Download Miami Dade College ECO 2013.0046 Principles of Macroeconomics

Miami Dade College
ECO 2013.0046 Principles of Macroeconomics - Fall 2016
Practice Test #3
1. Who recognized the need to develop tools to analyze the macroeconomy as a whole?
A) Adam Smith
B) Karl Marx
C) John Maynard Keynes
D) Milton Friedman
2. Because of the wealth effect, a rising aggregate price level ____ the purchasing power of
wealth and therefore _____ output demanded.
A) increases; increases
B) increases; reduces
C) reduces; increases
D) reduces; reduces
3. Increased consumer confidence will shift the aggregate demand curve to the _____ and
_____ output demanded.
A) left; decrease
B) left; increase
C) right; increase
D) right; decrease
4. A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____
output demanded.
A) left; decrease
B) left; increase
C) right; increase
D) right; decrease
5. The difference between the Keynesian model and the aggregate demand/aggregate supply
(AD/AS) model is that the:
A) Keynesian model assumes that prices are constant.
B) AD/AS model assumes that prices are constant.
C) Keynesian model assumes full employment.
D) AD/AS model assumes that equilibrium always occurs at less than full employment.
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6. (Figure: Aggregate Demand Shift)
Which of the following may be an explanation for the shift in aggregate demand from A
to B?
A) Prices fall and increase real wealth.
B) Consumer confidence drops and consumption spending falls.
C) Goods and services become less competitive and exports fall.
D) Interest rates fall and boost investment.
Use the following to answer question 7:
Figure: Predicting Aggregate Demand Shifts
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7. (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
8. In the long run, attempts to expand beyond an economy's natural rate of unemployment
tend to result in:
A) increased inflation.
B) increased output.
C) both increased output and increased inflation.
D) neither increased output nor increased inflation.
9. In the short run, the aggregate supply curve is ____ because input prices are _____.
A) positively sloped; not completely flexible
B) positively sloped; completely flexible
C) vertical; not completely flexible
D) vertical; completely flexible
10. A(n) _______ in productivity and a(n) ______ in taxes will shift short-run aggregate
supply to the right.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
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11. (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
12. What happens if business expectations improve?
A) Aggregate supply shifts left.
B) Aggregate supply shifts right.
C) Aggregate demand shifts left.
D) Aggregate demand shifts right.
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Use the following to answer question 13:
Figure: Determining SRAS Shifts
13. (Figure: Determining SRAS Shifts) If there are advances in technology, 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
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14. (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
15. Suppose when John's income increased from $10,000 to $15,000, his consumption
increased from $3,000 to $4,500. What is the value of his marginal propensity to save?
A) 0.7
B) 0.3
C) 0.2
D) 0.8
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16. (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.
17. (Figure: Shifting the AD and SRAS)
Starting in long-run equilibrium when the aggregate demand curve is AD0 and the
short-run aggregate supply curve is SRAS0, if there is a supply shock, such as a drastic
increase in the price of oil, this will cause _____ and a movement to a short-run
equilibrium at point _____.
A) a leftward shift in AD1; a
B) a rightward shift in AD1; c
C) a rightward shift in SRAS2; c
D) a leftward shift in SRAS2; a
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18. During cost-push inflation, aggregate output _______ and the aggregate price level
_________.
A) rises; rises
B) rises; falls
C) falls; falls
D) falls; rises
19. Short-run macroeconomic equilibrium occurs at the intersection of:
A) aggregate demand and short-run aggregate supply.
B) aggregate demand and long-run aggregate supply.
C) aggregate demand, short-run aggregate supply, and long-run aggregate supply.
D) short-run aggregate supplyand long-run aggregate supply.
20. The largest source of federal government revenues is:
A) corporate income taxes.
B) Social Security taxes.
C) individual income taxes.
D) excise and estate taxes.
21. If the marginal propensity to consume is 0.9, by how much will $100 of government
spending increase GDP?
A) $90
B) $100
C) $1,000
D) $900
22. __________ government spending, _____ transfer payments, and ____ taxes are all
examples of expansionary fiscal policy.
A) Increasing; increasing; lowering
B) Increasing; reducing; raising
C) Reducing; increasing; lowering
D) Reducing; increasing; raising
23. Which of the following categories is an example of discretionary spending?
A) Social Security
B) Medicare
C) food stamps
D) hurricane relief funds
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24. Most studies estimate the overall multiplier of the 2009 stimulus to be between:
A) 0 and 1.
B) 1.5 and 2.
C) 3 and 3.5.
D) 5 and 6.
25. Transfer payments are:
A) monies paid directly to individuals by the government.
B) not part of the government budget.
C) a vital part of discretionary fiscal policy.
D) payments made to government officials who transfer them back to private
companies.
26. When government spending increases, the aggregate demand curve shifts to the
________ and the multiplier effect is dampened by a ______ in the aggregate price level.
A) right; fall
B) right; rise
C) left; fall
D) left; rise
Use the following to answer question 27:
Figure: Determining Fiscal Policy
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27. (Figure: Determining Fiscal Policy) Expansionary fiscal policies could:
A) move the economy to full employment.
B) move the economy away from full employment.
C) lead to a lower price level.
D) lead to a lower price level and lower unemployment.
28. The Laffer curve has which variables on its axes?
A) price and quantity
B) CPI and GDP
C) tax rates and tax revenue
D) aggregate expenditure and income
29. __________ marginal tax rates and _______________ are commonly used to increase
aggregate supply.
A) Lowering; increasing government transfer payments
B) Lowering; offering investment tax credits
C) Raising; increasing government transfer payments
D) Raising; reducing government spending
30. 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.
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31. 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
32. Figure: Laffer Curve 2
(Figure: Laffer Curve 2) The figure shows the Laffer curve for an economy whose tax rate
is 80%. Supply-side economists would argue that the government should:
A) reduce the tax rate to 40%.
B) reduce the tax rate to 20%.
C) keep the tax rate at 80%.
D) reduce the tax rate to 60%.
33. Which of the following fiscal policies will increase aggregate supply?
A) increasing tax rates on consumers
B) increasing tax rates on businesses
C) reducing the depreciation period for business equipment from five years to three
years
D) instituting more regulations on businesses
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34. In the United States, what three entities must agree on spending and taxation policies?
A) the President, the Senate, and the Supreme Court
B) the President, the House of Representatives, and the Supreme Court
C) the President, the Senate, and a majority of state governors
D) the President, the House of Representatives, and the Senate
35. Automatic stabilizers include all of the following EXCEPT:
A) tax revenues.
B) transfer payments.
C) increased research and development.
D) All of the answers are correct.
36. When the economy is in a recession, welfare and unemployment compensation payments
_______ and tax revenues ____________.
A) rise; rise
B) rise; decline
C) decline; rise
D) decline; decline
37. The _____ lag is the time policymakers must wait for economic data to be collected,
processed, and reported.
A) information
B) recognition
C) implementation
D) decision
38. The _____ lag is the time required to turn fiscal policy into law and affect the economy.
A) information
B) recognition
C) implementation
D) decision
39. As GDP increases, tax revenues _____ and transfer payments _____.
A) decline; decline
B) decline; increase
C) increase; decline
D) increase; increase
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40. Which economist promoted public choice theory?
A) Robert Solow
B) Adam Smith
C) James Buchanan
D) Arthur Laffer
41. The Federal Reserve can purchase ____ to fund fiscal policy, resulting in _____.
A) bonds; a decrease in the money supply
B) bonds; an increase in the money supply
C) money; a decrease in the bond supply
D) money; an increase in the bond supply
42. If a government collects $1,400 in tax revenue and spends $1,600, it has:
A) a surplus of $200.
B) a deficit of $200.
C) a balanced budget of $200.
D) a public debt of $200.
43. Suppose the Treasury sells $10 billion worth of securities to the Social Security
Administration and $15 billion to the general public. This sale added ________ billion to
gross public debt and ________ billion to the debt held by the public.
A) $15; $15
B) $10; $15
C) $15; $25
D) $25; $15
44. As market interest rates rise, the cost of the public debt:
A) is unaffected, because the interest on the debt is fixed.
B) falls, because investors will prefer safer financial assets such as Treasury bonds.
C) rises, because the government must make larger interest payments.
D) is unaffected until Congress votes to increase the interest paid.
45. _____ is the amount by which annual government spending exceeds tax revenues.
A) The budget deficit
B) The budget surplus
C) The public debt
D) Government investment
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46. _____ is the amount by which annual tax revenues exceed government expenditures.
A) The budget deficit
B) The budget surplus
C) The public debt
D) Government investment
47. ______ is the total accumulation of past budget deficits less surpluses.
A) The budget deficit
B) The budget surplus
C) The public debt
D) Government spending
48. Suppose in 2009 country X had tax revenues of $550 billion and government
expenditures of $700 billion. In addition, as of the end of 2008, its national debt was $6.5
trillion. In 2009, country X had a ________ and at the end of 2009 a public debt of
__________.
A) deficit of $150 billion; $6.35 trillion
B) surplus of $150 billion; $6.65 trillion
C) deficit of $150 billion; $6.65 trillion
D) surplus of $150 billion; $6.35 trillion
49. Public debt owned by U.S. banks, corporations, mutual funds, pension plans, and
individuals is called ________ debt.
A) internally held
B) personal
C) proper
D) national
50. One argument against using taxation to pay off the public debt is that it will redistribute
wealth from:
A) poorer people who do not own bonds to richer bondholders.
B) poorer bondholders to richer people who do not own bonds.
C) richer bondholders to poorer people who do not own bonds.
D) richer bondholders to richer people who do not own bonds.
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51. The crowding out effect recognizes that if the government sells bonds to finance
spending, it can cause interest rates to ___________ investment.
A) fall, reducing
B) fall, stimulating
C) rise, reducing
D) rise, stimulating
52. John, a U.S. taxpayer, buys $5,000 in U.S. savings bonds. When he collects interest on the
bonds, who ultimately pays the interest?
A) foreigners who buy U.S. products.
B) past generations who bought savings bonds.
C) Congress.
D) other taxpayers like John.
53. A practical implication of the crowding-out effect is that it:
A) makes contractionary fiscal policy more effective than expansionary fiscal policy.
B) argues for a larger role of government in fighting recessions.
C) Makes expansionary fiscal policy less effective.
D) increases the size of the spending multiplier.
54. Both Social Security and Medicare are pay-as-you-go programs. This means that:
A) current taxpayers fund the benefits that are currently paid out.
B) future beneficiaries contribute to a pool of funds today that will be used to pay for
their benefits in the future.
C) the government pays for the benefits as the beneficiaries go into the system.
D) beneficiaries pay for the programs as they go into them.
55. The interest paid on public debt held by __________ is a real claim on our goods and
services.
A) U.S. banks
B) foreigners
C) U.S. citizens
D) the Federal Reserve
56. What are the primary functions of money?
A) unit of account, medium of exchange, store of value
B) unit of liquidity, medium of exchange, store of value
C) unit of exchange, medium of account, store of value
D) unit of account, medium of exchange, store of liquidity
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57. M1 includes:
A) cash, savings deposits, demand deposits, money market deposit accounts,
small-denomination time deposits, and shares in retail money market mutual funds.
B) cash, demand deposits, and small-denomination time deposits.
C) cash, demand deposits, and large-denomination time deposits.
D) cash, demand deposits, and other checkable deposits.
58. Fiat money:
A) has a high intrinsic value.
B) is decreed by royalty.
C) is acceptable as money because the government has decreed it to be so.
D) is unacceptable as money.
59. If Jack Sparrow buries a chest of gold bullion on a deserted island and plans to come back
later, then the gold is functioning as a:
A) unit of account.
B) store of value.
C) medium of exchange.
D) barter tool.
Use the following to answer question 60:
Money Measure Components, June 2010
Money Component
Amount (billions)
Currency
$883.6
Traveler's checks
4.8
Demand deposits
467.0
Savings deposits
5,086.1
Small-denomination time deposits
1,054.0
Other checkable deposits
382.0
Retail money funds*
746.6
*Includes money market accounts and money market mutual fund accounts
60. (Table) From the information in the table, currency as a percentage of M1 for June 2010
was:
A) 49%.
B) 51%.
C) 55%.
D) 10%.
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61. Which of the following is UNTRUE?
A) Near money cannot be drawn on instantaneously but is nonetheless accessible.
B) Near money includes money market mutual fund accounts with check writing
features.
C) Near money includes savings accounts.
D) Near money includes individual stocks and bonds.
62. Checking account balances are
A) part of M1 but not part of M2.
B) part of M1 and part of M2.
C) part of M2 but not part of M1.
D) not part of either M1 or M2.
63. The reward for saving is called ____, and this variable is placed on the _____ axis of the
loanable funds market graph.
A) interest; horizontal
B) interest; vertical
C) investment; horizontal
D) investment; vertical
64. The demand curve for loanable funds represents _____ and is _____.
A) investors; horizontal
B) investors; downward sloping
C) savers; horizontal
D) savers; downward sloping
65. Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's
yield?
A) 5.3%
B) 6.0%
C) 6.4%
D) 12.0%
66. Institutions that serve as the bridge between savers and borrowers are known as:
A) commercial banks.
B) credit unions.
C) financial intermediaries.
D) securities firms.
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67. Financial intermediaries match:
A) savers with lenders.
B) borrowers with savers.
C) banks with savers.
D) banks with lenders.
68. Which one of the following will cause the supply of loanable funds curve to shift
leftward?
A) lowering of firms' expectations about the economy
B) an increase in government regulations that make plant expansion difficult
C) an increase in asset prices leading to a decrease in purchases of stocks and bonds
D) an increase in the government deficit
Use the following to answer question 69:
Figure: Market for Loanable Funds 2
69. (Figure: Market for Loanable Funds 2) If households decide to save a larger portion of
their income because they fear job loss due to a recession, the loanable funds supply curve
will shift from _____ to _____, and the new equilibrium will be at point _____, holding
demand constant at D0.
A) S0; S1; a
B) S0; S1; b
C) S1; S0; b
D) S1; S0; d
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70. When a financial institution accepts funds from savers and pools this money into a
portfolio of diversified financial instruments, it is:
A) reducing information costs.
B) reducing transaction costs.
C) spreading risk.
D) preventing fraud.
71. Suppose the ZZZ Corporation sells a one-year coupon bond for $1,000. Its coupon
payment is $100 for the year. In this example, the yield is ________%. If instead the price
of the bond is $500, the yield is ________.
A) 10; 10%
B) 100; 200%
C) 100; 100%
D) 10; 20%
72. Kim recently purchased a perpetual bond for $1,000. The bond pays $50 in interest per
year. Suppose market interest rates rise to 7% after the purchase. The price of the bond:
A) falls to $700.
B) rises to $1,700.
C) falls to $714.
D) rises to $1,070.
73. Which of the following is NOT a financial intermediary?
A) Citibank
B) Schwab mutual funds
C) Hartford Insurance
D) Federal Reserve Bank
74. Suppose a perpetuity bond with a face value of $1,000 has a coupon rate of 8%. If market
interest rates rise to 12%, the price of the bond:
A) rises to $1,120.
B) rises to $1,080.
C) falls to $666.67.
D) falls to $880.
75. The most common type of short-term debt is:
A) college loans.
B) credit card debt.
C) mortgage debt.
D) car loans.
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76. An interest rate that is low only for a short time is called:
A) a teaser rate.
B) an annual percentage rate.
C) a balloon payment.
D) a balance transfer fee.
77. If a person borrows $2,000 at 5% interest and never makes any payments, how much will
the loan balance be after five years?
A) $2,250
B) $2,500
C) $2,255.55
D) $2,552.56
78. If a person borrows $3,000 at 8% interest and never makes any payments, how much will
the loan balance be after 10 years?
A) $4,500
B) $5,400
C) $6,476.77
D) $7,676.67
79. The compounding effect ________ savers and _________ borrowers.
A) help; hurts
B) helps; helps
C) hurts; hurts
D) hurts; helps
80. Traditional Individual Retirement Accounts (IRAs) are taxed:
A) when you make contributions and again when you make withdrawals.
B) only when you make contributions.
C) only when you make withdrawals.
D) Traditional IRAs are never taxed.
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ECO 2013.0046 Principles of Macroeconomics - Fall 2016
Practice Test #3 - Answer Key
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2.
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C
D
C
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A
D
B
A
A
C
D
B
B
B
A
B
D
D
A
C
C
A
D
B
A
B
A
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B
B
A
A
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C
B
A
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C
C
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B
D
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C
A
B
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A
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D
C
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B
A
D
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B
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B
B
B
C
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B
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B
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C
B
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A
C
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