Macroeconomics Test 4 Practice

35. When people purchase downloaded music, they are using money primarily as a: A) medium of exchange. B) store of value. C) unit of account. D) store of account.

A) medium of exchange.

12) Planned investment spending and actual investment spending are NOT always equal. A) True B) False

A) True

19. Most economists oppose a constitutional amendment requiring the federal budget to be balanced annually. A) True B) False

A) True

2. Firms demand resources in the factor markets A)True B)False

A) True

16) During a recessionary gap: A) holding everything else constant, the budget deficit would increase. B) contractionary fiscal policy would help correct this problem. C) an increase in taxes or a decrease in government purchases would shift the AD curve to the right. D) unemployment would most likely be falling.

A) holding everything else constant, the budget deficit would increase.

31. (Figure: Income-Expenditure Equilibrium) Use Table: Income-Expenditure Equilibrium. If planned investment spending increases autonomously by $100, real GDP will: A) increase by $250. B) increase by $100. C) increase by $125. D) not change.

A) increase by $250

24. Which asset is NOT included in M1? A) savings deposits B) check-able bank deposits C) currency D) traveler's checks

A) savings deposits

30. If aggregate expenditures are higher than real GDP: A) there are unplanned decreases in inventories. B) employment decreases. C) aggregate output decreases. D) actual real output is greater than equilibrium real output.

A) there are unplanned decreases in inventories.

4) Steel manufactured to make a car is not counted in aggregate output, but the car that results is counted. A)True B) False

A)True

1. The GDP deflator is equal to: A)Nominal GDP divided by real GDP times 100 B)real GDP divided by nominal GDP times 100 C) real GDP times nominal GDP times 100 D)real GDP times nominal GDP divided by real GDP times 100

A)nominal GDP divided by real GDP times 100

7) In a simple, closed economy (no government or foreign sector), if the marginal propensity to save is 0.2, the marginal propensity to consume must be: A) 0.2 B) 0.8 C) 1.2 D) 0.16

B) 0.8

11) Income-expenditure equilibrium real GDP is the level of real GDP at which: A) the unemployment rate is zero B) GDP equals planned aggregate spending C) there is no savings D) autonomous consumption equals planned inventory investment

B) GDP equals planned aggregate spending

Suppose the level of planned aggregate expenditure in an economy is $1,000 and real GDP is $800. According to the simple model developed in this chapter, in which the aggregate price level is assumed to be constant, we can expect: A) Inventories to stay the same, since this is part o planned investment. B) inventories to decrease C) Inventories to increase D) real GDP to fall further

B) Inventories to decrease

22. Money is: A) any form of wealth. B) an asset that can be easily used to purchase goods and services. C) only currency designated by law. D) only currency in circulation.

B) an asset that can be easily used to purchase goods and services.

33. President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of _____ policy. A) expansionary fiscal B) contractionary fiscal C) expansionary monetary D) contractionary monetary

B) contractionary fiscal

26. (Scenario: Good A and Good B) The town of York produces two goods, good A and good B. The following is information regarding York's production of these two goods and their prices over three years. With 2009 as the base year, real GDP in 2009 was _____ GDP in _____. A) equal to real; 2010 B) equal to nominal; 2009 C) greater than real; 2010 D) greater than nominal; 2011

B) equal to nominal; 2009

17. If the economy is at full employment, expansionary fiscal policy is most likely to lead to: A) lower inflation rates. B) higher inflation rates. C) increases in unemployment. D) decreases in interest rates.

B) higher inflation rates.

18) Scenario: Fiscal Policy Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. Suppose the government decides to tax its citizens. The tax multiplier is: A) greater than the government spending multiplier. B) less than the government spending multiplier. C) zero, because changes in taxes have no effect on aggregate demand. D) impossible to determine.

B) less than the government spending multiplier.

32. Sales taxes, property taxes, income taxes, and fees of various kinds: A) fund government spending at the federal level. B) provide revenue for state and local governments. C) are the state governments' least used types of revenue generation. D) are implicit liabilities.

B) provide revenue for state and local governments.

28. Value added is equal to the value of a company's: A) sales. B) sales minus intermediate goods. C) intermediate goods. D) payments to labor and capital.

B) sales minus intermediate goods.

36. Suppose that a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If the bank lends the maximum amount of money allowed, then the money supply (including the original deposit) increases by: A) $20. B) $100. C) $500. D) $1,000.

C) $500.

27. In the Republic of Sildavia, a market basket of goods and services cost $130 in 2009, $140 in 2010, and $160 in 2011. Based on this information and considering 2009 to be the base year, the price index in 2011 was: A) 100. B) 107.69. C) 123.07. D) 130.

C) 123.07

20. Suppose the economy is operating at an output of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this recessionary gap. A) A $25 billion increase in government spending B) A $25 billion increase in taxes C) A $250 billion increase in government spending D) A $1,000 billion increase in government spending

C) A $250 billion increase in government spending

34. (Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is an increase in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP. A) AD2; left; increase; decrease B) AD2; left; decrease; decrease C) AD1; right; increase; increase D) AD1; right; decrease; increase

C) AD1; right; increase; increase

37. Saving deposits are counted in: A) M1 but not in M2. B) vault cash but not in M2. C) M2 but not in M1. D) M1, M2, and the gold stock.

C) M2 but not in M1.

Real GDP per capita is: A) a perfect measure of a country's standard of living B)the only way to measure living standards among different countries C)an incomplete measure of a country's standard of living D) used only by the United Nations to compare nations based on measures of welfare.

C) an incomplete measure of a country's standard of living

8) If the marginal propensity to consume is greater than zero but less than one, when disposable income rises by $1, consumption will: A) not be affected B) rise by more than $1 C) rise by less than $1 D) rise by exactly $1

C) rise by less than $1

TABLE: 5) (Table: Measuring GDP) Use table: Measuring GDP, exports are: A) -$5 Billion B) zero C) $5 Billion D) $10 Billion

D) $10 Billion

Use the following to answer question 9: TABLE (Table: Disposable Income and Consumption) Use Table: Disposable Income and Consumption. The marginal propensity to consume equals: A) 0.8 B) 2 C) 1.2 D) 0.6

D) 0.6

13) (Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _________ fiscal policy to shift the aggregate demand curve to the _________. A) Expansionary; right B) Expansionary; left C) Contractionary; right D) Contractionary; left

D) Contractionary; left

6) In the circular flow diagram, households: A) supply goods B) supply services C) buy resources D) buy goods and services

D) buy goods and services

14) If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion, real GDP will: A) increase by $30 billion. B) increase by $22.5 billion. C) decrease by $30 billion. D) decrease by $120 billion.

D) decrease by $120 billion.

23. To increase the money supply, the central bank could: A) raise the discount rate. B) make open-market sales. C) raise reserve requirements. D) lower the discount rate.

D) lower the discount rate.

25. The purpose of indexing Social Security payments to the consumer price index is to: A) increase corporate profits. B) justify continued government funding of the Bureau of Labor Statistics. C) avoid the privatization of Social Security. D) maintain the purchasing power of retirees.

D) maintain the purchasing power of retirees.

29. Positive unplanned inventory investment leads to: A) prices increasing. B) production increasing. C) firms hiring more workers. D) production decreasing.

D) production decreasing.

21. The supply of euros is controlled by: A) the Bank of England. B) the U.S. Federal Reserve System. C) the foreign exchange markets. D) the European Central Bank.

D) the European Central Bank

15. Suppose that economic policy makers want to increase real GDP by $100 with as little impact on the budget balance as possible. Should they increase government purchases of goods and services, increase transfer payments, or decrease taxes?

n/a