Macro Midterm #2 Multiple Choice

If real GDP is $1000 billion and the aggregate expenditure is $850 billion, then the change in inventories will be: a. -$150 million b. $ 1850 million c. $150 million d. -$1850 million

c. $150 million

In an open economy the GDP is $12 this year. Consumption is $8, government spending is $2. Taxes are $0.5. Exports are $1 and imports are $3. How much is national savings? a. $4 b. $3.5 c. $2 d. $5.5

c. $2

If the marginal propensity to consume is 0.5, the individual autonomous consumption is $10,000, and disposable income is $40,000, then individual consumption spending is: a. $20,000 b. $25,000 c. $30,000 d. $45,000

c. $30,000

GDP is $8000, autonomous consumption is $500, and planned investment is $200. The marginal propensity to consume is 0.8. If GDP is $3000, planned aggregate spending is: a. $2400 b. $2900 c. $3100 d. 3000

c. $3100

If MPC = 0.9, the multiplier is: a. 10 b. 90 c. 9 d. 1

a. 10

If commodity prices rise, which will take place: a. SRAS curve will shift to the left b. SRAS curve will shift to the right c. AD curve will shift to the left d. AD curve will shift to the right

a. SRAS curve will shift to the left

In an open economy where government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $100 billion this year, investment spending was $10 billion. As a result there was: a. a net capital inflow of $10 billion b. capital inflows of $10 billion and capital outflows of $20 billion c. a trade surplus of $20 billion and a financial deficit of $20 billion d. a net capital outflow of $10 billion

a. a net capital inflow of $10 billion

An important advantage of bonds as a financial asset is that they: a. are standardized and therefore are easier to sell then loans b. offer higher rates of return than stocks c. allow the owner to receive a share of the company's profits in the form of dividends d. are guaranteed to be risk free

a. are standardized and therefore are easier to sell then loans

A recessionary gap will be eliminated because there is _____ pressure on wages, causing the ____: a. downward; short-run aggregate supply curve to shift rightward b. downward; short-run aggregate supply curve to shift left c. downward; aggregate demand curve to shift down d. upward; aggregate demand curve to shift to the left

a. downward; short-run aggregate supply curve to shift rightward

Spending promises made by governments that are effectively a debt, despite the fact that they are not included in the usual debt statistics, are known as: a. implicit liabilities b. explicit liabilities c. implicit assets d. explicit assets

a. implicit liabilities

If the marginal propensity to consume increases, the multiplier will: a. increase b. decrease c. remain constant d. fluctuate randomly

a. increase

If the multiplier is 4 and there are no taxes, and government spending increases by $100 billion, real GDP will: a. increase by $400 billion b. decrease by $400 billion c. increase by $100 billion d. increase by $25 billion

a. increase by $400 billion

Which would shift the aggregate demand curve to the left? a. increase in the interest rate b. increase in the aggregate price level c. increase in consumer wealth d. stronger consumer optimism about future income

a. increase in the interest rate

If the price level falls by 10 percent, the purchasing power of $10,000 would a. increase to $11,000 b. decrease to $9000 c. decrease to $1000 d. remain constant

a. increase to $11,000

An amount that would equal a particular future value if deposited today at a specific interest rate is the: a. present value b. inflation rate c. discount premium d. market index

a. present value

If the economy is at equilibrium below potential output, there is a(n): a. recessionary gap, and expansionary fiscal policy is appropriate b. inflationary gap, and expansionary fiscal policy is appropriate c. recessionary gap, and contractionary fiscal policy is appropriate d. inflationary gap, and contractionary fiscal policy is appropriate

a. recessionary gap, and expansionary fiscal policy is appropriate

To close an inflationary gap by employing fiscal policy, the government could: a. reduce budget allocations to interstate highway maintenance b. increase federal subsidies to state universities c. lower the corporate income tax rate d. raise the average amount awarded for a disability pension

a. reduce budget allocations to interstate highway maintenance

According to the savings-investment spending identity: a. savings equals investment spending b. government spending equals tax receipts c. total income equals consumption spending plus savings d. savings equals investment spending plus consumption spending

a. savings equals investment spending

In the short run, wages and some prices are considered to be: a. sticky b. unpredictable c. extremely flexible d. irrelevant

a. sticky

Most physical capital, except for infrastructure, is provided by: I. government through public education II. investment spending by private firms a. I only b. II only c. Both I and II d. Neither I or II

b. II only

Temporary tax cuts enacted by Congress to fight a recession are considered to be: a. automatic stabilizers b. a discretionary fiscal policy intended to be expansionary c. a discretionary fiscal policy intended to be contractionary d. an effective means of closing an inflationary gap

b. a discretionary fiscal policy intended to be expansionary

An advantage of stabilizing macroeconomy policy over economic self-correction is that: a. stabilization policies achieve potential output with a lower aggregate price level b. economic self-correction can take a decade or more c. economic self-correction affects the aggregate price level, but not the aggregate output level d. stabilization policies are particularly effective to address supply shocks

b. economic self-correction can take a decade or more

If Government transfer payments rise by $100 billion, and this increases real GDP by $120 billion, then we can conclude that the multiplier for government transfers is: a. positive, but less than 1 b. greater than 1 c. equal to 1 d. 0

b. greater than 1

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $850 billion, which policy would bring the economy to potential output? a. increase in taxes by $50 billion b. increase in taxes by $10 billion c. increase in taxes by $12.5 billion d. increase in transfers by $12.5 billion

b. increase in taxes by $10 billion

Which fiscal policy would make a budget surplus larger or a budget deficit smaller? a. increase in government purchases of goods and services b. lower government transfers c. lower taxes d. higher interest rates

b. lower government transfers

In a closed economy, all investment spending must come from: a. government b. national savings c. foreign savings d. government, domestic savings and foreign savings

b. national savings

Because the aggregate price level has no effect on aggregate output in the long run, the long run aggregate supply curve is: a. upward sloping b. vertical c. horizontal d. downward sloping

b. vertical

There is no trade and no government in a small economy. The GDP is equal to $25 and consumption spending is equal to $18 this year. There is new government and it imposes taxes on its citizens in order to spend on infrastructure. Taxes are now equal to $2 trillion and government spending is equal to taxes. What is the level of private saving now? a. $11 b. $7 c. $5 d. $18

c. $5

Suppose the marginal propensity to consume is equal to 0.9 and investment spending increases by $50 billion. Assuming no taxes and no trade, by how much will real GDP change? a. $450 billion increase b. $90 billion increase c. $500 billion increase d. $500 billion decrease

c. $500 billion increase

In an economy with no taxes and no imports, when disposable income increases from $2000 to $3000, consumption increase from $1500 to $2100. Given this information, the marginal propensity to consume is: a. $600 b. 0.71 c. 0.6 d. 0.5

c. 0.6

Suppose that the consumption function isL C = $500 + 0.8 x YD, where YD is disposable income. The marginal propensity to consume is: a. $400 b. 0 c. 0.8 d. 0.2

c. 0.8

Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by: C = 500 + 0.80Y, where Y is income. The marginal propensity ot consume in Behr is: a. 0.75 b. 500 c. 0.80 d. 1

c. 0.80

If Mega Corp borrows $9,000 and agrees to pay the lender $10,500 in one year, the annual interest rate on this loan is approximately: a. 8.6% b. 14.3% c. 16.7% d. 7.3%

c. 16.7%

Suppose that the budget deficit of a country remains level for 5 years. Which is true concerning the fiscal stance of this government? a. Federal debt will remain constant b. Federal debt will fall c. Federal debt will rise d. Federal debt will either remain constant or fall

c. Federal debt will rise

The present value (PV) of a payment one year in the future (FV) given an interest rate (r), is given by the equation: a. PV = 1/FV b. PV = FV/1 c. PV = FV/(1+r) d. PV = FVx(1+r)

c. PV = FV/(1+r)

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of: a. LRAS and SRAS b. LRAS and aggregate demand c. SRAS and aggregate demand d. potential output and LRAS

c. SRAS and aggregate demand

A positive demand shock will result from: a. a sudden increase in nominal wages b. an increase in the potential GDP c. a move by the Federal Reserve to lower interest rate d. consumers and firms becoming more pessimistic about the future

c. a move by the Federal Reserve to lower interest rate

The downward slope of the aggregate demand curve illustrates the fact that, other things equal, a higher ____ will result in a lower quantity of aggregate output demanded. a. employment rate b. income level c. aggregate price level d. investment rate

c. aggregate price level

One way to reduce financial risk is to: a. buy stock only in a major company b. buy bonds only in a major company c. diversify in a variety of assets, both financial and physical d. diversify in a number of banks

c. diversify in a variety of assets, both financial and physical

Producing an aggregate output level that is higher than potential output is possible only if nominal wages: a. remain fixed b. adjust fully in an upward direction c. haven't yet fully adjusted upward d. haven't yet fully adjusted downward

c. haven't yet fully adjusted upward

If the supply of loanable funds shifts to the right, then it will result in a(n): a. increase in the total amount of borrowing and the interest rate b. decrease in the total amount of borrowing and the interest rate c. increase the total amount of borrowing and a fall in the interest rate d. decrease in the total amount of borrowing and an increase in the interest rate

c. increase the total amount of borrowing and a fall in the interest rate

If the Fed decreases the quantity of money in circulation, interest rates: a. decrease, investment increases, and the aggregate demand curve shifts to the right b. decrease, investment decreases, and the aggregate demand curve shifts to the left c. increase, investment decreases, and the aggregate demand curve shifts to the left d. increase, investment decreases, and the aggregate demand curve shifts to the right

c. increase, investment decreases, and the aggregate demand curve shifts to the left

The short-run aggregate supply curve will shift to the: a. right if commodity prices increase b. left if there is an increase in productivity c. left if nominal wages increase d. right if government spending increases

c. left if nominal wages increase

All else equal, when the unemployment rate decreases, the budget: a. will always be balanced b. surplus gets smaller or the budget deficit gets larger c. surplus gets larger or the budget deficit gets smaller d. is unaffected

c. surplus gets larger or the budget deficit gets smaller

The present value of future payments depends on: a. whether the payment is interest or dividends b. the marginal propensity to save c. the interest rate d. sunk costs

c. the interest rate

GDP is $12 this year in a closed economy. Consumption is $8 and government spending is $2. Taxes are $0.5. How much is national savings in this closed economy? a. $3.5 b. $3 c. $2.5 d. $2

d. $2

If the marginal propensity to consume is 0.8, then an increase in autonomous aggregate spending of $5 billion will increase the equilibrium level of real GDP by: a. $4 billion b. $5 billion c. $10 billion d. $25 billion

d. $25 billion

In an economy with no taxes or imports, if disposable income increases by $1000 and consumption increases by $600, the marginal propensity to save is: a. $600 b. $400 c. 2.5 d. 0.4

d. 0.4

Suppose the economy is operating at an output level of $5400 billion. Assume that potential output is $5000. Which would be necessary to close this inflationary gap if the marginal propensity to consume is 0.75? a. Raise taxes by $400 billion b. Increase spending by $400 billion c. Decrease spending by $100 billion d. Increase spending by $100 billion

d. Increase spending by $100 billion

Suppose that the marginal propensity to consume is 0.75. If government spending for goods and services increases by $30 billion, what will be the total effect on real GDP? a. It will increase by $30 billion b. It will increase by $22.5 billion c. It will decrease by $22.5 billion d. It will increase by $120 billion

d. It will increase by $120 billion

Government tax revenue rises and falls with the business cycle as: a. the multiplier effect of taxes and government transfers b. a discretionary fiscal policy c. the multiplier effect of government purchases d. an automatic stabilizer

d. an automatic stabilizer

Which financial asset is likely to be the most liquid? a. stocks b. bonds c. mutual funds shares d. bank demand deposits

d. bank demand deposits

Which is NOT a method of fiscal policy? a. changing tax rates b. government transfers c. government purchases of goods and services d. changes in the money supply

d. changes in the money supply

If the marginal propensity to consume is 0.75 and transfer payments increase by $30 billion, real GDP will: a. increase exactly by $30 billion b. decrease exactly by $30 billion c. increase by more than $120 billion d. increase by less than $120 billion

d. increase by less than $120 billion

Which represents the largest source of tax revenues for the US Federal Government? a. social insurance taxes b. sales taxes c. corporate profit taxes d. personal income taxes

d. personal income taxes

If GDP is smaller than planned aggregate spending then: a. unplanned inventory investment is positive b. GDP will fall c. the economy is in equilibrium d. unplanned inventory investment is negative

d. unplanned inventory investment is negative