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Examination 6
Macroeconomics

These multiple choice questions are from the exam bank. If you believe one or more answers are not correct, then speak with the instructor. He is human and makes mistakes.

Lesson 18 - The Aggregate Expenditure Model

1. Other things equal, the slope of the aggregate expenditures schedule will increase as a result of:

A. an increase in inflation.
B. an increase in the MPC.
C. an increase in the MPS.
D. a decline in the general price level.

2. In a private closed economy, when aggregate expenditures equal GDP:

A. consumption equals gross investment.
B. consumption equals aggregate expenditures.
C. planned investment equals saving.
D. disposable income equals consumption minus saving.

3. In a private closed economy, when aggregate expenditures exceed GDP:

A. GDP will decline.
B. business inventories will rise.
C. saving will decline.
D. business inventories will fall.

4. If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease:

A. GDP by $20 billion.
B. GDP by $100 billion.
C. GDP by $200 billion.
D. consumption by $200 billion.

5. At the equilibrium GDP for an open economy:

A. net exports may be either positive or negative.
B. imports will always exceed exports.
C. exports will always exceed imports.
D. exports and imports will always be equal.

6. If the dollar appreciates relative to foreign currencies, we would expect:

A. the multiplier to decrease.
B. a country's exports and imports to both fall.
C. a country's net exports to rise.
D. a country's net exports to fall.

7. If the multiplier in an economy is 5, a $20 billion increase in net exports will:

A. increase GDP by $100 billion.
B. reduce GDP by $20 billion.
C. decrease GDP by $100 billion.
D. increase GDP by $20 billion.

8. Taxes represent:

A. a leakage of purchasing power, like saving.
B. an injection of purchasing power, like investment.
C. an injection of purchasing power, like government spending.
D. a leakage of purchasing power, like government spending.

9. A recession represents which of the following:

A. when the full-employment GDP exceeds the level of aggregate expenditures.
B. when aggregate expenditures equal the full-employment GDP.
C. when investment exceeds saving at the full-employment GDP.
D. when aggregate expenditures exceed the full-employment level of GDP.

10. Cyclical unemployment in the United States is essentially the consequence of:

A. procyclical fiscal policies.
B. a deficient level of aggregate expenditures.
C. rapid technological progress.
D. the geographic immobility of the labor force.

11. If an economy is experiencing a situation where total injections exceeds total leakages, then what is occurring?

A. Real GDP is falling.
B. Real GDP is increasing.
C. Real GDP does not change, because the economy is in equilibrium.
D. Injections and leakages have no impact on the economy.

12. If businesses are more optimistic about the future, what is the impact on the economy?

A. Businesses invest more, increasing aggregate expenditures and increasing real GDP.
B. Businesses invest less, decreasing aggregate expenditures and decreasing real GDP.
C. Businesses invest more, decreasing aggregate expenditures and decreasing real GDP.
D. Businesses invest less, increasing aggregate expenditures and increasing real GDP.

13. State and local governments tend to increase government spending during a business expansion, because tax revenue increase from increasing incomes. What is the impact on the economy for increasing government spending?

A. Government spending is an injection, increasing aggregate expenditures and increasing real GDP.
B. Government spending is a leakage, decreasing aggregate expenditures and decreasing real GDP.
C. Government spending is an injection, decreasing aggregate expenditures and decreasing real GDP.
D. Government spending is a leakage, increasing aggregate expenditures and increasing real GDP.

14. The U.S. government implements a policy to weaken the U.S. dollar. What is the impact on the economy for a weaker U.S. dollar?

A. A weaker U.S. dollar causes exports to decrease and imports to increase, decreasing aggregate expenditures and decreasing real GDP.
B. A weaker U.S. dollar causes exports to increase and imports to decrease, increasing aggregate expenditures and increasing real GDP.
C. A weaker U.S. dollar causes both exports and imports to decrease, decreasing aggregate expenditures and decreasing real GDP.
D. A weaker U.S. dollar causes both exports and imports to increase, increasing aggregate expenditures and decreasing real GDP.

15. If consumers are more optimistic about the future, because jobs are plentiful and the economy is growing, what is the impact on the economy?

A. Consumers spend more, increasing aggregate expenditures and increasing real GDP.
B. Consumers spend less, decreasing aggregate expenditures and decreasing real GDP.
C. Consumers spend more, decreasing aggregate expenditures and decreasing real GDP.
D. Consumers spend less, increasing aggregate expenditures and increasing real GDP.

Answers:

1. B 2. C 3. D 4. C 5. A 6. D
7. A 8. A 9. A 10. B 11. B 12. A
13. A 14. B 15. A      

 

Lesson 19 - Aggregate Demand and Aggregate Supply

1. The aggregate demand curve is:

A. vertical if full employment exists.
B. horizontal when there is considerable unemployment in the economy.
C. downsloping because of the interest-rate, real-balances, and foreign purchases effects.
D. downsloping because production costs decrease as real output rises.

2. The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

A. increase the amount of U.S. real output purchased.
B. increase U.S. imports and decrease U.S. exports.
C. increase both U.S. imports and U.S. exports.
D. decrease both U.S. imports and U.S. exports.

3. Which one of the following would not shift the aggregate demand curve?

A. a change in the price level
B. depreciation of the international value of the dollar
C. a decline in the interest rate at each possible price level
D. an increase in personal income tax rates

4. A decline in investment will shift the AD curve to the:

A. left by a multiple of the change in investment.
B. left by the same amount as the change in investment.
C. right by the same amount as the change in investment.
D. right by a multiple of the change in investment.

5. The economy's long-run AS curve assumes that wages and other resource prices:

A. eventually rise and fall to match upward or downward changes in the price level.
B. are flexible upward but inflexible downward.
C. rise and fall more rapidly than the price level.
D. are relatively inflexible both upward and downward.

6. The aggregate supply curve:

A. is explained by the interest rate, real-balances, and foreign purchases effects.
B. gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C. shows the various amounts of real output that businesses will produce at each price level.
D. is downsloping because real purchasing power increases as the price level falls.

7. Which of the following would not shift the aggregate supply curve?

A. an increase in labor productivity
B. a decline in the price of imported oil
C. a decline in business taxes
D. an increase in the price level

8. Productivity measures:

A. real output per unit of input.
B. per unit production costs.
C. the changes in real wealth caused by price level changes.
D. the amount of capital goods used per worker.

9. Graphically, cost-push inflation is shown as a:

A. leftward shift of the AD curve.
B. rightward shift of the AS curve.
C. leftward shift of AS curve.
D. rightward shift of the AD curve.

10. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, we can assume that:

A. the money supply has declined.
B. the price level is inflexible downward and a recession has occurred.
C. cost-push inflation has occurred.
D. productivity has declined.

11. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:

A. output would rise.
B. output would fall.
C. price level would necessarily fall.
D. price level would necessarily rise.

12. Prices and wages tend to be:

A. flexible both upward and downward.
B. inflexible both upward and downward.
C. flexible downward, but inflexible upward.
D. flexible upward, but inflexible downward.

13. Efficiency wages are:

A. above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.
B. wage payments necessary to compensate workers for unpleasant or risky work conditions.
C. usually less than market wages.
D. relevant to macro economics because they explain rightward shifts in aggregate demand.

14. Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

A. aggregate demand curve would shift to the right.
B. aggregate supply curve would shift to the left.
C. aggregate supply curve would shift to the right.
D. aggregate demand curve would shift to the left.

15. The aggregate supply curve (short-run) is upsloping because:

A. wages and other resource prices match changes in the price level.
B. the price level is flexible upward but inflexible downward.
C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
D. wages and other resource prices are flexible upward but inflexible downward.

Answers:

1. C 2. B 3. A 4. A 5. A 6. C
7. D 8. A 9. C 10. B 11. A 12. D
13. A 14. A 15. C      

 

Lesson 20 - Fiscal Policy

1. Fiscal policy is carried out primarily by:

A. the Federal government.
B. state and local governments working together.
C. state governments alone.
D. local governments alone.

2. Countercyclical discretionary fiscal policy calls for:

A. surpluses during recessions and deficits during periods of demand-pull inflation.
B. deficits during recessions and surpluses during periods of demand-pull inflation.
C. surpluses during both recessions and periods of demand-pull inflation.
D. deficits during both recessions and periods of demand-pull inflation.

3. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

A. increasing government spending by $4 billion.
B. increasing government spending by $40 billion.
C. decreasing taxes by $4 billion.
D. increasing taxes by $4 billion.

4. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

A. The Federal government reduces the public debt.
B. a reduction in agricultural subsidies and veterans' benefits.
C. a postponement of a highway construction program.
D. a reduction in Federal tax rates on personal and corporate income.

5. An appropriate fiscal policy for severe demand-pull inflation is:

A. an increase in government spending.
B. depreciation of the dollar.
C. a reduction in interest rates.
D. a tax rate increase.

6. A major advantage of the built-in or automatic stabilizers is that they:

A. simultaneously stabilize the economy and reduce the absolute size of the public debt.
B. automatically produce surpluses during recessions and deficits during inflations.
C. require no legislative action by Congress to be made effective.
D. guarantee that the Federal budget will be balanced over the course of the business cycle.

7. The Federal budget deficit is found by:

A. subtracting government tax revenues plus government borrowing from government spending in a particular year.
B. subtracting government tax revenues from government spending in a particular year.
C. cumulating the differences between government spending and tax revenues over all years since the nation's founding.
D. subtracting government revenues from the noninvestment-type government spending in a particular year.

8. The Social Security trust fund currently is in:

A. deficit, and it inclusion in the Federal budget increases the stated size of the budget deficit.
B. deficit, and it inclusion in the Federal budget reduces the stated size of the budget deficit.
C. surplus, and its inclusion in the Federal budget reduces the stated size of the budget deficit.
D. surplus, and it inclusion in the Federal budget increases the stated size of the Federal budget deficit.

9. Which of the following best describes the idea of a political business cycle?

A. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse.
B. Fiscal policy will result in alternating budget deficits and surpluses.
C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
D. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

10. The crowding-out effect of expansionary fiscal policy suggests that:

A. government spending is increasing at the expense of private investment.
B. imports are replacing domestic production.
C. private investment is increasing at the expense of government spending.
D. saving is increasing at the expense of investment.

11. The public debt is held as:

A. U.S. securities, corporate bonds, and common stock.
B. Federal Reserve Notes.
C. U.S. gold certificates.
D. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

12. Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have:

A. increased by $50 billion.
B. increased by $150 billion.
C. decreased by $200 billion.
D. decreased by $150 billion.

13. The most likely way the public debt burdens future generations is by:

A. reducing the current level of investment.
B. causing future unemployment.
C. causing deflation.
D. reducing real interest rates.

14. Which of the following is the best example of public investment?

A. salaries of Senators and Representatives
B. government expenditures on food stamps
C. construction of highways
D. funding of regulatory agencies.

15. The composite index of leading indicators is useful for:

A. predicting potential GDP.
B. determining the natural rate of unemployment.
C. developing discretionary fiscal policy.
D. forecasting aggregate supply shocks.

Answers:

1. A 2. B 3. A 4. D 5. D 6. C
7. B 8. C 9. C 10. A 11. D 12. D
13. A 14. C 15. C      
 

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