Download Fall 2015 Practice Test #3 - MDC Faculty Web Pages

Miami Dade College
ECO 2013.001 Principles of Macroeconomics - Fall 2015
Practice Test #3
1. If the growth rate in an economy is 3.5%, then its GDP will double in about:
A) 3.5 years.
B) 20 years.
C) 70 years.
D) 245 years.
2. For which growth rate would the Rule of 70 be most accurate?
A) 1%
B) 15%
C) 20%
D) 30%
3. If a country's population increases at a higher rate than the growth in its real GDP:
A) GDP per capita has increased.
B) the standard of living in the country has declined.
C) average output per person remains constant.
D) the country's rate of inflation has increased.
4. If the growth rate in an economy is 2%, its GDP will double in about:
A) 70 years.
B) 140 years.
C) 35 years.
D) 28 years.
5. Which statement about the Rule of 70 is NOT true?
A) It is a valuable tool for understanding the power of compounding growth rates over
time.
B) It is fairly accurate for small growth rates.
C) It becomes more accurate over time.
D) It is an easy way to approximate the number of years it takes for an amount to double
in value.
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6. The natural gas deposits found in the United States over the past decade are an example of
an increase in:
A) land and natural resources.
B) labor.
C) physical capital.
D) entrepreneurial ability, technology, and ideas.
7. The classical form of the production function states that:
A) Output = f(L / K)
B) Output = f(N, K)
C) Output = f(L, K)
D) Output = f(N / K)
8. Investment in human capital is important because:
A) humans need capital.
B) it lowers the total wage bill.
C) it increases labor productivity.
D) it improves morale.
9. Improvements in technology:
A) explain most of the economic growth in recent decades.
B) caused the last recession.
C) are relatively unimportant for today's standard of living.
D) have slowed in the past 100 years.
10. Whispering Valley Furniture employs five workers working eight hours each to produce
80 rocking chairs. Rocky Gap Furniture employs 10 workers working eight hours each to
produce 160 rocking chairs. Which company's workers are more productive?
A) Whispering Valley Furniture's workers are more productive.
B) Rocky Gap Furniture's workers are more productive.
C) The two companies' workers are equally productive.
D) It is not possible to determine which workers are more productive.
11. Which of the following strategies is an example of increasing the capital-to-labor ratio?
A) replacing the roof on a factory building
B) sending workers to training classes
C) giving a construction crew more backhoes
D) increasing the number of workers harvesting the crop in a field
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12. Decreasing the accessibility to college in order to funnel workers into the workforce faster
will:
A) decrease productivity of the economy.
B) increase productivity of the economy.
C) increase real wages.
D) have no impact on the economy.
13. Increases in ___________ often lead to economic growth.
A) technology
B) public goods
C) money supply
D) government regulations
14. The catch-up effect tends to:
A) speed up over time.
B) slow down over time.
C) remain the same over time.
D) remain the same over time unless new technologies are developed.
15. In his essay on population, Malthus argued that any improvement in the standard of living
would lead to:
A) an increase in the population that would outstrip the growth in food supply.
B) a decrease in the population that would lead to utopia.
C) an increase in the population matched by an increase in the food supply.
D) a decrease in the population matched by a decrease in the food supply.
16. When the government funds Head Start, it is acting in its role to promote economic
growth by:
A) ensuring a stable legal system.
B) enhancing physical and human capital.
C) ensuring a stable and secure financial system.
D) promoting free and competitive markets.
17. Government funding of Los Alamos National Labs is an example of government acting in
its role to promote economic growth by:
A) ensuring a stable legal system.
B) enhancing physical and human capital.
C) ensuring a stable and secure financial system.
D) promoting free and competitive markets.
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18. When the government enforces contracts between two parties, it is acting in its role to
promote economic growth by:
A) ensuring a stable legal system.
B) providing physical and human capital.
C) ensuring a stable and secure financial system.
D) promoting free and competitive markets.
19. Which of the following factors is NOT generally viewed by economists as critical to
economic growth?
A) strong and fair legal system
B) stable monetary system
C) access to large amounts of natural resources
D) economic freedom
20. Unanticipated _____ is detrimental to economic growth.
A) inflation but not deflation
B) inflation or deflation
C) deflation but not inflation
D) Neither inflation nor deflation is detrimental to economic growth.
21. Which of the following did classical economists believe would happen if the product
markets accrued surpluses?
A) Prices would rise.
B) Interest rates would rise.
C) Wage rates would fall.
D) The government would fix things.
22. Which of the following equations is correct?
A) AE = C – I + G + (X + M)
B) AE = C + I + G + (X – M)
C) AE = C + I – G + (X – M)
D) AE = C – I + G – (X + M)
23. In the Keynesian aggregate expenditure model, prices are assumed to be fixed because:
A) unemployment is low.
B) resources are idle (underutilized).
C) consumption and disposable income are closely related.
D) the government heavily intervenes in the economy.
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24. 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
25. (Table) In the table, the marginal propensity to consume is ________ and the average
propensity to consume ________.
Income
Consumption Spending
Saving
$30,000
$30,000
$0
40,000
35,000
5,000
50,000
40,000
10,000
A) 0.5; varies with the level of income
B) $5,000; is $5,000
C) $10,000; is $35,000
D) 2; varies with the level of income
26. 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.
Use the following to answer question 27:
(Table)
Disposable
Income
$1,000
$1,200
$1,400
$1,600
$1,800
Consumption
$1,200
$1,300
$1,400
$1,500
$1,600
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27. (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
28. In Keynesian macroeconomic equilibrium:
A) AE = I and C = S.
B) AE = S and C = I.
C) AE = Y and C = S.
D) AE = Y and S = I.
29. 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.
30. If the marginal propensity to save is 0.2, how much is the spending multiplier?
A) 0.8
B) 1.25
C) 5
D) 8
31. At equilibrium in the simple Keynesian model, income is $6 million and consumption
spending is $5 million. Which of the following is correct?
A) Investment is $1 million.
B) There is no saving in this economy.
C) The economy will go into disequilibrium because consumption is not equal to
income.
D) The information provided is insufficient to determine the level of investment
spending.
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32. Suppose the marginal propensity to consume in Economia is 0.75. People feel increasing
confidence in their economy and spend $5 billion more on vacations. Equilibrium income
will rise by:
A) $75 billion.
B) $4 billion.
C) $5 billion.
D) $20 billion.
33. If the amount of spending in an economy declines by $1,000 and the marginal propensity
to consume is 0.8, the effect on the economy is a change of _____ in income or output.
A) –$800
B) –$1,000
C) $1,000
D) –$5,000
34. The following table shows data on consumption at various levels of income. Investment
spending is $500 for all levels of income.
Income Consumption
$0
$500
$1,000
$1,250
$2,000
$2,000
$3,000
$2,750
$4,000
$3,500
If there is no government spending or net exports, the equilibrium income level is:
A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.
35. Decreases in government spending ____ equilibrium income, and increases in taxes ____
equilibrium income.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
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36. Changes in government spending and changes in net exports have __________ multiplier
effects than changes in investment spending.
A) smaller
B) larger
C) the same
D) at first, smaller, but later, larger
37. A tax increase has a smaller impact on the economy than does a decrease in government
spending of the same magnitude because:
A) Congress drags its feet in passing tax increases.
B) consumers pay for part of the tax increase by reducing their saving.
C) tax changes have more of a direct impact on income than does an equivalent change
in government spending.
D) fiscal policy is weaker than monetary policy.
38. Assume that the economy is at equilibrium at $12 trillion, with a marginal propensity to
consume of 0.75. If exports rise by $0.1 trillion and imports increase by $0.1 trillion,
equilibrium income will:
A) not change.
B) rise by $0.1 trillion.
C) fall by $0.1 trillion.
D) rise by $0.4 trillion.
39. In the Keynesian framework, the way to fight a recession is to:
A) cut taxes and/or increase government spending.
B) reduce interest rates.
C) increase the population with more immigration.
D) do nothing and wait for the economy to return to full employment on its own.
40. The increase in aggregate spending needed to bring an economy to full employment is
called:
A) goal-oriented spending.
B) the inflationary gap.
C) gap closure spending.
D) the recessionary gap.
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ECO 2013.001 Principles of Macroeconomics - Fall 2015
Practice Test #3 - Answer Key
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