FINAL/ Principles of Macroeconomics/ Spring 2003/ Instructor-James Sondgeroth

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Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

(I.1) Scarcity means

a.	wants are greater than the limited resources available to satisfy these wants.
b.	wants are less than the limited resources available to satisfy these wants.
c.	resources are infinite.
d.	wants are limited.
e.	both c and d

(I.2) The usefulness of a theory is determined by

a.	the realism of its hypothesis.
b.	the realism of its assumptions.
c.	the realism of its variables.
d.	how well it predicts.
e.	all of the above

(I.3) An efficient society

a.	produces at a point on its PPF.
b.	can produce more of one good only by giving up some of an other good.
c.	cannot produce unlimited amounts of a good.
d.	still has to make choices.
e.	all of the above

Exhibit 1

(I.4) Refer to Exhibit 1. The opportunity cost of increasing fax machine output from 55 thousand to 60 thousand machines a year is

a.	10 thousand television sets.
b.	20 thousand television sets.
c.	30 thousand television sets.
d.	40 thousand television sets.
e.	70 thousand television sets.

Exhibit 2

(I.5) Refer to Exhibit 2-6. Which graph depicts an increase in the quantity of resources available?

a.	(1)
b.	(2)
c.	(3)
d.	(4)
e.	none of the above

(I.6) A socialist thinker believes that private property is economically undesirable because

a.	it cannot provide incentives to its owners.
b.	it often provides unfair political or social power to its owners.
c.	it shields its owners from the incentives provided by price changes.
d.	the government cannot effectively manage property.

(I.6) Capitalist thinkers believe that prices

a.	are to be worshiped.
b.	are useful in helping to ration goods and services.
c.	convey information to the buyer.
d.	provide incentives.
e.	all but a.

(I.7) In the Simple Circular Flow of Economic Activity, income flows from

a.	the government to households.
b.	households to the goods and services market.
c.	the factor market to the households.
d.	business firms to the final goods and services market.
e.	the money market to the households.

Exhibit 3

(I.8) Refer to Exhibit 3-3. A shift in demand from D1 to D2 can NOT occur from

a.	an increase in population.
b.	an increased preference for the good.
c.	an increase in income.
d.	a decrease in the good's price.
e.	an increase in the price of a substitute for the good.

10.

(I.9) Which of the following statements best represents the law of supply?

a.	Price and quantity supplied are inversely related.
b.	Price and quantity supplied are directly related.
c.	Price and quantity supplied are inversely related, ceteris paribus.
d.	Price and quantity supplied are directly related, ceteris paribus.
e.	Price and supply are directly related, ceteris paribus.

11.

(I.10) If the demand for a good falls, then equilibrium price will __________ and equilibrium quantity will __________.

a.	rise; fall
b.	rise; rise
c.	fall; fall
d.	fall; rise

Exhibit 4

12.

(I.10) Refer to Exhibit 4. $20 is the

a.	equilibrium price.
b.	market-clearing price.
c.	price at which there is neither a surplus nor a shortage.
d.	all of the above

13.

(I.11) The equilibrium price in a market is $20. The current price in that market is $17. At this price, there is

a.	a surplus in market A.
b.	a shortage in market A.
c.	excess supply in market A.
d.	excess demand in market A.
e.	b and d

14.

(I.11) One of the effects of a price floor (above equilibrium price) is

a.	surplus.
b.	shortage.
c.	more satisfied customers.
d.	that the market clears.
e.	nothing, since the floor would have to be set below equilibrium for it to have any effect.

15.

(I.12) If the CPI was 140 last year and is 147 in the current year, how much did prices rise between the two years?

a.	5 percent
b.	7 percent
c.	10 percent
d.	0.7 percent

16.

(I.14) A person is unemployed if he

a.	is a member of the civilian labor force, out of work, and actively seeking work.
b.	is 15 years old and seeking his first job.
c.	is out of work, available for work, but not actively seeking work.
d.	all of the above

17.

(I.15) "Full employment" is said to exist when the unemployment rate equals

a.	zero.
b.	the cyclical unemployment rate.
c.	the structural unemployment rate.
d.	the natural unemployment rate.

18.

(II.1) In the Circular Flow of Economic Activity model, government expenditures flowing directly into the Final Goods and Services Market consist of

a.	total federal government spending only.
b.	total federal government spending on goods and services only.
c.	total federal, state, and local government spending.
d.	total federal, state, and local government spending on transfer payments only.
e.	total federal, state, and local government spending on goods and services only.

19.

(II.2) The expenditure approach to measuring GDP sums

a.	consumption, gross private domestic investment, government purchases, and net exports.
b.	sales, revenues, income, and wages.
c.	profits, compensation of employees, consumption, and investment.
d.	net exports, consumption, wages, and salaries.

20.

(II.3) Leisure is

a.	a bad as far as economists are concerned, because it is not tangible.
b.	a good that is not counted in GDP.
c.	neither a good nor a bad, and it is not counted in GDP.
d.	a good that is counted in GDP.

21.

(II.4) Look at the following data: GDP = $5,998 billion; investment = $1,322 billion; exports = $300 billion; government purchases = $1,450 billion; consumption = $3,400 billion. What does import spending equal?

a.	$400 billion
b.	$474 billion
c.	$300 billion
d.	$374 billion
e.	none of the above

22.

(II.5) A "recession" is defined as

a.	a period of a positive frictional unemployment rate.
b.	two or more consecutive quarters of falling Real GDP.
c.	the lowest point in a business cycle.
d.	a period of negative inflation.

23.

(II.6) The real balance effect is one of the

a.	reasons why an AD curve is downward-sloping.
b.	shifters of an AD curve.
c.	reasons why a short-run aggregate supply curve can be derived.
d.	shifters of a short-run aggregate supply curve.

24.

(II.7) Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.

a.	movement down along
b.	movement up along
c.	a rightward shift of
d.	a leftward shift of

25.

(II.8) A short-run aggregate supply curve shows the

a.	amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.
b.	real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
c.	real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
d.	real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

26.

(II.9) An increase in labor productivity shifts the

a.	AD curve rightward.
b.	AD curve leftward.
c.	short-run aggregate supply (SRAS) curve leftward.
d.	SRAS curve rightward.
e.	none of the above

27.

(II.10) A recessionary gap could be caused by

a.	a rightward shift in the AD curve.
b.	a rightward shift in the SRAS curve.
c.	a leftward shift in the AD curve.
d.	a leftward shift in the SRAS curve.
e.	c or d

Exhibit 5

28.

(II.11) Refer to Exhibit 5. Assume the economy is self-regulating and currently is in short run equilibrium with the price level equal to P₃and Real GDP equal to Q₅. If the government does not intervene with either fiscal policy or monetary policy, where is the economy likely to end up in the long run?

a.	P₁ and Q₃
b.	P₂ and Q₃
c.	P₃ and Q₃
d.	P₄ and Q₃
e.	P₅ and Q₃

29.

(II.12) The classical economists felt that planned saving would he equal to planned investment because

a.	wages are flexible.
b.	prices of domestic goods are flexible.
c.	interest rates are flexible.
d.	prices of imports are flexible.

30.

(II.13) Keynes believed that investment expenditures are

a.	largely insensitive to changes in interest rates.
b.	largely sensitive to changes in interest rates.
c.	unrelated to business expectations.
d.	related to business expectations only during recessionary periods.

31.

(II.14) To get the economies of the United States and Great Britain out of the Great Depression, John Maynard Keynes proposed that

a.	nothing be done since those economies were self stabilizing.
b.	all private property be nationalized.
c.	the example of Germany be followed.
d.	the national governments engage in deficit spending.

32.

(II.15) If income rises from $1,000 to $1,800 and consumption rises from $1,200 to $1,800, the marginal propensity to consume is

a.	1.00
b.	0.90
c.	0.75
d.	0.25

Exhibit 6

33.

(II.16) Refer to Exhibit 6. The marginal propensity to save (MPS) is

a.	0.
b.	0.10.
c.	0.20.
d.	0.25.
e.	none of the above

34.

(III.1) Fiscal policy refers to

a.	changes in the amount of government expenditures and taxes to achieve particular economic objectives.
b.	changes in the composition of a given amount of government expenditures to achieve particular economic objectives.
c.	changes in interest rates initiated by government action.
d.	any change in government spending or taxes that has the effect of destabilizing the economy.

35.

(III.2) An example of expansionary fiscal policy is

a.	an increase in government purchases, or an increase in taxes, or both.
b.	a decrease in government purchases, or a decrease in taxes, or both.
c.	an increase in government purchases, or a decrease in taxes, or both.
d.	a decrease in government purchases, or an increase in taxes, or both.
e.	holding government purchases constant while increasing taxes.

36.

(III.3) When the MPC = 0.8, the multiplier is

a.	0.20.
b.	1.25.
c.	2.50.
d.	5.00.

37.

(III.4) The crowding-out effect suggests that

a.	high taxes reduce both consumption and saving.
b.	increases in consumption are always at the expense of saving.
c.	increases in government spending may raise the interest rate, thereby reducing investment.
d.	increases in government spending will close a recessionary gap.

38.

(III.5) The effectiveness lag is the time between

a.	the implementation of a policy and when the impact of the policy is felt.
b.	the enactment of a policy and the implementation of the policy.
c.	realizing a policy is needed and enacting the policy.
d.	the occurrence of an event and policymakers realizing the event has occurred.

39.

(III.6) According to Milton Freidman in "Anatomy of a Crisis," what was the proximate cause of the severity of the Great Depression?

a.	the Jewish ownership of the Bank of the United States
b.	the anti-semitism of J.P.Morgan
c.	the Federal Reserve not expanding the money supply from 1929 to 1933
d.	Franklin Roosevelt's effort to balance the budget

40.

(III.7) If a person uses money to buy a pair of shoes, money is functioning as

a.	a unit of account.
b.	a store of value.
c.	a medium of exchange.
d.	none of the above

41.

(III.8) Money evolved out of the self-interested actions of

a.	economists.
b.	governments.
c.	a few kings and queens.
d.	individuals.
e.	none of the above

42.

(III.9) In the history of banking, warehouse receipts refer to receipts

a.	that goldsmiths once issued acknowledging that they held a customer's gold.
b.	for storing furniture in a warehouse.
c.	goldsmiths issued to each other when they borrowed gold.
d.	for storing food and other perishables in a warehouse.

43.

(III.10) The banking system increases the money supply by

a.	creating checkable deposits by means of making loans.
b.	adding currency to M1.
c.	printing more paper money.
d.	issuing more Federal Reserve Notes.

44.

(III.11) The Federal Reserve System is the

a.	federal government agency that collects taxes and spends these receipts on tanks, bridges, employees' salaries, etc.
b.	company that delivers packages to your front door.
c.	central bank of the United States.
d.	federal government agency that collects and disseminates all the economic data that economists are interested in.

45.

(III.12) If the Fed purchases government securities from commercial banks, the reserves of the banking system

a.	increase by the amount of the purchase.
b.	increase by more than the amount of the purchase.
c.	remain constant.
d.	decrease by the amount of the purchase.
e.	decrease by more than the amount of the purchase.

46.

(III.13) Velocity equals GDP __________ the money supply.

a.	plus
b.	multiplied by
c.	divided by
d.	minus

47.

(III.14) In the monetarist version of the AD-AS framework, an increase in the money supply produces a __________ shift of the __________ curve.

a.	rightward; AD
b.	rightward; SRAS
c.	leftward; AD
d.	leftward; SRAS

48.

(III.15) One-shot inflation can originate

a.	on the demand side of the economy.
b.	on the supply side of the economy.
c.	when the aggregate demand curve shifts to the left.
d.	a and b
e.	all of the above

49.

(III.16) If the interest rate falls, the opportunity cost of holding money __________ and the quantity demanded of money __________.

a.	rises, rises
b.	rises, falls
c.	falls, rises
d.	falls, falls

50.

(III.17) Which best describes the Keynesian transmission mechanism when the money supply rises?

a.	The interest rate rises; this in turn cuts back investment spending, which in turn raises total expenditures and shifts the AD curve rightward.
b.	The interest rate falls; this in turn cuts back investment spending, which in turn lowers total expenditures and shifts the AD curve rightward.
c.	The interest rate falls; this in turn stimulates investment spending, which in turn raises total expenditures and shifts the AD curve rightward.
d.	The interest rate falls; this in turn stimulates investment spending, which in turn lowers total expenditures and shifts the AD curve leftward.