Macroecon Practice Exam

8/19/2019 Macroecon Practice Exam

1/25

FromFrom


2/25

1. If a certain combination of goods or services lies outside the production possibilities curvecombination of goods or services lies outside the production possibilities curve of an economy, which of the following is truetrue.

(a) Effective trade barriers have reduced foreign imports into the economy.

(b) New technology is being used in production.

(c) Resources are not available to achieve that combination of goodsservices.

(d) resources are not being used efficiently to achieve that combination of goods or services. (e) Resources are being used at a more rapid rate then they were in the past.

!. "hich of the following groups would most li#ely gain from unanticipated inflationgain from unanticipated inflation$

(a) %andlords who own apartments in cities with rent controls.

(b) Individuals who have fi&ed retirement incomes.

(c) Individuals who earn high incomes

(d) Individuals who have borrowed money at fi&ed interest rates

(e) 'an#s that have loaned all e&cess reserves at a fi&ed interest rate.

. "ith a constant money supply, if the demand for money decreases, the equilibrium interestequilibrium interest

raterate and quantity of moneyquantity of money will change in which of the following ways$Interest Rate Quantity of Money

(a) Increase ecrease

(b) Increase Not change

(c) ecrease ecrease

(d) ecrease Increase

(e) ecrease Not change

BorrowersBorrowers borrowedborrowed

““dear” money paiddear” money paid

bac! “cheaper” money"bac! “cheaper” money"


3/25

Real GDPReal GDP

*. +ccording to the graph above, an increase in + will most li#ely cause income and employmentcause income and employmentto changeto change in which of the following ways$

Income #mployment#m

ployment

(a) ecrease ecrease(b) ecrease Increase

(c) No change Increase

(d) Increase ecrease

(e) Increase Increase

-. If the e&change rate between the .. dollar and the 'ritish pound changed from $% per one$% per onepound to $& per one poundpound to $& per one pound, and domestic prices in both countries stayed the same, then the.. dollar would

(a) depreciate, ma#ing .. imports from 'ritain more e&pensive

(b) depreciate, ma#ing .. imports from 'ritain cheaper

(c) appreciate, ma#ing .. imports from 'ritain more e&pensive

(d) appreciate, ma#ing .. imports from 'ritain cheaper

(e) purchase times more 'ritish goods than before the change occurred

ADAD ASASPLPL

ASAS

PLPL11PLPL22

Y Y 11 Y Y 22

EE11

EE22


4/25

/. If an economy is operating with significant unemployment, an increase in which of the followingwill most li#ely cause employment to increase and the interest rate to decreasecause employment to increase and the interest rate to decrease$

(a) 0urchases of government bonds by the central ban#

(b) ransfer payments

(c) Reserve re2uirements

(d) 3overnment e&penditures (e) Investment in basic infrastructure

4. +n increase in which of the following is most li#ely to promote economic growthpromote economic growth$

(a) 5onsumption spending (d) he trade deficit

(b) Investment ta& credits (e) Real interest rates

(c) he natural rate of unemployment

6. +n appropriate fiscal policyappropriate fiscal policy to combat a recessionrecession would be to increase which of thefollowing$

(a) Interest rates (d) 3overnment spending

(b) he money supply (e) he sale of government bonds

(c) a&es

7. he concept of opportunity costopportunity cost would no longer be relevant if

(a) poverty in an economy no longer e&isted

(b) the supply of all resources were unlimited

(c) resources were allocated efficiently

(d) real wages were fle&ible (e) all current incomes were invested in technological research

Fed “buying” bonds means “bigger” supply of money andFed “buying” bonds means “bigger” supply of money and

lower interest rates" 'he lower interestlower interest rates" 'he lower interest rates lead to morerates lead to more

consumption and investment and increase employment"consumption and investment and increase employment"

#conomic growth is increased with more#conomic growth is increased with more

real capital equipment to produce things"real capital equipment to produce things"

Investment ta( credits result in more realInvestment ta( credits result in more realcapital equipment"capital equipment"


5/25

18. +n appreciation of the )"*" dollar appreciation of the )"*" dollar on the foreign e&change mar#et could be causedby a decrease in which of the following$

(a) .. interest rates

(b) he .. consumer price inde&

(c) emand for the dollar by .. residents

(d) E&ports from the ..

(e) he tariff on goods imported into the ..

11. "hich of the following would indicate that economic growth has occurredeconomic growth has occurred$

(a) he production possibilities curve shifts to the left.

(b) he long9run aggregate supply curve shifts to the right. (c) he + curve shifts to the right.

(d) he 0hillips curve becomes flatter.

(e) 'usiness cycles no longer e&ist.

1!. "hich of the following is most li#ely to occur if the Federal Reserve engages inFederal Reserve engages inopen mar!et operations to reduce inflationopen mar!et operations to reduce inflation$

(a) + decrease in interest rates

(b) + decrease in reserves in the ban#ing system

(c) + decrease in the government deficit

(d) +n increase in the money supply

(e) +n increase in e&ports

+ower prices increase demand for )"*"+ower prices increase demand for )"*"

e(ports and appreciate the dollar"e(ports and appreciate the dollar"

#conomic growth means more real#conomic growth means more real

capital" More land, labor, and capitalcapital" More land, labor, and capital

shift out the --. and +R/* curve"shift out the --. and +R/* curve"

'he Fed would “sell” bonds to the ban!s,'he Fed would “sell” bonds to the ban!s,

resulting in a “smaller” M*, orresulting in a “smaller” M*, or decreasedecreasein reserves in the ban!ing systemin reserves in the ban!in

g system""


6/25

1. "hich Fed action can shift the /0 curve to the leftFed action can shift the /0 curve to the left$

(a) %owering the federal funds rate

(b) %owering income ta&es

(c) %owering reserve re2uirements

(d) Raising the discount rate

(e) Raising government spending on national defense

1*. .rowding out.rowding out refers to the decrease in

(a) national output caused by higher ta&es

(b) domestic production caused by increased imports

(c) private investment due to increased borrowing by the government (d) employment caused by higher inflation

(e) e&ports caused by an appreciating currency of a country

1-. If the real interest rate in the )"*" increasesreal interest rate in the )"*" increases relative to that of the rest of the world, capitalshould flow

(a) into the .. and the dollar will depreciate

(b) into the .. and the dollar will appreciate

(c) out of the .. and the dollar will depreciate

(d) out of the .. and the dollar will appreciate

(e) out of the .. and the value of the dollar will not change

1igher )"*" interest rates attract more1igher )"*" interest rates attract more

demand for our financial capital 2.0sdemand for our financial capital 2.0sand bonds3 financial flows ofand bonds3 financial flows of

foreign money will flow in to the )"*"foreign money will flow in to the )"*"

to purchase these"to purchase these"


7/25

1/. "hich of the following policy choicesfollowing policy choices represents a combination of fiscal and monetaryrepresents a combination of fiscal and monetary

policies designed to bring the economy out of a recessionpolicies designed to bring the economy out of a recession$

(a) ecreasing both ta&es and the money supply

(b) Increasing both ta&es and the money supply

(c) Increasing government spending and decreasing the federal funds rate

(d) Increasing both ta&es and the discount rate (e) Engaging in deficit spending and government bond sales

14. "hich of the following will be counted ascounted as unemployedunemployed by the .. 'ureau of %abor tatistics$

(a) 0ersons who 2uit their previous :obs to stay at home to care for sic# parents

(b) 0ersons who were laid off from their previous :obs and have not applied for a :ob in two years

(c) 0ersons who were fired from their previous :obs and are actively applying for wor#

(d) 0ersons who have given up loo#ing for :obs after long searches

(e) 0ersons who 2uit their previous :obs to start their own business

16. "hich of the following would occur if the ;ed implemented contractionary monetary policycontractionary monetary policy$

(a) Interest rates increase, investment < consumption spending decrease, + decreases, and output and prices decrease.

(b) Interest rates increase, investment < consumption spending decrease, + increases, < output and prices decrease.

(c) Interest rates increase, investment and consumption spending increase, + decreases, < output and prices decrease.

(d) Interest rates decrease, investment and consumption spending decrease, + decrease, < output and prices decline.

(e) Interest rates decrease, investment and consumption spending decrease, + decreases, < output and prices increase.


8/25

17. uppose that autonomous consumption is $455autonomous consumption is $455 and that the M-. is 5"6M-. is 5"6.

disposable income increases by $7,%55disposable income increases by $7,%55, consumption spendingconsumption spending will increase by

(a) =1,/88 (d) =7/8

(b) =1,/8 (e) =*88

(c) =1,!88!8. In an economy in which all prices, including wages are completely fle(iblewages are completely fle(ible, an

increase in labor productivity will result in which of the following changes inchanges in

output and real wagesoutput and real wages$

8utput8utput Real 9agesReal 9ages

(a) IncreaseIncrease

(b) Increaseecrease

(c) ecrease No change

(d) ecrease Increase

(e) ecrease ecrease

!1. "hen the average price level increases by 75:price level increases by 75: in a given year, which of thefollowing must increase by 75: for real output to remain constantmust increase by 75: for real output to remain constant$

(a) Real national income

(b) Nominal national income

(c) he international value of the currency

(d) Real interest rates (e) Nominal interest rate

9ith an M-. of 5"6, the change in income of $7,%55 will9ith an M-. of 5"6, the change in income of $7,%55 will

result in 65: of it being consumed" 65: of $7,%55 isresult in 65: of it being consumed" 65: of $7,%55 is $;


9/25

!!. "hich of the following will occur in a competitive mar#et when the price of a good is less thanprice of a good is less than

the equilibriumthe equilibrium$

(a) 0rice will decrease to eliminate the surplus and restore e2uilibrium.

(b) 0rice will decrease to eliminate the shortage and restore e2uilibrium.

(c) 0rice will increase to eliminate the surplus and restore e2uilibrium.

(d) 0rice will increase to eliminate the shortage and restore e2uilibrium. (e) 0rice will remain constant, because supply will increase to eliminate the shortage.

!. + short=run -hillipsshort=run -hillips curve shows an inverse relationship between

(a) interest rates and borrowing (d) prices < >

(b) inflation < unemployment (e) inputs < outputs

(c) income and consumption

!*. "hich of the following can be e&pected to cause an increase in >0-cause an increase in >0- in the short runin the short run$

(a) +n increase in the ta& rate

(b) +n increase in the interest rate

(c) E2ual increases in both imports and e&ports

(d) E2ual increases in both ta&es and government e&penditures (e) E2ual decreases in both investment and government e&penditures

!-. If the federal government reduces its budget deficitfederal government reduces its budget deficit when the economy is close to fullemployment, which of the following will most li#ely result$

(a) Inflation will increase. (b) a& revenues will increase.

(c) Interest rates will decrease. (d) nemployment will decrease.

(E) he international value of the dollar will increase.

'he “balanced budget multiplier” is in effect'he “balanced budget multiplier” is in effect

here where the increase in > is stronger thanhere where the increase in > is stronger than

the increase in “'” due to a larger multiplier"the increase in “'” due to a larger multiplier"

Reducing the deficit meansReducing the deficit means

less borrowing and lessless borrowing and less

demand in the +FM, whichdemand in the +FM, which

wouldwould lower interest rateslower interest rates""


10/25

!/. "hich of the following will cause the )"*" dollar to depreciatecause the )"*" dollar to depreciate relative to the Euro$

(a) +n increase in household income in the ..

(b) +n increase in interest rates in the ..

(c) +n increase in household income in Europe

(d) + decrease in interest rates in Europe

(e) + decrease in price level in the ..

!4. *tagflation*tagflation is most li#ely to be caused by

(a) an increase in + (d) a decrease in +

(b) a decrease in + (e) a large increase in the ?

(c) an increase in +

!6. +ssume that the nominal interest rate is 75:"nominal interest rate is 75:" If the e&pected inflation rate is ?:,inflation rate is ?:,the real interest ratereal interest rate is

(a) 8.-@ (b) !@ (c) -@ (d) 18@ (e) 1-@

!7. "hich of the following will lead to an increase in the )"*" >0-increase in the )"*" >0-$ (a) ?ore individuals prepare their own personal income ta& forms.

(b) ome citiAens begin wor#ing abroad as computer programmers.

(c) he government prohibits the sale of alcoholic beverages

(d) ;oreign companies build new assembly plants in the ..

(e) %ong9run + curve to shift to the left (f) %ong9run + curve to the right

Increasing 11 income in the )"*" resultsIncreasing 11 income in the )"*" results

in more demand for foreign goods whichin more demand for foreign goods which

appreciates that currency and depreciatesappreciates that currency and depreciatesthe dollar"the dollar"


11/25

8. +n advance in technologyadvance in technology will cause the

a. + curve to shift to the right

b. + curve to shift to the left

c. hort9run + curve to shift to the left

d. %ong run + curve to shift to the left

e. %ong9run + curve to shift to the right

1. uppose that the FedFed buys $455 billion worth of government securities frombuys $455 billion worth of government securities fromthethe PublicPublic. "ith a RR of !8@, the ma&imum increase in the money supply is

a. =1,/88 billion

b. =1,688 billion

c. =!,888 billion

d. =!,!88 billion

e. =!,*88 billion

'he $455 is new money in the ban!ing system" 'he'he $455 is new money in the ban!ing system" 'he

MMM of ? will increase M* toM of ? will increase M* to $%,555$%,555" 2? ( $455 @ $%,555"" 2? ( $455 @ $%,555"

F ti &% &4F ti &% &4 ' t C 55


12/25

!. 'efore specialiAation < trade, the domestic

opportunity cost of producing 7 ton of grain in7 ton of grain in/lpha and in Beta is which of the following/lpha and in Beta is which of the following$

/lpha/lpha BetaBeta

a. 1 ton of steel 1 ton of steel

b. 1 ton of steel ! tons of steel

c. ! tons of steel 1 ton of steel d. 1 ton of steel 8.- tons of steel

e. 8. tons of steel 1.- tons of steel

3

r a i n i n t o n s

'eta

!8

18

8

8 +lpha

. he theory of comparativecomparative

advantageadvantage implies that /lpha/lpha wouldfind it advantageous to a. e&port grain and import steel b. e&port steel and import grain

c. e&port both grain and steel andimport nothing

d. import both grain and steel ande&port nothing

e. trade 1 ton of grain for 8.- ton of steel

*. +t what real e&change ratio, alsoreferred to as the terms of tradeterms of trade,between grain (3) and steel () wouldboth +lpha and 'eta find it mutuallyadvantageous to specialiAe and trade.

a. 1 3 B .8 b. 1 3 B 1.- c. 1 3 B 1.8 d. 1 3 B 8.- e. here is no real e&change ratiothat would enable both countries to

benefit, since +lpha has an absoluteadvantage in both goods.

teel in tons

For questions &%=&4For questions &%=&4 'etaCs 551 3 B !

1! 3 B 1 +lphaCs 55

1 3 B 1

erms of rade1 3 B 1.-

SRASSRAS


13/25

Real GDPReal GDP

-. +ccording to the graph abovegraph above, which of the following is true about the long=runlong=runequilibriumequilibrium of the economy depicted$

a. he economy is in long9run e2uilibrium.

b. he + curve will shift to the left to restore long9run e2uilibrium. c. he long9run + curve will shift to the right to restore long9run e2uilibrium.

d. "ithout a fiscal policy stimulus, the economy will remain in a recession.

e. +s wages increase, the R+ curve will shift to left to restore long9run e2uilibrium.

/. +n increase in personal income ta(esincrease in personal income ta(es will most li#ely cause /0 and /* tocause /0 and /* to

change in which of the following ways in the short runchange in which of the following ways in the short run$/ggregate 0emand/ggregate 0emand /ggregate *upply/ggregate *upply

a. Not change ecrease

b. Not change Increase

c. ecrease Not change

d. ecrease Increase

e. Increase Not change

ADAD SRASSRAS

PLPL

SRASSRASLRASLRAS

Y Y FF

/n increase in personal income ta(es will ma!e/n increase in personal income ta(es will ma!e

consumers poorer which ma!es them cut bac!consumers poorer which ma!es them cut bac!

on consumption, whichon consumption, which decreases /0decreases /0" -ersonal" -ersonal

income ta(es areincome ta(es are not a determinant of the /*not a determinant of the /*

curve but a change in business ta(es would be"curve but a change in business ta(es would be"


14/25

4. "hich type of unemployment would increase if wor!ers lost their Aobswor!ers lost their Aobs

because of a recessionbecause of a recession$

a. 5yclical b. ;rictional c. easonal d. earch e. tructural

6. "hich of the following is true about the marginal propensity to consumemarginal propensity to consume$

a. It is the percentage of total income that is spent on consumption.

b. It determines the siAe of the simple spending multiplier.

c. It increases as incomes increase because increases in income cause people tospend more.

d. It is the same as the m oney multiplier.

e. It is e2ual to the average propensity to consume for people with low incomes.

7. "hen an economy is operating below the full=employment levelbelow the full=employment level of output, an

appropriate monetary policyappropriate monetary policy would be to increase which of the following$

a. he discount rate

b. he re2uired reserve ratio

c. he international value of the dollar

d. Dpen mar#et purchases of government bonds

e. 3overnment e&penditure on goods and services


15/25

*8. +ssume that the economy is at full employmentat full employment. 0olicyma#ers wish to maintainmaintain

the price level but want to encourage greater investmentthe price level but want to encourage greater investment. "hich of the following

combinations of monetary and fiscal policiescombinations of monetary and fiscal policies would best achieve this goal$

Monetary -olicyMonetary -olicy Fiscal -olicyFiscal -olicy

a. No change 5ontractionary

b. E&pansionary No change

c. E&pansionary 5ontractionary

d. E&pansionary E&pansionary

e. 5ontractionary E&pansionary

*1. In one year, spendingspending on consumption, investment, and government purchases waswas

equal to 75&: of a countrys >0-equal to 75&: of a countrys >0-. his would be possible only if

a. the money supply increased

b. net e&ports were positive

c. net e&ports were negative

d. the government ran a budget surplus

e. the government had a balanced budget

#(pansionary#(pansionary monetary policy would resultmonetary policy would resultin lower interest rates, causing morein lower interest rates, causing more

investment in real capital" 'o !eep pricesinvestment in real capital" 'o !eep prices

from going up, policyma!ers could cut > orfrom going up, policyma!ers could cut > or

raise ta(es 2raise ta(es 2contractionarycontractionar y3 to prevent this"3 to prevent this"

9e consumed more imports than we sold9e consumed more imports than we sold

e(ports, which would ma!e our spendinge(ports, which would ma!e our spendinggreater than our >0-"greater than our >0-"

*! "h fi h i i d d i h /*


16/25

*!. "hen firms restructure their operations to decrease production costsdecrease production costs, the /*/*

curvecurve, the price levelprice level, and real outputreal output will change in which of the following ways$

/* .urve/* .urve -rice +evel-rice +evel Real 8utputReal 8utput

a. hift to the left Increase Increase

b. hift to the left Increase No change

c. hift to the right Increase Increase

d. hift to the right ecrease Increase

e. hift to the right ecrease ecrease

*. +n economy is in a short9run e2uilibrium at a level of output that is less than full=output that is less than full=employmentemployment output. If there were no fiscal or monetary policy interventionsno fiscal or monetary policy interventions,which of the following changes in output and the price levelchanges in output and the price level would occur in thelong run$

8utput8utput -rice +evel-rice +evel

a. Increase ecrease

b. Increase Increase

c. ecrease ecrease

d. ecrease Increase

e. No change No change

+ower production costs means+ower production costs means

more profits and a shift of themore profits and a shift of the

/* curve to the right/* curve to the right" 'hat" 'hat

results inresults in lower -+lower -+ and anand an

increase in real outputincrease in real output""

9ith no intervention in this recession, the surpluses9ith no intervention in this recession, the surpluseswould result inwould result in lower priceslower prices" 9or!ers would then" 9or!ers would then

accept lower wages" /s more are hired bac!,accept lower wages" /s more are hired bac!, outputoutput

would increasewould increase""

** + th t th ld t d fl ibl h t t If th t l


17/25

**. +ssume that the world operates under a fle&ible e&change rate system. If the centralban# of Me(ico increases its M*Me(ico increases its M* but other countries do not change theirs,

Me(icos inflation rateMe(icos inflation rate and the international value of the Me(ican pesovalue of the Me(ican peso will mostli#ely change in which of the following ways$

InternationalInternational

Inflation RateInflation Rate Calue of the -esoCalue of the -eso

a. Increase +ppreciate

b. Increase epreciate

c. Increase No change

d. ecrease +ppreciate

e. ecrease epreciate

*-. he Fed decreases the federal funds rateFed decreases the federal funds rate by

a. decreasing the reserve re2uirement

b. decreasing the discount rate c. increasing the discount rate

d. selling government bonds on the open mar#et

e. buying government bonds on the open mar#et

/n increase in Me(icos M* means “more pesos/n increase in Me(icos M* means “more pesos

chasing the same goods” as before, bringing onchasing the same goods” as before, bringing on

higher prices" 'his would decrease demand for higher prices" 'his would decrease demand for

Me(icos e(ports, depreciating the peso"Me(icos e(ports, depreciating the peso"

'he Fed “targets” the Fed Funds'he Fed “targets” the Fed Funds

Rate by buying selling bonds"Rate by buying selling bonds"

““BuyingBuying” bonds means “bigger”” bonds means “bigger”supply of money and lower Fedsupply of money and lower Fed

Funds Rate"Funds Rate"

+ b M ! t 0 t f . t D Ei illi f + b M ! t 0 t f . t D Ei illi f


18/25

+abor Mar!et 0ata for .ountry D Ein millions of persons+abor Mar!et 0ata for .ountry D Ein millions of persons

-opulation G 765H #mployed G ;4H-opulation G 765H #mployed G ;4H

)nemployed G


19/25

*6. In a closed economy with only lump9sum ta&ation, if the ?05 is e2ual to 8.4-?05 is e2ual to 8.4-, a =48=48

billion increase in government spendingbillion increase in government spending could cause a ma&imum increasema&imum increase in output of

a. =-!.- billion b. =48 billion c. =1!!.- billion d. =!18 billion e. =!68 billion

*7. "hich of the following is 8' a function of fiat money8' a function of fiat money$

a. + standard of deferred payment d. + store of value b. + unit of account e. + medium of e&change

c. + source of intrinsic value

4 ( $K5 @ $%654 ( $K5 @ $%65

-8 "h i t f ll l t hi h f th f ll i ill t li# l t


20/25

-8. "hen an economy is at full employment, which of the following will most li#ely create

demand=pull inflationdemand=pull inflation in the short run$

a. +n increase in the discount rate d. + decrease in government spending

b. +n increase in personal income ta&es e. + decrease in the money supply

c. + decrease in the real interest rate

-1. nder rational e(pectationsrational e(pectations an announced e(pansion in the money supplyannounced e(pansion in the money supply willchange nominal and real gross domestic productsnominal and real gross domestic products (30) in which of thefollowing ways$

ominal >0-ominal >0- Real >0-Real >0-

a. Increase Increase

b. Increase ecrease

c. Increase No change

d. No change ecrease


-!. + decrease in labor productivitydecrease in labor productivity will shift the

a. + curve to the right

b. + curve to the left

c. %R+ curve to the right

d. R+ curve to the right

e. R+ curve to the left

R/'#D implies that people “e(pect” moreR/'#D implies that people “e(pect” more

inflation with the increase in the M*" 'heyinflation with the increase in the M*" 'hey9ill negotiate higher raises with this in mind"9ill negotiate higher raises with this in mind"

Business profits will not increase so no moreBusiness profits will not increase so no more

wor!ers will be hired" *o real >0- would notwor!ers will be hired" *o real >0- would not

change, Aust nominal >0-"change, Aust nominal >0-"

-roductivity is an /* *hifter so a decrease in-roductivity is an /* *hifter so a decrease in

labor productivity results in having to hirelabor productivity results in having to hire

more wor!ersmore wor!ers andand cutting corporate profits,cutting corporate profits,

therefore shifting the *R/* curve to the left"therefore shifting the *R/* curve to the left"

- In the long run if /0 d/0 decreases l >0- d th i l l ill hreal >0- and the price level will change in


21/25

=%5=%5::$75$75$6$6

L LRR L LRR L L YYII

*R/**R/*77

*R/**R/*%%

/0/077/0/0%%

+R/*+R/*

-. In the long run, if /0 decreases/0 decreases, real >0- and the price level will changereal >0- and the price level will change inwhich of the following ways$

Real >0-Real >0- -rice +evel-rice +evela. ecrease ecrease

b. ecrease Increase

c. No change ecrease d. Increase ecreasee. No change Increase

-*. uppose that all ban#s #eep only the minimum reserves re2uired by law and thatthere are no currency drains. he legal RR is 75:RR is 75:"" If #milia deposits the $755 bill#milia deposits the $755 bill she received as a graduation gift from her grandfather into her chec#ing account,the ma&imum increase in the total money supplyincrease in the total money supply will be

a. =18

b. =188c. =788d. =1,888e. =1,188

'he decrease in /0 resulted in surpluses 'he decrease in /0 resulted in surpluses

caused prices to drop" 9or!ers would nowcaused prices to drop" 9or!ers would now

accept loweraccept lower wage increases which movedwage increases which moved

the *R/* curve right, increasing real >0-"the *R/* curve right, increasing real >0-"

Remember that currency is also M*" *o, the $755 bill was M* whenRemember that currency is also M*" *o, the $755 bill was M* whenthis began" 9hen little #milia deposited the $755, the compositionthis began" 9hen little #milia deposited the $755, the composition

of the M* didnt increase" It Aust changed from currency to 00"of the M* didnt increase" It Aust changed from currency to 00"

ow, with the RR at 75:, $;5 was loaned by the first ban! and withow, with the RR at 75:, $;5 was loaned by the first ban! and with

aa MMMM of 75, the M*of 75, the M* increased by $;55increased by $;55 more as the 'M* eventuallymore as the 'M* eventuallybecame $75,555"became $75,555"

-- +ssuming fi&ed e&change rates if ?e&icoCs rate of inflation increasesinflation increases relative to its


22/25

--. +ssuming fi&ed e&change rates, if ?e&ico s rate of inflation increasesinflation increases relative to itstrading partners, ?e&icoCs imports and e(portsimports and e(ports will most li#ely change in which ofthe following ways$

ImportsImports #(ports#(ports

a. ecrease ecrease

b. ecrease Increase

c. Increase ecrease

d. Increase Increase


-/. "hich of the following household purchaseshousehold purchases will be counted as part of grosscounted as part of gross

private investmentprivate investment in a countryCs >0->0-$

a. 3overnment bonds

b. hares of a company stoc#

c. 5orporate bonds

d. + new car for personal use

e. + newly constructed home

'he first three are purely financial transactions" 'he purchase of the new car 'he first three are purely financial transactions" 'he purchase of the new car

would be counted as consumption, not investment"would be counted as consumption, not investment"

/ higher price level in Me(ico will decrease demand for / higher price level in Me(ico will decrease demand for

their products, depreciating the peso" 1owever, thetheir products, depreciating the peso" 1owever, the

increase in the peso currency price relative to otherincrease in the peso currency price relative to othercountries ma!es their goods cheaper so their importscountries ma!es their goods cheaper so their imports

increase while their e(ports decrease as they have toincrease while their e(ports decrease as they have to

pay more pesos "pay more pesos "

-4 +n increase in /0increase in /0 will cause which of the following$


23/25

-4. +n increase in /0increase in /0 will cause which of the following$

a. + movement along a given short9run 0hillips curve

b. he long9run 0hillips curve to become horiAontal

c. he short9run 0hillips curve to shift to the left

d. he long9run 0hillips curve to shift to the right d. he long9run 0hillips curve to shift to the left

-6. "hich of the following would cause the short=run /* curve to shift to the rightcause the short=run /* curve to shift to the right$

a. +n increase in the wage rate

b. +n increase in the interest rate c. +n increase in the natural rate of unemployment

d. + decrease in the capital stoc#

e. + decrease in the e&pected price level

If -+ is e(pected to decrease, then wor!ers will not demand as large of wageIf -+ is e(pected to decrease, then wor!ers will not demand as large of wageincreases as in the past" 9ith lower resource cost 2wages3 anticipated, firmsincreases as in the past" 9ith lower resource cost 2wages3 anticipated, firms

will hire more wor!ers and *R/* will shift to the right"will hire more wor!ers and *R/* will shift to the right"

/n increase in /0 would move cause/n increase in /0 would move cause

a movement up and to the left ona movement up and to the left on thethe

*R-." *hifts of the *R-. are caused*R-." *hifts of the *R-. are caused

by supply shoc!s, which we didntby supply shoc!s, which we didnthave here"have here"

-7 + decrease in business ta(esdecrease in business ta(es would lead to an increase in national income by


24/25

-7. + decrease in business ta(esdecrease in business ta(es would lead to an increase in national income byincreasing which of the following$

a. he money supply

b. nemployment

c. + only

d. + only

e. 'oth + and +

/8. In an open economy, an increase in government budget deficitincrease in government budget deficit tends to cause theinternational value of a countryCs currency and its trade deficit to change in which ofthe following ways$

CCalue ofalue of ..urrencyurr ency 'rade 0eficit'rade 0eficit

a. +ppreciate 'ecome smaller

b. +ppreciate 'ecome larger

c. epreciate 'ecome smaller

d. epreciate 'ecome larger

e. Not change Not change

Business ta(es are determinants of both /0 and /*" 'he decreaseBusiness ta(es are determinants of both /0 and /*" 'he decrease

in business ta(es means they have more profits and will investin business ta(es means they have more profits and will invest

more,more, increasing /0increasing /0""

/s far as the legal=institutional environment with the government,/s far as the legal=institutional environment with the government,

it is more favorably so that will result in anit is more favorably so that will result in an increase in /*increase in /*""

'he budget deficit means the government is borrowing more, which pushes up the interest'he budget deficit means the government is borrowing more, which pushes up the interest

rate" 'he higher interest rate attracts more foreign investors, increasing demand for therate" 'he higher interest rate attracts more foreign investors, increasing demand for the

dollar and appreciating the dollar" 'he stronger dollar ma!es our e(ports more e(pensivedollar and appreciating the dollar" 'he stronger dollar ma!es our e(ports more e(pensive

and imports cheaper, therefore increasing the trade deficit"and imports cheaper, therefore increasing the trade deficit"


25/25

Documents

Macroecon Practice Exam