2017 Macroeconomics Pratice PDF

Preview

Summary

CB2402 Macro-Econ Past Final Exam MC Questions (50 questions, 1 point each): Which of the following transactions represents the purchase of a final good? A) Starbucks purchases coffee beans. B) You buy a new Honda Accord car. C) Subway purchases lettuce for its sandwiches. D) Apple computer buys com...

Description

CB2402 Macro-Econ Past Final Exam MC Questions (50 questions, 1 point each): 1) Which of the following transactions represents the purchase of a final good? A) Starbucks purchases coffee beans. B) You buy a new Honda Accord car. C) Subway purchases lettuce for its sandwiches. D) Apple computer buys computer processors from Intel. 2) Product Quantity Price Shoes 40 $60.00 DVDs 100 18.00 Tomatoes 2,000 1.00 Ketchup 300 4.00 Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume half of the tomatoes are used in making the ketchup. Using the information in the above table, nominal GDP for this simple economy equals A) 2,440 units. B) $5,400. C) $6,400. D) $7,400. 3) If the number employed is 190 million, the working-age population is 250 million, and the number unemployed is 10 million, then the unemployment rate is A) 3.8%. B) 4%. C) 5%. D) 5.3%. 4) If cyclical unemployment is eliminated in the economy, then A) the economy is considered to be at full employment. B) the unemployment rate is below the natural rate of unemployment. C) the unemployment rate is above the natural rate of unemployment. D) the economy has no unemployment. 5) A consumer price index of 140 in 2005 with a base year of 1999 means that in 2005 A) the inflation rate equaled 140%. B) the inflation rate equaled 40%. C) the price level rose 140% from the base year. D) the price level rose 40% from the base year.

6) If the real GDP in China doubles between 2005 and 2015, what is the average annual growth rate of the real GDP in China? A) 5% B) 7% C) 10% D) 15% 7) An increase in the government budget deficit will shift the funds to the and the equilibrium real interest rate will A) supply; right; fall B) supply; left; rise C) demand; right; rise D) demand; left; fall

curve for loanable .

8) Suppose consumption is $6 million, planned investment is $8 million, government purchases are $10 million, and net export is $2 million. There is an unplanned increase in inventories that equals $2 million. What is the value of real GDP? A) $20 million B) $22 million C) $26 million D) $28 million 9) If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is A) 0.4. B) 0.5. C) 0.8. D) 1.25. 10) An increase in the price level will A) shift the aggregate demand curve to the left. B) shift the aggregate demand curve to the right. C) move the economy up along a stationary aggregate demand curve. D) move the economy down along a stationary aggregate demand curve. 11) Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP? A) Short-run aggregate supply will shift to the left. B) Short-run aggregate supply will shift to the right. C) Short-run aggregate demand will shift to the left.

D) Short-run aggregate demand will shift to the right. 12) If a person withdraws $1,000 from his/her checking account deposit and puts it in his/her savings account, then M1 will and M2 will . A) increase; increase B) decrease; decrease C) decrease; increase D) decrease; not change 13) Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of A) $0. B) $50. C) $500. D) $5,000. 14) An increase in the price level causes A) the money demand curve to shift to the left. B) the money demand curve to shift to the right. C) a movement up along the money demand curve. D) a movement down along the money demand curve. 15) When conducting an expansionary monetary policy, the Fed can funds rate by Treasury bills, which increases bank reserves. A) decrease; selling B) decrease; buying C) increase; selling D) increase; buying

the federal

16) If the Federal Reserve uses contractionary monetary policy to keep real GDP at its potential level, which of the following will be lower than if the Fed had taken no action? A) real GDP and the unemployment rate B) real GDP and the inflation rate C) real GDP and potential GDP D) the unemployment rate and the inflation rate 17) The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

A) automatic stabilizers. B) discretionary fiscal policy. C) discretionary monetary policy. D) automatic monetary policy. 18) Expansionary fiscal policy involves A) increasing government purchases or decreasing taxes. B) increasing taxes or decreasing government purchases. C) increasing the money supply and decreasing interest rates. D) decreasing the money supply and increasing interest rates. 19) From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then would most likely keep real GDP at its potential level. A) increasing the required reserve ratio B) increasing interest rates C) decreasing government spending D) decreasing taxes 20) If expected inflation falls, the long-run Phillips curve will A) shift to the right. B) not be affected. C) shift to the left. D) become negatively sloped. 21) An increase in expected inflation will A) increase real wages. B) decrease the natural rate of unemployment. C) shift the long-run Phillips curve to the right. D) None of the above is correct. 22) If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective? A) 94 B) 115 C) 128 D) 153

23) According to the saving and investment equation, if net foreign investment falls by $35 million, A) national saving in excess of domestic investment will rise by $35 million. B) national saving in excess of domestic investment will decrease by $35 million. C) national savings will rise by $35 million. D) domestic investment will fall by $35 million. 24) The Danish currency, the krone, is pegged to the euro at a rate of 7.43 kroner (kroner is the plural of krone) to the euro. At the pegged exchange rate, how many euros would be exchanged for one krone? A) 0.135 B) 1.00 C) 2.48 D) 7.43 25) In order to support an undervalued euro, the European Central Bank must dollars. Over time, this action will cause the rate of inflation in the EU to A) buy; decrease B) buy; increase C) sell; increase D) sell; decrease

.

26. Which of the following is a true statement about real and nominal GDP? A. If nominal GDP increases from one year to the next, we know that production of goods and services has risen. B. Increases in average prices do not affect the calculation of nominal GDP. C. If real GDP increases from one year to the next, we know that production of goods and services has risen. D. Nominal GDP is a better measure than real GDP in comparing changes in the production of goods and service year after year. 27. Labor unions cause unemployment because the union contract wage is set A. below the market wage, causing a surplus of labor. B. above the market wage, causing a shortage of labor. C. below the market wage, causing a shortage of labor. D. above the market wage, causing a surplus of labor. 28. The Soviet Union consistently increased the amount of capital available to its workers, but found that increases in capital resulted in progressively smaller and smaller increases in GDP per worker. This phenomenon is referred to as A. a shift of the per-worker production function.

B. new growth theory. C. diminishing returns to capital. D. a rising standard of living. 29. Policies to promote growth by increasing saving and investment work through A) increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital. B) decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital. C) increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital. D) increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital. Use the figure to answer the following two questions.

30. At point J in the figure above, which of the following is true? A) GDP will be decreasing. B) Aggregate expenditure is less than GDP. C) Actual inventories are less than planned inventories. D) The economy has achieved macroeconomic equilibrium. 31. If the economy is at point J in the figure above, what will happen? A) Inventories have fallen below their desired level, and firms increase production. B) Inventories have risen above their desired level, and firms decrease production. C) Inventories have fallen below their desired level, and firms decrease production. D) Inventories have risen above their desired level, and firms increase production.

32. Use the aggregate demand and aggregate supply framework to analyze the effect of a fall in oil prices. When the price of oil falls unexpectedly, the equilibrium price level and the unemployment rate in the short run. A) falls; falls B) rises; rises C) falls; rises D) rises; falls 33. Stagflation occurs when inflation A) rises; rises B) rises; falls C) falls; falls D) falls; rises

and GDP

.

34. Suppose a transaction changes a bank's balance sheet as indicated in the following Taccount, and the required reserve ratio is 10 percent. Assets Reserves + $3,000

Liabilities Deposits + $3,000

As a result of the transaction, the bank can make a maximum loan of A) $0. B) $300. C) $2,700. D) $3,000. 35. If the central bank buys government bonds, then this A) decreases reserves, causes banks to reduce their loans, and decreases the money supply. B) increases reserves, encourages banks to make more loans, and increases the money supply. C) increases reserves, causes banks to reduce their loans, and decreases the money supply. D) decreases reserves, causes banks to reduce their loans, and increases the money supply. 36. According to the quantity theory of money, inflation is caused by A) GDP growing faster than the money supply. B) GDP growing at the same rate as the money supply. C) the money supply growing faster than real GDP. D) the money supply growing slower than real GDP. 37. In which of the following situations would the central bank conduct contractionary monetary policy?

A) The central bank is worried that deflation will become a problem. B) The central bank is concerned that aggregate demand would continue to exceed the growth in potential GDP. C) The central bank believes that aggregate demand was growing too slowly to keep up with potential GDP. D) The central bank fears that unemployment is climbing above the natural rate. 38.38. Ye a r 2014 2015

Pot e nt i a lRe a lGDP $ 1 4. 0t r i l l i on 1 4 . 5t r i l l i on

Re a lGDP $ 1 4. 0t r i l l i on 1 4. 2t r i l l i on

Pr i c eLe ve l 1 5 0 1 5 2

Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2014 and in 2015 in the U.S. if the Federal Reserve does not use monetary policy. If the Fed wants to keep real GDP at its potential level in 2015, it should A) increase income taxes. B) sell Treasury securities. C) increase the required reserve ratio. D) buy Treasury securities. 39. Using the Taylor rule, if the current inflation rate rises above target inflation rate and real GDP rises above potential GDP while all else remains constant, then the federal funds target rate A) will increase. B) will decrease. C) remains unchanged. D) may increase or decrease. 40. If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply, the appropriate fiscal policy response is to A) increase taxes. B) use expansionary fiscal policy. C) increase interest rates. D) increase government spending. 41. If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential real GDP $15 trillion, then government purchases would need to increase by to restore the economy to potential real GDP. Assume a constant price level and no crowding out effect. A) $7.25 trillion B) $1 trillion

C) $0.5 trillion D) $0.25 trillion 42. If policy makers implement an expansionary fiscal policy to achieve the potential level of GDP but do not take into account the possibility of crowding out, the new equilibrium level of GDP is likely to A) be above potential GDP. B) be at potential GDP. C) be below potential GDP. D) There is insufficient information given here to draw a conclusion. 43. If strong aggregate demand is pushing the economy beyond potential real GDP, which of the following must be true? A) The economy is at an equilibrium that is on the long-run Phillips curve. B) The economy is at an equilibrium that is on the long-run aggregate supply curve. C) The economy is at an equilibrium that is not on the long-run Phillips curve. D) Expansionary monetary policies will push the economy back to the long-run Phillips curve. 44. What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation? A) The short-run Phillips curve becomes the long-run Phillips curve. B) The short-run Phillips curve is not affected by expansionary monetary policy. C) The short-run Phillips curve shifts down. D) The short-run Phillips curve shifts up. 45.45.

Refer to the figure above. Currency speculators believe that the value of the euro will decrease relative to the dollar following ECB quantitative easing. Assuming all else remains constant, how would this be represented? A) Supply of U.S. dollar would increase, demand for U.S. dollar would increase and the economy moves from D to A to B. B) Supply of U.S. dollar would decrease, demand for U.S. dollar would decrease and the economy moves from B to C to D. C) Supply of U.S. dollar would decrease, demand for U.S. dollar would increase and the economy moves from A to D to C. D) Supply of U.S. dollar would increase, demand for U.S. dollar would decrease and the economy moves from C to B to A. 46. The level of saving in the United States has historically been low relative to the level of domestic investment. Based on this information, we would expect that A) U.S. net foreign investment has been relatively high. B) U.S. private saving is less than its public saving. C) U.S. capital inflows are negative. D) U.S. net exports have been relatively low. 47. Which of the following would you expect to decrease both interest rates and exchange rates? (Assume exchange rates are stated in terms of foreign currency per domestic currency.) A) contractionary monetary policy B) contractionary fiscal policy C) expansionary monetary policy D) Both B and C will decrease both interest rates and exchange rates. 48. The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory. In July 2011, The Economist reported that the average price of a Big Mac in the United States was $4.07. In Japan, the average price of a Big Mac at that time was 320 yen. What is the "implied exchange rate" between the yen and the dollar? A) 0.013 yen per dollar B) 78.62 yen per dollar C) 127.18 yen per dollar D) 130.24 yen per dollar 49. Hong Kong pegs a country's exchange rate to the U.S. dollar. This can be advantageous in all of the following situations except A) if a country wishes to conduct independent monetary policy. B) if imports are a significant fraction of the goods the country's consumers buy. C) if investors believe the dollar to be more stable than the domestic country's currency. D) if the country has extensive U.S. dollar denominated trading.

50. China began pegging its currency, the yuan, to the dollar in 1994 in order to support China’s export sector. Because the yuan was at the pegged exchange rate, the Chinese government increased its reserves of as the government purchased more to maintain the pegged exchange rate. A) overvalued; dollars; dollars B) undervalued; dollars; dollars C) undervalued; yuan; yuan D) overvalued; yuan; yuan

Written-Based Questions: 1. [25 points] Consider the money market and investment in a closed economy in the short run. Suppose that the initial equilibrium interest rate is zero and the initial equilibrium investment is finite. The price level is rigid in the short run. Investigate what would happen to the equilibrium interest rate and the investment if the monetary authority performs an expansionary monetary policy. Answer this question in not more than three sentences by using a graph that expresses the money market.

2. [25 points] Consider an economy without economic growth. The economy is initially in a long-run macroeconomic equilibrium. Suppose that oil prices increase substantially and the production costs that many firms incur increase. Investigate what would happen to the economy in the short run and in the long run. Answer this question in not more than three sentences by using a graph(s) that is used for the aggregate demand and aggregate supply analysis....