Sp07_econ4.2_ex2_A - ECONOMICS 004, SECTION 002 PROFESSOR...

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Unformatted text preview: ECONOMICS 004, SECTION 002 PROFESSOR GRAF * SPRING 2007 EXAM #2 WEDNESDAY, APRIL 4, 2007 Name ‘ MULTIPLE CHOICE. (3 points each) Choose the one alternative that best completes the statement or answers the question. 1) In a small country the population equals 10,000. 7,000 people are in the labor force and 4,000 people are employed. The unemployment rate equals A) .7 B) .57 C) .43 D) an undetermined amount giventhe lack of information. \/ 2) Discouraged workers a A) are considered part of the unemployed because they are not working. B) are considered part of the unemployed because they are still in the labor force. C) are not considered part of the unemployed because they quite their jobs voluntarily. D) are not considered part of the unemployed because they are not actively seeking work. 3) Frictional unemployment will always exist because A) some workers quit their jobs without having another job already lined up. B) the government will never institute full employment policies. C) the inflation rate would have to be negative and that will never happen. D) recessions are necessary once in a while to keep the economy healthy. 4) The purchasing power of money increases When A) the inflation rate increases. B) there is inflation. C) there is deflation. D) there are more dollars in the economy. 5) The real price of a good is A) always expressed as a price index. B) depends upon a person's income. C) the nominal price adjusted by the level of inflation. D) a value that depends upon the stock market. 6) Which of the following items are not included in GDP but should be there? A) Illegal underground transactions. B) Sales at a grocery store. C) Sale of Microsoft stock. D) Unemployment compensation. A—l 7) An increase in investment spending that increases GDP occurs when A) a family purchases a new car. B) a business buys a new computer. C) inventories of new cars are drawn down on the lots of car dealers. D) the government builds a new office building. 8) If consumption expenditures are $100 million, gross private domestic investment is $50 million, imports are $20 million, exports are $10 million, government spending on goods and services is $40 million, social security spending is $15 million, and sales of existing homes equals $40 million, then what is the measure of GDP? A) GDP = $225 million B) GDP = $180 million C) GDP = $295 million D) GDP = $195 million Table 8.2 Year Nominal GDP Price Deflator 1999 500 95.4 2000 600 100.0 2001 700 102.5 2002 800 103.1 9) Refer to the above table. Real GDP in 1999 is A) 190.8 B) 477 C) 500 D) 524.1 10) An example of a cost of economic growth is A) longer life spans. B) political instability. C) pollution. D) increases in illiteracy. 11) Labor productivity is A) the average amount produced times the number of workers. B) the average amount produced times the number of people in the labor force. C) the average amount produced per worker. D) the rate of change in the total amount produced per worker. 12) The position of the long—run aggregate supply curve is determined by A) the long—run aggregate demand curve. B) the production possibilities curve. C) the open economy effect. D) the interest rate effect. A—Z 13) The long-run aggregate supply curve will shift outward to the right when A) there is economic growth. B) the price level decreases. C) the real—balance effect increases. D) the amount of labor decreases. 14) If the economy grows (illustrated by LRAs) steadily over several years and at the same time maintains the aggregate demand curve in its present position, than the economy will experience which of the following? A) Inflation. B) Stable prices. C) Secular deflation. D) The price level cannot be determined without more information. 15) In the classical model A) problems will never exist in the macroeconomy. B) problems in the macroeconomy will be serious and the government will need to step in to correct the situation. C) problems can exist but markets will always correct the situation. D) the circular flow does not hold. 16) According to Keynes A) all prices are sticky. B) prices adjust up or down as needed. C) prices of goods are sticky but wages are not. D) full employment always exists. 17) The short—run and long—run aggregate supply curves remain stable and a decrease in aggregate demand occurs. A) An increase in the price level and real GDP will occur. B) A period of expansion and a rise in the unemployment rate could occur. C) A period of recession and a rise in the unemployment rate could occur. D) The price level will fall but real GDP will remain the same. 18) An inflationary gap occurs when A) aggregate demand falls, but other things remain constant. B) short-run aggregate supply falls, but other things remain constant. C) the actual equilibrium level of real GDP is greater than the long—run aggregate supply curve. D) the actual equilibrium level of real GDP is less than the long—run aggregate supply curve. 19) Average propensity to consume A) is the same as the break—even point. B) gives the amount a person changes planned consumption for a change in real disposable income. C) is the amount of consumption that is independent of the level of disposable income. D) is the proportion of total disposable income that is consumed. A—3 20) The marginal propensity to consume is A) consumption / real disposable income B) saving / real disposable income C) change in consumption/ change in real disposable income D) change in saving/ change in real disposable income 21) Which of the following Will not lead to a change in investment? A) A firm doanrades its future profitability. B) A new discovery leads to a technological advancement. C) The government just lowered business taxes. D) The cost of borrowing has just decreased. 22) The marginal propensity to consume is .9. There is a $3,000 increase in planned investment. Real national income will increase by A) $3,000. B) $2,700. C) $30,000. D) $3,333. 23) The larger the marginal propensity to consume A) the larger the marginal propensity to save is. B) the larger the multiplier is. C) the smaller the multiplier is. D) the smaller autonomous consumption is. 24) What is the multiplier when the marginal propensity to save is 0.2? What is the value of the multiplier if the aggregate supply curve is upward sloping? A) 2; more than 2 B) 4; more than 4 C) 5; less than 5 D) 5; 5 25) If the MPS = 0.1, the MPC is A) 10. B) 0.9. C) 1. D) 0.5. PART II. SHORT ANSWER QUESTIONS SHOW ALL WORK! 25 points. Use the graph below for questions 1—5 PriCe (1) Level (2) 105 A 100 B 90 C (3) 40 80 Real GDP/Yr (Trillions of dollars) 1‘ (5 points) What is the problem pictured above and what is its size? 2. (5 points) If the MPS: 0.2 how much do you change G to solve this problem? 3. (5 points) What happens to prices, output and employment after #2 is implemented? 4. (5 points) If savings decreased (direct effect only), What curve(s) is affected? Would this solve the problem in #1? 5. (5 points) What happens to prices, output and employment in #4? ECON 4.2 Version A ...
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This note was uploaded on 03/30/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Spring '07 term at Pennsylvania State University, University Park.

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Sp07_econ4.2_ex2_A - ECONOMICS 004, SECTION 002 PROFESSOR...

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