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Miami Dade College
ECO 2013.0043 Principles of Macroeconomics - Fall 2016
Practice Test #3
1. In the Keynesian aggregate expenditure model, which variable is assumed to be fixed?
A) GDP
B) consumption
C) unemployment
D) the price level
2. If disposable income is $3,000 and saving is $1,200, how much is the average propensity
to consume?
A) 0.4
B) 0.6
C) 1.2
D) 2.5
3. If disposable income increases from $250 to $300 and saving increases from $40 to $50,
how much is the average propensity to save?
A) 0.133
B) 0.16
C) 0.167
D) 0.2
4. If income is $50,000, consumption is $47,500, and saving is $2,500, then the marginal
propensity to consume is:
A) 0.95.
B) 0.50.
C) 0.05.
D) There is not enough information to answer this question.
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Use the following to answer question 5:
(Table)
Disposable
Income
$1,000
$1,200
$1,400
$1,600
$1,800
Consumption
$1,200
$1,300
$1,400
$1,500
$1,600
5. (Table) When disposable income is $1,200, what is the value of the average propensity to
save?
A) −0.5
B) −1.5
C) −1.083
D) −0.083
6. MPC + MPS:
A) equals 1.
B) equals 0.75.
C) equals zero.
D) is always a negative number.
Use the following to answer question 7:
Income
$0
$500
$1,000
$1,500
$2,000
$2,500
Consumption
$250
$700
$1,150
$1,600
$2,050
$2,500
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7. (Table) The table shows data on consumption at various levels of income. The value of
the marginal propensity to save is:
A) 0.1.
B) 0.25.
C) 0.75.
D) 0.9.
8. If income rises from $10,000 to $20,000 and consumption increases from $9,000 to
$16,000, then the marginal propensity to consume is:
A) 0.10.
B) 0.30.
C) 0.70.
D) 0.80.
9. If AE = $7,600 and Y = $8,000, businesses will produce:
A) more, raising both employment and income.
B) less, lowering both employment and income.
C) more, raising employment and lowering income.
D) less, lowering employment and raising income.
10. If the marginal propensity to consume is 0.85, how much is the spending multiplier?
A) 0.15
B) 1.17
C) 5.1
D) 6.67
Use the following to answer question 11:
Income
$0
$1,000
$2,000
$3,000
$4,000
Consumption
$500
$1,250
$2,000
$2,750
$3,500
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11. (Table) The table shows data on consumption at various levels of income. The value of
the average propensity to consume at equilibrium is:
A) 1.25.
B) 1.
C) 0.917.
D) 0.875.
12. If consumption increases from $500 billion to $575 billion and income increases from
$600 billion to $700 billion, the marginal propensity to save is:
A) 0.2.
B) 0.25.
C) 0.75.
D) There is not enough information to answer this question.
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Use the following to answer questions 13-14:
Figure: Savings, Investment, and Aggregate Expenditures
13. (Figure: Savings, Investment, and Aggregate Expenditures) Income and output are at
equilibrium at point:
A) b.
B) c.
C) d.
D) e.
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14. (Figure: Savings, Investment, and Aggregate Expenditures) Savings and investment are at
equilibrium at point:
A) b.
B) c.
C) d.
D) e.
15. According to Keynes, what determines the level of employment and income?
A) aggregate expenditures
B) aggregate savings
C) government spending
D) aggregate supply
16. Which of the following is NOT a reason the aggregate demand curve is negatively
sloped?
A) income effect
B) wealth effect
C) impact on exports
D) the interest rate effects
17. The curve that shows how much GDP is demanded at various price levels is called:
A) the aggregate expenditures schedule.
B) the consumption line.
C) aggregate demand.
D) aggregate supply.
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18. (Figure: Aggregate Demand Shift)
The shift in aggregate demand depicted may be due to a(n):
A) increase in consumer confidence.
B) decrease in interest rates.
C) increase in income taxes.
D) increase in exports.
Use the following to answer question 19:
Figure: Predicting Aggregate Demand Shifts
19. (Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the
aggregate demand curve from AD1 to AD2?
A) a tax increase
B) a decrease in interest rates
C) a decrease in government purchases
D) a worsening of consumer expectations about the future
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Use the following to answer question 20:
Figure: Determining SRAS Shifts
20. (Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run
aggregate supply curve will shift from SRAS0 to _____ and the price level will become
_____.
A) SRAS1; P0
B) SRAS1; P1
C) SRAS2; P1
D) SRAS2; P2
21. Aggregate supply shifts to the left when:
A) input prices rise.
B) subsidies are higher.
C) inflation expectations are lower.
D) there is a decrease in burdensome regulations.
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22. (Figure: Determining SRAS Shifts)
If the government raises taxes or increases regulations, the short-run aggregate supply
curve will shift from SRAS0 to _____ and the price level will be at _____.
A) SRAS1; P0
B) SRAS1; P1
C) SRAS2; P1
D) SRAS2; P2
23. The long-run aggregate supply curve uses the classical assumptions that all variables are
__________ in the long run and that long-run equilibrium occurs at
___________________.
A) flexible; full employment
B) flexible; less than full employment
C) fixed; less than full employment
D) fixed; full employment
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24. Which of the following statements is CORRECT?
A) An improvement in technology shifts the long-run aggregate supply curve to the
right.
B) A decrease in inflationary expectations shifts the short-run aggregate supply curve to
the left.
C) As business expectations become more negative, the short-run aggregate supply
curve shifts to the right.
D) Lower subsidies to business firms shift the short-run aggregate supply curve to the
right.
Use the following to answer question 25:
Figure: Determining SRAS Shifts
25. (Figure: Determining SRAS Shifts) Which statement is NOT correct?
A) Equilibrium output is $3,000 worth of goods and services.
B) An increase in aggregate demand would lead to deflation.
C) Full employment occurs when the economy produces $3,000 worth of goods and
services.
D) In the short-run equilibrium, output can be greater than or less than $3,000.
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26. (Figure: Shifting SRAS and AD)
What economic event is represented if full employment GDP occurs at point (a)?
A) a recession
B) demand-pull inflation
C) cost-push inflation
D) deflation
27. If the marginal propensity to save is 0.25, the multiplier is:
A) 4.
B) 1.33.
C) 3.
D) 3.33.
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28. (Figure: Understanding Aggregate Graphs)
This economy is currently at point a. This figure depicts an economy:
A) in neither short-run nor long-run equilibrium.
B) in short-run equilibrium only.
C) in both short-run and long-run equilibrium
D) in long-run equilibrium only.
29. The idea that new spending creates more new spending is known as:
A) the crowding-out effect.
B) the multiplier effect.
C) the wealth effect.
D) the interest rate effect.
30. Cost-push inflation occurs when:
A) total spending expands so much that equilibrium output exceeds full-employment
output.
B) a supply shock shifts the short-run aggregate supply curve to the right.
C) rising resource costs reduce short-run aggregate supply.
D) subsidies to businesses are increased.
31. Mandatory spending comprises nearly ________ of the federal budget.
A) one-fourth
B) one-third
C) one-half
D) two-thirds
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32. ________ policy involves adjusting government spending and tax policies to move the
economy toward full employment, economic growth, and low inflation.
A) Goal-oriented fiscal
B) Classical economic
C) Monetary
D) Discretionary fiscal
Use the following to answer question 33:
Figure: Effects of Policy Shifts
33. (Figure: Effects of Policy Shifts) If government spending increases, shifting aggregate
demand from _____ to _____, aggregate output will increase from _____ to _____.
A) AD1; AD0; Qf; Q0
B) AD1; AD0; Q0; Qf
C) AD0; AD1; Q0; Qf
D) AD0; AD1; Qf; Q0
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34. Figure: Understanding SRAS and LRAS Shifts
(Figure: Understanding SRAS and LRAS Shifts) This graph shows:
A) demand-side fiscal policies.
B) supply-side fiscal policies.
C) a combination of supply-side and demand-side fiscal policies.
D) None of the answers is correct.
35. Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:
A) aggregate shifts policy.
B) contractionary policy.
C) supply-side fiscal policy.
D) consumption policy.
36. Which measure is an example of a supply-side fiscal policy?
A) raising income taxes
B) giving tax breaks to firms that undertake research and development
C) increasing the money supply
D) increasing government spending on Medicare
37. The Laffer curve demonstrates that:
A) above some point on the tax rate scale, lowering tax rates increases tax revenues.
B) if tax rates are 100%, tax revenues will be huge.
C) policymakers can always increase tax revenues by raising tax rates.
D) policymakers will always reduce tax revenues by raising tax rates.
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38. Which of the following is TRUE regarding the possible effects of a tax change?
A) Lower taxes on household income reduce aggregate supply.
B) Higher tax rates on business profits encourage firms to boost production.
C) Higher marginal tax rates tend to depress economic activity.
D) Higher taxes on household income have no effect on the amount of labor households
wish to supply.
39. Supply-side fiscal policies include all of the following EXCEPT:
A) investment in human capital.
B) projects that include the encouragement of new technologies.
C) increasing transfer payments.
D) policies that encourage investment in research and development.
40. Policies that __________ will expand the economy but also generate price pressures.
A) increase transfer payments
B) encourage the development and transfer of new technologies
C) encourage investment in research and development
D) trim burdensome business regulations
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ECO 2013.0043 Principles of Macroeconomics - Fall 2016
Practice Test #3 - Answer Key
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