11/12/2015 Print Questions - Dasha Safonovadashasafonova.com/fall15/T2_prep_compiled_hw.pdf · 11/12/2015 Print Questions 1/19 1. 2. 3. If the price level and the money wage rate

11/12/2015 Print Questions

https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/econ 1/19

1.

2.

3.

Ifthepricelevelandthemoneywageraterisebythesamepercentage,thequantityofrealGDPsupplied______andthereisamovementupalongthe______aggregatesupplycurve.

A. doesnotchangeshortrunB. decreaseslongrunC. increasesshortrunD. doesnotchangelongrun

Ifthepricelevelrisesandthemoneywagerateremainsconstant,thequantityofrealGDPsupplied______andthereisamovementupalongthe______aggregatesupplycurve.

A. increasesshortrunB. doesnotchangelongrunC. decreaseslongrunD. doesnotchangeshortrun

DrawthelongrunaggregatesupplycurvewhenpotentialGDPis$ trillion.Labelit.14.0

Aswemoveupalongthelongrunaggregatesupplycurve,______.

A. therealwagerateremainsconstantB. themoneywagerateremainsconstantC. thepricesofgoodsandservicesremain

constantD. thepricesofgoodsandservicesincrease

andthemoneywageratedecreases

(12,130)

11.5 12.0 12.5 13.0 13.5 14.0 14.575

85

95

105

115

125

135

RealGDP(trillionsof2009dollars)

Pricelevel(GDPdeflator,2009=100)

>>>Drawonlytheobjectsspecifiedinthequestion.



4.

5.

6.

7.

PotentialGDPincreasesforallofthefollowingreasonsexcept______.

A. thequantityofcapitalincreasesB. themoneywageratedecreasesC. technologyadvancesD. thefullemploymentquantityoflaborincreases

ThequantityofrealGDPsupplieddependsonallofthefollowingexceptthe_______.

A. stateoftechnologyB. quantityoflaboremployedC. quantityofrealGDPdemandedD. quantityofphysicalandhumancapital

Choosethestatementthatisincorrect.

A. AlongtheLAScurvethemoneywagerateisconstantandtherealwageraterisesasthepricelevelrises.

B. AmovementalongtheLAScurveisaccompaniedbyachangeinthepricesofgoodsandservicesandthepricesofthefactorsofproduction.

C. TheLAScurveshowstherelationshipbetweenpotentialGDPandthepricelevel.D. ThelongrunaggregatesupplycurveisverticalbecausepotentialGDPisindependentofthe

pricelevel.

Ariseinthemoneywagerate______.

A. decreasespotentialGDPbecausethefullemploymentquantityoflabordecreasesB. doesnotchangetheLAScurvebecausealongtheLAScurveariseinthemoneywagerateis

accompaniedbyanequalpercentagechangeinthepricelevelC. doesnotchangeshortrunaggregatesupplybecausealongtheSAScurverelativeprices

remainconstantD. increasesshortrunaggregatesupplybecauseariseinthemoneywagerateincreasescosts,

sofirmsarewillingtosupplymoreonlyatahigherpricelevel



8.

9.

10.

11.

Shortrunaggregatesupplyistherelationshipbetweenthequantityof_____suppliedandthe_____whenthemoneywagerate,thepricesofotherresources,andpotentialGDPremainconstant.

A. realGDPinterestrateB. nominalGDPexchangerateC. potentialGDPpricelevelD. realGDPpricelevel

Examplesoffiscalpolicythatincreaseaggregatedemandinclude______.

A. anincreaseingovernmentexpenditure,adecreaseintaxes,andanincreaseintransferpayments

B. adecreaseintaxesandadecreaseininterestratesC. anincreaseintransferpaymentsandanincreaseininterestratesD. adecreaseintaxesandanincreaseinthequantityofmoney

Examplesofmonetarypolicythatdecreaseaggregatedemandinclude______.

A. anincreaseintaxesandadecreaseinthequantityofmoneyB. adecreaseinthequantityofmoneyandanincreaseininterestratesC. anincreaseintransferpaymentsandanincreaseininterestratesD. adecreaseintaxesandadecreaseininterestrates

Aggregatedemandistherelationshipbetweenthequantityof_____demandedandthe_____whenallotherinfluencesonexpenditureplansremainthesame.

A. realGDPexchangerateB. realGDPpricelevelC. nominalGDPquantityofoutputsuppliedD. nominalGDPinterestrate



12.

(1) aninflationary arecessionary nooutput

Inthegraph,theinitialaggregatesupplycurveisSAS0andtheinitialaggregatedemandcurveisAD0.TheeventswhichcouldhavechangedshortrunaggregatesupplyfromSAS0toSAS1are______.

A. ariseintheinterestrateoradecreaseinthequantityofmoney

B. anincreaseintaxesoradecreaseingovernmentexpenditures

C. ariseinthemoneywagerateorariseinthemoneypriceofanyotherfactorofproduction

D. adecreaseinexpectedfutureprofitsoranincreaseinexpectedinflation

Followingthechangeinaggregatesupply,thenewmacroeconomicequilibriumisat______.

A. pointAB. pointBC. pointCD. pointD

IfpotentialGDPis$1trillion,theeconomyhas (1) gap.

0.7 0.8 0.9 1.0 1.1 1.2 1.385

90

95

100

105

110

115

120


Pricelevel

B

AD0

SAS0D

AC

AD1

SAS1LAS



13. TheinitialshortrunaggregatesupplycurveisSAS0andtheinitialaggregatedemandcurveisAD0.

SomeeventschangeaggregatedemandfromAD0toAD1,andshortrunaggregatesupplyfromSAS0toSAS1.

Thenewmacroeconomicequilibriumisat______.

A. pointAB. pointBC. pointCD. pointD

0.7 0.8 0.9 1.0 1.1 1.2 1.385

90

95

100

105

110

115

120


Pricelevel

B

AD0

SAS0D

AC

AD1

SAS1LAS



14. Thegraphshowsaneconomyinlongrunequilibrium.

Theworldeconomygoesintoanexpansion,U.S.businessesexpectfutureprofitstorise,andthegovernmentincreasesitsexpenditureongoodsandservicesinatimeofwarorincreasedinternationaltension.

Drawonenewcurvethatshowsthecombinedeffectofthethreeevents.Labelit.

Drawapointatthenewshortrunmacroeconomicequilibrium.

Everythingelseremainingthesame,anincreaseinaggregatedemandincreases______.

A. longrunaggregatesupplyB. shortrunaggregatesupplyC. potentialGDPD. thequantityofrealGDPsupplied

11.0 12.0 13.0 14.0 15.080

90

100

110

120

130

140




LAS

SAS

AD



15. ThetableshowsaggregatedemandandshortrunaggregatesupplyinJapan.PotentialGDPis600trillionyen.

Pricelevel

RealGDPdemanded

RealGDPsuppliedintheshortrun

(trillionsof2009yen)75 600 400105 450 550135 300 700

Usingthedataabove,drawtheADcurveandtheSAScurve.Labelthecurves.

Drawapointattheshortrunequilibrium.

TheshortrunmacroeconomicequilibriumrealGDPistrillion.

Theshortrunequilibriumpricelevelis .250 350 450 550 650 750

70

80

90

100

110

120

130

140

RealGDP(trillionsof2009yen)

Pricelevel




16. TheInternationalMonetaryFund'sWorldEconomicOutlookdatabase

providesthedatagiveninthetableforIndiain2004,2005,and2006.

Thenumbersinthetableareconsistentwith______.

A. decreasesinlongrunandshortrunaggregatesupplyandevengreater

decreasesinaggregatedemand.

B. increasesinlongrunandshortrunaggregatesupplyandevenlarger

decreasesinaggregatedemand

C. increasesinshortrunaggregatesupplyandincreasesinaggregatedemand,but

theincreasesinaggregatedemandare

smallerthantheincreasesinshortrun

aggregatesupply

D. increasesinlongrunandshortrunaggregatesupplyandevengreater

increasesinaggregatedemand

2004 2005 2006RealGDPgrowthrate 8.1 8.3 7.3

Inflation 4.2 4.7 4.6



17.

1: News clip

Clickontheicontoreadthenewsclip,thencompletethefollowingsteps.1

Thegraphshowsthelongrunaggregatesupplycurve,shortrunaggregatesupplycurve,andaggregatedemandcurvewhentheU.S.economyisatafullemploymentequilibrium.

Drawacurvethatshowstheeffectoftheincreaseinthepriceofoil,gasoline,wheat,andsteel.Labelit.

Drawapointatthenewshortrunmacroeconomicequilibrium.

Astagflation_______.

A. isacombinationofexpansionandinflation

B. occurswhenaggregatedemanddecreases

C. isacombinationofrecessionanddeflation

D. isacombinationofrecessionandinflation

10 11 12 13 1490

100

110

120

130

140




That'70sLook:Stagflation

Lately,manypeoplearehearinganecho faintlyperhapsbutdistinctlyaudible ofthestagflationofthe1970s.Evenaseconomicgrowthsags,oilandgasolinepricesaresurgingtonewheights.Goldisontherise,alongwiththepricesofsuchbasiccommoditiesaswheatandsteel.AndonWednesday,withthelatestgovernmentreportonconsumerprices,therearesignsthatoverallinflation,afteryearsofonlymodestincreases,maybebreakingoutofitsbox.

TheNewYorkTimes,February21,2008

SAS0

AD0

LAS



18.

19.

AutomotivefirmsintheUnitedStatesswitchtoanew technologythatraises

Thisevent_______.

A. increasesaggregatedemandB. decreasesthequantityofrealGDP

demandedC. decreasesaggregatedemandD. increasesthequantityofrealGDP

demanded

Autoworkersagreetoalowermoneywagerate.

Thisevent_______.

A. decreasesthequantityofrealGDPdemanded

B. increasesthequantityofrealGDPdemanded

C. increasesaggregatedemandD. decreasesaggregatedemand

TheU.S.pricelevelrises.

Thisevent_______.

A. increasesthequantityofrealGDPdemanded

B. increasesaggregatedemandC. decreasesaggregatedemandD. decreasesthequantityofrealGDP

demanded

ThetableshowstheaggregatedemandandshortrunaggregatesupplyschedulesofacountryinwhichpotentialGDPis$1,050billion.

WhatistheshortrunequilibriumrealGDPandpricelevel?

TheshortrunequilibriumrealGDPis$ billion.

Thepricelevelintheshortrunis .

Pricelevel

RealGDPdemanded

RealGDPsuppliedintheshortrun

(billionsof2009dollars)100 1,150 850110 1,100 900120 1,050 950130 1,000 1,000140 950 1,050150 900 1,100160 850 1,150



20.

21.

Economicgrowthisthepersistentincreasein______.

Economicgrowthisaccompaniedbyinflationwhenthe______.

A. shortrunaggregatesupplyADcurveshiftsrightwardataslowerratethantheSAScurveshiftsrightward

B. aggregatedemandLAScurveshiftsrightwardatafasterratethantheADcurveshiftsrightward

C. potentialGDPADcurveshiftsrightwardatafasterratethantheLAScurveshiftsrightward

D. aggregatedemandandpotentialGDPADcurveshiftsrightwardataslowerratethantheLAScurveshiftsrightward

Drawanaggregatedemandcurve.LabelitAD.

Drawashortrunaggregatesupplycurve.LabelitSAS.

Drawapointattheshortrunmacroeconomicequilibrium.Labelit1.

DrawapointontheSAScurveatwhichfirmsareunabletomeetthedemandfortheiroutput.Labelit2.

Whenfirmsareunabletomeetthedemandfortheiroutput,_____.Prices_____.

A. thequantityofrealGDPsuppliedisgreaterthanthequantityofrealGDPdemandedfall

B. thequantityofrealGDPdemandedisgreaterthanthequantityofrealGDPsuppliedrise

C. shortrunaggregatesupplyisgreaterthanlongrunaggregatesupplyrise

D. aggregatedemandisgreaterthanshortrunaggregatesupplyrise

10.0 11.0 12.0 13.0 14.090

100

110

120

130

140






22.

23.

24.

25.

Longrunmacroeconomicequilibrium______.

A. occurswhenthequantityofrealGDPdemandedequalsthequantityofrealGDPsupplied,atthepointofintersectionoftheADcurveandtheSAScurve

B. comesaboutbecausetherealwagerateadjustsC. occurswhenrealGDPequalspotentialGDP,andtheLAS,SAS,andADcurvesintersectD. occurswhenrealGDPequalspotentialGDPandthemoneywagerateequalstherealwage

rate

Shortrunmacroeconomicequilibriumoccurswhenthequantityof_____demandedequalsthequantityof_____suppliedatthepointofintersectionofthe_____curveandthe_____curve.

A. loanablefundsloanablefundsDLFSLFB. realGDPrealGDPADSASC. outputoutputMDMSD. reservesreservesRDRS

LongrunmacroeconomicequilibriumoccurswhenrealGDP_____potentialGDPequivalently,whentheeconomyisonits_____curve.

A. exceedsSASB. equalsLASC. islessthanADD. exceedsLAS

AnabovefullemploymentequilibriumisanequilibriumwhenrealGDP_____.

A. equalsthepricelevelB. exceedspotentialGDPC. equalstheinterestrateD. equalspotentialGDP



26.

27.

28.

When_____thereisafullemploymentequilibrium.

A. realGDPequalspotentialGDPB. realGDPexceedspotentialGDPC. thepricelevelequalsaggregatedemandD. laborproductivityexceedstherealwagerate

AbelowfullemploymentequilibriumisanequilibriuminwhichpotentialGDP_____realGDP.

A. equalsB. islessthanC. exceedsD. isthesumofaggregatedemandand

Thetablegivestheaggregatedemandschedule,theshortrunaggregatesupplyschedule,andthelongrunaggregatesupplyscheduleforaneconomy.

WhatisthequantityofrealGDPattheshortrunmacroeconomicequilibrium?

ThequantityofrealGDPattheshortrunmacroeconomicequilibriumis$ billion.

Pricelevel

RealGDPdemanded

RealGDPsupplied

inshortrun

RealGDPsuppliedinlongrun

(GDPdeflator) (billionsof2009dollars)

100 700 200 500105 600 300 500110 500 400 500115 400 500 500



1. D. doesnotchangelongrun

2. A. increasesshortrun

3. 11.5 12.0 12.5 13.0 13.5 14.0 14.5

75

85

95

105

115

125

135



A. therealwagerateremainsconstant

4. B. themoneywageratedecreases

5. C. quantityofrealGDPdemanded

6. A. AlongtheLAScurvethemoneywagerateisconstantandtherealwageraterisesasthepricelevelrises.

7. B. doesnotchangetheLAScurvebecausealongtheLAScurveariseinthemoneywagerateisaccompaniedbyanequalpercentagechangeinthepricelevel

LAS



8. D. realGDPpricelevel

9. A. anincreaseingovernmentexpenditure,adecreaseintaxes,andanincreaseintransferpayments

10. B. adecreaseinthequantityofmoneyandanincreaseininterestrates

11. B. realGDPpricelevel

12. C. ariseinthemoneywagerateorariseinthemoneypriceofanyotherfactorofproduction

A. pointA

(1) arecessionary

13. D. pointD

14. 11.0 12.0 13.0 14.0 15.0

80

90

100

110

120

130

140



115

13.5

D. thequantityofrealGDPsupplied

LAS

SAS

AD

AD1



15. 250 350 450 550 650 750

70

80

90

100

110

120

130

140

RealGDP(trillionsof2009yen)

Pricelevel

95

500

500

95

16. D. increasesinlongrunandshortrunaggregatesupplyandevengreaterincreasesinaggregatedemand

SAS

AD



17. 10 11 12 13 14

90

100

110

120

130

140



120

11.5

D. isacombinationofrecessionandinflation

18. D. increasesthequantityofrealGDPdemanded

B. increasesthequantityofrealGDPdemanded

D. decreasesthequantityofrealGDPdemanded

19. 1,000

130

20. C. potentialGDPADcurveshiftsrightwardatafasterratethantheLAScurveshiftsrightward

SAS0

AD0

LAS SAS1



21. 10.0 11.0 12.0 13.0 14.0

90

100

110

120

130

140



115

12.0

105

11.5

B. thequantityofrealGDPdemandedisgreaterthanthequantityofrealGDPsuppliedrise

22. C. occurswhenrealGDPequalspotentialGDP,andtheLAS,SAS,andADcurvesintersect

23. B. realGDPrealGDPADSAS

24. B. equalsLAS

25. B. exceedspotentialGDP

26. A. realGDPequalspotentialGDP

27. C. exceeds

28. 450

2

1

SAS

AD



1.

2.

1: News clip

Clickontheicontoreadthenewsclip,thencompletethefollowingsteps.1Theleftgraphshowstheconsumptionfunctionandtherightgraphshowsthesavingfunction.Supposethereisadecreaseinhouseholdwealth.

0 1 2 3 4 5 6 7 80

1

2

3

4

5

6

7

8

Disposableincome(trillionsof2009dollars)

Consumptionexpenditure(trillionsof2009dollars)

2 4 6 8

4

3

2

1

0

1

2

3

4

Disposableincome(trillionsof2009dollars)

Saving(trillionsof2009dollars)

A. TheconsumptionfunctionshiftsfromAtoBandthesavingfunctionshiftsfromCtoD.B. TheconsumptionfunctionshiftsfromBtoAandthesavingfunctionshiftsfromCtoD.C. TheconsumptionfunctionshiftsfromBtoAandthesavingfunctionshiftsfromDtoC.D. TheconsumptionfunctionshiftsfromAtoBandthesavingfunctionshiftsfromDtoC.

Americans$2.4TrillionPoorer

TheFederalReservereportedthathouseholdwealthdecreasedby$2.4trillionor$21,000perhouseholdinthethirdquarterof2011.Thisdropisthesteepestsince2008andthesecondconsecutivequarterlydrop.Foreclosuresloweredhouseholddebtslightlybutcreditcarddebtincreased.Manyhouseholdsarestrugglingtobuytheessentialsandspendingonfoodhasdecreased.Separately,theBureauofEconomicAnalysisreportedthatconsumptionexpenditureincreasedby$39billioninthethirdquarterof2011.

Source:TheNewAmerican,December11,2011andtheBureauofEconomicAnalysis

(1) increased decreased

Readthenewsclip,thenanswerthefollowingquestions.

Accordingtothisnewsclip,consumptionexpenditure

(1) ashouseholdwealthdecreased.

Thischangeinconsumptionexpenditurecouldbeattributedto______indisposableincomeor______inexpectedfutureincome.

A. adecreaseanincreaseB. anincreaseadecreaseC. adecreaseadecreaseD. anincreaseanincrease

Americans$2.4TrillionPoorer

TheFederalReservereportedthathouseholdwealthdecreasedby$2.4trillionor$21,000perhouseholdinthethirdquarterof2011.Thisdropisthesteepestsince2008andthesecondconsecutivequarterlydrop.Foreclosuresloweredhouseholddebtslightlybutcreditcarddebtincreased.Manyhouseholdsarestrugglingtobuytheessentialsandspendingonfoodhasdecreased.Separately,theBureauofEconomicAnalysisreportedthatconsumptionexpenditureincreasedby$39billioninthethirdquarterof2011.

Source:TheNewAmerican,December11,2011andtheBureauofEconomicAnalysis

A

BC

D



3.

4.

5.

RealTimeDataAnalysisExercise*

Thetabletotherightshowsthevaluesofdisposableincomeandconsumptionexpenditureforeachofthepastfourquarters.Couldtheselevelsofdisposableincomeandconsumptionexpenditurebeonthesameconsumptionfunction?___becauseconsumptionexpenditurechangedby_____thandisposableincomein_______.

A. Yes more 2015,Q2B. No less noquarterC. Yes less noquarterD. No more 2015,Q2

Year,QuarterDisposableIncome

ConsumptionExpenditure

(billionsof2005dollars)2014,Q4 11,999 11,0332015,Q1 12,115 11,0812015,Q2 12,151 11,1792015,Q3 12,256 11,269

*RealtimedataprovidedbyFederalReserveEconomicData(FRED),FederalReserveBankofSaintLouis.

Thetablegivesinformationaboutaconsumptionfunction.

Disposableincome

Consumptionexpenditure

(millionsof2009dollars)0 80100 140200 200300 260

DrawtheconsumptionfunctionandlabelitCF.

Thelevelofdisposableincomeatwhichalldisposableincomeisconsumedis$ million.

0 50 100 150 200 250 300 3500

40

80

120

160

200

240

280

320

Disposableincome(millionsof2009dollars)

Consumptionexpenditure(millionsof2009dollars)

45 degreeline

45 degreeline


Aggregateplannedexpenditureisthesumofplanned_____.

A. consumptionexpenditure,investment,governmentexpenditure,andexportsminusimportsB. consumptionexpenditure,savings,nettaxes,andnetexportsC. borrowingintheloanablefundsmarketbyhouseholds,firms,government,andtherestofthe

worldD. aggregatedemandandaggregatesupply



6.

7.

8.

Disoposableincomeisaggregateincomeminustaxesplus_____.

A. transferpaymentsB. transferpaymentsminusconsumptionC. transferpaymentsminussavingandminusconsumptionD. transferpaymentsminussaving

Theconsumptionfunctionistherelationshipbetweenconsumptionexpenditureand_____,otherthingsremainingthesame.

A. savingB. aggregatedemandC. thepricelevelD. disposableincome

Thetablegivesaneconomy'saggregateexpenditureschedule.

RealGDP Aggregateplannedexpenditure(trillionsof2009dollars)

0 1.03 2.56 4.0

DrawtheAEcurveandlabelit.Drawapointtoshowequilibriumexpenditure.

Choosetheoptionthatisincorrect.

Equilibriumexpenditure_______.

A. determinesrealGDPwhenthepricelevelisfixed

B. isthelevelofaggregateexpenditureatwhichaggregateplannedexpenditureequalsrealGDP

C. isalevelofaggregateexpenditureandrealGDPatwhicheveryone'sspendingplansarefulfilled

D. occurswhenallexpenditureisinducedexpenditure

0 1 2 3 4 5 6 70

1

2

3

4

5

6

7


Aggregateexpenditure(trillionsof2009dollars)

45 degree line45 degree line

>>>Drawonlytheobjectsspecifiedinthequestion



9.

10.

11.

12.

(1) decrease increase

IfrealGDPandaggregateexpenditurearelessthanequilibriumexpenditure,firms'inventories

(1) ,

Firms______production,andrealGDP______.

A. increaseincreasesB. decreaseincreasesC. increasedecreasesD. decreasedecreases

Anincreaseinbusinessinvestmentataconstantpricelevel______.

A. shiftstheAEcurvedownwardanddecreasesequilibriumexpenditureB. shiftstheAEcurveupwardandincreasesequilibriumexpenditureC. decreasestheslopeoftheAEcurveanddecreasesequilibriumexpenditureD. increasestheslopeoftheAEcurveandincreasesequilibriumexpenditure

IfaggregateplannedexpenditureexceedsrealGDP,then_______.

A. inventoriesincrease,andasrealGDPincreasesamovementupalongtheAEcurveoccursB. inventoriesdecrease,andasrealGDPincreasesamovementupalongtheAEcurveoccursC. inventoriesdecrease,andtheAEcurveshiftsdownwardD. inventoriesincrease,andtheAEcurveshiftsupward

Equilibriumexpenditureisthelevelofaggregateexpenditurethatoccurswhen______.

A. realGDPismaximizedB. aggregateplannedexpenditureismaximizedC. inventoryholdingsareminimizedD. aggregateplannedexpenditureequalsrealGDP

Choosethecorrectstatement.

A. ThelevelofaggregateexpenditurethatoccurswheretheAEcurveintersectsthe45 lineisequilibriumexpenditure.

B. EquilibriumexpenditureoccursatthepointatwhichtheAEcurveintersectsthexaxis.C. Equilibriumexpenditureoccursatallpointsalongthe45 line.D. EquilibriumexpenditureoccursatallpointsalongtheAEcurve.



13.

14.

15.

16.

Readthenewsclip,thenanswerthefollowingquestion.

TheslopeoftheAEcurveis .0.75

Calculatetheimmediatechangeinaggregateplanned

expenditureandthechangeinrealGDPintheshort

run.

Ifthepricelevelremainsconstant,theimmediate

changeinaggregateplannedexpenditureandthe

changeinrealGDPintheshortrunis

$ billion.

Obama'sNewStimulus

TheObamarecoveryplanannouncedonMonday

includesproposedspendingof$50billiontorebuild

150,000milesofroads,constructandmaintain4,000

milesofrail,andfixorrebuild150milesofrunways.

Source:USAToday,September10,2010

Themultiplierisgreaterthan1becausethechangeinautonomousexpenditureleadsto_______.

A. lessconsumptionexpenditure

B. moresaving

C. moreinvestment

D. moreinducedexpenditure

Anincreaseinincometaxes_______,everythingelseremainingthesame.

A. makesthemultipliersmaller

B. sometimesincreasesthemultiplierandsometimesdecreasesthemultiplier

C. makesthemultiplierlarger

D. hasnoeffectonthemultiplier

Themultiplieristheamountbywhichachangein______expenditureismagnifiedormultipliedtodetermine

______.

A. consumptionthechangeininvestment

B. autonomousthechangeinequilibriumexpenditureandrealGDP

C. autonomousthechangeininvestment

D. consumptionthechangeinequilibriumexpenditureandrealGDP

Tocalculatethemultiplier,wedivide______by______.

A. equilibriumexpenditurethechangeinautonomousexpenditure

B. thechangeinequilibriumexpenditureautonomousexpenditure

C. thechangeinequilibriumexpenditurethechangeinautonomousexpenditure

D. equilibriumexpenditureautonomousexpenditure



17.

18.

Inaneconomywithouttaxesandimports,anincreaseininvestmentof$50billionincreasesequilibriumexpenditureby$ billion.250

WhatarethevaluesofthemultiplierandtheslopeoftheAEcurve?

Themultiplieris andtheslopeoftheAEcurveis .

>>>Answersto1decimalplace.

Supposethattheeconomyisatfullemployment,thepricelevelis100,andthemultiplieris .2

Investmentincreasesby$ billion.50

Whatisthechangeinequilibriumexpenditureifthepricelevelremainsat100?

Thechangeinequilibriumexpenditureis$ billion.



19.

20.

Youaregiventhefollowingdataaboutaneconomythathasafixedpricelevel,noimports,andnotaxes.

1.Calculatethemarginalpropensitytoconsume.Themarginalpropensitytoconsumeis

.>>>Answertotwodecimalplaces.

2.Calculateautonomousconsumptionexpenditure.Autonomousconsumptionexpenditureis$ billion.

3.Calculatesavingateachlevelofdisposableincomeandthemarginalpropensitytosave.Fillinthesavingnumbersinthetablebelow.

Disposableincome Saving(billionsofdollarsperyear)

0

100

200

Themarginalpropensitytosaveis .

4.Calculatethemultiplier.

Themultiplieris .

5.CalculatetheincreaseinrealGDPwhenautonomousspendingincreasesby$5billion.WhydoesrealGDPincreasebymorethan$5billion?TheincreaseinrealGDPwhenautonomousspendingincreasesby$5billionis$_____billion.RealGDPincreasesbymorethan$5billionbecausetheincreaseinrealGDPincreases_____.

A. 18inducedconsumptionconsumptionB. 20autonomousexpenditureC. 20inducedconsumptionexpenditureD. 10income

Disposableincome

Consumptionexpenditure

(billionsofdollarsperyear)0 5100 80200 155300 230400 305


Startingfromafullemploymentequilibrium,themultiplierintheshortrun_______themultiplierinthelongrunbecause_______.

A. exceedsthemoneywagerateisfixedintheshortrunbutnotinthelongrunB. isthesameasthemoneywageisthesameinboththeshortrunandthelongrunC. exceedsthepricelevelisfixedintheshortrunbutnotinthelongrunD. isthesameasthepricelevelisnotfixedinboththeshortrunandthelongrun



21.

22.

23.

24.


Considerthe$600billionmentionedinthenewsclipas$600billionworthoftaxcuts.

Supposethatpeoplespend$180billionofthe$600billionworthoftaxrebatesinthefirst3months,and$198billionduringthefollowingthreemonths.


The$600billionworthoftaxcutstoAmericanconsumersincreasesaggregateexpenditureby______.

A. morethan$600billionifthemultiplierisgreaterthan1.6

B. exactly$600billionifthemultiplierequals1.6

C. lessthan$600billionifthemultiplierislessthan1.6

D. $378billionregardlessofthemultiplier

TheNewDeal

Rememberwhatwasactuallyinthestimulusbillof2009:slightlymorethan$600billionwenttowardpoorandmiddleclasstaxcuts,safetynetspending(moreunemploymentassistanceandfoodstamps),andaidtostategovernmentswithbudgetshortfalls.Thesearethemostdirectlystimulativepartsofthebill,bolsteringdemandandpreventinglayoffs andstimulatetheydid.Economistsofdifferingideologicalstripesgenerallyagreethattheeconomywouldhaveasmanyas3millionfewerjobsnowwereitnotforthestimulus.Theremainingsixthofthebillfocusedonlongerterminvestments,whichincludedputting$90billionintogreenenergy.

Source:FinancialTimes,September2,2012

AnincreaseininvestmentshiftstheAEcurveupwardbyanamountequaltothe______,andshiftstheADcurverightwardbyanamountequaltothe______.

A. changeininvestmenttimesthemultiplierchangeininvestmentB. changeininvestmentchangeininvestmenttimesthemultiplierC. changeininvestmenttimesthemultiplierchangeininvestmenttimesthemultiplierD. changeininvestmentchangeininvestment

Aneconomywithnoincometaxesorimportshasamarginalpropensitytoconsumeof0.75.

Themultiplierinthelongrunis_______.

A. 4B. 1.33C. 0

D. greaterthan1.33andlessthan4

AneconomyhasaconsumptionfunctionofC=15+0.7Y,investmentof8,governmentexpenditureof12,exportsof20,andanimportfunctionofM=0.2Y.

WhatisequilibriumrealGDP?

A. 55

B. 79C. 110D. 275



25.

26.

27.

28.


Whatisthemultiplierforthiseconomy?

A. 1.43B. 2C. 3.33D. 0.5


Ifgovernmentexpenditureincreasesby10,whatistheincreaseinequilibriumexpenditure?

A. 20B. 14.3C. 33.3D. 5


Whatistheequationoftheaggregateexpenditurecurve?

A. AE=36 0.7YB. AE=36+0.9YC. AE=26+0.9YD. AE=36+0.7Y


WhatisequilibriumrealGDP?

A. 360B. 51C. 36

D. 120



1. A. TheconsumptionfunctionshiftsfromAtoBandthesavingfunctionshiftsfromCtoD.

2. (1) increased

D. anincreaseanincrease

3. D. No more 2015,Q2

Answersgivenreflectthedataavailableatthetimetheexamwasprinted,andthusaresubjecttochange.

4. 0 50 100 150 200 250 300 350

0

40

80

120

160

200

240

280

320

Disposableincome(millionsof2009dollars)

Consumptionexpenditure(millionsof2009dollars)

45 degreeline

200

5. A. consumptionexpenditure,investment,governmentexpenditure,andexportsminusimports

6. A. transferpayments

7. D. disposableincome

CF



8. 0 1 2 3 4 5 6 7

0

1

2

3

4

5

6

7


Aggregateexpenditure(trillionsof2009dollars)

2

2

45 degree line

D. occurswhenallexpenditureisinducedexpenditure

9. (1) decrease

A. increaseincreases

10. B. shiftstheAEcurveupwardandincreasesequilibriumexpenditure

11. B. inventoriesdecrease,andasrealGDPincreasesamovementupalongtheAEcurveoccurs

12. D. aggregateplannedexpenditureequalsrealGDP

A. ThelevelofaggregateexpenditurethatoccurswheretheAEcurveintersectsthe45 lineisequilibriumexpenditure.

13. 200

14. D. moreinducedexpenditure

15. A. makesthemultipliersmaller

16. B. autonomousthechangeinequilibriumexpenditureandrealGDP

C. thechangeinequilibriumexpenditurethechangeinautonomousexpenditure

17. 5.0

0.8

AE



18. 100

19. 0.75

5

5

20

45

0.25

4

C. 20inducedconsumptionexpenditure

20. A. exceedsthemoneywagerateisfixedintheshortrunbutnotinthelongrun

21. D. $378billionregardlessofthemultiplier

22. B. changeininvestmentchangeininvestmenttimesthemultiplier

23. C. 0

24. C. 110

25. B. 2

26. A. 20

27. D. AE=36+0.7Y

28. D. 120



1.

2.

3.

4.

Accordingtomainstreambusinesscycletheory,______growsatasteadyrateand______growsatafluctuatingrate.

A. shortrunaggregatesupplylongrunaggregatesupplyB. potentialGDPshortrunaggregatesupplyC. potentialGDPaggregatedemandD. aggregatedemandlongrunaggregatesupply

Inanexpansion,anincreaseintherateoftechnologicalchange_______investmentdemand.

Therealinterestrate_______.

A. decreasesrisesB. increasesrisesC. increasesfallsD. decreasesfalls

Accordingtomainstreambusinesscycletheory,_______.

A. themoneywagerateisstickyandconsequentlyifaggregatedemandgrowsfasterthanpotentialGDP,aninflationarygapemerges

B. inabusinesscycleexpansion,shortrunaggregatesupplyincreasesbymorethanaggregatedemand

C. themoneywagerateisstickyandconsequentlyifaggregatedemandgrowsfasterthanpotentialGDP,arecessionarygapemerges

D. theeconomyisalwaysatfullemployment

Ademandpullinflationbeginswith_______.

A. adecreaseinaggregatedemandB. anincreaseinaggregatedemandC. anincreaseinaggregatedemandthatisgreaterthanthecorrespondingdecreaseinshortrun

aggregatesupplyD. anincreaseinthemoneywagerate



5.

6.

7.

ThegraphshowstheeconomyofTomorrowland,whichiscurrentlyatpointA.

Drawapointtoshowthenewequilibriumwhenthefollowingeventsoccur:1)Thereisanincreaseinaggregatedemand.LabelitB.2)Thenthemoneywageraterises.LabelitC.3)TheFedthenincreasesthequantityofmoney.LabelitD.4)Themoneywagerisesagain.LabelitE.

Inademandpullinflationspiral,theeconomymovesfrom_____to_____.

A. anabovefullemploymentequilibriumafullemploymentequilibrium

B. anabovefullemploymentequilibriumabelowfullemploymentequilibrium

C. abelowfullemploymentequilibriumafullemploymentequilibrium

D. aperiodoflowinflationaperiodofhigherinflation

7 8 9 10 11 12 1370

80

90

100

110

120

130

RealGDP(billionsof3001dollars)



Acostpushinflationbeginswith______astheresultofanincreaseinthemoneywagerateoranincreaseinthemoneypricesofrawmaterials.

A. anincreaseinshortrunaggregatesupplyB. adecreaseinaggregatedemandC. anincreaseinaggregatedemandD. adecreaseinshortrunaggregatesupply

Thefigureshowstheaggregatedemand,shortrunaggregatesupply,andlongrunaggregatesupplycurvesfortheeconomyofTomorrowland.

TheeconomyiscurrentlyatpointA.

Acostpushriseinthepricelevelwillinitiallymovetheeconomytopoint______andtopoint______.

A. FwhenthemoneywageraterisesAwhenthemoneypricesofrawmaterialschange

B. BwhenaggregatedemanddecreasesCwhenthemoneypricesofrawmaterialsrise

C. CwhenthemoneypricesofrawmaterialsriseDwhenaggregatedemandincreases

D. EwhenaggregatedemandincreasesDwhenthemoneypricesofrawmaterialsrise

7 8 9 10 11 12 1370

80

90

100

110

120

130



A

AD0

AD1

AD2

SAS0

SAS1

SAS2LAS

A

AD0

AD1

AD2

SAS0

SAS1

SAS2LAS

B

C

F

E

D



8.

9.

Thegraphshowsaneconomy'saggregatedemandcurve,shortrunaggregatesupplycurve,longrunaggregatesupplycurve,andequilibrium.

DrawtheADcurvewhenitiscorrectlyexpectedthattheinflationratewillbe percentayear.Labelit.15

DrawtheSAScurvewhenachangetothemoneywagerateoccursthatcorrectlyanticipatestheincreaseinaggregatedemand.Labelit.

Drawapointatthenewequilibrium.

AswemoveupalongtheLAScurve,the_______.

A. realwagerateisdecreasingB. realwagerateisconstantC. realwagerateisincreasingD. moneywagerateisconstant 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0

80

90

100

110

120

130



13.0

100


AneconomyisatpotentialGDPandthepricelevelis100inthefigure.

Ifaggregatedemandunexpectedlyincreases,theinflationrateis______.

A. percentayear3B. 0percentayearC. percentayear106D. percentayear6

11.5 12.5 13.5 14.580

90

100

110

120



13

100

106

13.3

103

AD

SAS

LAS

AD0

SAS0

LAS

AD1

SAS1



10.

11.

12.


Pakistanisexperiencing______inflation.

A. costpullB. demandpullC. costpushD. demandpush

Pakistan:IsitCostPushInflation?

WithCPIalreadyspiking11.8percentforthefirsttenmonthsofthefiscalyear,theaverageCPIinflationforthesameperiodlastyearstoodat22.35percent.Someeconomistsinsistthecurrentboutofinflationarypressuresisspawnedbyincreasingpricesoffuel,food,rawmaterials,transportation,constructionmaterials,eliminationofenergysubsidies,etcasindicatedbythespikeinthewholesalepriceindex(WPI),whichrose21.99percentinAprilfromayearearlier.

Source:DailythePakBanker,May22,2010

Aneconomyatafullemploymentequilibriumexperiencesanincreaseinaggregatedemand.

Theunemploymentrate______itsnaturalrate,andtoreturntothelongrunequilibrium,themoneywageratebeginsto______.

A. risesabovefallB. risesaboveriseC. fallsbelowfallD. fallsbelowrise

Thegraphshowstheaggregatedemandcurve,shortrunaggregatesupplycurve,andlongrunaggregatesupplycurveforthisyear.

DrawapointatthepricelevelandrealGDPnextyear,ifaninflationiscorrectlyexpected.

Ifinflationisexpected,_______.

A. acostpushinflationoccursB. neitheracostpushinflationnora

demandpullinflationoccurC. ademandpullinflationoccursD. eitheracostpushinflationora

demandpullinflationoccurs

11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.090

100

110

120

130

140



13.0

110


AD

SAS

LAS



13.

14.

15.

16.

Thebestforecastavailable,whichisbasedonalltherelevantinformationiscalled_______.

A. acorrectexpectationB. arationalforecast

C. acorrectforecastD. arationalexpectation

Arationalexpectation_______.

A. willoftenturnouttobewrong,butnootherforecastthatcouldhavebeenmadewiththeinformationavailablecoulddobetter

B. isacorrectforecast

C. predictstheinflationratetobelowerthanitactuallyturnsouttobeD. predictstheinflationratetobehigherthanitactuallyturnsouttobe

Moneyisanycommodityortokenthatisgenerallyacceptableasa______.

A. meansofpaymentB. toolintheabsenceofadoublecoincidenceofwantsC. storeofvalueD. unitofaccount

Choosethecorrectstatements.

1. Mostpeopleknowthepriceofgum,soitcouldserveasmoneybecauseitisaunitofaccount.2. Becausemostpeoplebuygum,itcanbeusedasmoneybecauseitisausefultoolinbarter.3. Gumdoesnotserveasmoneybecauseitisnotagoodstoreofvalue.4. Gumdoesnotserveasmoneybecauseitisnotgenerallyacceptedinexchangeforgoodsandservices.

A. Statements arecorrect.1and2B. Statements arecorrect.3and4C. Statements arecorrect.2and4D. Statements arecorrect.1and3

Aproblemwithusingacommodityasmoneyis______.

A. acommodity'svaluechangesovertimeB. itisnotpossibletouseacommodityasaunitofaccountC. acommoditycanneverserveasameansofpaymentD. anobligationremainsbetweentwopartiesofatransactionwhenacommodityisusedto

settleadebt



17.

18.

19.

20.

ThemaincomponentsofmoneyintheUnitedStatestodayare______.

A. notesandcoinsB. currencyandtraveler'schecksC. checksandcreditcardsD. currencyanddepositsatbanksandotherdepositoryinstitutions

ThetwomainofficialmeasuresofmoneyintheUnitedStatestodayare______.

ThetwomainofficialmeasuresofmoneyintheUnitedStates______reallymoney.

A. M2andM3arenotB. currencyandM2areC. M1andM2areD. M1andcurrencyarenot

ThetableshowstheamountsheldasthevariouscomponentsofM1andM2.

ThevalueofM1is$ billion.

ThevalueofM2is$ billion.

Item $billionsSavingsdeposits 400Checkingdeposits 225Timedeposits 240Moneymarketmutualfundsandotherdeposits 220Currencyandtraveler'schecks 80

Choosethecorrectstatement.

A. Depositsarenotmoneybecauseyoucannotsettleadebtwithadeposit.B. Acreditcardincreasesthequantityofmoneybytheamountofthepurchase.C. Acreditcardisnotameansofpayment.D. Whileacheckisincirculation,thequantityofmoneyincreasesbytheamountofthecheck.

(1) notmoney money

(2) notmoney money

(3) money notmoney

(4) money notmoney

IndicatewhetherthefollowingitemsaremoneyornotmoneyintheUnitedStatestoday.

Coinsinsideavendingmachine (1)

YourVisacard (2)

CashinCitibank'scashmachines (3)

U.S.dollarbillsinyourwallet (4)



21.

22.

23.

24.

In ,currencyheldbyindividualsandbusinesseswas$ billiontraveler'scheckswere$ billioncheckabledepositsownedbyindividualsandbusinesseswere$ billionsavingsdepositswere$ billiontimedepositswere

June 2013 1124 41,402

6,884$ billionandmoneymarketfundsandotherdepositswere$ billion.583 647

CalculateM1andM2in .June 2013

M1in is$ billion.June 2013

M2in is$ billion.June 2013

Thefunctionsofdepositoryinstitutionsincludeallofthefollowingexcept______.

A. poolingriskB. loweringthecostofborrowingC. providingdebtcounselingD. loweringthecostofmonitoringborrowers

Depositoryinstitutionsbalanceriskandreturnby_______.

A. providingcreditcounselinganddebtcounselingB. placingsomefundsintosafelowinterestearningassetsandotherfundsintohighinterest

riskyassetsC. convertingloansintoreservesD. refusingtomakeriskyloans


Abank'sattemptstopursueprofitcansometimesleadtobankfailurebecause_______.

A. thebankwillminimizeitsreservesbecausereservespayloworzerointerest

B. depositorscanbecomeconcernedthatthebankwillnotbeabletorepaythefundsdepositedinthebank

C. alargenumberofdepositorsmayrequestthereturnoftheirfunds

D. acombinationofalloftheabove

U.S.BankEarningsup21%asLoanLossesDecline,FDICSays

Forthe12thstraightquarter,U.S.bankprofitsincreased.At$34.5billion,theywere21percenthigherthanayearearlier,andaccordingtotheFederalDepositInsuranceCorporation(FDIC),balancesheetswerelessrisky.FDICActingChairmanMartinGruenbergsaid"Levelsoftroubledassetsandtroubledinstitutionsremainhigh,buttheyarecontinuingtoimprove."ThenumberofinstitutionsonFDIC'slistofbanksdeemedtobeatgreaterriskofcollapsefellforafifthstraightquarter.ByAugust,40bankshadfailedin2012.TheFDIC'sdepositinsurancefund,whichprotectscustomeraccountsupto$250,000againstbankfailure,increased.

www.bloomberg.comAugust29,2012



25.

26.

27.

28.

Duringtimesofuncertainty,itmightbenecessaryforabanktoholdlargecashreservesandtohavealargepercentageofitsassetspurchasedbyitsowncapitalbecause______.

A. thequantityofU.S.governmentTreasurybillsavailableforpurchasedecreasesB. itmightbeforcedtomakemanyhighriskloansC. peoplearemorelikelytowithdrawcashfromATMsratherthantowritechecksD. itsdepositorsmaydecidetomakelargewithdrawals

Adepositoryinstitutiontakesdepositsfrom______andearnsmostofitsincomeby_______.

A. householdsandfirmsmakingloansandbuyingsecuritiesthatearnahigherinterestratethanthatpaidtodepositors

B. householdsandfirmsprovidingInternetbankingservicesandchargingservicefeesC. householdsprovidingInternetbankingservicesD. firmschargingservicefees

Thedepositsofthefollowingthreetypesofdepositoryinstitutionsmakeupthenation'smoney:______.

A. savingsandloanassociations,savingsbanks,andcreditunionsB. commercialbanks,thriftinstitutions,andinsurancecompaniesC. commercialbanks,thriftinstitutions,andmoneymarketmutualfundsD. commercialbanks,savingsandloanassociations,andsavingsbanks

Depositoryinstitutionsprovidefourbenefits,whichare______.

A. minimizinginterestratesonpurchasesoflargeticketitems,centralizingallhouseholdmonetaryneedsinonelocation,introducingnewtechnologyintobanking,andpayinginterestoninvestmentfunds

B. creatingliquidity,loweringthecostofborrowing,loweringthecostofmonitoringborrowers,andpoolingrisk

C. poolingrisk,keepinginflationlowandsteady,loweringthecostofborrowing,andloweringthecostofmonitoringborrowers

D. creatingliquidity,loweringthecostofborrowing,payinginterestoninvestmentfunds,andintroducingnewtechnologyintobanking

A______isadepositoryinstitutionthatacceptssavingsdepositsandmakesmostlyhomepurchaseloans.

A______isadepositoryinstitutionownedbyasocialoreconomicgroupsuchasafirm'semployeesthatacceptssavingsdepositsandmakesmostlypersonalloans.

A. creditunionsavingsandloanassociationB. savingsandloanassociationcreditunionC. savingsbankcreditunionD. creditunionsavingsbank



1. C. potentialGDPaggregatedemand

2. B. increasesrises

3. A. themoneywagerateisstickyandconsequentlyifaggregatedemandgrowsfasterthanpotentialGDP,aninflationarygapemerges

4. B. anincreaseinaggregatedemand

5. 7 8 9 10 11 12 13

70

80

90

100

110

120

130



90

11

100

10

110

11

120

10

A. anabovefullemploymentequilibriumafullemploymentequilibrium

6. D. adecreaseinshortrunaggregatesupply

7. C. CwhenthemoneypricesofrawmaterialsriseDwhenaggregatedemandincreases

A

AD0

AD1

AD2

SAS0

SAS1

SAS2LAS

E

D

C

B



8. 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0

80

90

100

110

120

130



115

13.013.0

100

B. realwagerateisconstant

9. A. percentayear3

10. C. costpush

11. D. fallsbelowrise

12. 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0

90

100

110

120

130

140



120

13.013.0

110

B. neitheracostpushinflationnorademandpullinflationoccur

AD

SAS

LASSAS1

AD1

AD

SAS

LAS



13. D. arationalexpectation

14. A. willoftenturnouttobewrong,butnootherforecastthatcouldhavebeenmadewiththeinformationavailablecoulddobetter

15. A. meansofpayment

B. Statements arecorrect.3and4

16. A. acommodity'svaluechangesovertime

17. D. currencyanddepositsatbanksandotherdepositoryinstitutions

18. C. M1andM2are

305

1,165

19. C. Acreditcardisnotameansofpayment.

20. (1) notmoney

(2) notmoney

(3) notmoney

(4) money

21. 2,530

10,644

22. C. providingdebtcounseling

23. B. placingsomefundsintosafelowinterestearningassetsandotherfundsintohighinterestriskyassets

24. D. acombinationofalloftheabove

25. D. itsdepositorsmaydecidetomakelargewithdrawals

26. A. householdsandfirmsmakingloansandbuyingsecuritiesthatearnahigherinterestratethanthatpaidtodepositors

C. commercialbanks,thriftinstitutions,andmoneymarketmutualfunds



27. B. creatingliquidity,loweringthecostofborrowing,loweringthecostofmonitoringborrowers,andpoolingrisk

28. C. savingsbankcreditunion

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11/12/2015 Print Questions - Dasha Safonovadashasafonova.com/fall15/T2_prep_compiled_hw.pdf · 11/12/2015 Print Questions 1/19 1. 2. 3. If the price level and the money wage rate