Download 1 ECO 2013.005 Principles of Macroeconomics – Spring 2014

ECO 2013.005 Principles of Macroeconomics – Spring 2014
Homework #4 – Due date: 03/19/14
1.
a)
b)
c)
d)
Alternating periods of economic growth and contraction in real GDP define
Capitalism.
The business cycle.
Macro equilibrium.
Say's Law.
2.
a)
b)
c)
d)
According to the classical view, if consumer demand slowed down,
Prices would decrease, and the economy would return to its long-term growth trend.
Prices would increase, and the economy would return to its long-term growth trend.
Wages would increase, and the economy would return to its long-term growth trend.
Investment and government demand would increase, and the economy would return to its
long-term growth trend.
3.
a)
b)
c)
d)
According to classical economists, market-driven economies
Are typically self-adjusting.
Are inherently unstable.
Require government intervention.
Are always in long-run equilibrium.
4.
a)
b)
c)
d)
Unlike the classical economists, Keynes asserted that
The economy was inherently unstable.
Laissez faire policies would lead to macro equilibrium.
Prices and wages were flexible.
Markets would naturally self-adjust.
5.
a)
b)
c)
d)
Which of the following is characteristic of a downturn in the business cycle?
Lower unemployment rates.
Lower real output.
Higher interest rates.
None of the choices are correct.
6.
a)
b)
c)
d)
The inflation-adjusted value of all goods and services produced is
The GDP deflator.
Nominal GDP.
GDP per capita.
Real GDP.
7. Changes in real GDP are used to measure
a) Inflation.
b) Price level changes.
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c) Business cycles.
d) Population growth.
8. Before the year 2000, the most prolonged departure from the long-term growth path for the
United States occurred during
a) The 1980s.
b) The Great Depression.
c) World War II.
d) The years following World War II.
9.
a)
b)
c)
d)
A growth recession is said to occur when the economy grows at a
Rate less than that of population.
Rate less than the long-term average.
Slower rate in the current year than the preceding year.
Negative rate.
10.
a)
b)
c)
d)
Which of the following caused a recession in the years immediately following World War II?
A surge in investment spending.
Pent-up demand for consumer goods.
Cutbacks in defense production.
Technological advances.
11. Which of the following is generally considered a desirable outcome of government
intervention?
a) More jobs.
b) A higher price level.
c) Higher unemployment rates.
d) Greater deficits.
12.
a)
b)
c)
d)
External shocks include all of the following except
Population growth.
Natural disasters.
Terrorist attacks.
Wars.
13.
a)
b)
c)
d)
In the absence of external shocks or government policy, an economy would
Still experience business cycle fluctuations because of internal market forces.
Not experience business cycle fluctuations.
Not be able to expand production and output.
None of the choices are correct.
14.
a)
b)
c)
The aggregate demand curve is downward-sloping because, other things being equal,
People buy fewer goods and services at lower average incomes.
People buy more goods and services at lower average prices.
A higher average price level will induce producers to offer more output than otherwise.
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d) People buy more goods and services at higher average prices.
15. Assume you have $2,000 in a savings account at the beginning of the year and the price level
is equal to 100. If the price level is equal to 120 at the end of the year, the real value of your
savings is closest to
a) $1,667.
b) $1,880.
c) $2,120.
d) $2,400.
16.
a)
b)
c)
d)
Which of the following is used to explain why the AD curve slopes downward?
The interest rate effect.
The cost effect.
The profit effect.
The laissez faire effect.
17.
a)
b)
c)
d)
A positively sloped aggregate supply curve reflects
The idea that greater production lowers profit margins, which raises quantity demanded.
The decrease in the real value of money as the price level rises.
The rising costs associated with increased capacity utilization.
None or the other choices.
18.
a)
b)
c)
d)
Macro equilibrium always occurs when
Aggregate supply is greater than aggregate demand.
The labor force is fully employed.
Aggregate demand equals aggregate supply at a given average price level.
The level of output is expanding.
19.
a)
b)
c)
d)
If aggregate demand decreases and aggregate supply decreases, the level of real output will
Decrease, and the price level will definitely decrease.
Decrease, and the price level will definitely increase.
Either increase or decrease, but the price level will stay the same.
Decrease, but the price level is indeterminate.
20. Which combination of shifts of aggregate demand and supply would definitely cause an
increase in real GDP?
a) Demand shifts to the left and supply shifts to the right.
b) Demand shifts to the left and supply shifts to the left.
c) Demand shifts to the right and supply shifts to the right.
d) Demand shifts to the right and supply shifts to the left.
21.
a)
b)
c)
Aggregate demand is the total quantity of output
Demanded if the economy is in equilibrium.
Demanded at alternative price levels in a given time period.
Producers are willing and able to supply at alternative price levels.
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d) Consumers actually buy.
22. Consumption expenditures
a) Account for approximately two-thirds of total spending.
b) Include purchases of new and used goods by consumers.
c) Are equal to disposable personal income plus personal saving.
d) Are equal to consumer spending plus transfer payments.
23. If consumption is $340 and saving is $20, then disposable income
a) Is $340.
b) Is $360.
c) Is $320.
d) Cannot be determined from the information given.
24. Which of the following is not true about the marginal propensity to consume?
a) It is equal to the change in consumption divided by the change in disposable income.
b) It is equal to the slope of the consumption function.
c) It is equal to 1 - MPS.
d) It is always equal to or greater than 1.
25. If disposable income increases from $9,000 billion to $11,000 billion, and consumption
increases from $9,500 billion to $11,000 billion, the MPC must be
a) 0.75.
b) 1.00.
c) 0.90.
d) 0.25.
26. Which of the following is not a determinant of autonomous consumption?
a) Wealth.
b) Technology.
c) Tax policy.
d) Consumer confidence.
27.
a)
b)
c)
d)
If tax policies become less favorable, then
The AD curve will not be affected.
There will be a movement to the right along the AD curve.
The AD curve will shift to the left.
The AD curve will shift to the right.
28. Investment spending includes expenditures on all of the following except
a) Stocks and bonds.
b) Equipment.
c) Inventory.
d) Plants or office buildings.
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29. Which of the following causes a movement along the investment demand curve?
a) A change in expenditures.
b) A change in technology.
c) A change in the rate of interest.
d) The current level of income.
30. Which of the following will cause the investment demand curve to shift to the right?
a) A decrease in interest rates.
b) A decrease in the cost of labor.
c) An increase in disposable income.
d) An improvement in technology.
31.
a)
b)
c)
d)
Which of the following will cause the aggregate demand curve to shift to the left?
A decrease in consumer and business confidence because of a terrorist attack.
A decrease in the interest rate.
A decrease in business taxes.
An improvement in technology.
32. Income transfers, such as unemployment insurance, welfare benefits, and food stamps,
a) Help stabilize aggregate demand.
b) Destabilize aggregate demand.
c) Have almost no impact on aggregate demand.
d) Shift aggregate demand to the left during a recession.
33. Which of the following will cause an increase in U.S. gross exports?
a) An increase in foreign consumer income.
b) A decrease in foreign business investment.
c) An increase in U.S. consumer income.
d) An increase in U.S. imports.
34. Which of the following lists all the components that are included in aggregate demand?
a) Consumption, government spending, net exports, and investment.
b) Government spending, saving, consumption, and investment.
c) Investment, imports, exports, consumption, and taxes.
d) Net exports, government spending, consumption, and transfer payments.
35. A recessionary gap implies that
a) Aggregate demand is less than aggregate supply at the full-employment price level.
b) The unemployment rate is falling.
c) Aggregate demand exceeds aggregate supply at the full-employment price level.
d) Inventories are being depleted faster than producers desire.
36. Which of the following occurs when the spending on final goods and services exceeds fullemployment GDP?
a) Inventory accumulation.
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b) Unemployment.
c) Inflationary gap.
d) Recessionary gap.
37.
a)
b)
c)
d)
According to Keynes, cyclical unemployment is caused by too
Much aggregate demand.
Little aggregate demand.
Much aggregate supply.
Little aggregate supply.
38. What is the marginal propensity to save in Table 9.1?
a) 0.05.
b) 0.80.
c) 0.20.
d) 0.24.
39. Using Figure 9.1, dissaving occurs at all income levels
a) Above $2,000 billion.
b) Above $3,000 billion.
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c) Below $2,000 billion.
d) Below $3,000 billion.
40. Which diagram in Figure 9.4 shows how investment responds to the expectation that the
economy is about to go into a period of fast growth, causing firms to expect increased sales?
a) A.
b) B.
c) C.
d) D.
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ANSWER KEY
1. B
2. A
3. A
4. A
5. B
6. D
7. C
8. B
9. B
10. C
11. A
12. A
13. A
14. B
15. A
16. A
17. C
18. C
19. D
20. C
21. B
22. A
23. B
24. D
25. A
26. B
27. C
28. A
29. C
30. D
31. A
32. A
33. A
34. A
35. A
36. C
37. B
38. C
39. C
40. D
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