2nd midterm

Principles of Macroeconomics 06E:002. AAA &SCC Instructor: Dr. Young-Sik Kim Exam 2 Name:_____________________________________________ID:_________________________________________________ Section Number:____________________________________________________________________________________ Please make sure that you fill in all information on the scranton sheet: (1) Your Name (Last, First) (2) Student ID Number (3) EXAM VERSION (4) Discussion Section Number at O and P on the scranton sheet There are 40 questions, only answers on the scranton sheet will be graded MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If GDP grows at a rate of 3% per year, how long will it take for GDP to double in size? A) 35 years B) 23 years C) 21 years D) 12 years 1) 2) Between 1997 and 2007, if the economy's real GDP grew from $20 billion to $40 billion, what must the average annual growth rate in the economy have been? A) 20% B) 3% C) 100% D) 7% 2) 3) Which of the following will result in an increase in labor productivity? A) a decline in the amount of human capital per worker B) a decrease in the number of people attending institutions of higher education C) an increase in technology D) a decline in the capital stock per hour worked 3) 4) Potential GDP is estimated to grow at a rate of 3.5% in the United States. Actual GDP in the U.S. A) always grows at the same rate as potential GDP. B) always grows at a faster rate than potential GDP. C) is the same as potential GDP if all firms in the economy were working at capacity. D) always grows at a slower rate than potential GDP. 4) 5) What is one difference between stocks and bonds? A) Bonds are purchased at a bank, while stocks are purchased through the federal government. B) Stocks earn a higher rate of return than bonds. C) Bonds earn a higher rate of return than stocks. D) Stocks represent partial ownership in a firm, while bonds do not. 5) 6) If in a closed economy real GDP is $30 billion, consumption is $20 billion, and government purchases are $5 billion, what is total savings in the economy? A) $15 billion B) $5 billion C) $55 billion D) $45 billion 6) 1 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 7) Which of the following would increase public savings? A) an increase in government purchases B) an increase in taxes C) an increase in transfers D) All of the above would increase public savings. 7) 8) If technological change increases the profitability of new investment for firms, then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________. A) supply; left; rise B) supply; right; fall C) demand; left; fall D) demand; right; rise 8) Figure 9-1 9) Refer to Figure 9-1. The loanable funds market is in equilibrium, as shown in the figure above. An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium? A) The real interest rate is 3 percent, and the quantity of loanable funds is $150 million. B) The real interest rate is 5 percent, and the quantity of loanable funds is $90 million. C) The real interest rate is 5 percent, and the quantity of loanable funds is $150 million. D) The real interest rate is 3 percent, and the quantity of loanable funds is $90 million. 9) 10) Refer to Figure 9-1. The loanable funds market is in equilibrium, as shown in the figure above. As a result of an increase in the government budget deficit, the ________ for loanable funds will ________, thereby ________ the equilibrium real interest rate and ________ the equilibrium quantity of loanable funds. A) demand; fall; decreasing; decreasing B) demand; rise; increasing; increasing C) supply; fall; increasing; decreasing D) supply; rise; decreasing; increasing 10) 2 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 11) If a country's real GDP is rising by 3% per year, while its population is rising at 5% per year, which of the following is true? A) Growth in nominal GDP is less than the growth in the population. B) Growth in nominal GDP outweighs growth in the population. C) The country's standard of living is rising. D) The country's standard of living is falling. 11) Figure 10-1 12) Refer to Figure 10-1. Technological change is shown in the figure above below by the movement from A) B to A. B) B to C. C) B to E. D) B to D. 12) 3 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 Figure 9-1 13) Refer to Figure 10-1. Which of the following would cause an economy to move from a point like A in the figure above to a point like B? A) an increase in capital per hour worked B) an improvement in technology C) a decrease in capital per hour worked D) a technological regression 13) 14) A small economy increased its capital per hour worked (K/L) from $40,000 to $50,000. As a result, real GDP per worker (Y/L) grew from $20,000 to $25,000. If the economy increases its capital per hour worked by another $10,000 to $60,000, but there is no change in technology, by how much more and in what direction will output per worker change? A) Output per worker will increase by less than $5,000. B) Output per worker will fall by more than $5,000. C) Output per worker will increase by exactly $5,000. D) Output per worker will increase by more than $5,000. 14) 15) The economic growth model predicts that A) GDP per capita of rich countries will grow more rapidly than in poor countries. B) Governments must centrally direct the economy for growth to occur. C) GDP per capita of poor countries will never change. D) GDP per capita of poor countries will grow more rapidly than in rich countries. 15) 16) Which of the following is an example of foreign portfolio investment? A) the purchase of a Japanese factory by a Korean citizen B) the purchase of a U.S. mutual fund by a U.S. citizen C) the purchase of a U.S. Treasury bond by a German citizen D) the purchase of a U.S. stock by a U.S. citizen 16) 4 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 17) Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred? A) There was no unplanned investment in inventories. B) There was an unplanned decrease in inventory investment equal to $2 million. C) There was an unplanned investment in inventories equal to $2 million. D) There was an unplanned decrease in inventory investment equal to $19 million. 17) 18) Which of the following will raise consumer expenditures? A) a general decline in housing prices B) an increase in the price level C) an increase in expected future income D) an increase in interest rates 18) Table 11-2 Consumption (Dollars) Disposable Income (Dollars) $600 $1,000 900 1,500 1,200 2,000 19) Refer to Table 11-2. Given the consumption schedule in the table above, the marginal propensity to save is A) 0.3. B) 0.5. C) 0.4. D) 0.6. 19) 20) Investment spending will increase when A) the interest rate rises. B) firms become more pessimistic about earning future profits. C) business cash flow increases. D) the corporate income tax increases. 20) 21) U.S. net export spending rises when A) the value of the U.S. dollar increases relative to other currencies. B) the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. C) the inflation rate is higher in the U.S. relative to other countries. D) the price level in the U.S. rises relative to the price level in other countries. 21) 5 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 Figure 11-3 22) Refer to Figure 11-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is .9, then what is the change in GDP? A) $100 million. B) $9 million. C) $90 million. D) $10 million. 22) 23) Refer to Figure 11-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC is .75, then what is the distance between N and L or by how much did government spending change? A) $10 billion B) $200 billion C) $100 billion D) $300 billion 23) 24) An increase in the price level in the United States will have what effect on the aggregate expenditure line? A) Aggregate expenditure will shift downward. B) Aggregate expenditure will become steeper. C) Aggregate expenditure will not be affected by an increase in the price level in the United States. D) Aggregate expenditure will shift upward. 24) 25) Which of the following is one explanation as to why the aggregate demand curve slopes downward? A) Increases in the U.S. price level relative to the price level in other countries lowers net exports. B) Increases in the price level lower the interest rate and decrease investment spending. C) Increases in the price level lower the interest rate and decrease consumption spending. D) Increases in the price level raise real wealth and lowers consumption spending. 25) 6 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 26) If the U.S. dollar increases in value relative to other currencies, how does this affect the aggregate demand curve? A) This will shift the aggregate demand curve to the right. B) This will shift the aggregate demand curve to the left. C) This will move the economy up along a stationary aggregate demand curve. D) This will move the economy down along a stationary aggregate demand curve. 26) 27) Hurricane Katrina destroyed oil and natural gas refining capacity in the gulf. This subsequently drove up natural gas, gasoline, and heating oil prices. As a result this should A) move the economy up along a stationary short run aggregate supply curve. B) move the economy down along a stationary short run aggregate supply curve. C) shift the short run aggregate supply curve to the right. D) shift the short run aggregate supply curve to the left. 27) Figure 12-1 28) Refer to Figure 12-1. Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long run equilibrium be? A) A B) B C) C D) D 28) 29) When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run. A) rises; falls B) falls; rises C) falls; falls D) rises; rises 29) 30) After an unexpected increase in the price of oil, the long-run adjustment ________ the price level and ________ the unemployment rate as they return to their original levels. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases 30) 7 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 Figure 12-2 31) Refer to Figure 12-2. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2? A) 12% B) 10% C) 8% D) 9.1% 31) 32) Refer to Figure 12-2. Given the economy is at point A in year 1, What will happen to the unemployment rate in year 2? A) It will fall. B) It will rise. C) It will remain constant. D) Not enough information to answer the question. 32) 33) In the dynamic aggregated demand and aggregate supply model, inflation occurs if A) AS shifts slower than AD. B) AD shifts slower than AS. C) AD shifts faster than AS. D) AS shifts faster than AD. 33) 34) When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a A) store of value. B) unit of account. C) standard of deferred payment. D) medium of exchange. 34) 35) If households in the economy decide to take money out of checking account deposits and put this money into savings accounts this will initially A) decrease M1 and increase M2. B) increase M1 and decrease M2. C) decrease M1 and not change M2. D) decrease M1 and decrease M2. 35) 36) Suppose you deposit $2000 into Bank of America and that the required reserve ratio is .1. How does this affect the bank's balance sheet? A) Reserves rise by $200. B) Required reserves rise by $2000. C) Excess reserves rise by $1,800. D) Deposits rise by $1,000. 36) 8 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 2 37) With a required reserve ratio of 20 percent, an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of A) $2,000. B) $8,000. C) $50,000. D) $100,000. 37) 38) If the Fed buys U.S. Treasury securities, then this A) increases reserves, causes banks to reduce their loans, and increases the money supply. B) increases reserves, encourages banks to make more loans, and increases the money supply. C) decreases reserves, causes banks to reduce their loans, and increases the money supply. D) decreases reserves, causes banks to reduce their loans, and decreases the money supply. 38) 39) If the Fed lowers the reserve requirement, then this A) increases excess reserves, encourages banks to make more loans, and increases the money supply. B) decreases excess reserves, causes banks to reduce their loans, and decreases the money supply. C) increases excess reserves, causes banks to reduce their loans, and increases the money supply. D) decreases excess reserves, causes banks to reduce their loans, and increases the money supply. 39) 40) According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be A) 4%. B) 8%. C) 6%. D) 2%. 40) 9 Answer Key Testname: EXAMEN2FALL2008_VERSIONKIM 1) B 2) D 3) C 4) C 5) D 6) B 7) B 8) D 9) A 10) C 11) D 12) C 13) A 14) A 15) D 16) C 17) C 18) C 19) C 20) C 21) B 22) A 23) C 24) A 25) A 26) B 27) D 28) C 29) D 30) D 31) B 32) B 33) C 34) D 35) C 36) C 37) C 38) B 39) A 40) A 10 mlopezda Examen2Fall2008_VersionKim.tst