secondmidtermspring2006 - Economics 102 Midterm#2 Spring...

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Economics 102 Midterm #2 Spring 2006 Binary Choice 1) Holding everything else constant, if the level of technology increases, then according to the classical model, average income will increase. a. True b. False 2) Economists only care about short-run growth, because “in the long run we are all dead.” a. True b. False 3) According to the quantity theory of money, an increase in the money supply, holding all other factors constant, will increase real GDP. a. True b. False 4) Holding everything else constant, in the simple Keynesian Model presented in class, when aggregate expenditure is greater than production, this reduces the level of inventories and in the short-run results in an increase in the aggregate price level. a. True b. False 5) A government budget surplus will shift: a. the supply curve of loanable funds. b. the demand curve for loanable funds. 6) According to the Classical Dichotomy, the Classical Model is only valid for determining the nominal values of economic variables. a. True.
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False. 7) Which of the following statements best describes the differences between the Classical and Keynesian models presented in class? a. When the economy is in the midst of an economic recession, the Keynesian economist typically will advocate governmental intervention while the Classical economist will advocate patience. b. According to the Classical Model, economic fluctuations are due to a disequilibrium in the labor market; in the simple Keynesian Model, when aggregate expenditure is greater than actual production, prices rise to eliminate this disequilibrium. 8) Deliberate actions by policy makers that cause fiscal policy to be expansionary when the economy contracts are called automatic stabilizers. a. True b. False 9) When an economy is in a recession, the benefit from hiring an additional worker is less than the opportunity cost of working. a. True b. False Multiple Choice 10) Consider an economy using the Keynesian model as presented in class. The value of the autonomous expenditure multiplier [1/(1-b)] in this economy is 2. If government spending increases by $50 while taxes simultaneously increase by $50, what will happen to the equilibrium level of GDP? a. It will not effectively change the level of output since the increase in government spending which stimulates spending is exactly offset by the increase in taxes which contracts spending. b. It will cause the equilibrium level of GDP to increase by less than $50 because of the
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This note was uploaded on 08/08/2008 for the course ECON 102 taught by Professor Drozd during the Spring '08 term at University of Wisconsin.

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secondmidtermspring2006 - Economics 102 Midterm#2 Spring...

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