Macroeconomic ECO 2013

Practice Midterm Exam 2

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to 1) B
double real GDP will decrease from
A) 11.2 years to 10.8 years. B) 23.3 years to 17.5 years.
C) 28.0 years to 21.0 years. D) 23.3 years to 20.6 years.

Table 10-1

Real GDP
(billions of
Year 2000 dollars)
2019 $8,700
2020 8,875
2021 9,000
2022 9,280

2) Refer to Table 10-1. Using the table above, what is the approximate average annual growth rate 2)
from 2019 to 2022?
A) 1% B) 1.5% C) 2% D) 3%

3) If real GDP grows by 3% in 2020, 3.2% in 2021, and 2.5% in 2022, what is the average annual 3)
growth rate of real GDP?
A) 2.6% B) 2.9% C) 3.1% D) 4.2%

4) Which of the following is an example of human capital? 4)

A) a computer B) a college education
C) a factory building D) a software program

5) In terms of economic growth, the key measure of the standard of living is 5)

A) nominal GDP per capita. B) nominal GDP.
C) real GDP per capita. D) real GDP.

6) There is a government budget surplus if 6)

A) G > T. B) G > TR. C) T - TR > G. D) TR < T.

7) Under which of the following circumstances would the government be running a deficit? 7)
A) G = $7 trillion B) G = $5 trillion
T = $7 trillion T = $7 trillion
TR = $0 TR = $1 trillion
C) G = $5 trillion D) G = $7 trillion
T = $5 trillion T = $10 trillion
TR = $1 trillion TR = $3 trillion

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Figure 10-4

8) Refer to Figure 10-4. Which of the following is consistent with the graph depicted? 8)
A) an increase in household income
B) an increase in the proportion of income after net taxes used for consumption
C) an increase in transfer payments to households
D) an increase in tax revenues collected by the government

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Figure 10-5

9) Refer to Figure 10-5. "Crowding out" of firm investment as a result of a budget deficit is 9)
illustrated by the movement from ________ in the graph above.
A) A to B B) B to A C) C to A D) B to C

10) During the recession phase of the business cycle 10)

A) interest rates are usually falling. B) production is usually rising.
C) unemployment is usually falling. D) income is usually rising.

11) The period between a business cycle peak and a business cycle trough is called 11)
A) expansion. B) diffusion. C) recession. D) recalculation.

12) As the economy nears the end of an expansion, which of the following do we typically see? 12)
A) rising firm profits B) falling wages relative to output prices
C) rising levels of firm investment D) rising interest rates

13) An unplanned increase in inventories results from 13)

A) a decrease in planned investment.
B) an increase in planned investment.
C) actual investment that is greater than planned investment.
D) actual investment that is less than planned investment.

14) The marginal propensity to consume is defined as 14)

A) the change in consumption divided by the change in disposable income.
B) disposable income divided by consumption.
C) consumption divided by disposable income.
D) the change in disposable income divided by the change in consumption.

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 15) If disposable income falls by $40 billion and consumption falls by $30 billion, then the slope of 15)
the consumption function is
A) 1.33. B) 0.75. C) 0.4. D) 0.3.

Table 12-4

Consumption Disposable Income

(dollars) (dollars)
$600 $1,000
900 1,500
1,200 2,000

16) Refer to Table 12-4. Given the data in the table above, the marginal propensity to consume is 16)
A) 0.5. B) 0.6. C) 0.75. D) 0.8.

17) Refer to Table 12-4. Given the data in the table above, the marginal propensity to save is 17)
A) 0.3. B) 0.4. C) 0.5. D) 0.6.

18) The sum of the marginal propensity to consume and the marginal propensity to save is always 18)
equal to
A) zero. B) 0.5. C) 1. D) 100.

19) If an increase in autonomous consumption spending of $10 million results in a $50 million 19)
increase in equilibrium real GDP, then
A) the MPC is 0.5. B) the MPC is 0.75.
C) the MPC is 0.8. D) the MPC is 0.9.

20) The multiplier is calculated as the 20)

A) change in nominal GDP/ change in autonomous expenditure.
B) change in autonomous expenditure/ change in real GDP.
C) change in real GDP/ change in autonomous expenditure.
D) change in real GDP/ change in induced spending.

21) Given the equations for C, I, G, and NX below, what is the value of the marginal propensity to 21)
save?

C = 1,000 + 0.8Y
I = 1,500
G = 1,250
NX = 100

A) 0.2 B) 0.8 C) 1.8 D) 10

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 22) Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP? 22)

C = 1,000 + 0.8Y
I = 1,500
G = 1,250
NX = 100

A) $3,080 B) $3,850 C) $6,930 D) $19,250

Figure 13-3

23) Refer to Figure 13-3. Which of the points in the above graph are possible short-run equilibria 23)
but not long-run equilibria? Assume that Y 1 represents potential GDP.
A) A and B B) A and C C) C and D D) B and D

24) Refer to Figure 13-3. Suppose the economy is at point C. If government spending decreases in 24)
the economy, where will the eventual long-run equilibrium be?
A) A B) B C) C D) D

25) Stagflation usually results from 25)

A) an increase in aggregate supply. B) an increase in aggregate demand.
C) a supply shock. D) a decrease in aggregate demand.

26) Which of the following is considered a negative supply shock? 26)

A) an unexpected increase in the price of natural gas
B) a decline in wages
C) increasing investment in the economy causes the capital stock to rise
D) an improvement in technology

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Figure 13-4

27) Refer to Figure 13-4. Given the economy is at point A in year 1, what is the inflation rate 27)
between year 1 and year 2?
A) 0.9% B) 1.8% C) 2.7% D) 3.0%

28) Refer to Figure 13-4. Given the economy is at point A in year 1, what will happen to the 28)
unemployment rate in year 2?
A) It will fall.
B) It will rise.
C) It will remain constant.
D) not enough information to answer the question

29) Refer to Figure 13-4. Given the economy is at point A in year 1, what will happen to the price 29)
level in year 2?
A) It will rise.
B) It will fall.
C) It will remain constant.
D) not enough information to answer the question

30) When the price level in the United States falls relative to the price level of other countries, 30)
________ will fall, ________ will rise, and ________ will rise.
A) net exports; exports; imports B) net exports; imports; exports
C) exports; imports; net exports D) imports; exports; net exports

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 31) If the U.S. dollar decreases in value relative to other currencies, how does this affect the 31)
aggregate demand curve?
A) This will shift the aggregate demand curve to the right.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will move the economy up along a stationary aggregate demand curve.

32) Changes in the price level 32)

A) increase the level of aggregate supply in the long run only at very high levels of output.
B) decrease the level of aggregate supply in the long run.
C) increase the level of aggregate supply in the long run.
D) do not affect the level of aggregate supply in the long run.

33) The long-run aggregate supply curve will shift to the right if 33)
A) net exports decrease.
B) the economy experiences technological change.
C) the economy experiences high levels of inflation.
D) there is a decrease in population.

34) Which aggregate supply curve has a positive slope? 34)

A) long run only B) short run only
C) both long run and short run D) neither long run nor short run

Figure 13-2

35) Refer to Figure 13-2. Ceteris paribus, an increase in the labor force would be represented by a 35)
movement from
A) SRAS1 to SRAS2. B) SRAS2 to SRAS1.
C) point A to point B. D) point B to point A.