Midterm Exam
The US Economy
- Choose ONE answer only:
_____#1. If interest rates decrease, which of the following would not increase
a. investment b. consumption c. real money demand
d. saving e. APC
_____#2. If real income increases, which of the following would not increase
a. consumption b. saving c. money demand
d. net exports e. taxes
_____#3. In general, we would say that employment should be inverselyrelated
to the following
a. GDP growth b. inflation c. price level d. consumption
_____#4. Suppose that consumer optimism increases. We would expect that
a. Ye would decrease b. re would increase
c. money supply would increase d. inflation would decrease
_____#5. Suppose that government spending increases, then we would expect
a. interest rates would increase b. money supply would increase
c. GDP would decrease d. net exports would increase
_____#6. Suppose that taxes increase, then we would expect
a. interest rates would increase b. money supply would increase
c. GDP would increase d. net exports would increase
_____#7. An increase in the money supply would
a. increase the trade surplus b. decrease investment
c. decrease GDP d. increase interest rates
_____#8. Which of the following would shift LM to the LEFT?
a. an increase in the money supply b. an increase in GDP
c. an increase in money demand d. an increase in interest rates
_____#9. Any point below the LM curve is a point of
a. excess supply of money b. excess demand for money
c. excess demand for goods d. excess supply of goods
_____#10. If government spending increases by 100, then equilibrium income
will increase by
a. exactly 100 b. less than 100
c. more than 100 d. cannot determine
_____#11. Suppose that net exports exogenously increase. We would expect
that
a. equilibrium GDP would increase
b. equilibrium interest rates would decrease
c. money supply would increase
d. money demand would increase
_____#12. Which of the following is part of actual investment?
a. saving b. changes in inventories
c. consumption d. money supply
_____#13. If there is a recession, which of the following would decrease?
a. actual inflation b. unemployment c. natural unemployment
d. natural inflation e. the fiscal deficit
_____#14. Suppose that C = 100 + 0.8Yd. The marginal propensity to saveis
equal to
a. 100 b. 0.8 c. 100/0.8 d. 0.2 e. 100/0.2
_____#15. Suppose that Y = C + Ip and Ip = 100 with C = 100 + 0.8Y.
Therefore equilibrium income is equal to
a. 1000 b. 800 c. 1500 d. 500 e. 100
_____#16. If autonomous consumption increases, then we would expect that
a. Ye would increase b. re would decrease
c. Ms would increase d. net exports would increase
_____#17. The circular flow shows that ( = "approximately equal to")
a. GDP Consumption b. GDP Ap
c. GDP National Income d. GDP Trade Surplus
_____#18. Gordon believes that the Japanese economy could have recovered
faster during the late 1990’s if
a. the central bank would have printed more money
b. interest rates were lowered
c. the yen had depreciated
d. government spending and money supply would have increased more
e. taxes were lowered permanently
_____#19. Suppose that the money multiplier = 10 and δ = 0.05. This means
that ρ = ______.
a. 0.01 b. 0.07 c. 0.13 d. 0.15 e. 0.25
#20. Which of the following will NOT reduce the money supply?
a. increase the discount rate at the Fed
b. increase the required reserve ratio
c. Fed sells bonds to commercial banks
d. the money multiplier is reduced
e. δ = C/D increases
- Answer each of the following questions completely
on your test paper.
#1. Suppose that an economy (without money) is characterized by the
following data:
C = 100 + 0.75(Y – T) T = 10 + .10Y Ip = 50
G = 40 NX = 10 - 0.175Y
- Find the equilibrium level of Y
- Find the equilibrium level of T
- Find the equilibrium level of NX
- What is the value of the multiplier?
- If government spending increases by 10, by how much does Ye change ?
#2. Suppose that an economy, having both money and goods markets, is
characterized by the following data:
C = 1000 + 0.80(Y – T)– 20r T = 125 + .20Y Ip = 500 – 30r
G = 500 NX = 600 - 0.14Y
Ms/P = 400 (M/P)d = 0.4Y – 40r
a. Find the equilibrium value of Y
b. Find the equilibrium value of r
c. Find the equilibrium value of T
d. What is the value of the budget deficit?
e. What is the value of the trade deficit?