Macroeconomics, Spring 2005, Exam 2, several versions

Read these Instructions carefully! You must follow them exactly!

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 MW 1:25);

3) Print the number I have written in ink on 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.

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

(Repeat answer on Scantron lines 37, 38 and 39)

---Remember to do it!

III) You must turn in this printed exam along with your Scantron card, otherwise

your score on this exam is "F".

Questions:

____ 1. GDP as predicted by the classical model is

a.	lower than the actual level of GDP
b.	higher than the actual level of GDP
c.	smoother and steadier than actual GDP
d.	more unstable over time than actual GDP
e.	an accurate predictor of actual GDP

____ 2. (Repeat your answer on Scantron lines 28 and 29.) Which of the following shocks have caused most of the recessions since 1950?

a.	both c and e
b.	increased government spending
c.	oil price increases
d.	the beginning of a war
e.	financial crises

____ 3. In the "circular flow model" of a macroeconomy a "macroeconomic equilibrium" exists

a.	if the population is neither growing nor shrinking.
b.	if savings are large enough that the financial sector can lend money.
c.	if the money supply is stable.
d.	if each major group in the economy (for example households and firms) receive the same amounts each time period and also spend the same amounts each time period.
e.	none of the other answers.

____ 4. (Repeat your answer on Scantron lines 30 and 31.) Which of the following statements about modern macroeconomic theory is most accurate?

a.	Keynes' ideas help us understand movements in output around its long-run trend, while the Classical model is more useful in explaining the long-run trend itself.
b.	The classical model helps us understand movements in output around its long-run trend, while the short-run macro model is more useful in explaining the long-run trend itself.
c.	Both classical and short-run macro models help us understand movements in output around its long-run trend, but neither model is effective at explaining the long-run trend itself.
d.	Neither the classical nor the short-run macro model helps us understand movements in output around its long-run trend, but both are useful in explaining the long-run trend itself.
e.	Only the short-run macro model is useful in understanding movements in output around its long-run trend, and in explaining the long-run trend itself.

____ 5. The market clearing assumption is

a.	a central assumption of the short-run macro model
b.	the idea that prices in every market will adjust until quantity supplied and quantity demanded are equal
c.	the idea that excess supply always leads to an increase in demand
d.	the idea that markets only work when they are in equilibrium
e.	believed by most economists today to be an unreasonable assumption

____ 6. Households make their savings available to borrowers through

a.	resource markets
b.	the loanable funds market
c.	the labor market
d.	the taxes
e.	spending

____ 7. (Repeat your answer on Scantron lines 32 and 33.) If the CPI for 2003 was 112, then the cost of the base year market basket purchased at 2003 prices would be

a.	12 percent more than the same market basket purchased the previous year
b.	112 percent more than the same market basket purchased the previous year
c.	12 percent more than the same market basket purchased in the base year
d.	112 percent more than the same market basket purchased in the base year
e.	more than the same market basket purchased during any previous year

____ 8. The index used to translate nominal GDP into real GDP is the

a.	Consumer Price Index
b.	Wholesale Price Index
c.	GDP Price Index
d.	Producer Price Index
e.	Manufacturer's Input Price Index

____ 9. (Repeat your answer on Scantron lines 34 and 35.) Refer to Figure 7-1. If the labor market is in equilibrium, there is no

a.	unemployment
b.	frictional unemployment
c.	structural unemployment
d.	seasonal unemployment
e.	cyclical unemployment

____ 10. (Repeat your answer on Scantron lines 36 and 37.) The first paper currency issued by the U.S. government was known as the

a.	Federal Reserve note
b.	treasury bill
c.	greenback
d.	pound
e.	gold certificate

____ 11. (Repeat your answer on Scantron lines 38 and 39.) In the United States between 1790 and the Civil War, who issued paper currency?

a.	the Federal Reserve System
b.	the U.S. Treasury Department
c.	the U.S. Congress
d.	the British government
e.	private banks

____ 12. (Repeat your answer on Scantron line 40.) If a particular type of currency must be accepted for payment because the government says so, the currency is called

a.	commodity money
b.	money backed by gold
c.	high-powered money
d.	greenbacks
e.	fiat money

____ 13. (Repeat your answer on Scantron line 41.) In which of the following situations would a person be best off in real terms?

a.	receiving a 10 percent increase in a nominal wage, with an 8 percent rate of price inflation in the economy
b.	receiving a 3 percent increase in a nominal wage, with a 0 percent rate of price inflation in the economy
c.	receiving a 4 percent increase in a nominal wage, with a 5 percent rate of price inflation in the economy
d.	receiving no increase in a nominal wage, with a 5 percent rate of price deflation in the economy
e.	receiving a 2 percent decrease in a nominal wage, with a 6 percent rate of price deflation in the economy

____ 14. (Repeat your answer on Scantron line 42.) Assume you are lending money to a friend for a year and want to earn real interest of 5 percent on the loan. If you believe the inflation rate the next year will be 3 percent, you should charge your friend a nominal interest rate of

a.	5 percent
b.	8 percent
c.	3 percent
d.	15 percent
e.	whatever he will pay

____ 15. (Repeat your answer on Scantron lines 43 and 44.) When the inflation rate ends up being lower than expected,

a.	everyone benefits because money is cheaper
b.	everyone benefits because prices do not increase
c.	lenders of fixed-rate mortgages generally benefit because they will make higher profits than they had calculated
d.	borrowers with fixed-rate loans will benefit because their purchasing power will not decline as much
e.	no one benefits because everyone made financial calculations based on the projected interest rate

____ 16. Double-digit inflation

a.	has occurred in the United States in only three of the past fifty years
b.	has occurred throughout most of United States history
c.	is also called creeping inflation
d.	was the norm in the United States until the end of the Vietnam War
e.	has not occurred in the United States since the Great Depression

____ 17. (Repeat your answer on Scantron line 45.) Most economists believe that the CPI

a.	accurately measures the inflation rate
b.	accurately measures the inflation rate except during years when there are major economic shocks like the Arab oil embargo
c.	slightly underestimates the inflation rate
d.	seriously underestimates the inflation rate
e.	overestimates the inflation rate

____ 18. How are the prices of various goods and services determined for the Consumer Price Index (CPI)?

a.	by an extensive yearly household survey
b.	by an extensive monthly survey of stores, apartments, and owner-occupied homes
c.	by an extensive yearly survey of stores, apartments, and owner-occupied homes
d.	by an extensive monthly household survey
e.	through the same survey used to determine the typical market basket

____ 19. Substitution bias

a.	is one factor that causes the Consumer Price Index to underestimate the inflation rate
b.	is caused by the poor quality of many products
c.	is one of the primary causes of inflation
d.	involves consumer behavior that helps explain why the Consumer Price Index overestimates the inflation rate
e.	suggests most economists substitute other price indices for the flawed Consumer Price Index

____ 20. (Repeat your answer on Scantron line 46.) Gross domestic product (GDP) is

a.	the total value of all goods and services produced for the marketplace during a given period, within a nation's borders
b.	the total value of all final goods and services produced for the marketplace during a given period, by a nation's citizens and businesses
c.	the total value of all final goods and services produced for the marketplace during a given period, within a nation's borders
d.	the total value of all goods and services produced for the marketplace during a given period, by a nation's citizens and businesses
e.	the total value of all goods, services and inputs produced for the marketplace during a given period, within a nation's borders

____ 21. (Repeat your answer on Scantron lines 47 and 48.) In 2003, the nominal GDP of the United States was approximately

a.	$9 billion
b.	$10.7 trillion
c.	$4.5 billion
d.	$6 million
e.	$7.5 trillion

____ 22. Which of the following would be counted in U.S. GDP?

a.	a new U.S.-produced radio bought by a Japanese citizen living in Kyoto
b.	a used U.S.-produced computer bought by a French citizen living in Kansas
c.	a new Japanese radio bought by a U.S. citizen in Rhode Island
d.	a U.S. pianist's concert sales in Britain
e.	stock in Microsoft Corporation bought by a Russian citizen

____ 23. (Repeat your answer on Scantron line 49.) Private investment during a year includes

a.	the value of inventories plus the values of stocks and bonds
b.	spending on plant and equipment, new housing construction, and changes in inventories
c.	stocks and bonds purchased by firms
d.	spending on plant and equipment plus government spending plus household spending on stocks and bonds
e.	spending on plant and equipment plus capital formation

____ 24. Which of the following describes the relationship between net investment and total investment? (In lecture, I used the term “gross investment” to refer to total investment.)

a.	net investment = total investment - depreciation
b.	total investment = net investment + private investment - depreciation
c.	net investment = government investment - private investment - depreciation
d.	total investment = net investment - depreciation
e.	net investment = private investment - depreciation

____ 25. Transfer payments are

a.	payments for goods or services that individuals provide
b.	funds given to people or organizations when no good or service is received in exchange
c.	included in the government purchases category of GDP
d.	examples of government investment
e.	used to pay state employees

____ 26. (Repeat your answer on Scantron line 50.) At what U.S. unemployment rate do most economists believe full employment occurs?

a.	0 percent
b.	1.5 percent
c.	4.5 percent
d.	5.5 percent
e.	2.5 percent

____ 27. 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

Macroeconomics, Spring 2005, Exam 2, several versions

Answer Section

MULTIPLE CHOICE

1. ANS: C

2. ANS: A

3. ANS: D

4. ANS: A

5. ANS: B

6. ANS: B

7. ANS: C

8. ANS: C

9. ANS: E

10. ANS: C

11. ANS: E

12. ANS: E

13. ANS: D

14. ANS: B

15. ANS: D

16. ANS: A

17. ANS: E

18. ANS: B

19. ANS: D

20. ANS: C

21. ANS: B

22. ANS: A

23. ANS: B

24. ANS: A

25. ANS: B

26. ANS: C

27. ANS: B