Body

Page

Exam 2 Student Name: __________________________________

Macroeconomics--

Exam Date: Friday 10-29-04

THIS EXAM IS IN TWO BUNCHES. IT IS STRANGE. THE FIRST BUNCH IS NUMBERED 1-14, THE SECOND BUNCH IS NUMBERED 1-9. I COULD EXPLAIN WHY, BUT WHAT'S THE POINT ? !

Instructions:

I) On your Scantron card you must print three things:

1) Print your full name clearly;

2) Print the day and time of your section (for example MWF 10:00);

3) Print the number I have written in ink from the upper right corner of your copy of this test. (This number tells me which version of the test you have. Without it your test cannot be graded properly and you get no credit for your answers.)

II) Answer on your Scantron card, using a #2 pencil.

III) Warning: SOME QUESTIONS MUST BE ANSWERED SEVERAL TIMES! Such questions will begin with a phrase such as this:

Repeat this answer on lines 37, 38 and 39.

Remember to do it!

IV) You must turn in this written exam along with your Scantron card to get credit for your Exam score.

=====================================================================

FIRST BUNCH: Questions 1-14

1. (Repeat answer on lines 24 and 25.) Based on the circular flow model as presented in recent lectures, and beginning in an unemployment equilibrium, a tax cut probably will:

A) increase disposable income and therefore stimulate the economy.

B) increase interest rates, but only stimulate the economy if the demand for money is strongly affected by interest rates.

C) as a practical matter not stimulate the economy much, if at all.

D) not stimulate the economy, but look as if it is stimulating the economy because the economy was going to grow anyway or the money supply increased at the same time.

E) B, C and D are correct.

2. (Repeat answer on lines 26, 27 and 28.) Based on the circular flow model as presented in recent lectures, and beginning in a unemployment equilibrium with 4% cyclical unemployment, if the money supply is increased by 10%:

A) no other answer is correct.

B) it may take a year or two, but employment will increase by about 4% and prices will increase by about 6%.

C) the classical model applies in this situation, so employment is not likely to be affected.

D) it may take a year or two, but prices will increase by 10%.

E) both C and D are correct.

3. (Repeat your answer on Scantron lines 29 and 30.) Based on the simple circular flow model as presented in recent lectures, if the economy is in an unemployment equilibrium (wages and prices are "downward sticky") and the government cuts taxes but the money supply is not permitted to change, evaluate each of the following statements:
1) Inflation definitely will occur because the tax cut leaves more income in the hands of the public, permitting them to increase spending.
2) The economy will definitely be stimulated by the tax cut and begin to recover from the recession.
3) Interest rates will decline and the economy will begin to recover.
4) Interest rates will rise and the economy will begin to recover.
5) Interest rates will rise but the economy will not be stimulated by the tax cut.
Choose the best answer:

A) Statement 2 is correct.

B) Statement 3 is correct.

C) Statements 2 and 4 are correct.

D) Statement 4 is correct.

E) Statement 5 is correct.

4. (Repeat your answer on Scantron lines 31 and 32.) If, in the Aggregate Demand/Aggregate Supply model (as presented in the text and lecture) those two curves intersect to the right of Full-employment,
1) There is a "deflationary gap".
2) Wages will begin to rise, shifting the AS curve upward.
3) Prices will begin to rise, shifting the AD curve downward.

A) All three statements are correct.

B) Only statements 1 and 3 are correct.

C) Only statements 2 and 3 are correct

D) Only statement 2 is correct.

E) None of these statements is correct.

5. (Repeat your answer on Scantron lines 33 and 34.) Based on information presented in the text, you would guess the following about the unemployed, and the unemployment rates, in the US:

A) most unemployed people will be unemployed less than 14 weeks.

B) the unemployment rate will be highest for the youngest workers and decline for each higher age category.

C) the unemployment rate will be twice as high for blacks as for whites.

D) A and C are true, but not B.

E) A, B and C are true.

6. (Repeat your answer on Scantron line 35.) Based on information presented in the text, since 1940 the annual inflation rate in the US

A) none of the other answers are right.

B) has been positive some years and negative others, but has averaged roughly 1% per year.

C) has averaged about 10% per year.

D) has been above 10% per year for more than 20 of those 60+ years.

E) B and D are correct.

7. (Repeat answer on lines 36 and 37.) The growth rate of the world economy:

A) slowed markedly in the 20^th century.

B) has waxed and waned throughout history .

C) accelerated sharply after the introduction of markets at the end of the 18^th century.

D) slowed sharply after the introduction of markets at the end of the 18^th century.

8. (Repeat your answer on Scantron lines 38 and 39.) Choose the best answer on the subject of unemployment after evaluating the following statements:
1. At any one time, the number of unemployed who quit their jobs is probably smaller than the number of people who were fired.
2. Over half of the unemployed will be unemployed less than 15 weeks.
3. Of the various age group (ages 16-19, 20-24, 25-54 and 55 and over) the highest unemployment rates are in the age 55 and over group, because of age discrimination, and the next highest is in the 16-19 group.

A) all three statements are true.

B) Only statements 1 and 2 are true.

C) Only statements 1 and 3 are true.

D) Only statements 2 and 3 are true.

E) Only statement 3 is true.

9. Which of the following statements does not characterize the Classical view of business cycles?

A) Laissez-faire is the best policy response to the business cycle.

B) Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted.

C) Expansions and recessions do not justify government macroeconomic intervention.

D) The appropriate macroeconomic policy can eliminate fluctuations in economic activity.

10. (Repeat answer on line 40.) Leading indicators:

A) are used to assess current economic conditions.

B) provide a rough estimate of where the economy is headed.

C) determine current monetary and fiscal policies.

D) have historically provided reliable predictions of future economic conditions.

11. Workers at a steel plant are laid off because the steel plant is inefficient and very expensive to operate. What type of unemployment best describes the workers' situation?

A) Cyclical unemployment.

B) Full employment.

C) Structural unemployment.

D) Frictional unemployment.

12. The target rate of unemployment is defined as the:

A) highest sustainable rate of unemployment achievable under existing conditions.

B) lowest sustainable rate of unemployment achievable under existing conditions.

C) unemployment rate at which there is no cyclical or structural unemployment.

D) the rate of unemployment that should exist according to policy makers.

13. (Repeat answer on lines 41 and 42.) Based on lecture, we would say the following about the causes of recessions and booms of the economy
1. Recessions are caused by economic shocks.
2. Financial crises, rises in the price of oil and declines in defense spending have triggered most of the recessions since 1950.
3. The recent recession which began in 2001 was triggered by a slowdown in the technology sector made worse by the destruction of the World Trade Center, and were not triggered by a large increase in interest rates.

A) all three statements are correct.

B) Only statements 1 and 2 are correct.

C) Only statements 1 and 3 are correct.

D) Only statements 2 and 3 are correct.

E) Only statement 1 is correct.

14. (Repeat answer on line 43.) Which of the following statments about pre- and post-Word War II U.S. business cycles are most accurate?

A) pre-World War II the recessions were much shorter than later.

B) pre-World War II the recessions averaged longer than the expansions but it's been the opposite since.

C) post-World War II the recessions have averaged less than one year long and the expansions much longer.

D) post-World War II the longest recession has lasted only two years (24 months).

E) none of the other answers are correct.

SECOND BUNCH: Questions 1-9

1. (Repeat answer on Scantron lines 44 and 45) Refer to Figure 13-5 showing an Aggregate Supply curve. Assuming that the economy starts at point X, a decrease in world oil prices would

a. move the economy to point A

b. move the economy to point B

c. shift the aggregate supply curve upward to curve C

d. shift the aggregate supply curve downward to curve D

e. have no impact since the model only shows the relationship between the overall price level and real GDP

2. If Congress voted to eliminate the minimum wage, which of the following would most likely occur?

a. decrease in unit costs and an upward shift of the aggregate supply curve

b. decrease in unit costs and an upward movement along the aggregate supply curve

c. decrease in unit costs and a downward shift of the aggregate supply curve

d. increase in unit costs and an upward shift of the aggregate supply curve

e. increase in unit costs and an upward movement along the aggregate supply curve

3. (Repeat answer on Scantron lines 46 and 47) The intersection of the AD and AS curves

a. determines the price level at which the quantity of goods demanded equals the quantity supplied

b. represents sustainable levels of nominal GDP and prices

c. represents the optimal output and employment levels for the economy

d. is the short-run macroeconomic equilibrium point

e. represents one of many possible equilibria, given the two curves

4. If equilibrium GDP is below potential, then

a. unemployment is unusually low

b. the Fed will lower the money supply

c. the wage rate will fall as workers compete for scarce jobs

d. the aggregate supply curve will shift leftward

e. the wage rate will remain stable as labor productivity increases

5. (Repeat answer on Scantron lines 48 and 49) A demand shock that increases real GDP above its full-employment level will, in the long run,

a. lead to a higher wage rate and an upward shift of the aggregate supply curve

b. lead to a lower wage rate and a downward shift of the aggregate supply curve

c. lead to a higher wage rate and a rightward shift of the aggregate demand curve

d. lead to a lower wage rate and a leftward shift of the aggregate demand curve

e. cause no further shifts in the aggregate supply or aggregate demand curve

6. The official measure of unemployment may underestimate actual unemployment because

a. people may lie when reporting they are looking for jobs

b. the treatment of involuntary part-time workers and discouraged workers is misleading

c. the population sample employed by the Labor Department is too small to be representative

d. some individuals who should be receiving unemployment benefits do not receive them

e. individuals who are unable to work are not included

7. Which of the following would be counted in U.S. GDP?

a. the salary of an American professor teaching in England

b. the value of a used U.S.-produced car purchased in the U.S.

c. the value of a new U.S.-produced car purchased by a French citizen living in South Africa

d. the value of a new French-produced car purchased by a U.S. citizen within in the U.S.

e. the value of a General Electric corporate bond bought by a Japanese citizen

8. The three methods for computing GDP include

a. the expenditure approach, the value-added approach, and the factor payments approach

b. the expenditure approach, the value-added approach, and the productivity approach

c. the productivity approach, the value-added approach, and the factor payments approach

d. the expenditure approach, the productivity approach, and the factor payments approach

e. the output approach, the productivity approach, and the factor payments approach

9. (Repeat answer on Scantron line 50) Suppose the Bureau of Labor Statistics reports that the noninstitutional civilian population is 250 million. Of those, 150 million are employed and 5 million are unemployed. Of the 150 million employed, 5 million would like to be working twice as many hours and of the 250 million, 5 million have given up the search for work.. The unemployment rate reported by the BLS would be __________, while if the BLS counted the discouraged workers as unemployed the unemployment rate would be __________.

a. 6.3%; 3.2%

b. 2%; 6.3%

c. 6.3%; 2%

d. 3.2%; 6.3%

e. 6%; 6.3%

Honors Macroeconomics, Fall 2004, Exam 2

AnswerSection:

First Bunch: Questions 1-14

1. E

B, C and D are correct.

Origin:  GTA Questions, 17

2. B

it may take a year or two, but employment will increase by about 4% and prices will increase by about 6%.

Origin:  GTA Questions, 19

3. E

Statement 5 is correct.

Origin:  GTA Questions, 65

4. D

Only statement 2 is correct.

5. E

A, B and C are true.

Origin:  GTA Questions, 14
Difficulty:  Hard

6. A

none of the other answers are right.

7. C

accelerated sharply after the introduction of markets at the end of the 18^th century.

Origin:  Chapter 6 Economic Growth, ..., 32
Difficulty:  Easy
Page:  135

8. B

Only statements 1 and 2 are true.

9. D

The appropriate macroeconomic policy can eliminate fluctuations in economic activity.

Origin:  Chapter 6 Economic Growth, ..., 37
Difficulty:  Medium
Page:  136

10. B

provide a rough estimate of where the economy is headed.

Origin:  Chapter 6 Economic Growth, ..., 57
Difficulty:  Hard
Page:  139

11. C

Structural unemployment.

Origin:  Chapter 6 Economic Growth, ..., 68
Difficulty:  Easy
Page:  140
Source:  Revised

12. B

lowest sustainable rate of unemployment achievable under existing conditions.

Origin:  Chapter 6 Economic Growth, ..., 72
Difficulty:  Medium
Page:  141

13. A

all three statements are correct.

14. C

post-World War II the recessions have averaged less than one year long and the expansions much longer.

Second Bunch: Questions 1-9

1. ANS: D DIF: 2

2. ANS: C DIF: 2

3. ANS: D DIF: 1

4. ANS: C DIF: 1

5. ANS: A DIF: 2

6. ANS: B DIF: 2

7. ANS: C DIF: 2

8. ANS: A DIF: 1

9. ANS: D DIF: 3

Answer Key

1.	(Repeat answer on lines 24 and 25.) Based on the circular flow model as presented in recent lectures, and beginning in an unemployment equilibrium, a tax cut probably will:
A)	increase disposable income and therefore stimulate the economy.
B)	increase interest rates, but only stimulate the economy if the demand for money is strongly affected by interest rates.
C)	as a practical matter not stimulate the economy much, if at all.
D)	not stimulate the economy, but look as if it is stimulating the economy because the economy was going to grow anyway or the money supply increased at the same time.
E)	B, C and D are correct.

2.	(Repeat answer on lines 26, 27 and 28.) Based on the circular flow model as presented in recent lectures, and beginning in a unemployment equilibrium with 4% cyclical unemployment, if the money supply is increased by 10%:
A)	no other answer is correct.
B)	it may take a year or two, but employment will increase by about 4% and prices will increase by about 6%.
C)	the classical model applies in this situation, so employment is not likely to be affected.
D)	it may take a year or two, but prices will increase by 10%.
E)	both C and D are correct.

3.	(Repeat your answer on Scantron lines 29 and 30.) Based on the simple circular flow model as presented in recent lectures, if the economy is in an unemployment equilibrium (wages and prices are "downward sticky") and the government cuts taxes but the money supply is not permitted to change, evaluate each of the following statements: 1) Inflation definitely will occur because the tax cut leaves more income in the hands of the public, permitting them to increase spending. 2) The economy will definitely be stimulated by the tax cut and begin to recover from the recession. 3) Interest rates will decline and the economy will begin to recover. 4) Interest rates will rise and the economy will begin to recover. 5) Interest rates will rise but the economy will not be stimulated by the tax cut. Choose the best answer:
A)	Statement 2 is correct.
B)	Statement 3 is correct.
C)	Statements 2 and 4 are correct.
D)	Statement 4 is correct.
E)	Statement 5 is correct.

4.	(Repeat your answer on Scantron lines 31 and 32.) If, in the Aggregate Demand/Aggregate Supply model (as presented in the text and lecture) those two curves intersect to the *right* of Full-employment, 1) There is a "deflationary gap". 2) Wages will begin to rise, shifting the AS curve upward. 3) Prices will begin to rise, shifting the AD curve downward.
A)	All three statements are correct.
B)	Only statements 1 and 3 are correct.
C)	Only statements 2 and 3 are correct
D)	Only statement 2 is correct.
E)	None of these statements is correct.

5.	(Repeat your answer on Scantron lines 33 and 34.) Based on information presented in the text, you would guess the following about the unemployed, and the unemployment rates, in the US:
A)	most unemployed people will be unemployed less than 14 weeks.
B)	the unemployment rate will be highest for the youngest workers and decline for each higher age category.
C)	the unemployment rate will be twice as high for blacks as for whites.
D)	A and C are true, but not B.
E)	A, B and C are true.

6.	(Repeat your answer on Scantron line 35.) Based on information presented in the text, since 1940 the annual inflation rate in the US
A)	none of the other answers are right.
B)	has been positive some years and negative others, but has averaged roughly 1% per year.
C)	has averaged about 10% per year.
D)	has been above 10% per year for more than 20 of those 60+ years.
E)	B and D are correct.

7.	(Repeat answer on lines 36 and 37.) The growth rate of the world economy:
A)	slowed markedly in the 20^th century.
B)	has waxed and waned throughout history .
C)	accelerated sharply after the introduction of markets at the end of the 18^th century.
D)	slowed sharply after the introduction of markets at the end of the 18^th century.

8.	(Repeat your answer on Scantron lines 38 and 39.) Choose the best answer on the subject of unemployment after evaluating the following statements: 1. At any one time, the number of unemployed who quit their jobs is probably smaller than the number of people who were fired. 2. Over half of the unemployed will be unemployed less than 15 weeks. 3. Of the various age group (ages 16-19, 20-24, 25-54 and 55 and over) the highest unemployment rates are in the age 55 and over group, because of age discrimination, and the next highest is in the 16-19 group.
A)	all three statements are true.
B)	Only statements 1 and 2 are true.
C)	Only statements 1 and 3 are true.
D)	Only statements 2 and 3 are true.
E)	Only statement 3 is true.

9.	Which of the following statements does not characterize the Classical view of business cycles?
A)	Laissez-faire is the best policy response to the business cycle.
B)	Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted.
C)	Expansions and recessions do not justify government macroeconomic intervention.
D)	The appropriate macroeconomic policy can eliminate fluctuations in economic activity.

10.	(Repeat answer on line 40.) Leading indicators:
A)	are used to assess current economic conditions.
B)	provide a rough estimate of where the economy is headed.
C)	determine current monetary and fiscal policies.
D)	have historically provided reliable predictions of future economic conditions.

11.	Workers at a steel plant are laid off because the steel plant is inefficient and very expensive to operate. What type of unemployment best describes the workers' situation?
A)	Cyclical unemployment.
B)	Full employment.
C)	Structural unemployment.
D)	Frictional unemployment.

12.	The target rate of unemployment is defined as the:
A)	highest sustainable rate of unemployment achievable under existing conditions.
B)	lowest sustainable rate of unemployment achievable under existing conditions.
C)	unemployment rate at which there is no cyclical or structural unemployment.
D)	the rate of unemployment that should exist according to policy makers.

13.	(Repeat answer on lines 41 and 42.) Based on lecture, we would say the following about the causes of recessions and booms of the economy 1. Recessions are caused by economic shocks. 2. Financial crises, rises in the price of oil and declines in defense spending have triggered most of the recessions since 1950. 3. The recent recession which began in 2001 was triggered by a slowdown in the technology sector made worse by the destruction of the World Trade Center, and were not triggered by a large increase in interest rates.
A)	all three statements are correct.
B)	Only statements 1 and 2 are correct.
C)	Only statements 1 and 3 are correct.
D)	Only statements 2 and 3 are correct.
E)	Only statement 1 is correct.

14.	(Repeat answer on line 43.) Which of the following statments about pre- and post-Word War II U.S. business cycles are most accurate?
A)	pre-World War II the recessions were much shorter than later.
B)	pre-World War II the recessions averaged longer than the expansions but it's been the opposite since.
C)	post-World War II the recessions have averaged less than one year long and the expansions much longer.
D)	post-World War II the longest recession has lasted only two years (24 months).
E)	none of the other answers are correct.

a.	move the economy to point A
b.	move the economy to point B
c.	shift the aggregate supply curve upward to curve C
d.	shift the aggregate supply curve downward to curve D
e.	have no impact since the model only shows the relationship between the overall price level and real GDP

a.	decrease in unit costs and an upward shift of the aggregate supply curve
b.	decrease in unit costs and an upward movement along the aggregate supply curve
c.	decrease in unit costs and a downward shift of the aggregate supply curve
d.	increase in unit costs and an upward shift of the aggregate supply curve
e.	increase in unit costs and an upward movement along the aggregate supply curve

a.	determines the price level at which the quantity of goods demanded equals the quantity supplied
b.	represents sustainable levels of nominal GDP and prices
c.	represents the optimal output and employment levels for the economy
d.	is the short-run macroeconomic equilibrium point
e.	represents one of many possible equilibria, given the two curves

a.	unemployment is unusually low
b.	the Fed will lower the money supply
c.	the wage rate will fall as workers compete for scarce jobs
d.	the aggregate supply curve will shift leftward
e.	the wage rate will remain stable as labor productivity increases

a.	lead to a higher wage rate and an upward shift of the aggregate supply curve
b.	lead to a lower wage rate and a downward shift of the aggregate supply curve
c.	lead to a higher wage rate and a rightward shift of the aggregate demand curve
d.	lead to a lower wage rate and a leftward shift of the aggregate demand curve
e.	cause no further shifts in the aggregate supply or aggregate demand curve

a.	people may lie when reporting they are looking for jobs
b.	the treatment of involuntary part-time workers and discouraged workers is misleading
c.	the population sample employed by the Labor Department is too small to be representative
d.	some individuals who should be receiving unemployment benefits do not receive them
e.	individuals who are unable to work are not included

a.	the salary of an American professor teaching in England
b.	the value of a used U.S.-produced car purchased in the U.S.
c.	the value of a new U.S.-produced car purchased by a French citizen living in South Africa
d.	the value of a new French-produced car purchased by a U.S. citizen within in the U.S.
e.	the value of a General Electric corporate bond bought by a Japanese citizen

a.	the expenditure approach, the value-added approach, and the factor payments approach
b.	the expenditure approach, the value-added approach, and the productivity approach
c.	the productivity approach, the value-added approach, and the factor payments approach
d.	the expenditure approach, the productivity approach, and the factor payments approach
e.	the output approach, the productivity approach, and the factor payments approach

1.	E
	B, C and D are correct.
	Origin: GTA Questions, 17
2.	B
	it may take a year or two, but employment will increase by about 4% and prices will increase by about 6%.
	Origin: GTA Questions, 19
3.	E
	Statement 5 is correct.
	Origin: GTA Questions, 65
4.	D
	Only statement 2 is correct.
5.	E
	A, B and C are true.
	Origin: GTA Questions, 14 Difficulty: Hard
6.	A
	none of the other answers are right.
7.	C
	accelerated sharply after the introduction of markets at the end of the 18^th century.
	Origin: Chapter 6 Economic Growth, ..., 32 Difficulty: Easy Page: 135
8.	B
	Only statements 1 and 2 are true.
9.	D
	The appropriate macroeconomic policy can eliminate fluctuations in economic activity.
	Origin: Chapter 6 Economic Growth, ..., 37 Difficulty: Medium Page: 136
10.	B
	provide a rough estimate of where the economy is headed.
	Origin: Chapter 6 Economic Growth, ..., 57 Difficulty: Hard Page: 139
11.	C
	Structural unemployment.
	Origin: Chapter 6 Economic Growth, ..., 68 Difficulty: Easy Page: 140 Source: Revised
12.	B
	lowest sustainable rate of unemployment achievable under existing conditions.
	Origin: Chapter 6 Economic Growth, ..., 72 Difficulty: Medium Page: 141
13.	A
	all three statements are correct.
14.	C
	post-World War II the recessions have averaged less than one year long and the expansions much longer.