PLEASE DO NOT WRITE ON THIS EXAMINATION FORM.
1. Which of the following statements is correct?
a.
Real GDP is the total
market value of the final goods and
services produced in America
b.
Your buying stock in the stock market is an example of investment spending
c.
Potential Real GDP is
always greater than Equilibrium Real
GDP
d.
Social security and welfare are examples of spending on infrastructure.
e.
All of the above
2. The period of the business cycle in which real
GDP is increasing is called the:
a.
expansion b. peak
c. recession d.
trough e. stagflation
3. Assume that, in the population, 95 million
people worked for pay last week, 5 million people did not work for pay but had
been seeking a job, 5 million people did not work for pay and had not been
seeking a job for the past several months, and 45 million were under age
16. The unemployment rate, given these numbers, is:
a.
5% b. 8%
c. 10% d.
20% e. 45%
4. A type of unemployment in which workers are in-between jobs or are
searching for new and better jobs is called _______ unemployment:
a.
frictional b. cyclical
c. structural d.
turnover
5. Consider three consumer goods: 100 of Good A,
100 of Good B, and 100 of Good C. In the
base year, Good A sold at a price of $1, Good B sold at a price of $1, and Good
C sold at a price of $1. In the current
year, Good A sold at a price of $3, Good B sold at a price of $5, and Good C
sold at a price of $10. The Consumer Price Index (CPI) for the
current year is:
a.
100 b. 300
c. 500 d.
600 e. 1000
6. Which of the following is a "loser" from unexpected
inflation?
a.
workers with COLAs
c. people who own Treasury Bills
b.
the middle class
d. people who own homes and have
fixed-rate mortgages
7. If the nominal interest rate on a checking
account is 2% and the inflation rate is 3% this year, the real interest rate is:
a.
5% b. 2%
c. 2/3% d. –1%
e. 3%
8. Which of the following would cause the demand curve for automobiles to shift to the left?
a.
an increase in the price of the automobiles
b.
an increase in the interest rate paid to borrow money to pay for the
automobile
c.
an increase in buyers' incomes
d.
an increase in the cost of production of automobiles
9. Suppose it is announced that industry
analysts are predicting that decreased
oil supplies from Iraq
a.
shift the supply of gasoline right
c. shift the demand for gasoline
left
b.
shift the demand for gasoline right
d. have no effect on the demand
or supply of gasoline
10. "At the price of
$500, tickets for the Super Bowl are expensive.
Yet, the are long lines of people who wish to buy them. Many people who desire tickets will not be
able to find them."
From this quote, we know that the price of Super Bowl tickets must be:
a.
below equilibrium b. above
equilibrium c. equal to equilibrium
11. Assume that the market for
computers begins in equilibrium. Then,
there is a decrease in a price of
Pentium processors used in the production of computers. When the new equilibrium is reached,
a.
the price and quantity of computers will both have risen
b.
the price and quantity of computers will both have fallen
c.
the price of computers will have risen and the quantity will have fallen
d.
the price of computers will have fallen and the quantity will have risen
12. Assume that the market for
the stock of Microsoft begins in equilibrium.
Then, both buyers and sellers
expect that the new Linux (a competitor of Microsoft Windows) will be a large
success, reduing Microsoft sales.
When the new equilibrium is reached,
a.
the price and quantity of the stock will both have risen
b.
the price and quantity of the stock will both have fallen
c.
the quantity of the stock will fall and the price will rise
d.
the quantity of the stock will fall but the effect on price cannot be
determined
e.
the price of the stock will fall but the effect on quantity cannot be
determined
13. Assume that the market
for Mexican pesos begin in equilibrium.
Then, the Mexican economy
experiences a severe recession.
Because of the recession, the Mexican companies lower their prices. As a
result of the recession and lower prices in Mexico
a.
the dollar depreciates and the peso appreciates c. the
dollar and the peso both appreciate
b.
the dollar appreciates and the peso depreciates d. the
dollar and the peso both depreciate
14. Which of the following is an example of "portfolio investment"?
a.
An American places funds in a savings account in Canada
b. Tokyo Bank of Japan United States
c. Saturn Corp. (owned by General Motors) builds
a new factory in Tennessee
d. An
American puts $10,000 into a money market fund
e.
All of the above
PLEASE DO NOT WRITE ON THIS EXAMINATION FORM
15. Which of the following
would cause the aggregate demand
curve to shift to the right?
a.
an increase in purchases by the federal government
b.
an increase in real interest rates
c.
an appreciation of the American dollar
d.
a decrease in the money supply
16. Assume that an economy begins in
macroeconomic equilibrium. Then, taxes are significantly decreased. As a result of this change:
a.
there is expansion and inflation in the US US
b.
there is recession and deflation in the US US
17. A large increase in oil prices, such as the ones occurring in 1973
and 1979, will cause
a.
inflation and expansion
c. inflation and recession
b.
recession and disinflation
d. expansion and deflation
18. Assume that production in
the United States
a.
0 b. $500 surplus c.
$500 deficit d. $1,000 deficit e.
$2,000 deficit
19. From 1990 to 1995, the U.S.
a.
wages should have fallen which would cause more workers to be hired
b.
prices should have fallen which would increase consumer spending
c.
interest rates should have fallen which would increase consumer and
investment spending
d.
all of the above should have occurred
20. Which of the following statements is/are true
about the classical quantity theory of
money?
a.
The equation of exchange is MV = PQ
b.
The classical economists assumed that V would rise when real interest
rates rise
c.
The classical economists concluded that increases
in the money supply cause increases
in real GDP and nothing else
d. all of the above
21.
Assume that the United States Great Britain
inflation in the United States but not in Great Britain . As a result of the inflation in the United States ,
a.
Gold would leave the United States Great Britain
b.
Gold would leave Great Britain United States
c.
The American dollar would depreciate
d.
The American money supply would increase
22. At an income of $100,000, I spent $90,000 on
consumer goods. When my income rose to
$200,000, I spent $160,000 on consumer goods.
My marginal propensity to consume
is:
a.
0.9 b. 0.8
c. 0.7 d.
1 e. $70,000
23. National Disposable
Income Taxes Income Consumption Investment Government
$100 $100 0 $ 50 $ 25 $100
200 100
100 125 25 100
300 100 200 200 25 100
400 100 300 275 25 100
500 100 400 350 25 100
600 100 500 425 25 100
700 100 600 500 25
100
800 100 700 575 25 100
Using these numbers, the equilibrium real GDP (equal to National Income) is:
a.
300 b. 400
c. 500 d.
600 e. 700
24. Which of the following would cause consumption to rise?
a.
the GDP Deflator rises
b.
a greater proportion of the population is between age 20 and 30
c.
transitory income increases
d.
income is taken from poor people and given to rich people
25. Which of the following would cause business investment spending to rise?
a.
an increase in real interest rates from 5% to 8%
b.
a decrease in the corporate profits tax rate from 48% to 34%
c.
a reduction of the investment tax credit from 10% to 2%
d.
sales falling in relation to capacity from 90% to 60%
26. Assume that net exports increase by $1
billion. Equilibrium Real GDP will rise
by more than $1 billion. Explain
why. (i.e., why is there a multiplier?).
a.
an increase in net exports appreciates the dollar causing a further
increase in net exports
b.
an increase in net exports causes an increase in tax revenues which
increases
government spending
c.
an increase in net exports increases income causing an increase in induced consumption
d.
an increase in net exports causes an increase in the money supply
27. The
largest transfer in the federal
budget is:
a. defense
b. education c.
social security d. welfare
e. police
28. The
largest tax collected at the federal government level is the:
a. income tax
b. sales tax c.
property tax d. social security tax
29. A
person had an income of $20,000 last year and paid $10,000 in tax. This year, the person
had an income of $100,000 and
paid $30,000 in tax. The person’s marginal tax rate is:
a.
25% b. 30% c.
50% d. 100%
30. The
tax in question 29 is:
a. progressive b.
regressive c. proportional
31. Assume that Equilibrium GDP is $4,000
billion. Potential GDP is $5,000
billion. The marginal propensity to
consume is 4/5 (0.8). By how much and in
what direction should government
purchases be changed?
a.
increase by $1,000 billion
c. increase by $100 billion
b. decrease by $1,000 billion d.
increase by $200 billion
32. Using the numbers in question 31, by how much
should taxes be changed?
a.
increased by $1,000 billion
c. decreased by $200 billion
b. decreased by $1,000 billion d.
decreased by $250 billion
33. Assume that Equilibrium Real GDP is $20,000
while Potential Real GDP is $15,000. The
marginal propensity to consume is 9/10.
Assume that government decides to lower
taxes by $1,000. To pay for this, it
lowers government purchases by
$1,000. As a result of these two
changes, what is the new Equilibrium Real GDP?
a.
$19,000 b. $20,000
c. $21,000 d.
$14,000 e. $1,000
34. Which of the following statements is true
about the national debt?
a.
In total, it is higher now than it has ever been
b.
Most of it is owed by the federal government to foreigners
c.
It means that a tremendous burden is being passed to our children
d.
Because of it, the United
States
e.
All of the above
35. If the official
federal budget shows a deficit
of $200 billion while the structural
budget is has a surplus
of $200 billion, it can be concluded that:
a.
the intent of fiscal policy is very expansionary
b.
there is hyperinflation
c.
the unemployment rate is well above the natural rate
d.
state and local governments have large surpluses
e.
off-budget spending is counted in the official deficit but not in the
structural deficit
36. The Phillips
curve describes the relationship between:
a.
the federal budget deficit and the trade deficit
b.
savings and investment
c.
the unemployment rate and the inflation rate
d.
marginal tax rates and tax revenues
37. Several adjustments have been suggested to
the official budget deficit to be able to measure the effects of the budget
deficit on the economy. For which of the
following would the adjusted deficit be larger
than the official budget deficit?
a.
state and local budget surpluses need to be added to the official budget
deficit
- the effects of unemployment need to be taken
out of the official budget deficit
- the effects of inflation need to be taken
out of the official budget deficit
- off-budget spending needs to be added to the
official budget deficit
38. Which of the following is
included in M-1?
a.
gold c. checkable deposits e. stock
b.
credit cards d. money market mutual funds
39. Which of the following is true about the Federal Reserve System?
a.
its seven Board members are appointed by the President of the United States
b.
its main policy-making body is called the CBO
c.
it insures checking accounts against bank failure
d.
it accepts deposits from individuals and makes loans for mortgages
e.
All of the above
PLEASE DO NOT WRITE ON THIS EXAMINATION FORM.
40. Assume that the Fed increases the monetary base by $1 billion when the
reserve requirement is 1/7. As a result,
the money supply will:
a.
increase by $1 billion c. increase by $7 billion
b. decrease by $1 billion d.
increase by $143 million
41. If the Fed
wishes to decrease (tighten) the money supply, it should:
a.
buy Treasury securities in the open market
b.
raise the discount rate
c.
lower the reserve requirements
d.
raise marginal tax rates
42. The demand
for money will fall if:
a.
Real GDP rises
c. the GDP Deflator rises
b.
real interest rates rise
d. people expect deflation soon
43. An increase
in the money supply causes:
a.
interest rates to fall, investment spending to rise, and aggregate demand to rise
b.
interest rates to rise, investment spending to rise, and aggregate
demand to rise
c.
interest rates to rise, investment spending to fall, and aggregate
demand to fall
d.
interest rates to fall, investment spending to fall, and aggregate demand to fall
44. If individuals forecast future prices by examining the rates of inflation of the
present and recent past, they are using:
a.
adaptive expectations c. inflationary expectations
b.
rational expectations d. structural expectations
45. If the
actual unemployment rate is below the natural rate of unemployment,
it would be expected that:
a.
the rate of inflation would increase c.
the Phillips curve would shift to the left
b.
wages would fall d. the natural rate of unemployment would fall
46. According
to the monetarist acceleration theory, in
the long-run,
a.
the actual unemployment rate will be below the
natural rate of unemployment
b.
the actual unemployment rate will be equal to the
natural rate of unemployment
c.
the actual inflation rate will be equal to the
natural inflation rate
d.
the budget deficit will be equal to zero
e.
the money supply will be growing at a constant
rate per year
47. According to the monetarists, in the long-run, the Phillips Curve is:
a. vertical c. downward-sloping
b. horizontal d. upward-sloping
48. Which of the following statements is true
about supply-side economics?
a.
The main change made by the tax laws of 1981 and 1986 was to
increase marginal tax rates in
order to balance the budget
b.
The Laffer Curve says that, if marginal tax rates fall, tax
revenues will rise, and the budget
deficit will decrease
c.
If the tax laws of 1981 and 1986 had had their
intended effect, consumption would have
risen,
causing an increase in both real GDP and in the price level
d.
All of the above
49. Those who oppose a Constitutional amendment to require a balanced federal
budget would make which of the following arguments:
a.
Deficits are bad because they can cause crowding out
b.
Such an amendment could force the government to undertake
policies that would increase a
recessionary gap
c.
Deficits can cause inflation by increasing aggregate demand
d.
Budget deficits can cause an increase in the trade deficit by
appreciating the dollar
50. If the money supply is: The interest rate is:
$100 billion 10%
120 billion 8%
140 billion 6%
160 billion 4%
120 billion 2%
If the interest rate is: Investment spending is:
10% $10 billion
8% 20 billion
6% 30 billion
4% 40 billion
2% 50 billion
Assume that equilibrium GDP is $400
billion, potential GDP is $500 billion, the marginal propensity to consume is
9/10, the interest rate is 8%, investment spending is $20 billion, the money
supply is $120 billion, and the reserve requirement is 1/10. By how
much and in what direction should the Fed change the monetary base?
a.
increase it by $20 billion
d. increase it by $2 billion
b.
decrease it by $100 billion
e. decrease it by $10 billion
c.
increase it by $90 billion
END OF EXAMINATION
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