MT2+practice+problems

MT2+practice+problems - Name: _ Date: _ 1. In the closed...

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Page 1 Name: __________________________ Date: _____________ 1. In the closed economy of Sildavia, government spending during 2005 was $30 billion, consumption was $70 billion, net taxes were $20 billion, and GDP was $110 billion. If investment spending in Sildavia during 2005 was $10 billion, we can conclude that: A) private savings were equal to $10 billion. B) the government's budget balance was equal to a surplus of $10 billion. C) net savings were equal to $0. D) private savings were equal to $20 billion. 2. If in an open economy, a country imports more than it exports and the government budget deficit increases: A) interest rates will increase and the amount of borrowing will increase. B) interest rates will decrease and the amount of borrowing will increase. C) interest rates will increase, but the change in borrowing is ambiguous. D) the change in interest rates is ambiguous, but the amount of borrowing will increase. Use the following to answer question 3: Figure: Market for Loanable Funds III
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Page 2 3. (Figure: Market for Loanable Funds III) If the government in a closed economy is running a budget deficit of $300 billion and finances the deficit by selling bonds when it decides to decrease defense spending by $200 billion, the decrease in government spending will encourage _____ in additional private investment spending. A) $400 billion B) $200 billion C) $100 billion D) $0 billion 4. Which of the following is a serious challenge to the efficient markets hypothesis? A) Stock prices fluctuate more than can be explained by news about fundamentals. B) Individual investors behave in systematically irrational ways. C) Stock prices follow a random walk. D) Both that stock prices fluctuate more than can be explained by news about fundamentals and that individual investors behave in systematically irrational ways. 5. If capital inflow is negative, this suggests a country is: A) borrowing more than it is lending to other countries. B) lending more than it is borrowing from other countries. C) experiencing balanced trade. D) experiencing a situation where its imports are greater than its exports. Use the following to answer question 6: Figure: Market for Loanable Funds II
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Page 3 6. (Figure: Market for Loanable Funds II) Other things being equal, an increase in taxes on savings and investment income will: A) shift demand to the right and increase the interest rate. B) shift demand to the left and decrease the interest rate. C) shift supply to the right and decrease the interest rate. D) shift supply to the left and increase the interest rate. Use the following to answer question 7: Figure: Aggregate Expenditures Curve II 7. (Figure: Aggregate Expenditures Curve II) The multiplier in the aggregate expenditures model shown in this figure is: A) 1.0. B)
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This note was uploaded on 01/24/2011 for the course ECON 102 taught by Professor Rossana during the Winter '08 term at University of Michigan.

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MT2+practice+problems - Name: _ Date: _ 1. In the closed...

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