Macroeconomics Exam #2 PDF

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Macroeconomics Exam Practice #2 1. Which of the following is an example of active fiscal policy?

a. Government expenditures rise during a recession because unemployment insurance benefits increase. b. The government runs a budget deficit during a recession because income tax collections fall. c. Congress passes a tax cut after the beginning of a recession with the aim of stimulating the economy. d. All of the above e. None of the above 2. Negative net exports means that a. The country sells more goods abroad than it buys from other countries. b. The country buys more goods from other countries than it sells to other countries. c. The country has a closed economy. d. The country’s tariffs are too low. e. Both C and D 3. Which of the following is not an example of an automatic stabilizer? a. The increase in unemployment insurance payments during a recession b. The increase in welfare payments during a recession c. The reduction in income tax revenues during a recession d. The passage of a stimulus package to respond to a recession e. All of these are automatic stabilizers. 4. To decrease the money supply, the Fed would a. Buy government bonds b. Increase the discount rate c. Decrease the reserve requirement d. Any of the above e. None of the above 5. The aggregate supply-aggregate demand model predicts that an unexpected increase in government spending will have what short-run effects? a. A decrease in the price level and an increase in real output. b. A decrease in the price level and no effect on real output. c. An increase in the price level and a decrease in real output. d. A decrease in both the price level and real output. e. An increase in both the price level and real output.

6. Which of the following would be included in Gross National Product (GNP) but not in Gross Domestic Product (GDP) of the United States? a. The earnings of an American-owned factory in Germany b. The income of a Texan employed in Oklahoma c. The earnings of a Japanese-owned factory in the U.S. d. The income of American government employees working in Washington, D.C. e. The income of employees of foreigners working in foreign embassies in the U.S. 7. According to the following information, what is the unemployment rate? (Round to the nearest tenth of a percent.) Number of Employed: 10,000; Number of Unemployed: 500; Not in the Labor Force: 3,000 a. 5.0% b. 4.8% c. 3.7% d. 30.0% e. None of the above 8. In economics, “National Saving” is calculated by a. Subtracting private consumption and investment from total income. b. Subtracting credit card debt from the total value of stock market investments. c. Combining the total value of savings accounts with stock market investments. d. Subtracting private and government consumption from total income. e. None of the above 9. Which of the following is NOT one of the components of aggregate demand? a. Consumption spending b. Investment spending c. Government purchases of goods and services d. Money supply e. Net exports 10. In the long-run, higher saving leads to a. Permanently faster growth. b. Permanently slower growth. c. Temporarily faster growth. d. Temporarily slower growth. e. None of the above 11. Which of the following is not included in a country’s Gross Domestic Product (GDP)? a. The value of final goods sold

b. c. d. e.

The value of final services sold The value of investment The value of government expenditures The value of household production in the economy

12. Which of the following statements are correct? a. Economists using the classical dichotomy distinguish between variables measured in monetary units from those measured in physical units. b. Real variables are variables measured in monetary units. c. Nominal variables are variables measured in physical units. d. A is false, but B and C are both correct. e. A, B, and C are all correct. 13. The quantity equation relates a measure of the money supply (M), to the velocity of money (V), the GDP deflator (P) and real GDP (Y). Which of the following expression accurately describes the quantity equation? a. MY=PV b. MP=VY c. MV=PY d. M/P=V/Y e. None of the above describes the quantity equation. 14. An increase in the minimum wage will likely: a. Increase structural unemployment. b. Decrease structural unemployment. c. Increase frictional unemployment. d. Decrease frictional unemployment. e. Increase cyclical unemployment. 15. According to the loanable funds framework, if businesses reduce their willingness to spend money on new capital equipment, a. Inflation will increase b. Interest rates will increase c. Interest rates will decrease d. Interest rates will not change e. None of the above are true 16. Governments can increase the likelihood of economic development by a. Instituting policies to see that everyone shares equally. b. Supporting smooth transitions from one set of office-holders to another.

c. Encouraging banks to lend to politically favored borrowers at below-market interest rates. d. Adopting policies that specifically benefit those in office. e. Heavily taxing profits from new inventions....