SAMPLE TEST - MACRO SUBJECTS

covers subject subsequent to the supply and demand on test 1

Problem One: 25 points

 

Explain WHY Dr. John M Keynes thought the U.S. should fight the Great Depression, what he suggested doing, and how his policy would work (ie graph and explain his ideas).


Problem Two: 25 points

If you have an economy characterized by very high or runaway inflation, what should the 'fiscal policy' be?  That is, draw the graph and explain in your own words what the government can do and how it could do it.   Don't forget to explain the impact of your suggestion on inflation, income, employment, output and on unemployment.


Multiple Choices:  Please circle the correct answer. Each one is worth 10   points, and you get to miss one free. Put the letter answer to the left of the number.

 

 

________1) The labor force is the sum of

A) the number of employed people and the working-age population.
B) the total population and the number of unemployed people.
C) the number of employed people and the number of unemployed people.
D) the working-age population and the number of unemployed people.

 

 

Disposable income (dollars)

Consumption (dollars)

100

225

200

300

300

375

400

450

500

525

600

600

 

 

________2) From the Table above, if disposable income is $400, saving is

A) -$50.
B) $50.
C) $0.
D) $100.

 

 

________3) From the Table above, the marginal propensity to consume is

A) constant at 0.75.
B) falling as disposable income is rising.
C) 0.8 when disposable income goes from $5,000 to $6000.
D)  0.25. when disposable income goes from $5,000 to $6000.

 

 

_________4) If MPC=0.33, the multiplier is

A) 0.33.
B) 3.
C) 6.
D) 1.5.

 

 

_________5) If bond prices fall,

A) interest rates fall.
B) interest rates rise.

 

 

 

_________6) Suppose that wage contracts between workers and employers are based on an expected inflation rate of 3 percent. A 5 percent increase in money wages is agreed upon. If inflation runs at 7 percent,

 

A) real wages fall by 2 percent.
B) money wages fall by 3 percent.

C) real wages rise by 2 percent.
D) real wages fall by 4 percent

 

 

________7) The components of aggregate expenditure OR aggregate demand are planned consumption, investment,

A) government expenditures, and exports.
B) government expenditures, and imports.
C) government purchases, and net exports.
D) and net exports.

 

 

_________8) The price of a loan is the

A) interest rate.
B) ease with which an asset can become money.
C) price of goods and services purchased with the funds .
D) level of wage and rental income generated by the loan.

 

__________9) Which of the following is NOT a one of the categories of spending in final goods and services?
A) Interest on corporate bond holdings.
B) Personal income taxes.
C) Indirect taxes.
D) Social insurance taxes.

E) all the above

 

_________10) An expansionary fiscal policy could be  
A) a cut in taxes or an increase in government purchases.
B) an increase in both taxes and government purchases.
C) an increase in taxes or a cut in government purchases.
D) a cut in both taxes and government purchases.

 

 


 

_________11) In the  Figure above, based on our recent discussions regarding the size of the budget deficit, would the purple line be expected to turn down or up from its ‘2005’ position>

A) down.
B) up.

 

_________12) If the marginal propensity to consume is .8, how much would the federal government have to cut spending in order to achieve a $500 billion reduction in Aggregate Demand?

A) $100 Billion

B) $  20 Billion

C) $200 Billion

D)  80%

 

__________13) If the Marginal Propensity to Consume is higher, the Aggregate Demand multiplier will be higher.

A) True

B) False

 

 

 

 

 

 

__________14) If real GDP is less than potential GDP, which of the following is a reasonable course of action?
A) expansionary fiscal policy could be used to decrease aggregate demand.
B) contractionary fiscal policy could be used to increase aggregate demand.
C) expansionary fiscal policy could be used to increase aggregate demand.
D) contractionary fiscal policy could be used to decrease aggregate demand.

 

 

___________15)  An increase in the Aggregate Supply curve could result in higher levels of output and income without inflation, everything else the same.

A) True

B) False

 

  • macro test 2
  • by test 2
  • there may be questions this particular class has not covered