macro exam 2 practice

ECO 2013: Principles of Macroeconomics
Midterm 2 Practice Questions
1. GDP (Gross Domestic Product) is …
A. the sum of consumption, investment, government purchases, and net exports.
B. the market value of final goods and services produced in an economy during a year.
C. the market value of final goods and services produced an Economy’s citizens and firms during a year.
D. A and B
E. All of the above
2. The largest component of GDP is…
A. consumer spending.
B. private investment.
C. government purchases.
D. transfer payments.
E. net exports.
3. Potential GDP is… A. always different from real GDP.
B. another name for real GDP.
C. achieved when all factors of production are fully employed.
D. the level of GDP not adjusted for price changes.
4.Real GDP may be criticized as a measure of economic welfare, because it… A. does not take account of the degradation of environmental quality.
B. does include leisure time enjoyed by a society.
C. does not include the value of products produced within the household.
D. A and B
E. All of the above
5.In an economy, 42 million people are in the labor force, 38 million people are employed, and 47 million people are of working age. How many people are NOT in the labor force? A. 4 million
B. 5 million
C. 9 million
D. 19 million
E. There is too little information.
6.Suppose the population of Knightland is 100 people, and that the working age population is 70 people. If 10 of these people are unemployed, what is the labor force participation rate of Knightland? A. 60%
B. 70%
C. 90%
D. 100%
E. There is too little information.
7.In August 2012, the labor force participation rate dropped from 63.7% to 63.5%. This change could have been caused by… A. unemployed workers giving up looking for a job.
B. full-time workers becoming part-time workers.
C. unemployed workers getting full-time jobs.
D. discouraged workers starting to look for jobs again.
8.Unemployment caused by normal labor turnover is referred to as… A. cyclical unemployment.
B. involuntary unemployment.
C. frictional unemployment.
D. temporary unemployment.
9.Aggregate Demand slopes down due to the… A. The Wealth Effect.
B. The Inflation Effect.
C. The International Trade Effect.
D. The Interest Rate Effect.
E. All of the above
10.When planned private investment exceeds actual private investment, inventories _____, and real GDP should _____ as a result. A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
11.When real GDP is below real potential GDP, aggregate expenditure is _____ than real output, leading to a/an _____ in inventories. A. greater; increase
B. greater; decrease
C. less; increase
D. less; decrease
12.True or False: When the real interest rate increases, consumer spending on goods and services decreases. A. True
B. False
13.True or False: When the prices of goods and services produced in Greece increases faster than the prices of goods and services produced in other countries, Greece’s net exports should increase. A. True
B. False
DO NOT WORRY ABOUT QUESTIONS 14 AND 15. THEY WERE NOT SUFFICIENTLY DISCUSSED.
14.When the government spending increases, autonomous spending increases. Suppose that autonomous spending increases by $65 million. As a result, real GDP increases by… A. less than $65 million.
B. $65 million.
C. more than $65.
D. There is too little information.
15.Suppose that the marginal propensity to save is 0.4. A $5 billion decrease in autonomous spending should decrease real GDP by… A. $2 billion.
B. $5 billion.
C. $7.5 billion.
D. $12.5 billion.

16.The domestic GDP growth rate is less than that of other countires. As a result, the price level _____ in the short run, and the price level _____ in the long run.
A. decreases; decreases
B. decreases; increases
C. increases; decreases
D. increases; increases
17.The productivity of workers increases in response to a new training program. As a result, the price level _____ in the short run, and the price level _____ in the long run. A. decreases; decreases
B. decreases; increases
C. increases; decreases
D. increases; increases
E. None of the above
18.True or False: An increase in transfer payments shifts aggregate demand to the right. A. True
B. False
19.Households expect their incomes to rise. As a result, the price level _____ in the short run, and the price level _____ in the long run. A. decreases; decreases
B. decreases; increases
C. increases; decreases
D. increases; increases
20.True or False: In the long run, real GDP can increase, even if potential GDP does not increase. A. True
B. False