(Use a SCANTRON, ½ point each question)
1. GDP can be calculated as
[A] output.[B] income.[C] expenditures.[D] output, expenditures, and income.
2.
In the table above, the value added from the soda machine retail stage is equal to
[A] $0.05.[B] $0.20.[C] $0.40.[D] $0.60.[E] $1.15.
3. Depreciation must be subtracted from the calculation of gross domestic product.
[A] T[B] F
4.
For the economy described in the table above, gross investment is
[A] $1,200.[B] $1,000.[C] $1,800.[D] $400.[E] Impossible to determine
5. To arrive at a more accurate measure of real output changes in an economy, nominal GDP figures should be adjusted for inflation.
[A] T[B] F
6. The price index for the current year is 180. This means that, on average, prices in the current year are
[A] $0.80 higher than prices in the base year.
[B] 180 percent higher than prices in the base year.
[C] 80 percent higher than prices in the base year.
[D] $1.80 higher than prices in the base year.
[E] 80 percent of prices in the base year.
7. The Consumer Price Index (CPI) is also know as
[A] the cost of living index.
[B] the consumer confidence index.
[C] the consumer report on living standards.
[D] the producer price index.
[E] the overall average price.
8. Depreciation of the dollar means that
[A] the value of the dollar has increased in relation to other currencies.
[B] foreign product prices are now lower.
[C] the United States will sell fewer products to foreigners.
[D] the prices of U.S. products to foreigners have risen.
[E] foreign product prices are now higher.
9. If the dollar price of one euro was $0.96 in 1999 and $0.93 in 2002, what happened to the value of the U.S. dollar from 1999 to 2002?
[A] It did not change because exchange rates between the United States and Europe are fixed.
[B] It could buy fewer euros in 1999 than in 2002.
[C] It appreciated against the euro.
[D] It could buy the same amount of euros in 1999 than in 2002.
[E] It depreciated against the euro.
10. The merchandise trade balance
[A] includes U.S. interest earned on foreign asset holdings.
[B] indicates the difference between the dollar value of U.S. exported goods and U.S. imported goods.
[C] is not included in the U.S. balance of payments.
[D] includes services and financial assets.
[E] will always be in balance.
11. Which of the following would not involve the financial (capital) account component of the U.S. balance of payments?
[A] Tourism
[B] Land purchases
[C] International investment
[D] Financial assets
[E] Capital outflows
12. Foreign aid, royalties earned abroad, and long-term capital flows are part of the current account.
[A] T[B] F
13. A gift from the British prime minister to the American president would be classified as a unilateral transfer.
[A] T[B] F
14. If a nation is incurring a current account deficit, it is either reducing its holdings of foreign assets or increasing its liabilities to foreigners.
[A] T[B] F
15. Technological change increases the productivity of resources so that output increases even with a fixed amount of inputs.
[A] T[B] F
16. Suppose statistical surveys indicate that new orders for manufactured goods and new building permits for single-family homes are declining while business inventories are rising. These data may lead you to conclude that economic activity is slowing down and the economy is potentially entering a recessionary period.
[A] T[B] F
17. To be counted as part of the labor force, a person must
[A] be working or actively looking for work.
[B] be less than 65 years old.
[C] be a discouraged worker.
[D] have worked at some time in the past.
[E] be under 16 years of age.
18. Frictional and structural unemployment are always present in a dynamic economy.
[A] T[B] F
19. Potential real GDP is the level of output produced when the unemployment rate finally reaches zero.
[A] T[B] F
20. When inflation is much higher than expected, which of the following is true?
[A] Nominal incomes are lower than expected.
[B] Nominal interest rates are lower than expected.
[C] Real interest rates are higher than expected.
[D] Real interest rates are lower than expected.
21. If the inflation rate is greater than the nominal interest rate, then the real interest rate is less than zero.
[A] T[B] F
22. In 1992, steelworkers in Germany negotiated wage increases of 5.5 percent even though the annual inflation rate was only 3 percent. As a result, many steel factories had to raise output prices to maintain their profit margins. This is an example of cost-push inflation.
[A] T[B] F
23. Because they must have some saved money, the unemployment of high-paid workers does not represent a problem to the economy.
[A] T[B] F
24. The United States’s economic growth in the twentieth century has been steady.
[A] T[B] F
25. A rightward shift of the aggregate demand curve with no change in aggregate supply signals an economic expansion.
[A] T[B] F
26. Household expenditures will decrease as a result of
[A] a higher domestic price level.
[B] increased consumer confidence.
[C] an appreciation of the domestic currency.
[D] population growth.
[E] lower personal income taxes.
27. Firms tend to invest less when they have a lot of excess capacity.
[A] T[B] F
28. An increase in aggregate demand due to higher foreign income will cause domestic equilibrium GDP to increase, as well as domestic prices to rise.
[A] T[B] F
29. In the short run, an increase in the general price level will cause business profits to fall and, hence, the total quantity of output to decline.
[A] T[B] F
30.
Which of the graphs in the figure above best describes the impact of lower real income in Germany on U.S. equilibrium real GDP and the U.S. equilibrium price level?
[A] A[B] B[C] C[D] D[E] E
31. The higher the disposable income, the more households are willing and able to spend.
[A] T[B] F
32.
In the table above, if we know that saving is equal to $3,000, then the disposable income must be
[A] 12,000.[B] 15,000.[C] 45,000.[D] 3,000.[E] 30,000.
33. The primary determinant of consumption is
[A] wealth.
[B] expectations of inflation.
[C] taxes.
[D] disposable income.
[E] demographics.
34. As part of aggregate expenditures,investment does not include
[A] purchases of new factories.
[B] acquisitions of capital equipment.
[C] purchases of stocks and bonds.
[D] reductions in unwanted inventories.
[E] increases in planned inventories.
35. Other things equal, an increase in the cost of capital would be associated with a reduction in investmentand, hence, a decline in aggregate expenditures.
[A] T[B] F
36. When domestic income rises,
[A] domestic consumption falls.
[B] foreign investment falls.
[C] domestic imports fall.
[D] foreign consumption falls.
[E] domestic imports rise.
37.
Inthe above table, what would be aggregate expenditures at an income level of $350? (Note: X stands for net exports).
[A] $200[B] $240[C] $280[D] $380[E] $545
38.
In the table above, the economy is in equilibrium in both years. What are net exports for year 2?
[A] $195[B] $60[C] $55[D] $70[E] $125
39. Investment, government spending, and exports are leakages of planned spending into domestic aggregate expenditures.
[A] T[B] F
40. Other things equal, a reduction in net exports will cause equilibrium real GDP to increase.
[A] T[B] F
41. Other things equal, the larger the MPC (marginal propensity to consume), the larger the spending multiplier.
[A] T[B] F
42. If an economy that has a multiplier of 2 experiences a drop of $12 billion in exports, the equilibrium income will
[A] decrease by $6 billion.[B] decrease by $12 billion.[C] increase by $12 billion.
[D] increase by $6 billion.[E] decrease by $24 billion.
43.
Which of the following could close the GDP gap in the figure above?
[A] An increase in government spending equal to the distance between and
[B] An increase in government spending equal to the distance between A and C
[C] An increase in investment equal to the distance between A and B
[D] An increase in investment equal to the distance between B and C
[E] None of these.
44. Which of the following will not result in an increase in aggregate expenditures?
[A] An increase in autonomous net exports
[B] An increase in real wealth
[C] An increase in income taxes
[D] A decrease in domestic prices
[E] A decrease in the interest rate
45.
In the figure above, equilibrium in the economy is solely a function of
[A] aggregate demand.[B] the price level.[C] the money supply.
[D] production costs.[E] aggregate supply.
46. An increase in federal income tax rates is an example of fiscal policy that affects GDP indirectly through consumption adjustments.
[A] T[B] F
47. Fiscal policy is most effective (has the greatest impact on real GDP) when the economy operates in the vertical region of the aggregate supply curve.
[A] T[B] F
48. When the price level increases, the effect of a change in government spending on real GDP will be understated.
[A] T[B] F
49. Historically, aside from wartime, budget deficits increase most during recessions.
[A] T[B] F
50. Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and U.S. net exports to rise.
[A] T[B] F
51. Assume an economy has automatic stabilizers in place that include a progressive tax structure and a transfer payment system. Then in a period of high economic growth and high inflation, we would expect
[A] tax revenues to fall and unemployment compensation to rise.
[B] the national debt to become larger.
[C] government spending on social security benefits to rise.
[D] average tax rates and government revenues to rise.
[E] average tax rates and welfare payments to decline.
52. If you use your Visa or MasterCard to buy a shirt, you are not buying the shirt with your money.
[A] T[B] F
53. M1 is a more liquid measure of a nation’s money stock than M2.
[A] T[B] F
54. Suppose the reserve requirement is 10 percent and a person deposits $1,500 in a local bank. That single local bank can now create a maximum of
[A] $150 in additional money by lending $150.
[B] $15,000 in additional money by lending $15,000.
[C] $1,350 in additional money by lending $1,350.
[D] $1,500 in additional money by lending $1,500.
[E] $135 in additional money by lending $135.
55.
Refer to the table above. If the reserve requirement changes from 20 percent to 10 percent, how much new money can the banking system create (assuming that banks have zero excess reserves)?
[A] $1,000,000
[B] $200,000
[C] $20,000
[D] $100,000
[E] $400,000
56. Assume that the reserve requirement is 10 percent. A $1,000 cash deposit into a savings account will immediately increase the bank’s required reserves by $10,000.
[A] T[B] F
57. Refer to the table above. Bank 1 has received a deposit of $10,000,000. The reserve requirement is 20 percent. If the banks retain no excess reserves, then the total amount of loans that Bank 2 can make equals
[A] $200,000.
[B] $800,000.
[C] $1,000,000.
[D] $6,400,000.
[E] $4,000,000.
58. Refer to the table above. With a reserve requirement of 20 percent, what is the total amount of deposits the entire banking system will receive including the initial deposit of $10,000,000 with Bank 1? (Assume that the banks retain no excess reserves.)
[A] $50,000,000[B] $200,000,000[C] $20,000,000[D] $100,000,000
59. Which of the following is not one of the services the Fed provides to commercial banks?
[A] Supplying currency
[B] Holding reserves
[C] Clearing checks
[D] Occasionally lending money
[E] Insuring customer accounts for up to $100,000
60. Inflation Targeting could be defined as
[A] the situation in which a country decides to focus its monetary policy on a low money growth.
[B] applying inflation policies to foster economic growth.
[C] the targeting of hyperinflation.
[D] the situation in which a country decides to focus its monetary policy on interest rates.
[E] the situation in which a country decides to focus its monetary policy on a low inflation rate.
61. According to the equation of exchange (MV=PY), a decrease in the money supply would have to be undertaken to offset any decrease in the velocity of money.
[A] T[B] F
62. Restrictive monetary policy is associated with which of the following actions?
[A] The purchase of government securities
[B] An increase in the reserve requirement
[C] A decrease in the federal funds rate
[D] A decrease in the discount rate
[E] An increase in excess reserves
63. The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?
[A] An increase in the reserve requirement
[B] A reduction in loans to the U.S. Treasury
[C] An increase in the discount rate
[D] A more lenient supervision of savings and loan institutions
[E] Open market purchases of government securities
64. The desire to keep assets in cash to take advantage of favorable changes in the value of non-cash assets such as stocks and bonds is called the
[A] wealth demand for money.
[B] speculative demand for money.
[C] transactions demand for money.
[D] precautionary demand for money.
65. A leftward shift in the money demand function would result from
[A] a decrease in the interest rate.
[B] an increase in real income.
[C] a decrease in the money supply.
[D] a decrease in the price level.
[E] an increase in the interest rate.
66. An individual who holds some of her wealth in the form of money in order to pay rent and buy groceries is illustrating the transactions demand for money.
[A] T[B] F
67. Contrary to what believers in the Phillips curve would say, U.S. economic data from 1955 to 2000 shows evidence of
[A] no particular relationship between the unemployment rate and inflation.
[B] a negative relationship between the unemployment rate and inflation.
[C] a constant rate of inflation with changing rates of unemployment.
[D] a positive relationship between the unemployment rate and inflation.
[E] a constant rate of unemployment with changing rates of inflation.
68. Business inventories tend to fall after an unexpected increase in aggregate demand.
[A] T[B] F
69. If the actual unemployment rate is below the natural rate of unemployment, then the actual inflation rate must exceed the expected inflation rate and the economy is operating along the short-run Phillips curve.
[A] T[B] F
70. Refer to the figure above. If the adaptive expectations hypothesis holds and the economy moves from point C to point D because of expansionary fiscal policy, what rate of inflation are people expecting at point D ?
[A] 2 percent[B] 4 percent[C] 6 percent[D] 8 percent[E] 10 percent
71. Refer to the figure above. If the rational expectations hypothesis holds and the Fed implements a fully expected increase in money supply growth, starting from point C, in the short run the economy would tend to move to
[A] point A.[B] point B.[C] point D.[D] point E.[E] point F.
72. Which of the following could be a cause of a real business cycle?
[A] A lowering of the discount rate
[B] The Fed increasing the money supply
[C] A decrease in government borrowing
[D] A drought in the Midwest
[E] An increase in taxes
73. Traditional Keynesian economics assumes that prices are relatively flexible to changes in aggregate expenditures.
[A] T[B] F
74. To reduce unemployment, new Keynesians would
[A] increase taxes.
[B] increase government spending.
[C] reduce the money supply.
[D] reduce the budget deficit.
[E] decrease aggregate supply.
75. Monetarists believe that changes in monetary policy (or fiscal policy, for that matter) have only a short-term effect on real GDP.
[A] T[B] F
76. Monetarists believe that discretionary monetary policy but not discretionary fiscal policy should be used.
[A] T[B] F
77.
Refer to the figure above. Assume that the government carried out unexpected expansionary monetary policy that has the economy currently at point D. If people next year expect that this inflation rate will persist, the economy will now move to point
[A] A[B] B[C] C[D] It would remain at point D.
[E] It cannot be determined based on the information given.
78. According to the new classical school, an anticipated increase in government spending will cause both real GDP and inflation to rise in the short run.
[A] T[B] F
79. Economic growth is measured as an increase in real GDP.
[A] T[B] F
80. Long-term economic growth requires a permanent
[A] rightward shift of the aggregate demand curve.
[B] rightward shift of the vertical aggregate supply curve.
[C] leftward shift of the vertical Phillips curve.
[D] rise in the natural rate of unemployment.
[E] decline in the average price level.
81. Forgoing consumption today for consumption in the future is achieved by
[A] an increase in borrowing.
[B] a high-growth monetary policy.
[C] a reduction in consumer income.
[D] a ban on the production of consumer goods.
[E] an increase in saving.
82. Other things equal, advances in technology allow resources to be more productive.
[A] T[B] F
83. An increase in energy prices can adversely affect productivity growth by
[A] decreasing the costs of production.
[B] increasing the stock of usable capital.
[C] making energy-inefficient capital goods obsolete.
[D] shifting the aggregate supply curve to the right.
[E] increasing aggregate supply.
84. As the service sector in the U.S. economy grows, traditional productivity measures will become
[A] biased downward since service output leads to a long-run decline in the inflation rate.
[B] biased downward since the qualitative aspects of a service tend to be understated.
[C] completely inappropriate in measuring even manufacturing output.
[D] biased upward since prices in the service sector always rise faster than in manufacturing.
[E] biased upward since quantitative improvements in the service sector tend to be overstated.
85. Which of the following helps to explain Japan’s high rate of labor productivity?
[A] A large number of diligent students
[B] A relatively low saving rate
[C] An abundance of natural resources
[D] A preference by Japanese workers for leisure over work
[E] Small research and development expenditures