Garrett

ECO 2013-02 Spring 2003

Second Midterm, 6 March 2003.

1) The quantity of real GDP supplied ________ the amount of ________.
A) increases as; labor input decreases
B) decreases as; capital input increases
C) decreases as; capital and labor input decreases
D) is unaffected by; technology

2) If the economy is at the natural rate of unemployment,
A) real GDP > potential GDP.
B) real GDP < potential GDP.
C) real GDP = potential GDP.
D) All of the above can occur when the economy is at the natural rate of unemployment.

3) The long-run aggregate supply curve illustrates the
A) relationship of prices with the level of GDP when real GDP equals potential GDP.
B) relationship of aggregate supply and aggregate demand.
C) amount of products producers offer at various prices when money wages and other resource prices do not change.
D) surpluses, shortages and equilibrium level of GDP.

4) The long-run aggregate supply curve is ________ because along it, as prices rise, the money wage rate ________.
A) vertical; falls
B) vertical; rises
C) upward sloping; falls
D) upward sloping; stays constant

5) The short-run aggregate supply curve is upward sloping because
A) firms need to receive higher prices to cover the higher costs of producing increasing levels of output.
B) technology is scarce.
C) capital is scarce.
D) potential GDP is less than real GDP when the price level falls.

6) For movements along the short-run aggregate supply curve,
A) the money wage rate is constant.
B) the real wage rate changes.
C) potential GDP remains constant.
D) All of the above are correct.

[pic]

7) In the above figure, which movement illustrates the impact of a rising price level and a constant money wage rate?
A) Ε to Ι B) Ε to Φ C) Ε to Γ D) Ε to Κ

8) Aggregate demand increases when
A) foreign incomes fall.
B) interest rates rise.
C) the foreign exchange rate rises.
D) None of the above answers is correct.

9) If higher inflation is expected in the future, then the
A) Σ“Σ curve shifts rightward.
B) “Δ curve shifts rightward.
C) Λ“Σ curve shifts rightward.
D) None of the above answers are correct.

10) In the short run, the equilibrium level of real GDP
A) is necessarily less than potential GDP.
B) is necessarily equal to potential GDP.
C) is necessarily greater than potential GDP.
D) could be less than, equal to, or greater than potential GDP.

[pic]

11) Based on the figure above, short-run equilibrium occurs at the price level of
A) 120 and real GDP of $4 trillion.
B) 130 and real GDP of $8 trillion.
C) 140 and real GDP of $12 trillion.
D) 130 and real GDP of $12 trillion.

|ΠριχλεΠριχ |“γγρεγατε |Σηορτ−ρυν |Λονγ−ρυν |
|ε Λεϖελϖελ |δεμανδ |αγγρεγατε |αγγρεγατε |
| |(τριλλιονσ οφ |συππλψ |συππλψ |
| |1996 δολλαρσ) |(τριλλιονσ οφ |(τριλλιονσ οφ |
| | |1996 δολλαρσ) |1996 δολλαρσ) |
|100 |11 |7 |10 |
|110 |10 |8 |10 |
|120 |9 |9 |10 |
|130 |8 |10 |10 |
|140 |7 |11 |10 |

12) Based on the data in the table above, at the short-run equilibrium
A) the unemployment rate is below the natural rate of unemployment.
B) the unemployment rate is above the natural rate of unemployment.
C) money wages will go up in long-run.
D) the economy is at full employment.

[pic]

13) In the above figure, the short-run equilibrium will
A) eventually adjust to a long-run equilibrium with a higher price level.
B) will not adjust on its own.
C) eventually adjust to a long-run equilibrium with a lower price level.
D) None of the above answers are correct.

|Disposable income |Consumption expenditure |
|(thousands of dollars) |(thousands of dollars) |
|200 |225 |
|300 |300 |
|400 |375 |
|500 |450 |

14) According to the data in the above table, what is the marginal propensity to consume?
A) 75 B) 100 C) 0.75 D) 1

15) The marginal propensity to consume refers to the
A) fraction of a change in income that an individual spends on consumption expenditure.
B) difficulty that people have with certain consumption decisions.
C) last minute purchases that everyone makes.
D) many consumption choices that people face.

16) When U.S. real GDP increases, then quantity of U.S. imports
A) decreases.
B) increases.
C) remains constant.
D) at first decreases and then increases.

17) When there is unplanned inventory investment, aggregate planned expenditure is ________ real GDP and actual investment is ________ planned investment.
A) greater than; greater than B) greater than; less than
C) less than; greater than D) less than; less than

18) If aggregate planned expenditures are less than real GDP then
A) the economy remains in disequilibrium until aggregate planned expenditures increase to the level of real GDP.
B) firms must increase their planned expenditures until aggregate planned expenditures increase to the level of real GDP.
C) firms' inventories will increase and real GDP will decrease as production falls.
D) firms' inventories will decrease and real GDP will decrease as production falls.

19) When investment is below planned investment, aggregate planned expenditure is ________ than actual aggregate expenditure and inventories are ________ than planned.
A) greater; greater B) greater; less
C) less; greater D) less; less

20) The multiplier effect exists because a change in autonomous expenditure
A) leaves the economy in the form of imports.
B) leads to identical changes in income, which generate further spending.
C) prompts further exports.
D) will undergo its complete effect in one round.

21) Given an ΜΠΧ of 0.80, if there are no income taxes or imports and prices are constant, then when investment increases by $50 million, equilibrium GDP would
A) increase by $50 million.
B) increase by $250 million.
C) increase by $400 million.
D) To answer the question more information on income is needed.

22) If consumers decide to purchase more imports at each level of GDP then the
A) multiplier will decrease in value.
B) multiplier will increase in value.
C) multiplier will not change in value.
D) effect on the multiplier will depend on what happens to exports.

[pic]

23) In the above figure, the increase in autonomous expenditure moves the economy from point Ε to
A) point Φ. B) point Γ. C) point Η. D) point Ι.

24) Taking into account the upward-sloping short-run aggregate supply curve, the σηορτ−ρυν effect of an increase in government purchases on real GDP is that
A) real GDP increases by more in the short run than in the long run.
B) real GDP increases by the same amount in the short run as in the long run.
C) real GDP increases by less in the short run than in the long run.
D) real GDP does not change in the short run because the price level increases.

25) If tax revenue equal $1.5 billion and government expenditures equal $1.6 billion, then
A) the government budget has a deficit of $0.1 billion.
B) the government budget has a surplus of $0.1 billion.
C) the government debt is equal to $0.1 billion.
D) the government debt declines by $0.1 billion.

26) The tax cuts passed by Congress in 2001 to help move the economy out of a recession are an example of
A) automatic fiscal policy. B) discretionary fiscal policy.
C) lump-sum taxes. D) contractionary fiscal policy.

27) Which multiplier is larger (in absolute value) for any given ΜΠΧ?
A) lump-sum tax multiplier
B) transfer payments multiplier
C) government purchases multiplier
D) All the multipliers are the same size for any given ΜΠΧ.

28) If government purchases of goods and services increase by $0.5 trillion dollars and real GDP increases by $2 trillion, if there are no induced taxes or imports the ΜΠΧ is equal to
A) 0.25. B) 0.50. C) 0.75. D) 4.00.

29) Suppose the full-employment level of real GDP is $11 trillion, while the current level of real GDP is $10 trillion. There are no income taxes or international trade. The marginal propensity to consume is 0.8. In what direction and by what amount must lump-sum taxes change to achieve the full employment level of GDP?
A) increase lump-sum taxes by $200 billion
B) decrease lump-sum taxes by $250 billion
C) increase lump-sum taxes by $500 billion
D) decrease lump-sum taxes by $200 billion

30) Which one of the following statements about the budget deficit or surplus over the business cycle is correct?
A) When the economy is in an expansion, the budget deficit tends to increase.
B) When the economy is in recession the budget surplus tends to increase.
C) Automatic fluctuations in the budget deficit act as automatic stabilizers.
D) When GDP decreases, the budget deficit tends to decrease.

31) The structural deficit is the deficit that occurs when
A) real GDP departs from potential GDP.
B) real GDP equals potential GDP.
C) aggregate demand is greater than short-run aggregate supply.
D) short-run aggregate supply is greater than aggregate demand.

32) Using fiscal policy, the best way to get the economy out of a recession in the short run is to
A) increase government purchases of goods and services or increase tax rates.
B) increase government purchases of goods and services or decrease tax rates.
C) decrease government purchases of goods and services or increase tax rates.
D) decrease government purchases of goods and services or decrease tax rates.

33) For an economy in which initially real GDP is less than potential GDP, an increase in government purchases will ________ real GDP and ________ the price level.
A) increase; raise B) increase; lower
C) decrease; raise D) decrease; lower

34) Suppose a tax cut affects both aggregate demand and aggregate supply. The larger is the supply-side effect of the tax cut, the ________ is the increase in real GDP and the ________ is the increase in the price level.
A) larger; larger B) larger; smaller
C) smaller; larger D) smaller; smaller

35) Which of the following is ΝΟΤ included in the M1 measure of money?
A) currency held outside banks
B) currency held in bank vaults
C) checking deposits at commercial banks
D) checking deposits at credit unions

36) Which of the following measures is ΝΟΤ included in the M1 definition of money?
A) currency held by the public B) time deposits
C) checking deposits D) traveler's checks

37) Which of the following balance sheet items is a liability of a commercial bank?
A) the bank's holdings of U.S. government bonds
B) the bank's holdings of Brazilian government bonds
C) the public's deposits with the bank
D) reserves of the bank at the Federal Reserve

38) Bank deposits are
A) money.
B) liabilities of the bank.
C) created by loans.
D) All of the above answers are correct.

University National Bank Balance Sheet two way table ( ( cell cell ) (cell cell) (cell cell) )

39) The above table has the balance of the University National Bank. All figures are in millions of dollars. The required reserve ratio is 0.20. What would be the total increase in loans at this bank if all excess reserves were loaned out?
A) $1,160 million B) $600 million
C) $232 million D) $0

40) Banks hold no excess reserves and the public holds no currency. Suppose that the required reserve ratio is lowered from 20 percent to 10 percent. The effect of lowering the required reserve ratio is to
A) decrease the deposit multiplier from 0.2 to 0.1.
B) increase the deposit multiplier from 5 to 10.
C) increase the deposit multiplier from 6 to 10.
D) decrease the deposit multiplier from 0.16 to 0.1.

41) Suppose the quantity of money increases when the economy is experiencing a recession. Then in the short-run
A) real GDP and the price level will both decrease.
B) real GDP will increase and the price level will decrease.
C) real GDP will decrease and the price level will increase.
D) real GDP and the price level will both increase.

42) If nominal GDP = $10 trillion and the quantity of money is $2 trillion, what is velocity?
A) 16 B) 8 C) 5 D) 2

43) According to the quantity theory of money, in the long run
A) an increase in the quantity of money creates an increase in prices but no additional increase in products or services.
B) the quantity of money in a society will always be just the right amount.
C) an increase in the quantity of money creates an increase in the products and services available to an economy.
D) None of the above answers are correct.

44) Which of the following is a tool that is used by the Fed to control the quantity of money?
A) open market operations
B) excess reserves
C) government purchases multiplier
D) real interest rates

45) Federal Reserve notes (dollar bills) in circulation are mostly backed by
A) gold. B) foreign currency.
C) U.S. government securities. D) loans to private banks.

46) To increase the quantity of money in the economy, the Federal Reserve is likely to
A) print more money and give it to the banks.
B) increase the required reserve ratio.
C) increase the discount rate.
D) buy government securities in an open market operation.

47) The Federal Reserve is
A) limited in the amount of purchases of government securities it can make by the amount of member deposits it has.
B) limited in the amount of purchases of government securities it can make by the amount of foreign currency and gold it has in its vaults.
C) not limited in the amount of purchases of government securities it can make because it essentially pays for them by writing a check on itself.
D) None of the above answers are correct.

48) The Fed buys $100 million of securities from Bank A. What is the effect on the Federal Reserve's balance sheet?
A) Securities increase by $100 million and Federal Reserve notes (currency) decrease by $100 million.
B) Securities increase by $100 million and reserves of Bank A increase by $100 million.
C) Securities increase by $100 million and reserves of Bank A decrease by $100 million.
D) Securities decrease by $100 million and reserves of Bank A increase by $100 million.

49) Which of the following could affect the amount of money a person is willing to hold?
A) the use of credit cards increases
B) the price level rises from 103 to 107
C) the interest rate that you earn on your savings account increases
D) All of the above are correct.

50) An increase in real GDP
A) shifts the demand for money curve rightward.
B) shifts the demand for money curve leftward.
C) leads to an upward movement along the demand for money curve.
D) leads to a downward movement along the demand for money curve.

51) When the current interest rate is above the equilibrium level then there is
A) an excess quantity of money and people will sell bonds.
B) an excess demand for money and people will sell bonds.
C) an excess quantity of money and people will buy bonds.
D) an excess demand for money and people will buy bonds.

52) If the Fed wanted to stimulate the economy to limit the effects of a recession then it should
A) increase the quantity of money, which will result in a lower interest rate.
B) decrease the quantity of money, which will result in a lower interest rate.
C) increase the quantity of money, which will result in a higher interest rate.
D) decrease the quantity of money, which will result in a higher interest rate.

1) C

2) C

3) A

4) B

5) A

6) D

7) B

8) D

9) B

10) D

11) B

12) B

13) C

14) C

15) A

16) B

17) C

18) C

19) B

20) B

21) B

22) A

23) B

24) A

25) A

26) B

27) C

28) C

29) B

30) C

31) B

32) B

33) A

34) B

35) B

36) B

37) C

38) D

39) C

40) B

41) D

42) C

43) A

44) A

45) C

46) D

47) C

48) B

49) D

50) A

51) C

52) A