Macro Practice Exam 2

7. The recurrent ups and downs in the level of economic activity extending over several years are referred to as

business cycles

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changing the tax system so that the tax line has a greater slope.

16. If the MPC is 0.8 and disposable income is $200, then.

consumption and saving cannot be determined from the information given.

15. If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will.

decrease by $75.

30. A decrease in government spending will cause a(n)

decrease in aggregate demand.

38. Which of the following historically has not been a significant contributor to the U.S. public debt?

demand-pull inflation

13. If 100 percent of any change in income is spent, the multiplier will be

infinitely large.

39. Gross Domestic Product (GDP) Consumption (C) $0 $40 100 120 200 200 300 280 400 360 The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the tax system

is regressive.

23. A decrease in aggregate demand will cause a greater decline in real output the

less flexible is the economy's price level.

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profit expectations resulting from an increase in government spending.

8. Unemployment rates for men and women normally are very similar. In the Great Recession of 2007-09, the unemployment rate for men.

significantly exceeded that for women.

17. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image022ch30b.png Refer to the accompanying consumption schedule. The marginal propensity to consume is represented by

GE/AB

32. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image004ch33b.png Refer to the graph. A budget surplus would be associated with GDP level

L

3. Most economists agree that the immediate determinant of the volume of output and employment is the

Level of total spending

14. Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by

$20 billion.

20. (Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. At an $800 level of disposable income, the level of saving is

$60

28. Real-Balances Effect Household Expectations Interest-Rate Effect Personal Income Tax Rates Profit Expectations National Incomes Abroad Government Spending Foreign Purchases Effect Exchange Rates Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve. Which of the factors best explain the downward slope of aggregate demand curve?

1, 3, and 8

35. Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events

3 and 4

34. Government Spending Tax Revenues GDP Year 1 $450 $425 $2,000 Year 2 500 450 3,000 Year 3 600 500 4,000 Year 4 640 620 5,000 Year 5 680 580 4,800 Year 6 600 620 5,000

6

1. If the inflation premium is 3 percent and the real interest on a loan is 4 percent, then the nominal interest rate is

7 percent (Nominal interest rate = real interest rate + inflation premium

(Last Word) The combined cost of Social Security and Medicare programs was what percentage of U.S. GDP in 2014?

8.5

11. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image056ch30a.png Refer to the diagram. Assume that for the entire business sector of a private closed economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. Which of the lines on the diagram represents these data?

B

29. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image036ch32a.png Which of the diagrams for the U.S. economy best portrays the effects of an increase in foreign spending on U.S. products?

C

19. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image041ch30a.png (Advanced analysis) Refer to the diagram. The equation for the consumption schedule is

C = 60 + 0.6Y.

21. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image022ch32a1.png Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by

C.

5. The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are

Capital goods and durable consumer goods.

6. Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will

Rise by about 15%

2. In 2010, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Tatum's real income

Rose by approximately 3 percent. (Real income = Nominal income change - price level change)

33. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image024ch33a.png Refer to the diagram. Which tax system has the least built-in stability?

T4

9. Which statement about inflation is correct?

The redistributive effects of inflation are arbitrary with respect to people and groups in society.

26. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image019ch32b.png In the accompanying graph, which of the following factors will shift AS1 to AS3?

an increase in input prices

27. https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image025ch32b.png Refer to the graph. The equilibrium for this economy is

at price level P2 and output Q2.

25. Aggregate demand decreases and real output falls but the price level remains the same. Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

fear of price wars

Price Level C Ig G X M Real GDP 128 $18 $2 $3 $1 $5 125 20 4 3 2 4 122 22 6 3 3 3 119 24 8 3 4 2 116 26 10 3 5 1 24. In the accompanying table for a particular country, C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. If this nation's equilibrium price level is 125, its net exports will be

minus $2 billion.

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move from point a to point b in B.

31. When the economy is at full employment,

the actual and the cyclically adjusted budgets will be equal.

18. The multiplier can be calculated by dividing.

the change in real GDP by the initial change in spending.

10. Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result,

the official unemployment rate will remain unchanged.

12. The slope of the consumption schedule between two points on the schedule is

the ratio of the change in consumption to the change in disposable income between those two points.

4. What has been the range of the decline in real output during recessions in the U.S. between 1950 and 2009?

−0.2 percent to −4.3 percent