sp05-2 - University of Colorado at Denver, Spring 2005 Econ...

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University of Colorado at Denver, Spring 2005 Econ 2012 Principles of Economics: Macroeconomics Instructor: Vijaya Sharma, Ph.D. Exam 2 Answer all 40 multiple-choice questions, each worth one point. 1. The CPI, which uses a fixed basket of goods from one year to the next, tends to overstate inflation because a. producers are likely to change the number of goods that they sell from year to year. b. producers will generally reduce the quality of goods as prices increase over time. c. consumers will tend to substitute away from goods that become more expensive. d. consumers will usually reduce their consumption of goods when they become relatively cheaper. 2. Which represents stagflation? a. Real GDP falls below the full employment level and also there is inflation. b. Real GDP falls below the full employment level and there is no inflation. c. Real GDP exceeds the full employment level and also there is inflation. d. Real GDP exceeds the full employment level and there is no inflation. 3. According to the permanent income hypothesis, a. household consumption expenditure is determined by year-to-year transient income. b. household consumption expenditure is determined by long-run permanent income. c. national income of an economy is permanent. d. long-run real GDP is constant. 4. In an economy operating at the full employment level, what happens when AD rises due to an upsurge in consumer confidence? a. The economy is likely to enter into inflationary short run equilibrium. b. The economy is likely to enter into temporary supply boom equilibrium. c. The economy is likely to enter into recessionary short run equilibrium. d. The economy is likely to enter into stagflation equilibrium. 1. When there is an unanticipated decrease in the general price level, the purchasing power of a fixed nominal money balance rises, motivating the balance-holder to buy more goods and services. This is called a. the real balance effect. b. the international substitution effect. c. the interest rate effect. d. the crowding out effect.
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2. What distinguishes short run from long run in an AD-AS model? a. A period of less than one year is short run, but a period of one year or above is long run. b. A period of one year and less is short run, but a period exceeding one year is long run. c. A period when resource prices are fixed by a contract is short run, but a period when the contract can be renegotiated to change resource prices is long run. d. Both b and c together distinguish short run from long run. Figure 1 Price Index LRAS0 SRAS0 E0 e2 AD2 AD0 0 Real GDP Y f 3. See Figure 1. Suppose an economy moved from Long-run Equilibrium E0 to Short- run Equilibrium e2 because aggregate demand moved from AD0 to AD2. What factor may have caused this movement? a.
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This note was uploaded on 02/07/2011 for the course ECON 3461 taught by Professor Spencer during the Spring '10 term at Golden West College.

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sp05-2 - University of Colorado at Denver, Spring 2005 Econ...

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