Macroeconomics
1. Gross domestic product is the economy’s total production of _______ for a given time period.
A) good and services
B) final goods and services
C) intermediate goods and services
D) consumer goods and services
2. Which of the following would be an example of an intermediate good?
A) stocks and bonds purchased by a business executive
B) a cellular telephone purchased by a college student
C) a wedding ring purchased by an engineer for his fiancée
D) tires purchased from Goodyear by General Motors for newly produced electric cars
3. When measuring a nation’s standard of living, of the following, the best measure is:
A) nominal GDP.
B) market GDP.
C) real GDP per capita.
D) nominal GDP per capita.
4. Nominal GDP is:
A) the inflation adjusted GDP.
B) the real GDP minus depreciation.
C) the current dollar GDP.
D) the constant dollar GDP.
5. Inflation can be measured by:
A) the percentage change in the CPI.
B) the absolute change in the CPI.
C) the absolute change in the GDP deflator.
D) the percentage change in GDP.
6. According to the official unemployment rate a person who is not working and is not looking for work is:
A) unemployed.
B) underemployed.
C) a member of the labor force not working.
D) not counted in the unemployment statistics.
7. Suppose there are 70 million people in the labor force, out of which 60 million are employed, then the unemployment rate is:
A) 7%.
B) 10%.
C) 14.28%.
D) impossible to calculate.
8. Donna was laid off by her employer at the beginning of 2008. She looked for a job for three months, but could not find anything suitable. She then decided to
volunteer for a soup kitchen. Donna is considered to be
A) unemployed.
B) underemployed.
C) a discouraged worker.
D) a part time worker.
9. Periods of recession are likely to be marked by:
A) rising unemployment.
B) constant unemployment.
C) increasing employment
D) constant employment.
10. Sam, who is 55 years old and has been a steel worker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is
experiencing:
A) cyclical unemployment.
B) permanent unemployment.
C) frictional unemployment.
D) structural unemployment.
11. Structural unemployment can be caused by all of the following EXCEPT:
A) minimum wages.
B) labor unions.
C) efficiency wages.
D) fluctuations in the business cycle.
Use the following to answer questions 12-13:
Figure: Minimum Wage
12. (Figure: Minimum Wage) With a binding minimum wage of P3, the quantity of labor supplied would be:
A) Q1.
B) Q2.
C) Q3.
D) Q4.
13. (Figure: Minimum Wage) The binding minimum wage of P3 leads to unemployment of:
A) Q3 – Q1.
B) Q3 – Q2.
C) Q4 – Q1.
D) Q4 – Q2.
14. The natural rate of employment is achieved when:
A) the actual rate of unemployment is equal to zero.
B) the natural rate of unemployment is equal to the actual rate of unemployment.
C) the quantity of labor supplied is equal to the quantity of labor demanded.
D) there is no cyclical unemployment.
15. When the economy is in full employment,
A) unemployment is zero.
B) only cyclical unemployment is zero.
C) only frictional unemployment is zero.
D) the natural rate of unemployment is zero.
16. Among the costs of inflation are all of the following except:
A) menu costs.
B) shoe-leather costs.
C) unit-of-account costs.
D) efficiency wage costs.
Use the following to answer questions 17-18:
Figure: Market for Loanable Funds II
17. (Figure: Market for Loanable Funds II) If the interest rate is greater than ______, then the quantity supplied of loanable funds will _______ the quantity of
loanable funds demanded.
A) 8%; be greater than
B) 8%; be less than
C) 8%; equal
D) 10%; be less than
18. (Figure: Market for Loanable Funds II) A decrease in government borrowing will shift the demand for loanable funds to the:
A) left and increase the interest rate.
B) right and decrease the interest rate.
C) right and increase the interest rate.
D) left and decrease the interest rate.
19. The Fisher Effect states that:
A) the nominal rate of interest is unaffected by the change in expected inflation.
B) the nominal rate of interest is unaffected by the change in unexpected inflation.
C) the expected real rate of interest is unaffected by the change in expected inflation.
D) the expected real rate of interest increases by one percentage point for each percentage change in expected inflation.
20. Which of the following is NOT one of the three tasks of a financial system?
A) transactions costs reduction
B) risk management
C) provide liquidity
D) determining fiscal policy
21. If the MPC is 0.8, then the multiplier is:
A) 4.
B) 5.
C) 8.
D) 10.
22. If the size of MPS is small, it will:
A) make the multiplier smaller.
B) make the multiplier larger.
C) not affect the value of the multiplier.
D) increase the interest rate.
23. The consumption function will shift up if:
A) households expect an increase in the minimum wage in the future.
B) households expect a decrease in the minimum wage in the future.
C) the marginal propensity to consume decreases.
D) the marginal propensity to save increases.
24. Which of the following is one of the reasons that the aggregate demand curve slopes downward?
A) the paradox of thrift
B) the interest rate effect
C) the substitution effect
D) the income effect
25. Aggregate demand will increase in all of the following cases except if:
A) household wealth rises, but prices are constant.
B) government purchases of goods rise.
C) the quantity of money increases.
D) interest rates increase.
26. Which of the following will shift the short-run aggregate supply curve to the right?
A) an economy-wide decrease in commodity prices
B) an increase in nominal wages
C) a decrease in productivity
D) a decrease in government purchases of goods and services
27. A decrease in energy prices will:
A) increase short-run aggregate supply.
B) decrease the quantity of aggregate output supplied in the short run.
C) decrease aggregate demand.
D) increase the quantity of aggregate output demanded.
28. All of the following will increase the economy’s potential output EXCEPT:
A) an increase in physical capital.
B) a decrease in the aggregate price level.
C) an increase in human capital.
D) technological innovation.
Use the following to answer question 29:
Figure: Inflationary and Recessionary Gaps
29. (Figure: Inflationary and Recessionary Gaps) In Panel (b), the level of income associated with Y1:
A) is equal to potential output.
B) when compared with Yp, would reveal an inflationary gap.
C) is a long-run equilibrium.
D) is caused by flexible wages and prices.
Use the following to answer question 30:
Figure: An Increase in Aggregate Demand
30. (Figure: An Increase in Aggregate Demand) Because of the pressures existing at the short-run equilibrium at Y2 and P2:
A) the SRAS will shift to the right.
B) the SRAS curve will shift to the left.
C) unemployment will decrease.
D) LRAS will shift to the right.
Use the following to answer question 31:
Figure: Policy Alternatives
31. (Figure: Policy Alternatives) In Panel (a), suppose that the initial equilibrium is at real GDP level Y1 and price level P2. At real GDP level Y1 there is:
A) an inflationary gap.
B) a recessionary gap.
C) no gap.
D) long-run equilibrium.
Use the following to answer questions 32-33:
Figure: AD–AS Model II
32. (Figure: AD–AS Model II) If the price level increases, which of the following will take place?
A) SRAS curve will shift to the left.
B) SRAS curve will shift to the right.
C) AD curve will shift to the left.
D) None of the answer choices provided will take place.
33. (Figure: AD–AS Model II) As the size of the labor force increases over time, which of the following will take place?
A) LRAS will shift to the right.
B) LRAS will shift to the left.
C) AD curve will shift to the left.
D) AD curve will shift to the right.
34. If the economy is at equilibrium above potential output:
A) there is a recessionary gap, and expansionary fiscal policy is appropriate.
B) there is an inflationary gap, and contractionary fiscal policy is appropriate.
C) there is a recessionary gap, and contractionary fiscal policy is appropriate.
D) there is an inflationary gap, and expansionary fiscal policy is appropriate.
35. Why is the Keynesian “Paradox of Thrift” actually no paradox at all? (5 points)
36. What is the essence of “Keynesianism”? That is, what is/are the indispensable
feature(s) of the theory? (5 points)
37. What is the current U.S. unemployment rate? Why has it changed over the last 6 to 8
years? (4 points)
38. Just true or false: There is general agreement among Macroeconomists about how the
Macro economy works and how to fix problems when it doesn’t. (3 points)
39. What does a government spending multiplier equal to zero mean? (4 points)
40. From a truly free-market/capitalist perspective, how is inflation a beneficial process
(our myriad discussions on this concept and the supplemental readings will be very
helpful here)? (Up to 5 EXTRA CREDIT points)
*Please be parsimonious with your answers! Good answers to these questions require few
words, so the best answers are CLEAR and CONCISE. We have talked
about every single one of these questions and issues extensively. These are not in any way
“open-ended,” subjective questions; I am looking for very specific answers. Good luck!
