 and the slope would be +20. - it would reveal an inverse relationship between consumption and disposable income. - the vertical intercept would be negative, but consumption would increase as disposable income rises. - the vertical intercept would be + 20 and the slope would be + .6.

$6 billion

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by: - $3 billion. - $2/3 billion - $6 billion - $2 billion.

4

Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is: - 3 - 4 - 5 - 10

6%

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: - 3 % - 6% - 7% - 53%

net exports may be either positive or negative.

At the equilibrium GDP for a private open economy: - net exports may be either positive or negative - imports will always exceed exports - exports will always exceed imports - exports and imports will be equal.

$9 billion.

If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by: - $1 billion. - $.9 billion. - $10 billion. - $9 billion.

$350 and 5.

If the above economy was closed to international trade, the equilibrium GDP and the multiplier would be: - $300 and 5. - $350 and 4. - $400 and 4. - $350 and 5.

.1

If the marginal propensity to consume is .9, then the marginal propensity to save must be: - 1 - .1 - 1.1 - .9

actual investment

Saving is always equal to: - planned investment less unintended increases in inventories - actual investment - planned investment - unintended changes in inventories.

businesses planning to increase their stock of inventories.

A rightward shift of the investment demand curve might be caused by: - an increase in the price level. - a decline in the real interest rate. - businesses planning to increase their stock of inventories. - an increase in business taxes.

not in the labor force

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is: - unemployed - employed - not in the labor force - in the labor force

above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Efficiency wages are: - above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. - wage payments necessary to compensate workers for unpleasant or risky work conditions. - usually less than market wages. - relevant to macro economics because they explain rightward shifts in aggregate demand.

calculate the number of years required for the price level to double

Given the annual rate of inflation, the "rule of 70" allows one to: - determine whether the inflation is demand-pull or cost-push - calculate the accompanying rate of unemployment - determine when the value of a real asset will approach zero - calculate the number of years required for the price level to double

$320 billion.

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: - $360 billion - $660 billion - $320 billion - $20 billion

consumption by $80 billion.

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: - GDP by $120 billion - GDP by $20 billion - saving by $25 billion - consumption by $80 billion.

increase GDP by $100 billion.

If the multiplier in an economy is 5, a $20 billion increase in net exports will: - increase GDP by $100 billion. - reduce GDP by $4 billion. - decrease GDP by $100 billion. - increase GDP by $20 billion.

John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself.

In The General Theory of Employment, Interest, and Money: - Adam Smith stated his idea of the invisible hand. - Thorstein Veblen poked fun at the leisure class. - John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself. - J. B. Say developed "Say's law."

reduced taxes and increased government spending.

In an effort to stop the U.S. recession of 2007-2009, the Federal government: - reduced taxes and increased government spending. - imposed large tariffs on many imported goods to protect domestic jobs. - raised interest rates to encourage greater business investment. - avoided Keynesian policies because of the threat of inflation

increase in business taxes and costly government regulation.

In the above diagram, a shift from AS2 to AS3 might be caused by a(n): - decrease in interest rates. - increase in business taxes and costly government regulation. - decrease in the prices of domestic resources. - decrease in the price level.

3

In the above diagram, the economy's immediate-short-run aggregate supply curve is shown by line: - 1 - 2 - 3 - 4

aggregate supply decreases and aggregate demand increases

In which of the following sets of circumstances can we confidently expect inflation? - aggregate supply and aggregate demand both increase - aggregate supply and aggregate demand both decrease - aggregate supply decreases and aggregate demand increases - aggregate supply increases and aggregate demand decreases

expansion

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? - expansion - recession - peak - trough

cost-push inflation

Inflation initiated by increases in wages or other resource prices is labeled: - demand-pull inflation - demand-push inflation - cost-push inflation - cost-pull inflation

arbitrarily redistributes real income and wealth.

Inflation is undesirable because it: - arbitrarily redistributes real income and wealth - invariably leads to hyperinflation - usually is accompanied by declining real GDP - reduces everyone's standard of living

prices on average are rising, although some particular prices may be falling

Inflation means that: - all prices are rising, but at different rates - all prices are rising and at the same rate - prices on average are rising, although some particular prices may be falling - real incomes are rising

injections and leakages

Investment and saving are, respectively: - income and wealth - stocks and flows - injections and leakages - leakages and injections.

frictionally unemployed

Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is: - cyclically unemployed - structurally unemployed - frictionally unemployed - not a member of the labor force

are the costs to firms of changing prices and communicating them to customers.

Menu costs: - increase during recession. - decrease during recession. - are the costs to firms of changing prices and communicating them to customers. - are sunk costs and therefore should be disregarded.

level of total spending

Most economists agree that the immediate determinant of the volume of output and employment is the: - composition of consumer spending - ratio of public goods to private good production - level of total spending - size of the labor force

shows the relationship between the unemployment rate and the size of the negative GDP gap.

Okun's law: - measures the tradeoff between the rate of inflation and the rate of unemployment. - indicates the number of years it will take for a constant rate of inflation to double the price level. - quantifies the relationship between nominal and real incomes. - shows the relationship between the unemployment rate and the size of the negative GDP gap.

flexible upward, but inflexible downward.

Prices and wages tend to be: - flexible both upward and downward. - inflexible both upward and downward. - flexible downward, but inflexible upward. - flexible upward, but inflexible downward.

real output per unit of input.

Productivity measures: - real output per unit of input. - per unit production costs. - the changes in real wealth caused by price level changes. - the amount of capital goods used per worker.

business cycles

Recurring upswings and downswings in an economy's real GDP over time are called: - recessions - business cycles - output yo yos - total product oscillations

102 million

Refer to info. The labor force in Scoob is: -95 million -102 million - 105 million - 145 million

.80

Refer to the above data. the marginal propensity to consume is: - .25 - .75 - .20 - .80

is $40 billion at all levels of GDP.

Refer to the above diagram for a private closed economy. In this economy investment: - decreases as GDP increases. - increases as GDP increases. - is $40 billion at all levels of GDP. - is $60 billion at all levels of GDP.

both .5.

Refer to the above diagram for a private closed economy. The MPC and MPS are: - .6 and .4 respectively - .7 and .3 respectively. - both .5. - both .7.

net exports are positive.

Refer to the above diagram. If (C + Ig) are the private expenditures in the closed economy and Xn2are the net exports in the open economy, we can conclude that: - exports are negative. - net exports are positive. - net exports are negative. - trade is balanced.

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

Refer to the above diagram. If the aggregate supply curve shifted from AS0 to AS1, and the aggregate demand curve remains at AD0 we could say that: - aggregate supply has increased, equilibrium output has decreased, and the price level has increased. - aggregate supply has decreased, equilibrium output has decreased, and the price level has increased. - an increase in the amount of output supplied has occurred. - aggregate supply has increased and the price level has risen to G.

inflationary expenditure gap is ei.

Refer to the above diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE1, the: - inflationary expenditure gap is BC. - recessionary expenditure gap is BC. - inflationary expenditure gap is zero. - inflationary expenditure gap is ei.

recessionary expenditure gap is ed.

Refer to the above diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE3, the: - inflationary expenditure gap is BC. - recessionary expenditure gap is BC. - recessionary expenditure gap is ed. - inflationary expenditure gap is ed.

CB/AB.

Refer to the above diagram. The marginal propensity to consume is equal to: - - AE/0E. - CF/CD. - CB/AB. - CD/CF.

.8

Refer to the above diagram. The marginal propensity to consume is: - .2 - .8 - .4 - .3.

panels (A) and (B).

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: - panel (A) only. - panel (B) only. - panel (C) only. - panels (A) and (B).

a movement from C to A along aggregate demand curve AD1.

Refer to the above diagrams. A decline in aggregate expenditures from AE2 to AE1 resulting from the real-balances, interest-rate effect, and foreign purchases effects would be depicted as: - a movement from A to C along aggregate demand curve AD1 - a movement from C to A along aggregate demand curve AD1. - a shift of aggregate demand from AD1 to AD2. - a shift of aggregate demand from AD2 to AD1.

is an investment demand curve and curve B is an investment schedule.

Refer to the above diagrams. Curve A: - is an investment schedule and curve B is a consumption of fixed capital schedule. - is an investment demand curve and curve B is an investment schedule. - and B are totally unrelated. - shifts to the left when curve B shifts upward.

$400 and 5.

Refer to the above table. For the open economy the equilibrium GDP and the multiplier are: - $300 and 2.5. - $450 and 5. - $400 and 4. - $400 and 5.

up to a point consumption exceeds income, but then falls below income.

Refer to the figure above. The consumption schedule indicates that: - consumers will maximize their satisfaction where the consumption schedule and 45 degree line intersect. - up to a point consumption exceeds income, but then falls below income. - the MPC falls as income increases. - households consume as much as they earn.

all the points at which consumption and income are equal.

The 45-degree line on a graph relating consumption and income shows: - all points where the MPC is constant. - all points at which saving and income are equal. - all the points at which consumption and income are equal. - the amounts households will plan to save at each possible level of income

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

The aggregate demand curve is: - vertical under conditions of full employment. - horizontal when there is considerable unemployment in the economy. - downsloping because of the interest-rate, real-balances, and foreign purchases effects. - downsloping because production costs decrease as real output rises.

shows the amount of real output that will be purchased at each possible price level.

The aggregate demand curve: - is upsloping because a higher price level is necessary to make production profitable as production costs rise. - is downsloping because production costs decline as real output increases. - shows the amount of expenditures required to induce the production of each possible level of real output. - shows the amount of real output that will be purchased at each possible price level.

Prices are fixed.

The aggregate expenditures model is built upon which of the following assumptions? - Prices are fixed - The economy is at full employment. - Prices are fully flexible - Government spending policy has no ability to affect the level of output.

shows the various amounts of real output that businesses will produce at each price level.

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

include resource prices and resource productivity.

The determinants of aggregate supply: - are consumption, investment, government, and net export spending. - explain why real domestic output and the price level are directly related. - explain the three distinct ranges of the aggregate supply curve. - include resource prices and resource productivity.

determinants of aggregate demand.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: - real-balances, interest-rate, and foreign purchases effects. - determinants of aggregate supply. - determinants of aggregate demand. - sole determinants of the equilibrium price level and the equilibrium real output.

ratchet effect

The idea that the price level readily moves upward but not downward is called the: - elevator effect. - escalator effect. - ratchet effect - stair-step effect

expected rate of return on capital goods and the real interest rate.

The immediate determinants of investment spending are the: - expected rate of return on capital goods and the real interest rate. - level of saving and the real interest rate. - marginal propensity to consume and the real interest rate. - interest rate and the expected price level.

capital goods and durable consumer goods

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: - military goods and capital goods - services and nondurable consumer goods - clothing and education - capital goods and durable consumer goods

an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.

The interest-rate effect suggests that: - a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. - an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. - an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. - an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

the level of income.

The most important determinant of consumer spending is: - the level of household borrowing. - consumer expectations. - the stock of wealth. - the level of income.

that rate of unemployment occurring when the economy is at its potential output.

The natural rate of unemployment is: - higher than the full employment rate of unemployment - lower than the full employment rate of unemployment - that rate of unemployment occurring when the economy is at its potential output - found by dividing total unemployment by the size of the labor force

a recession

The phase of the business cycle in which real GDP declines is called: - the peak - an expansion - a recession - the trough

demand-pull inflation

The phrase "too much money chasing too few goods" best describes: - the GDP gap - demand-pull inflation - the inflation premium - cost-push inflation

may cause the official unemployment rate to understate the true amount of unemployed

The presence of discouraged workers: - increases the size of the labor force, but does not affect the unemployment rate - reduces that size of the labor force, but does not affect the unemployment rate - may cause the official unemployment rate to understate the true amount of unemployed - may cause the official unemployment rate to overstate the true amount of unemployment

investment demand schedule.

The relationship between the real interest rate and investment is shown by the: - investment demand schedule. - consumption of fixed capital schedule. - saving schedule. - aggregate supply curve.

all of these are identified as causes of business cycle changes

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? - unexpected financial bubbles that eventually burst - shocks to the money supply b the nation's center bank - supply shocks caused by major innovations - all of these are identified as causes of business cycle changes

MPS = MPC + 1

Which of the following relations is not correct? - 1 - MPC = MPS - APS + APC = 1 - MPS = MPC + 1 - MPC + MPS = 1

a change in consumer incomes

Which of the following will not cause the consumption schedule to shift? - a sharp increase in the amount of wealth held by households - a change in consumer incomes - the expectation of a recession - a growing expectation that consumer durables will be in short supply

higher expected rates of return on investment

Which of the following would shift the investment demand curve from ID1 to ID2? - a lower interest rate - lower expected rates of return on investment - a higher interest rate - higher expected rates of return on investment

.90

[Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income.] The MPC is: - .45 - .20 - .50 - .90