Download Fall 2007

Ecn. 120
Fall 2007
Todd Easton
Little Exam
Answer the questions below on the answer sheet provided, using a #2 pencil. Each question is worth 3 points;
the entire exam is worth 60 points.
1)Ap Suppose total output in the US rises and active fiscal policy is unchanged. The rise in output will
a) cause a rise in government consumption and investment.
b) cause a decline in government consumption and investment.
c) cause a rise in tax revenues.
d) cause a decline in tax revenues.
2) Which of the following word pairs completes the following sentence in the most logical way?
“A _____ in interest rates causes a _____ in the inflation rate.”
a) decline; decline
b) rise; decline
c) rise; rise
Please use the following table to answer the next question.
Income Consumption
0
100
100
180
200
260
3) For the economy represented by the table, the marginal propensity to consume is ________.
a) 80
b) 100
c) .2
d) .8
4) Which of the following has not been advanced as a way of increasing the rate of productivity growth in the
United States?
a) increasing the rate of consumption spending
b) cutting government regulation of industry
c) encouraging additional research and development
5) The table at right contains numbers describing the
budget deficit and the national debt for an imaginary
economy, one somewhat similar to our own. All
numbers are in trillions of dollars. What number
would best fill the lower, right-hand corner of the
table?
a) 9.8
b) 9.9
c) 10.0
d) 10.1
e) 10.2
Year
2009
2010
Deficit for
the year
.2
.1
Debt at
year’s end
10.0
?
2
6) Looking at the numbers in the table above, what would be the best conclusion to draw about the change in
direction of macroeconomic policy between 2009 and 2010.
a) Fiscal policy is becoming less expansionary.
b) Fiscal policy is becoming more expansionary.
c) Monetary policy is becoming less expansionary.
d) Monetary policy is becoming more expansionary.
7) Suppose the unemployment rate drops from 6% to 4% and the natural rate is 5%. The inflation model
presented in class would predict that
a) productivity growth would speed up.
b) productivity growth would slow down.
c) wage increases would speed up.
d) wage increases would slow down.
8) Suppose the unemployment rate drops from 6% to 4% and the natural rate is 5%. The inflation model
presented in class would lead one to expect
a) the inflation rate to go from 6% to 4%.
b) the inflation rate to go from 4% to 6%.
c) the inflation rate to stop falling and start rising.
d) the inflation rate to stop rising and start falling.
9) A Fed sale of bonds will cause all of the following except
a) a fall in the bank reserves.
b) a fall in the money supply.
c) a fall in the value of money.
d) an increase in the interest rate.
10) The intended goal of expansionary macroeconomic policy
a) is an increase in the interest rate.
b) is a decrease in the interest rate.
c) is an increase in the level of aggregate output.
d) depends on whether a fiscal policy or a monetary policy is used.
11) The economy may be working at less than its capacity if there is
a) cyclical unemployment.
b) frictional unemployment.
c) natural unemployment.
d) structural unemployment.
12) Which of the following best captures the relationship between the terms “production” and “productivity”?
a) Productivity is the percentage rate of change of production, on an annual basis.
b) Production is the percentage rate of change of productivity, on an annual basis.
c) Production is productivity times total hours worked.
13) Suppose an economy is in equilibrium at a level of income just below full employment. Aggregate demand
then falls sharply due to a decline in consumer confidence. What effect would automatic stabilizers (like the
personal income tax and unemployment insurance) have on the economy?
a) They would increase the multiplier and worsen the contraction.
b) They would increase the multiplier and moderate the contraction.
c) They would decrease the multiplier and worsen the contraction.
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d) They would decrease the multiplier and moderate the contraction.
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14)Ap Use the information in the bank balance sheet below to answer the question. The required reserve ratio is
0.25, or 25%.
Assets
Liabilities
Reserves $1,200
Loans $2,800
Total $4,000
Deposits $4,000
Total $4,000
How much in excess reserves does this bank have?
a) $2,800
b) $1,200
c) $1,000
d) $400
e) $200
15) Fiscal policy is made by _____; monetary policy is made by _____.
a) the Federal Reserve System; the executive and legislative branches
b) the executive and legislative branches; the Federal Reserve System
c) the Federal Reserve System; the Treasury Department
d) the Treasury Department; the Federal Reserve System
16) If productivity rises at the annual rate of 3.5 percent, average wage increases of 6.0 percent a year will
imply annual price increases of about
a) 9.5 percent
b) 6.0 percent
c) 2.5 percent
d) 3.5 percent
17) In 1993 the Maiden Record Company planned to invest $540,000 by spending $500,000 to upgrade its
recording facilities and by increasing inventories to $40,000 worth of CDs. But in 1993, the actual amount of
investment made by Maiden Records was $600,000. Think about alternative explanations of this difference
between planned and actual investment. Which of the following explanations is most consistent with the
Keynesian theory of output determination?
a) Maiden Records was not able to upgrade its recording facilities because it could find no one willing to do the
work. Therefore, it purchased $500,000 of government bonds and earned $60,000 interest.
b) The price level rose during 1993, so the value of Maiden’s facilities investment increased from $540,000 to
$600,000.
c) Sales of CDs were not as high as expected, so inventory accumulation equaled $100,000, not the $40,000 that
Maiden Records had planned.
18) As the Federal Reserve System expands M1
a) the national debt grows.
b) the spending multiplier rises.
c) its portfolio of bonds grows.
19)Ap Use the information in this balance sheet to answer the questions below.
Assets
Liabilities
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Excess Reserves $500
Required Reserves $1,500
Loans $4,000
Total $6,000
Deposits $6,000
Total $6,000
What is the largest loan this bank can make?
a) $500
b) $1,500
c) $2,000
d) $4,000
e) $6,000
20)Ap Smithia is a small island economy that has no taxes, no transfer payments, no government purchases, no
exports, and no imports. Smithia's economy is represented by the following equations:
C = 200 + 0.9Y
I = 1,000,
where C represents consumption, I represents planned investment, and Y represents aggregate income.
What is Smithia's unplanned change in inventories when Smithia's real GDP is $5,000?
a) -700
b) -300
c) 300
d) 700
e) 1000
Correct Answers
1)c
6)a
11)a
16)c
2)b
7)c
12)c
17)c
3)d
8)c
13)d
18)c
4)a
9)c
14)e
19)a
5)d
10)c
15)b
20)a
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