QUIZ 2 - Introduction to Macroeconomics - QUIZ 2 PDF

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Introduction to Macroeconomics - QUIZ 2...

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QUIZ 2 1. Which of the following is an exogenous variable in our model of the goods market in Chapter 3? a) Government spending (G) b) Saving (S) c) Disposable income (YD) d) Consumption (C) Solution: a 2. Which of the following would tend to make the multiplier smaller? a) a reduction in taxes b) a reduction in government spending c) an increase in the marginal propensity to save d) an increase in the marginal propensity to consume

Solution: c

3. During the late 1990s, Japan experienced reductions in the DGP deflator. Given this information, we know with certainly that a) Both real GDP and the overall price level decreased during these periods. b) Real DGP did not change during these periods. c) The overall price level in Japan decreased during these periods. d) Real DGP fell during these periods. Solution: c 4. Deflation generally occurs when which of the following occurs: a) The consumer price index decreases b) The rate of inflation falls, for example from 4 percent to 2 percent. c) The consumer price index and the DGP deflator are constant. d) The consumer price index is greater than the GDP deflator. Solution: a

5. One of the reasons macroeconomics have concerns about inflation is that inflation causes a) Nominal GDP to fall b) None of the answers is correct c) Real GDP to rise d) Real GDP to exceed nominal GDP. Solution: b 6. Related to the equilibrium in the goods market: a) A low marginal propensity to consume implies that an increase in government expenditures will have a very large and positive effect on GDP. b) The equilibrium condition in the goods market states that consumption is equal to production. c) The marginal propensity to consume can take any positive value d) An increase in the marginal propensity to save results in a lower output in equilibrium Solution: d 7. The term investment, as used by economist, refers to a) The purchase of new equipment by firms and the purchase of houses by households b) The purchase of bonds and stocks c) The purchase of a pen by a household d) The purchase of foreign currency Solution: a 8. Which of the following would NOT be considered part of fixed investment spending (I) a) An accountant buys a newly built home for herself and her family. b) Toyota bus a new robot for its automobile assembly line c) Exxon increases its inventories of unsold gasoline

d) Apple computer builds a new factory Solution: c 9. Choose

the

WRONG

answer:

a) Assuming the economic growth does not vary: inflation, if there in indexation of wages and rents, will imply an increase in the volume of taxes collected. b) Inflation measured by CPI does not consider luxury goods prices. c) with deflation if you lend money during five years the borrower will be negatively affected due to that deflation and you will not d) with deflation if you lend money during five years the borrower will be positively affected due to that deflation and you will loose Solution: d 10. Suppose the marginal propensity to consume equals 0.8 (i.e. c1=0.8). Given this information, which of the following events will cause the largest increase in output? a) I increases by 150 b) Both A and B c) T decreases by 200 d) G increases by 200 Solution: d 11. Which

of

the

following

is

a

component

of

money?

a) bonds b) stocks c) none of the answer is money d) saving Solution: c 12. Suppose the consumption equation is represented by the following: C= 250+75YD. Now assume government spending increases by 100 for the above

economy. Given the above information, we know that equilibrium output will increase

by:

a) 400 b) 800 c) 200 d) 1000 Solution: a 13. An increase in the propensity to consume: c1, will a) In our model, increase prices in the short run (short term), because the demand will be higher than the production, GDP b) Increase the autonomous spending, increase consumption, rise the demand, so the GDP will rise, so we will end up with higher income. c) Increase simultaneously the propensity to save in order to consume more in the future d) Increase the slope of the demand function, increase the consumption, rise the demand, so the GDP will rise, and we will end up with a higher income. Solution: d 14. Income is a a) Stock variable, as financial wealth b) Stock variable, while financial wealth is a flow c) Flow variable, as financial wealth d) Flow variable, while the financial wealth is a stock Solution: d 15. Changes in GDP in the short run are caused primarily by a) Demand factors b) Supply factors c) Capital accumulation d) Technology

Solution: a 16. Which of the following represents total saving for an economy? a) None is correct b) The sum of taxes and government spending c) The excess of taxes over government spending d) The sum of private saving and fixed investment Solution: a 17. Which of the following occurs when disposable income is zero? a) Saving must be zero b) Consumption must be zero c) None of the answer is correct d) Consumption is negative Solution: c 18. Which of the following is a component of money? a) All answers are components of money b) Bills held by banks c) Checkable deposits d) Coins held by the nonbank public Solution: a 19. Suppose the consumption equation is represented by the following: C =250 + 0.75YD. The multiplier in this economy is a) 1 b) 0.25 c) 0.75 d) 4 Solution: d

20. Consider an economy with consumption represented by the following function: C=c0+c1(Y-T). C0 represents autonomous consumption, c1 the marginal propensity to consume, Y is income and T taxes net of transfers. a) When income increases taxes also increase b) If taxes are reduced, the slope of the function decreases c) When Income increases by 1 percent, consumption increases by c1 percent. d) When income is zero, consumption is equal to C0+c1. Solution: c...