Macro/Midterm II          return to homepage                      previous page
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1. The events of the Great Depression gave rise to:
A. Ricardian economics.
B. Classical economics.
C. Keynesian economics.
D. Malthusian economics.

 
2. Classical economists explain the existence of unemployment as:
A. a condition that occurs when aggregate demand is too weak to support full employment.
B. a condition of excess labor demand that emerges when wages are held too high.
C. a condition of excess labor supply that emerges when wages are held too high.
D. a condition of excess labor supply that emerges when wages are held too low.

 
3. According to Say's Law:
A. demand and supply can never be in dis equilibrium. 
B. demand and supply can never be in equilibrium.
C. people do not save.
D. prices never rise in a market economy.

 
4. Which of the following statements best expresses the idea referred to as Say's Law? 
A. Demand will create jobs.
B. Supply creates its own demand.
C. When people save, part of their income will be lost.
D. Frictional and structural unemployment cannot exist.

 
5. The Classical economists argued that whatever amount was saved would be borrowed and invested because:
A. wages are flexible.
B. prices of domestic goods are flexible.
C. interest rates are flexible.
D. prices of imports are flexible.

 
6. ________ leads to the conclusion that the price level varies in response to changes in the quantity of money.
A. Keynesian theory
B. The quantity theory of money
C. The Malthusian Doctrine
D. Laissez-faire theory

 
7. According to the equation of exchange:
A. MR = PQ.
B. MV = PQ.
C. MPP = P.
D. MR = MC.

 
8. According to the Classical quantity theory of money:
A. changes in the money supply will produce proportional changes in real output.
B. changes in the money supply shift the aggregate supply curve.
C. the effect of changes in the money supply cannot be predicted due to the effect of a change in velocity.
D. changes in the money supply will produce proportional changes in the price level.

 
9. Keynesians believe that in the short run in the real world prices were _______ and wages were ______.
A. flexible, flexible
B. rigid, rigid
C. flexible, rigid
D. rigid, flexible

 
10. A fall in the U.S. price level will cause foreigners to
A. substitute some domestically produced goods for other domestically produced goods.
B. substitute foreign goods for U.S. goods.
C. buy more foreign goods.
D. buy more U.S. goods.

 
11. Keynesians tend to believe that an increase in government spending will likely ______ real output and _______ the price level.
A. increase, not affect
B. increase, accelerate an increase in
C. not affect, increase
D. not affect, not affect

 
12. Laissez-faire Classicals tend to believe that an increase in government spending will _______ real output and ________ the price level.
A. increase, not affect
B. increase, accelerate an in crease in
C. not affect, increase
D. not affect, not affect

 
13. The aggregate demand curve shows how:
A. a change in the price level will change output demanded.
B. a change in the price level will change output supplied.
C. a change in output demanded will change output supplied.
D. a change in output supplied will change the price level.

 
14. The aggregate supply curve shows:
A. how a change in the price level will change the quantity of output supplied.
B. how a change in the quantity of output demanded will change the quantity of output supplied.
C. how a change in the price level will change the quantity of output demanded.
D. how a change in the quantity of output supplied will change the quantity of output demanded.

 
15.
R-1 Figure 10-26

Refer to the graph above. Which of the following curves has the shape of the long run AS curve?
A. A.
B. B.
C. C.
D. D.


 
16.
R-2 Figure 10-27

Refer to the graph above. When aggregate demand rises from AD1 to AD0, the Classical equilibrium will be at point:
A. A.
B. B.
C. C.
D. None of the above.


 
17. An autonomous shift is a shift that occurs because of
A. the multiplier effects of initial changes.
B. a change outside the model.
C. a change in income only.
D. a change in production only.

 
18. In the aggregate production/ aggregate expenditures model, aggregate production creates:
A. an equal amount of expenditures, but not necessarily and equal amount of savings.
B. an equal amount of savings, but not necessarily and equal amount of expenditures.
C. an equal amount of income, but not necessarily and equal amount of expenditures.
D. an equal amount of expenditures, but not necessarily and equal amount of income.

 
19. The aggregate production schedule graphs as a:
A. horizontal line.
B. vertical line.
C. 45 degree line.
D. downward-sloping line.

 
20. At all points on the 45 degree line in the AE/AP model:
A. income equals production.
B. income exceeds production.
C. production is greater than income.
D. production exceeds income.

 
21. In the Keynesian model, expenditures depends primarily on:
A. consumer confidence.
B. income.
C. interest rates.
D. wealth

 
22. The change in expenditures divided by the change in disposable income is the:
A. mpc.
B. mpw.
C. multiplier.
D. deviation.

 
23. As the mpc falls, the slope of the AE curve:
A. rises.
B. also declines.
C. does not change.
D. is uncertain.

 
24. The slope of the Consumption Function that represents the equation 
C = 500 + .7Yd equals
A. .7
B. .3
C. 3.33
D. 1.43

 
25. Equilibrium is where:
A. the expenditures function crosses the 45 degree line.
B. the aggregate expenditure function crosses the 45 degree line.
C. the aggregate production function crosses the 45 degree line.
D. expenditures equal saving.

 
26.
R-3 Figure 11-12

Refer to the graph above. Equilibrium is where real income equals:
A. NDP0.
B. NDP1.
C. NDP2.
D. zero.


 
27. In the simple Keynesian model, if the mpc were .9, the multiplier would be:
A. 2.
B. 4.
C. 5.
D. 10.

 
28. The multiplier effect implies that:
A. investors respond to changes in interest rates.
B. the economy is in a recession.
C. a $100 change in autonomous spending will change equilibrium income by more than $100.
D. a $100 change in autonomous spending will change equilibrium income by less than $100.

 
29. If the marginal propensity to consume (mpc) is 0.8, a $200 change in income will lead to a:
A. $250 change in equilibrium income.
B. $1,000 change in equilibrium income.
C. $200 change in expenditures.
D. $250 change in expenditures.

 
30. The percentage of total income that will be saved per dollar of income is
A. the multiplier.
B. the mpc.
C. the mps.
D. the AED.

 
31. The smaller the marginal propensity to save,
A. the greater the multiplier.
B. the smaller the multiplier.
C. the multiplier does not change.
D. the less we know about the multiplier.

 
32. What equals 1?
A. mpc plus mps.
B. mpc minus mps.
C. mpc/mps.
D. mpc X mps.

 
33. A change in autonomous expenditures times ________ equals the change in equilibrium income.
A. [ 1 / mps ]
B. [ 1 / 1 - mps ]
C. [ 1 / mps ] X E0
D. [ 1 / 1 - mps ] X E0

 
34. If the mps is 0.33 and autonomous expenditures are $4000, total expenditures in the economy is:
A. $6,000.
B. $9,000.
C. $12,000.
D. $30,000.

 
35. In the context of the simple Keynesian model, which of the following changes would increase equilibrium output by $100 billion, if mpc were .75?
A. An upward shift of the government spending of $100 billion.
B. An upward shift of the investment of $75 billion.
C. An upward shift of the government spending function of $25 billion.
D. The imposition of $75 lump-sum tax.

 
36. According to Keynesian theory, if firms cannot sell all their output at existing prices, they will:
A. cut production and lay off workers.
B. raise production and hire additional workers.
C. cut prices to sell unwanted inventories.
D. raise prices to attract additional customers.

 
37. If the multiplier were 4, a $250 change in autonomous expenditures would cause equilibrium income to change by:
A. $1,000.
B. $250.
C. $750.
D. $187.50.

 
38. Suppose a $100 billion decrease in autonomous expenditures causes equilibrium GDP to decline by $400 billion. What is the multiplier?
A. ½.
B. 2.
C. 1/4.
D. 4.

 
39. To cool down an overheating economy the U.S. government decides to decrease income by 1000. If the mps is 0.2. The government should decrease its spending by:
A. 200.
B. 500.
C. 800.
D. 1000.

 
40.
R-4 Figure 11-16

The above graph shows two aggregate expenditures lines for an economy, AE0 and AE1. Which of the following changes could not be responsible for the shift from AE0 to AE1? 
A. An increase in net exports.
B. A decrease in autonomous expenditures.
C. A decrease in government spending.
D. An increase in net taxes levied by the government.


 
41.
R-5 Figure 11-18

Refer to the graph above. Equilibrium real income given the graph above of the AP/AE model is:
A. 200
B. 300
C. 350
D. 400


 
42. The fiscal policy tools include:
A. government regulation and user fees.
B. changes in the money supply and the interest rate.
C. government spending and taxation policy.
D. government taxation and regulation.

 
43. Increasing government spending and/or cutting taxes are examples of:
A. expansionary monetary policy.
B. contractionary monetary policy.
C. expansionary fiscal policy.
D. contractionary fiscal policy.

 
44. Contractionary fiscal policy involves:
A. decreasing taxes.
B. decreasing government spending.
C. increasing money supply.
D. reducing the exchange rate.

 
45. A contractionary fiscal policy would involve:
A. increased government spending and lower taxes.
B. decreased government spending and higher taxes.
C. decreased government spending with no change in taxes.
D. increased taxes with no change in government spending.

 
46. What is the purpose of a contractionary fiscal policy?
A. To reduce inflationary pressure.
B. To reduce unemployment.
C. To increase inflationary pressure.
D. To increase equilibrium income.

 
47. A recessionary gap is when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
48. If an economy is in a recession, one fiscal policy that might help it to economy recover is:
A. a cut in social security payments.
B. a rise in the income tax rate.
C. a rise in education spending.
D. a cut in unemployment compensation.

 
49. An inflationary gap occurs when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
50. Which of the following would shift the aggregate expenditure curve upward?
A. a reduction in government spending.
B. an increase in government spending.
C. an increase in taxes.
D. an increase in interest rates.

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mac2F98
Macro/Midterm II          return to homepage                      previous page
Choose the best answer.
GOOD LUCK!

 
1. The events of the Great Depression gave rise to:
A. Ricardian economics.
B. Classical economics.
C. Keynesian economics.
D. Malthusian economics.

 
2. Classical economists explain the existence of unemployment as:
A. a condition that occurs when aggregate demand is too weak to support full employment.
B. a condition of excess labor demand that emerges when wages are held too high.
C. a condition of excess labor supply that emerges when wages are held too high.
D. a condition of excess labor supply that emerges when wages are held too low.

 
3. According to Say's Law:
A. demand and supply can never be in dis equilibrium. 
B. demand and supply can never be in equilibrium.
C. people do not save.
D. prices never rise in a market economy.

 
4. Which of the following statements best expresses the idea referred to as Say's Law? 
A. Demand will create jobs.
B. Supply creates its own demand.
C. When people save, part of their income will be lost.
D. Frictional and structural unemployment cannot exist.

 
5. The Classical economists argued that whatever amount was saved would be borrowed and invested because:
A. wages are flexible.
B. prices of domestic goods are flexible.
C. interest rates are flexible.
D. prices of imports are flexible.

 
6. ________ leads to the conclusion that the price level varies in response to changes in the quantity of money.
A. Keynesian theory
B. The quantity theory of money
C. The Malthusian Doctrine
D. Laissez-faire theory

 
7. According to the equation of exchange:
A. MR = PQ.
B. MV = PQ.
C. MPP = P.
D. MR = MC.

 
8. According to the Classical quantity theory of money:
A. changes in the money supply will produce proportional changes in real output.
B. changes in the money supply shift the aggregate supply curve.
C. the effect of changes in the money supply cannot be predicted due to the effect of a change in velocity.
D. changes in the money supply will produce proportional changes in the price level.

 
9. Keynesians believe that in the short run in the real world prices were _______ and wages were ______.
A. flexible, flexible
B. rigid, rigid
C. flexible, rigid
D. rigid, flexible

 
10. A fall in the U.S. price level will cause foreigners to
A. substitute some domestically produced goods for other domestically produced goods.
B. substitute foreign goods for U.S. goods.
C. buy more foreign goods.
D. buy more U.S. goods.

 
11. Keynesians tend to believe that an increase in government spending will likely ______ real output and _______ the price level.
A. increase, not affect
B. increase, accelerate an increase in
C. not affect, increase
D. not affect, not affect

 
12. Laissez-faire Classicals tend to believe that an increase in government spending will _______ real output and ________ the price level.
A. increase, not affect
B. increase, accelerate an in crease in
C. not affect, increase
D. not affect, not affect

 
13. The aggregate demand curve shows how:
A. a change in the price level will change output demanded.
B. a change in the price level will change output supplied.
C. a change in output demanded will change output supplied.
D. a change in output supplied will change the price level.

 
14. The aggregate supply curve shows:
A. how a change in the price level will change the quantity of output supplied.
B. how a change in the quantity of output demanded will change the quantity of output supplied.
C. how a change in the price level will change the quantity of output demanded.
D. how a change in the quantity of output supplied will change the quantity of output demanded.

 
15.
R-1 Figure 10-26

Refer to the graph above. Which of the following curves has the shape of the long run AS curve?
A. A.
B. B.
C. C.
D. D.


 
16.
R-2 Figure 10-27

Refer to the graph above. When aggregate demand rises from AD1 to AD0, the Classical equilibrium will be at point:
A. A.
B. B.
C. C.
D. None of the above.


 
17. An autonomous shift is a shift that occurs because of
A. the multiplier effects of initial changes.
B. a change outside the model.
C. a change in income only.
D. a change in production only.

 
18. In the aggregate production/ aggregate expenditures model, aggregate production creates:
A. an equal amount of expenditures, but not necessarily and equal amount of savings.
B. an equal amount of savings, but not necessarily and equal amount of expenditures.
C. an equal amount of income, but not necessarily and equal amount of expenditures.
D. an equal amount of expenditures, but not necessarily and equal amount of income.

 
19. The aggregate production schedule graphs as a:
A. horizontal line.
B. vertical line.
C. 45 degree line.
D. downward-sloping line.

 
20. At all points on the 45 degree line in the AE/AP model:
A. income equals production.
B. income exceeds production.
C. production is greater than income.
D. production exceeds income.

 
21. In the Keynesian model, expenditures depends primarily on:
A. consumer confidence.
B. income.
C. interest rates.
D. wealth

 
22. The change in expenditures divided by the change in disposable income is the:
A. mpc.
B. mpw.
C. multiplier.
D. deviation.

 
23. As the mpc falls, the slope of the AE curve:
A. rises.
B. also declines.
C. does not change.
D. is uncertain.

 
24. The slope of the Consumption Function that represents the equation 
C = 500 + .7Yd equals
A. .7
B. .3
C. 3.33
D. 1.43

 
25. Equilibrium is where:
A. the expenditures function crosses the 45 degree line.
B. the aggregate expenditure function crosses the 45 degree line.
C. the aggregate production function crosses the 45 degree line.
D. expenditures equal saving.

 
26.
R-3 Figure 11-12

Refer to the graph above. Equilibrium is where real income equals:
A. NDP0.
B. NDP1.
C. NDP2.
D. zero.


 
27. In the simple Keynesian model, if the mpc were .9, the multiplier would be:
A. 2.
B. 4.
C. 5.
D. 10.

 
28. The multiplier effect implies that:
A. investors respond to changes in interest rates.
B. the economy is in a recession.
C. a $100 change in autonomous spending will change equilibrium income by more than $100.
D. a $100 change in autonomous spending will change equilibrium income by less than $100.

 
29. If the marginal propensity to consume (mpc) is 0.8, a $200 change in income will lead to a:
A. $250 change in equilibrium income.
B. $1,000 change in equilibrium income.
C. $200 change in expenditures.
D. $250 change in expenditures.

 
30. The percentage of total income that will be saved per dollar of income is
A. the multiplier.
B. the mpc.
C. the mps.
D. the AED.

 
31. The smaller the marginal propensity to save,
A. the greater the multiplier.
B. the smaller the multiplier.
C. the multiplier does not change.
D. the less we know about the multiplier.

 
32. What equals 1?
A. mpc plus mps.
B. mpc minus mps.
C. mpc/mps.
D. mpc X mps.

 
33. A change in autonomous expenditures times ________ equals the change in equilibrium income.
A. [ 1 / mps ]
B. [ 1 / 1 - mps ]
C. [ 1 / mps ] X E0
D. [ 1 / 1 - mps ] X E0

 
34. If the mps is 0.33 and autonomous expenditures are $4000, total expenditures in the economy is:
A. $6,000.
B. $9,000.
C. $12,000.
D. $30,000.

 
35. In the context of the simple Keynesian model, which of the following changes would increase equilibrium output by $100 billion, if mpc were .75?
A. An upward shift of the government spending of $100 billion.
B. An upward shift of the investment of $75 billion.
C. An upward shift of the government spending function of $25 billion.
D. The imposition of $75 lump-sum tax.

 
36. According to Keynesian theory, if firms cannot sell all their output at existing prices, they will:
A. cut production and lay off workers.
B. raise production and hire additional workers.
C. cut prices to sell unwanted inventories.
D. raise prices to attract additional customers.

 
37. If the multiplier were 4, a $250 change in autonomous expenditures would cause equilibrium income to change by:
A. $1,000.
B. $250.
C. $750.
D. $187.50.

 
38. Suppose a $100 billion decrease in autonomous expenditures causes equilibrium GDP to decline by $400 billion. What is the multiplier?
A. ½.
B. 2.
C. 1/4.
D. 4.

 
39. To cool down an overheating economy the U.S. government decides to decrease income by 1000. If the mps is 0.2. The government should decrease its spending by:
A. 200.
B. 500.
C. 800.
D. 1000.

 
40.
R-4 Figure 11-16

The above graph shows two aggregate expenditures lines for an economy, AE0 and AE1. Which of the following changes could not be responsible for the shift from AE0 to AE1? 
A. An increase in net exports.
B. A decrease in autonomous expenditures.
C. A decrease in government spending.
D. An increase in net taxes levied by the government.


 
41.
R-5 Figure 11-18

Refer to the graph above. Equilibrium real income given the graph above of the AP/AE model is:
A. 200
B. 300
C. 350
D. 400


 
42. The fiscal policy tools include:
A. government regulation and user fees.
B. changes in the money supply and the interest rate.
C. government spending and taxation policy.
D. government taxation and regulation.

 
43. Increasing government spending and/or cutting taxes are examples of:
A. expansionary monetary policy.
B. contractionary monetary policy.
C. expansionary fiscal policy.
D. contractionary fiscal policy.

 
44. Contractionary fiscal policy involves:
A. decreasing taxes.
B. decreasing government spending.
C. increasing money supply.
D. reducing the exchange rate.

 
45. A contractionary fiscal policy would involve:
A. increased government spending and lower taxes.
B. decreased government spending and higher taxes.
C. decreased government spending with no change in taxes.
D. increased taxes with no change in government spending.

 
46. What is the purpose of a contractionary fiscal policy?
A. To reduce inflationary pressure.
B. To reduce unemployment.
C. To increase inflationary pressure.
D. To increase equilibrium income.

 
47. A recessionary gap is when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
48. If an economy is in a recession, one fiscal policy that might help it to economy recover is:
A. a cut in social security payments.
B. a rise in the income tax rate.
C. a rise in education spending.
D. a cut in unemployment compensation.

 
49. An inflationary gap occurs when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
50. Which of the following would shift the aggregate expenditure curve upward?
A. a reduction in government spending.
B. an increase in government spending.
C. an increase in taxes.
D. an increase in interest rates.

return to homepage                                              previous page

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.