1
11. Final
Exams
Exam Of the following, which would not be included in GDP? a. Your purchase of a haircut. b. Your purchase of a used textbook for this course. c. Your investment of $100 in a savings account at your bank. d. Neither b nor c would be included in GDP. 12. Which points in a production possibilities frontier are both attainable and inefficient? a. Points beyond the frontier. b. Points on the frontier. c. Points within the frontier. d. Both points on and within the frontier. 13. Suppose a heat wave in the South causes millions of chickens to commit suicide. Keeping in mind that only live chickens can be sold to be processed into food, as a result of the heat the equilibrium relative price of a chicken dinner ____ and the equilibrium quantity ____. a. rises; increases b. probably changes, but in an ambiguous direction; decreases c. rises; probably changes, but in an ambiguous direction d. rises; decreases 14. If wages and prices were perfectly flexible so that the labor market is always in the equilibrium where the supply of labor equals the demand for it, then a. the AS curve is vertical. b. the AS curve is horizontal. c. the AS curve has a 45 degree slope. d. the AD curve is vertical.
15. According to the quantity theory, changes in the growth rate of the quantity of money lead to changes in the inflation rate. Using the new classical (rational expectations) theory, if the public is aware of the Feds monetary policy, then an increase in the growth rate of the quantity of money has no effect on the unemployment rate. a. Both sentences are true. b. The first sentence is true; the second sentence is false. c. The first sentence is false; the second sentence is true. d. Both sentences are false. 16. If the nominal interest rate is 10 percent and the real interest rate is 3 percent, the expected inflation rate is approximately a. 30 percent b. 13 percent c. 7 percent d. 3.3 percent 17. The stage of the business cycle during which output is falling is a. the recession. b. the expansion. c. the peak. d. the trough. 18. The supply curve for pizza is NOT directly shifted if there is a change in the a. number of sellers of pizza. b. technology used to produce pizza. c. price of pizza. d. price of resources (such as cheese) used to produce pizza.
301
302
FINAL EXAMS
19. If the governments tax revenues are $1,050 billion and its total expenditures are $1,000 billion, the government has a a. deficit of $50 billion b. surplus of $50 billion c. deficit of $900 billion d. surplus of $950 billion 10. An assumption of the neoclassical growth theory is that a. in the long run, people earn only a subsistence real wage rate. b. all technological advances are the result of peoples deliberate actions. c. the economy-wide return to capital diminishes as more capital is accumulated. d. knowledge is not subject to diminishing returns. 11. Fiscal policy includes a change in a. the quantity of money. b. the price level. c. the unemployment rate. d. tax rates. 12. Suppose the MPC is 0.9 and there are no imports nor induced taxes. If investment falls by $20 billion and the government increases its purchases of goods and services by $50 billion, then the AD curve a. shifts rightward by $500 billion. b. shifts rightward by $300 billion. c. shifts rightward by $200 billion. d. shifts leftward. 13. As we move along a production possibilities frontier producing more and more of a good, the opportunity cost of producing extra units of this good _____. a. falls b. does not change c. rises d. may rise, fall, or not change 14. GDP equals a. aggregate expenditure. b. aggregate income. c. the value of the aggregate production in a country during a given time period. d. all of the above
For the next two questions, suppose the government increased its purchases of goods, that is, G increases. In the short run, the economy moves along the short-run AS curve; in the long-run it moves along the long-run AS curve. 15. In the short run, the price level ____ and real GDP ____. a. rises; increases b. rises; does not change c. does not change; increases d. rises; decreases 16. In the long run, the price level ____ and real GDP ____. a. rises; increases b. rises; does not change c. does not change; increases d. rises; decreases 17. The discount rate is the interest rate that a. the Federal Reserve charges banks for loans from the Federal Reserve. b. banks charge the Federal Reserve for loans from the banks. c. banks charge each other for the loan of reserves. d. None of the above. 18. An increase in unemployment compensation payments means that the (total) cost to unemployed workers from searching for jobs has decreased. When the cost of searching for jobs decreases, unemployed workers will be more likely to accept job offers. a. Both sentences are true. b. The first sentence is true; the second sentence is false. c. The first sentence is false; the second sentence is true. d. Both sentences are false. 19. What type of unemployment would include a high school graduate who has just entered the labor force and is looking for a job? a. frictional b. structural c. cyclical d. excessive
FINAL EXAMS
303
20. Output is at its highest point at _____ and this is followed by _____. a. the recession; the trough. b. an expansion; a recession c. the peak; a recession. d. the peak; an expansion. 21. The most common way the Fed has of increasing the quantity of money is by a. raising the required reserve ratio. b. lowering the required reserve ratio. c. buying a government security. d. selling a government security. 22. According to the ____ theory of business cycles, a change in the growth rate of the quantity of money has no effect on real GDP. a. Keynesian b. monetarist c. new Keynesian d. real business cycle 23. Which of the following is included in the investment component of GDP? a. Microsofts purchase of stock in IBM. b. GEs investment of $100,000 in a savings account at its bank. c. Ford Motors purchase of a factory previously owned by GM. d. Leonardos Pizzas (a local pizza restaurant) purchase of a new pizza oven. 24. The exchange rate changes from 100 yen per dollar to 130 yen per dollar. The yen has ____ against the dollar and the dollar has ____ against the yen. a. depreciated; appreciated b. depreciated; depreciated; c. appreciated; appreciated d. appreciated; depreciated 25. Which theory is characterized by the conclusion that people receive only a subsistence wage rate? a. The classical theory of growth. b. The Monetarist theory of business cycles. c. The Keynesian theory of business cycles. d. The neoclassical theory of growth.
26. A lot of trade between nations involves trading similar goods (that is, the U.S. both imports and exports automobiles to Japan). Which of the following is not a reason for trade in similar goods? a. Diversified tastes. b. Absolute advantage. c. Economies of scale. d. None of the above because they are all reasons for why nations trade similar goods.. 27. A decrease in the expected future exchange rate shifts the demand curve for U.S. dollars ____ and the supply curve of U.S. dollars ____. a. rightward; rightward b. rightward; leftward c. leftward; rightward d. leftward; leftward 28. When the Federal Reserve buys a government security, banks reserves will _____. a. increase b. not change c. decrease d. possibly change, depending on whether the Fed purchased the security from a bank or from another seller 29. Suppose that the growth rate of velocity is 1 percent, the growth rate of the quantity of money is 7 percent, and the growth rate of real GDP is 3 percent. Then the inflation rate is a. 8 percent. b. 6 percent. 5 c. percent. d. While the inflation rate can be calculated using the numbers given, none of the answers given above are correct. 30. The price of cheese used to produce pizza rises. As a result of the increase in cost, the equilibrium relative price of a pizza ____ and the equilibrium quantity produced ____. a. rises; increases b. rises; decreases c. falls; increases d. falls; decreases
304
FINAL EXAMS
Exam 2
11. If the MPC equals .9 and there are no imports nor induced taxes, in the long-run by how much does a $20 billion increase in government spending raise GDP? a. $0 b. $20 billion c. $180 billion d. $200 billion 12. The situation of the price level rising and GDP falling stagflation could be the result of the a. AD curve shifting leftward. b. AD curve shifting rightward. c. SAS curve shifting leftward. d. SAS curve shifting rightward. 13. Which of the following shifts the SAS curve leftward? a. an increase in the price level b. a decrease in the price level c. an increase in money wages d. a decrease in money wages 14. If the multiplier is 5, an increase of $20 billion in investment ____ equilibrium expenditures by ____. a. raises; $20 billion. b. lowers; $20 billion. c. raises; $100 billion. d. lowers; $100 billion. 15. In the short-run, an increase in the quantity of money ____ the price level and _____ real GDP. a. raises; increases b. raises; decreases c. does not change; increases d. raises; does not change 16. In the long-run, an increase in the quantity of money ____ the price level and _____ real GDP. a. raises; increases b. raises; decreases c. does not change; increases d. raises; does not change 17. Open-market operations are the purchase or sale of government securities by commercial banks. a. True b. False
18. An increase in consumers income will cause the ____ curve for normal goods to shift ____. a. demand; leftward b. demand; rightward c. supply; leftward d. supply; rightward 19. Suppose that people decide eating pizza is stylish and simultaneously a new pizza oven is invented that lowers the cost of producing a pizza. The relative price of a pizza ____ and the quantity ____. a. rises; increases b. falls; increases c. probably changes, but in an ambiguous direction; increases d. rises; probably changes, but in an ambiguous direction 10. Which of the following factors does NOT shift the AD curve? a. a change in government purchases b. a change in the money supply c. a change in taxes d. a change in the price level 11. The most expansionary fiscal policy of the following is the one that a. lowers G and lowers taxes. b. raises G and lowers taxes. c. raises G and raises taxes even more. d. raises taxes. 12. According to monetarists, the Great Depression was caused by a. the stock market crash of 1929. b. a massive contraction of the quantity of money, leading to large decreases in aggregate demand. c. an expansion of the quantity of money, leading to higher inflation. d. a rise in business and consumer confidence. 13. When would the U.S. exchange rate rise the most? a. When the supply of and demand for U.S. dollars increase. b. When the supply of U.S. dollars increases and the demand for them decreases. c. When the supply of U.S. dollars decreases and the demand for them increases. d. When the supply of and demand for U.S. dollars decrease.
FINAL EXAMS
305
Inflation rate (percent per year)
14. What type of unemployment would include an individual who is unemployed because of a general downturn in economic activity? a. Frictional unemployment b. Structural unemployment c. Cyclical unemployment d. Trough unemployment. 15. Along the path of the business cycle, real GDP rises during ____, then reaches _____, and then _____. a. a recession; a peak; an expansion b. an expansion; a peak; a recession c. a trough; an expansion; a peak d. a recession; a trough; an expansion 16. Which of the following is the impulse in the Keynesian business cycle theory? a. An unexpected change in aggregate demand. b. A change by the Fed in the growth rate of the quantity of money. c. A change in expectations about future sales and profits. d. An unexpected change in the growth rate of productivity. 17. Which growth theory concludes that in the long run people are be paid a subsistence wage rate? a. The classical theory b. The neoclassical theory c. The new growth theory d. The Keynesian theory 18. Which theory concludes that economic growth can continue indefinitely? a. The classical theory. b. The Keynesian theory. c. The new growth theory. d. The neoclassical theory. 19. The government sector deficit is $75 billion and the private sector deficit is $25 billion. Hence net exports equals a. $100 billion. b. $75 billion c. $50 billion. d. $25 billion.
FIGURE 1 7 6 5 4 3 2 1
LRPC
SRPC
2345 6 7 8 9 10 Unemployment rate (percentage of labor force)
20. In the figure, the expected inflation rate is a. 5 percent. b. 4 percent. c. 3 percent. d. None of the above 21. In the figure, the natural rate of unemployment is a. 3 percent. b. 5 percent. c. 8 percent. d. None of the above. 22. Which of the following is a fixed-rule policy? a. Increase government spending only if the unemployment rate exceeds 6 percent. b. Increase government spending in a recession. c. Have the quantity of money grow 3 percent per year each year. d. Decrease the growth rate of the quantity of money when the inflation rate becomes too high. 23. Along which curve does the price level change but not the money wage rate? a. The AD curve. b. The SAS curve. c. The LAS curve. d. None of the above.
306
FINAL EXAMS
24. If the MPC = .9 and there are no imports nor induced taxes, what does the lump-sum tax multiplier equal? a. 10.0. b. 9.0. c. 10.0. d. 9.0. 25. If the price index last year is 200 and next year is 220, the inflation rate between the years is a. 220 percent b. 200 percent c. 20 percent d. 10 percent 26. A decrease in the required reserve ratio ____ excess reserves and ____ the quantity of money. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases 27. A nations investment must be financed by a. national saving only. b. the governments budget deficit. c. borrowing from the rest of the world only. d. national saving plus borrowing from the rest of the world.
28. Suppose that capital per hour of work increases by 21 percent while real GDP per hour of work increases by 12 percent. The change in technology increased real GDP per hour of work by ____. a. 21 percent b. 17 percent c. 12 percent d. 5 percent 29. The maximum gains from international trade occur when a. there is no such trade. b. each nation produces according to its comparative advantage and trades with other nations. c. each nation uses tariffs rather than quotas to restrict trade. d. each nation uses quotas rather than tariffs to restrict trade. 30. In the United States, from 1981 to 2001, the demand for labor has a. increased more than the supply of labor has increased. b. increased less than the supply of labor increased. c. increased while the supply of labor has decreased. d. decreased while the supply of labor has increased by more.
307
FINAL EXAM ANSWERS
Answers
Final Exam 1 Answers 11. d; 12. c; 13. d; 14. a; 15. a; 16. c; 17. a; 18. c; 19. b; 10. c; 11. d; 12. b; 13. c; 14. d; 15. a; 16. b; 17. a; 18. b; 19. a; 20. c; 21. c; 22. d; 23. d; 24. a; 25. a; 26. b; 27. c; 28. a; 29. c; 30. b. Final Exam 2 Answers 11. a; 12. c; 13. c; 14. c; 15. a; 16. d; 17. b; 18. b; 19. c; 10. d; 11. b; 12. b; 13. c; 14. c; 15. b; 16. c; 17. a; 18. c; 19. a; 20. b; 21. b; 22. c; 23. b; 24. d; 25. d; 26. a; 27. d; 28. d; 29. b; 30. a.
308