Macro1 Practice Questions

Macro1 Practice Questions - ©Prep101...

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Unformatted text preview: ©Prep101 www.prep101.com/freestuff Practice Macro Exam Use the following information, collected by Statistics Noland, to answer question 1: Government Expenditures Net Taxes Private Saving Investment $600 billion $700 billion $300 billion $350 billion Q1. What is national saving? a) $400 billion b) $300 billion c) $200 billion d) $650 billion e) $50 billion Q2. Which of the following is likely to result in cost-push inflation? a) If there is a decrease in aggregate supply and the Keynesian activists are in charge of the macroeconomic policymaking b) If there is a decrease in aggregate supply and the monetarists are in charge of the macroeconomic policymaking c) If there is an increase in aggregate demand and the Keynesian activists are in charge of the macroeconomic policymaking d) If there is an increase in aggregate demand and the monetarists are in charge of the macroeconomic policymaking e) All of the above Q3. An art collector sold a painting for $20,000 in 2005. He had purchased it for $15,000 in 2002. How will this sale affect 2005 GDP? a) b) c) d) e) 2005 GDP will increase by $20,000. 2005 GDP will increase by $15,000. 2005 GDP will increase by $5,000, but 2002 GDP must be adjusted downwards. 2005 GDP will not change. 2005 GDP will increase by $5,000. Page 1 of 19 ©Prep101 www.prep101.com/freestuff Q4. Suppose that the country of Musicland produces only stereos and CDs. Goods Stereos CDs 2004 Quantity 20 100 2004 Price $200 $4 2005 Quantity 30 200 2005 Price $220 $6 Using the base-year prices method, what was real GDP in 2005 (the base year is 2004)? a) b) c) d) e) $7,800 $6,800 $4,400 $6,000 $5,200 Use the following graph to answer question 5: Price (plums) Quota Export supply of oranges 7 5 Import demand for oranges 0 5 7 Quantity (oranges) Q5. If there is a trade quota of 5 oranges, orange importers can import only 5 oranges. By importing 5 oranges and selling them in the domestic market, a) b) c) d) e) Importers make a profit of 10 plums Importers make a profit of 35 plums Importers make a profit of 25 plums Importers make a profit of 42 plums Importers make a profit of 30 plums Page 2 of 19 ©Prep101 www.prep101.com/freestuff Use the following information about Tinyland to answer question 6 (assume the economy is at full employment): Real Wage Rate 3 4 5 6 7 9 Labour Demand (thousands of workers) 30 25 20 15 10 5 Labour Supply (thousands of workers) 5 10 20 25 30 35 Q6. If 5 thousand workers are unemployed, what is the natural unemployment rate? a) b) c) d) e) 25 % 20% 18% 15% 10% Use the following job market information collected by Statistics Greatland (figures are in millions) to answer question 7: 2001 40 4 22 5 Working Age Population Unemployed Employed Working part-time Labour Force 2002 42 23 4 30 2003 44 5 31 Q7. Labour force participation rate a) b) c) d) e) Q8. Decreased from 71.43% in 2002 to 70.45% in 2003 Increased from 70.45% in 2002 to 71.43% in 2003 Did not change from 2002 to 2003 Increased from 76.67% in 2002 to 83.87% in 2003 Decreased from 83.87% in 2002 to 76.67% in 2003 All else the same, a lower value of the exchange rate lowers the quantity of Canadian dollars supplied, because a) b) c) d) e) Canadian imports fall Expected profits from selling Canadian dollars fall Canadian imports increase Expected profits from selling Canadian dollars increase Both a) and b) Page 3 of 19 ©Prep101 www.prep101.com/freestuff Q9. If the price index in 2000 was 100, in 2001 was 110, and in 2002 was 90, the economy experienced a) 10 % inflation between 2000 and 2001 and 18 % inflation between 2001 and 2002 b) 10 % inflation between 2000 and 2001 and 18 % deflation between 2001 and 2002. c) 10 % inflation between 2000 and 2001 and 0 % inflation between 2001 and 2002 d) 10 % deflation between 2000 and 2001 and 18 % deflation between 2001 and 2002. e) 10 % deflation between 2000 and 2001 and 18 % inflation between 2001 and 2002 A famous baseball player, Sam Bazeball, made $500,000 in 1972. His son, Pat Bazeball, also a well-known baseball player, made $1.5 million in 2004. Use this information (and the fact the price index in 1972 was 40 and the price index in 2004 was 125) to answer question 10: Q10. What was Sam’s income in 2004 dollars? a) b) c) d) e) $156,250 $1,562,500 $1,125,000 $1,300,000 none of the above Q11. Suppose interest rates are 5 percent in Japan and 6 percent in Germany. The current value of the exchange rate is 80 Japanese yen per mark, and it is generally expected that in one year the exchange rate will be 79.2 yen per mark. However, new information is released that changes everyone’s expectations, and they think the exchange rate in one year will still be 80 yen per mark. As a result of this change, a) b) c) d) e) People will sell their savings in yen and will buy marks to lend in Germany People will borrow in Japan and lend in Germany The demand for the German marks will rise Nothing will change. a), b), and c) Page 4 of 19 ©Prep101 www.prep101.com/freestuff Q12. When real GDP is greater than potential GDP the economy ____, and when real GDP equals potential GDP the economy ____. a) Has an inflationary gap, is in a full-employment equilibrium. b) Has a recessionary gap, is in a full-employment equilibrium. c) Is in a below full-employment equilibrium, is in a full-employment equilibrium. d) Is in an above full-employment equilibrium, is in a below full-employment equilibrium. e) Is in full employment equilibrium, has a recessionary gap. Q13. Assume in Tinyland, the economy is at full employment. What will happen in the long run if aggregate demand decreases (assume prices of productive resources can vary)? a) b) c) d) e) The price level will increase and the real GDP will decrease. The price level will increase and the real GDP will be unaffected. The price level will decrease and the real GDP will decrease. The price level will decrease and the real GDP will be unaffected. The price level will increase and the real GDP will increase. Q14. Which of the following statements cannot be true about the Cooland economy in the long run? a) b) c) d) e) The economy is at full employment, but there is still some unemployment. If the money supply increases, the price level will increase. If there are technological advances, the real GDP will increase. If the money supply decreases, the real GDP will fall. If human capital decreases, the real GDP will decrease. Q15. If the United States (a country that imports goods from Canada) experienced decrease in income, in Canada a) b) c) d) e) The aggregate demand would shift left as a result of a decrease in exports. The aggregate demand would shift right as a result of a decrease in exports. The aggregate demand would shift left as a result of an increase in exports. The aggregate demand would shift left as a result of a decrease in imports. The aggregate demand would shift right as a result of an increase in imports. Page 5 of 19 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 16: Price level LAS1 LAS0 LAS2 F E C D A I B H AD2 G AD1 AD0 Real GDP Q16. Assume an economy initially is in full-employment equilibrium at point A. Assume there is a productivity slowdown. If real business cycle theory is correct, under feedback-rule policy, a) b) c) d) e) The economy will move from point A to point C and then to point F The economy will move from point A to point B and then to point G The economy will move from point A to point E The economy will move from point A to point H The economy will move from point A to point H and then to point I Assume in Noland, there are no imports, no exports, and no taxes. Use this information about Noland to answer questions 17 and 18: Q17. If the government plans to shift the AD curve rightward by $10 billion (and the MPC is 0.8), the government should increase its expenditures by a) b) c) d) e) $1 billion $2 billion $3 billion $5 billion $10 billion Q18. If the government increases expenditures by $5 billion and the AD curve shifts rightward by $10 billion, what is the marginal propensity to save? a) b) c) d) e) 1.2 0.2 0.5 0.8 0.75 Page 6 of 19 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 19: C 45 degree line 100 1000 YD Q19. The consumption function is given by a) b) c) d) e) C = 100 + .75YD C = 1000 + .8YD C = 100 + 0.5YD C = 100 + 0.9YD C = 1000 + .6YD Q20. Consider the aggregate expenditure model and the aggregate demand-aggregate supply model. What will happen if exports increase? a) The aggregate planned expenditure curve shifts rightward and the aggregate demand curve shifts rightward. b) The aggregate planned expenditure curve shifts upward and the aggregate demand curve shifts rightward. c) The aggregate planned expenditure curve shifts upward and the aggregate demand curve is unaffected. d) The aggregate planned expenditure curve shifts upward and the aggregate demand curve shifts leftward. e) The aggregate planned expenditure curve shifts downward and the aggregate demand curve shifts rightward. Page 7 of 19 ©Prep101 www.prep101.com/freestuff Q21. All else constant, an increase in the marginal tax rate will result in a) b) c) d) e) A downward parallel shift in the aggregate planned expenditure curve An upward parallel shift in the aggregate planned expenditure curve A downward non-parallel shift in the aggregate planned expenditure curve A rightward movement along the aggregate planned expenditure curve An upward non-parallel shift in the aggregate planned expenditure curve Use the following figure to answer questions 22 and 23: Outlays, revenues, and deficit Revenues 340 260 220 180 140 100 Outlays 800 900 1100 1300 Real GDP Q22. If potential GDP is $1,100 billion, what is the structural deficit or surplus? a) b) c) d) e) There is a structural deficit of $120 billion. There is a structural surplus of $120 billion. There is a structural surplus of $200 billion. There is a structural deficit of $200 billion. There is a structural surplus of $300 billion. Q23. If potential GDP is $1,100 billion, but current real GDP is $900 billion, what is the cyclical deficit or surplus? a) b) c) d) e) There is a cyclical surplus of $120 billion. There is a cyclical deficit of $200 billion. There is a cyclical deficit of $120 billion. There is a cyclical surplus of $50 billion. There is a cyclical surplus of $500 billion. Page 8 of 19 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 24: ● Price of automobiles (thousands of $) ● USA export supply (with tariff) USA export supply 32 28 24 ● 20 ● 16 ● 12 Canadian import demand 8 4 4 5 6 7 8 9 10 11 Quantity of automobiles (in millions) Q24. Suppose the Canadian government imposes a tariff on imported US cars equal to $4,000 per automobile. The imposition of the tariff raises the price of automobiles in Canada by a) b) c) d) e) $2,000 $4,000 $18,000 $20,000 Cannot be determined with given information Q25. Assume there is a county on an isolated island and it does not trade with foreign countries. Further assume this country has only autonomous taxes and no induced taxes. The formula for the autonomous tax multiplier is___ and the formula for autonomous transfer payments multiplier is ___ a) b) c) d) e) - MPC / (1- MPC), MPC / (1- MPC) MPC / (1- MPC), - MPC / (1- MPC) - 1 / (1- MPC), 1 / (1- MPC) 1 / (1- MPC), -1 / (1- MPC) none of the above Page 9 of 19 ©Prep101 www.prep101.com/freestuff Q26. If real GDP is below potential GDP and the budget is balanced, then there must be a) b) c) d) e) a structural deficit and a cyclical deficit. a structural surplus and a cyclical surplus. a structural surplus and a cyclical deficit. a structural deficit and a cyclical surplus. An actual deficit and a cyclical surplus. Use the following information on real GDP and the aggregate planned expenditures to answer question 27. Assume investment and government expenditures are constant, all taxes are autonomous, and there are no exports or imports. Real GDP per year 100 200 300 400 500 Q27. The autonomous transfer payments multiplier is a) b) c) d) e) Q28. Aggregate Planned expenditure per year 120 180 240 300 360 1.5 2.5 3 4. None of the above A decrease in the marginal propensity to consume a) Decreases the government expenditures multiplier resulting in a smaller effect of government expenditures on aggregate demand. b) Decreases the government expenditures multiplier resulting in a larger effect of government expenditures on aggregate demand. c) Increases the government expenditures multiplier, so that changes in government expenditures have a larger effect on aggregate demand. d) Increases the government expenditures multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. e) None of the above Page 10 of 19 ©Prep101 www.prep101.com/freestuff Q29. Assume in a country, there are no banks and people hold all their money in currency. If a bank is established (assume this bank plans to make loans) and people transfer most of their currency into demand deposit accounts, all else constant, a) b) c) d) e) The money supply will decrease immediately. The money supply will increase immediately. The money supply will decrease eventually. The money supply will increase eventually. The money supply will not change. Use the following balance sheet of the Best Bank to answer questions 30 and 31: Assets Reserves Loans Total $300 $1,200 $1,500 Liabilities Deposits $1,500 Total $1,500 Q30. Assume a new client deposits $100 in deposit account at the Best Bank. If all the banks in the banking system have the same desired reserve ratio, the total change in deposits resulting from depositing $100 is a) b) c) d) e) $0. $150 $500 $400. $100. Q31. Assume the Best Bank is the only bank in the banking system. Assume a new client deposits $200 with the Best Bank. Loans will increase by a) b) c) d) e) $2,000. $1,500 $1,000 $800. $500. Page 11 of 19 ©Prep101 www.prep101.com/freestuff Q32. If the nominal interest rate is 8 percent, the inflation rate is 4 percent, and the tax rate is 30 percent, then the real after-tax interest rate is a) b) c) d) e) 5.6% 4% 2% -2% 1.6% Q33. Assume in a country, the banks have deposits of $500 million and keep $25 million in reserves. Assume there are no coins and the monetary base is $100 million. What is the money multiplier (assuming assets of chartered banks consist of reserves and loans, and liabilities consist of deposits)? a) b) c) d) e) 4.0 5.75 6.5 7.0 5.0 Use the following balance of payments accounts information to answer question 34. Item Imports of goods Imports of services Exports of goods Exports of services Net interest payments Net transfers Foreign investment in Greatland Greatland’s investment abroad Official settlements account Q34. What is the capital account balance? a) b) c) d) e) $200 million -$200 million -$210 million $210 million Cannot be determined with given information Page 12 of 19 millions of dollars -345 -250 550 270 0 8 200 -410 ? ©Prep101 www.prep101.com/freestuff Q35. Assume real GDP is below potential GDP. In order to reduce___, the Bank of Canada is likely to___ a) b) c) d) e) Unemployment, increase the money supply Unemployment, decrease the money supply Inflation, increase the money supply Inflation, decrease the money supply None of the above Q36. If the Bank of Canada buys securities from the public, the money supply___, and the aggregate demand___ a) b) c) d) e) increases, shifts right increases, shifts left decreases, shifts right decreases, shiftsleft increases, is not affected Q37. If the Bank of Canada increases the money supply, other things remaining the same, the value of Canadian dollar will__, and the exports will__ a) b) c) d) e) Rise, fall Rise, rise Fall, fall Fall, rise Rise, not be affected Q38. As a result of an increase in government expenditures, in the short run, the interest rate___, and the exchange rate___ a) b) c) d) e) Increases, falls Decreases, falls Increases, rises Decreases, rises Cannot be determined with given information Page 13 of 19 ©Prep101 www.prep101.com/freestuff Q39. Which of the following best describes the process of international crowding out? a) Expansionary fiscal policy lowers interest rates, leading to an increase in the exchange rate, leading to a decrease in net exports b) Expansionary fiscal policy raises interest rates, leading to a decrease in the exchange rate, leading to an increase in net exports c) Expansionary fiscal policy raises interest rates, leading to an increase in the exchange rate, leading to a decrease in net exports d) Expansionary fiscal policy raises interest rates, leading to an increase in the exchange rate, leading to an increase in net exports e) Expansionary fiscal policy raises interest rates, leading to an increase in the exchange rate, but does not affect net exports Q40. Assume in a country, there are no taxes and no foreign trade. Assume the marginal propensity to consume (MPC) is 0.75 and there is no crowding in effect. If government expenditures increase by $20 billion and the crowding out effect is $15 billion, the AD curve will a) b) c) d) e) Shift right by $65 billion. Shift right by $80 billion. Shift right by $5 billion. Shift left by $95 billion. Shift left by $5 billion. Q41. According to an extreme Monetarism a) Both fiscal and monetary policy affect aggregate demand b) Neither fiscal policy nor monetary policy have an effect on aggregate demand c) A change in government expenditures or in taxes has no effect on AD and a change in the quantity of money has a large effect on AD. d) A change in government expenditures or in taxes has a large effect on AD and a change in the quantity of money has no effect on AD. e) A change in government expenditures or in taxes has no effect on AD and a change in the quantity of money has a small effect on AD. Page 14 of 19 ©Prep101 www.prep101.com/freestuff Use the following graph to answer question 42: LAS SAS0 P 200 A SAS1 175 170 160 C B AD0 AD1 AD2 Real GDP Q42. Suppose an economy initially is in equilibrium at point A. If the money supply is expected to decrease by 20 percent, what is likely to happen to real GDP and the price level in the short run if the money supply actually decreases by 30 percent? a) b) c) d) e) A decrease in GDP and a decrease in the price level No change in GDP and a decrease in the price level No change in GDP and an increase in the price level A decrease in GDP and no change in the price level No change in GDP and no change in the price level Page 15 of 19 ©Prep101 www.prep101.com/freestuff Use the following graph to answer question 43: Inflation rate 4.5 LRPC 4 3.5 3 ● 2.5 ● 2 1.5 SRPC 1 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 Unemployment rate Q43. What will happen if the natural rate of unemployment decreases, but the expected inflation rate does not change? a) b) c) d) e) The LRPC shifts left and the SRPC does not shift The LRPC shifts left and the SRPC shifts right The LRPC shifts left and the SRPC shifts left The LRPC shifts right and the SRPC shifts left The LRPC shifts right and the SRPC shifts right Q44. Assume in a country the money supply and the velocity of circulation of money do not change. If the price level is observed to decreases by a factor of two, real GDP must have a) b) c) d) e) Increased by a factor of two Decreased by a factor of two Increased, but by less than a factor of two More than doubled None of the above Page 16 of 19 ©Prep101 www.prep101.com/freestuff Use the following graph to answer question 45: PC2 Real GDP per hour of labour 3 4 PC1 2 5 1 Capital per hour of labour Q45. Assume the economy is at point 1. According to the classical growth theory, what is the effect of an advance in technology on productivity? a) Productivity increases and the economy moves from point 1 to point 4 and then to point 5 b) Productivity increases and the economy moves from point 1 to point 4 and then to point 3 c) Productivity increases and the economy moves from point 1 to point 2 and then to point 3 d) Productivity increases and the economy moves from point 1 to point 2 e) Productivity increases and the economy moves from point 1 to point 4 Q46. What are the primary sources of economic growth? a) b) c) d) e) Investment in human capital Investment in physical capital Investment in new technologies All of the above None of the above Page 17 of 19 ©Prep101 www.prep101.com/freestuff Use the following table to answer question 47: Real wage rate 6 7 8 9 10 Labour demand 110 100 90 80 70 Labour supply 20 40 60 80 100 Q47. Which of the following is correct if currently the real wage rate is $7? a) b) c) d) e) There is a shortage of labour and the real wage rate will increase There is a shortage of labour and the real wage rate will decrease There is a surplus of labour and the real wage rate will increase There is a surplus of labour and the real wage rate will increase Cannot be determined with given information Q48. According to the Keynesian theory of the business cycle, the main source of economic fluctuations is a) b) c) d) e) Volatile expectations about future sales and profits Fluctuations in productivity growth Growth rate of the quantity of money a) and b) a) and c) Page 18 of 19 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 49: Price level LAS 140 SAS1 SAS0 B D 130 C A 120 AD1 110 AD0 100 200 300 400 500 600 Real GDP Q49. Assume the economy is at point A. According to the monetarist theory of the business cycle, an increase in the growth rate of the quantity of money a) b) c) d) e) Will move the economy from point A to point C Will move the economy from point A to point C and then to point B Will move the economy from point A to point D and then to point B Has no effect on the economy None of the above Use the following figure to answer question 50: LAS Price level SAS A AD1 AD0 Real GDP Q50. Assume the economy experiences an unanticipated, temporary increase in aggregate demand. The aggregate demand curve shifts from AD0 to AD1. Which of the following is likely to happen under a fixed rule policy? a) b) c) d) e) A rightward shift in the SAS curve. A rightward shift in the LAS curve. A leftward shift in the AD curve. A rightward shift in the AD curve. None of the above Page 19 of 19 ...
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