Macroeconomics Exam Questions

Question 1: Workers in high-income countries have __ to work with than do workers in low-income countries. Answer: more physical capital

Question 2: If GDP is currently $13 trillion and is growing at a rate of 2.3% per year, how long will it take GDP to reach double its value? Answer: about 30 years

Question 3: Which of the following will increase labor productivity? Answer: an increase in technology

Question 4: Labor productivity is Answer: the quantity of output produced by one worker or by one hour of work.

Question 5: If production in an economy grows faster than the population in that economy, then Answer: Real GDP per capita is rising.

Question 6: If the profitability of new investment by firms increases, then the _ curve for loanable funds will shift to the _.Answer: demand; right.

Question 7: The market is in equilibrium as shown in the graph below. If the government budget deficit rises, which of the following would you expect to see? Answer: The quantity of loanable funds demanded by firms will fall below $120 million.

Question 8: There is public dissaving if Answer: $G + TR > T$

Question 9: The loanable funds market is given in the figure below. If the current real interest rate is 5 percent, which of the following is true?Answer: b) There is a surplus of loanable funds in the market.Question 10: The federal budget deficit can be reduced by Answer: raising taxes.

Question 11: Refer to the figure below. The movement from point A to point B in the money market would be caused by Answer: an open market sale of Treasury securities by the Federal Reserve. Note: In the graph, Point A is on $MS_1$ (950) and Point B is on $MS_2$ (900). Since the money supply is decreasing, this is caused by an open market sale.

Question 12: The quantity theory of money seeks to explain the connection between money and Answer: prices.

Question 13: If the Fed buys U.S. Treasury securities, then this Answer: increases reserves, encourages banks to make more loans, and increases the money supply.

Question 14: The reserve ratio, the money multiplier. Answer: smaller; larger.

Question 15: A decrease in the price level will Answer: move the economy down along a stationary aggregate demand curve.

Question 16: Ceteris paribus, in the long run, a negative supply shock causes Answer: equilibrium real GDP to fall.

Question 17: If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like? Answer: It is a vertical line at $600 billion of GDP.

Question 18: If technological change occurs in the economy, Answer: he long-run aggregate supply curve will shift to the right.

Question 19: If the economy receives an influx of new workers from immigration, Answer: the long-run aggregate supply curve will shift to the right.

Question 20: Long-run macroeconomic equilibrium occurs when aggregate demand short-run aggregate supply and they the long-run supply curve. Answer: equals; intersect at a point on

Question 21: On the long-run aggregate supply curve, Answer: an increase in the price level does not affect the aggregate quantity of GDP supplied.

Question 22: Spending on the war in Afghanistan is essentially categorised as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve? Answer: They will shift the aggregate demand curve to the right.

Question 23: Which of the following would cause the short-run aggregate supply curve to shift to the left? Answer: an increase in inflation expectations.

Question 24: Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium? Answer: the rightward shift of the short-run aggregate supply curve that occurs after a recession.

Question 25: Why does the short-run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand? Answer: Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices.

Question 26: Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result, Answer: the short-run aggregate supply curve will shift to the left as wages increase.

Question 27: Which of the following will shift the aggregate demand curve to the left, ceteris paribus? Answer: an increase in interest rates.

Question 28: The aggregate demand curve shows the relationship between the Answer: price level and quantity of real GDP demanded.

Question 29: The long-run aggregate supply curve shows the relationship between Answer: the price level and quantity of real GDP supplied.

Question 30: Which of the following is one explanation as to why the aggregate demand curve slopes downward? Answer: Increases in the U.S. price level relative to the price level in other countries lowers net exports.

Question 31: Which of the following curves has a positive slope? Answer: short-run aggregate supply.

Question 32: The __ curve is vertical. Answer: long-run aggregate supply.

Question 33: If aggregate expenditure is greater than GDP, then Answer: Inventories decrease, GDP increases, and employment increases.

Question 34: Planned investment is greater than actual investment. Answer: When there is an unplanned decrease in inventories.

Question 34: In the aggregate expenditure model, when is planned investment greater than actual investment? Answer: When there is an unplanned decrease in inventories.

Question 35: If the government raises the amount of taxes, holding everything else constant, then: Answer: Disposable income will decrease.

Question 36: The relationship between the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) can best be described as: Answer: All of the above (specifically: $MPC + MPS = 1$; $MPC = 1 – MPS$; $MPS = 1 – MPC$).

Question 37: The aggregate expenditures line will be: Answer: upward sloping with a flatter slope than the 45-degree line.

Question 38: If there is an increase in the marginal propensity to consume (MPC), then: Answer: the value of the expenditure multiplier will increase.

Question 39: In a closed economy, the MPC is 0.60. If Investment changes by -200, then the change in equilibrium GDP is: Answer: -500

Question 40: Which of the following statements regarding aggregate expenditure and aggregate demand is correct? Answer: Aggregate expenditure shows the amount of desired spending from given levels of income, while aggregate demand shows the amount of desired spending from given levels of prices.

Question 41: The economic definition of money is: Answer: Any asset that people are generally willing to accept in exchange for goods and services.

Question 42: Which of the following is not a function of money? Answer: Commodity

Question 43: Credit cards are included in: Answer: neither the M1 definition of the money supply nor in the M2 definition.

Question 44: Suppose the reserve requirement is 15%. What is the effect on total checkable deposits in the economy if bank reserves increase by $50 billion? Answer: $333 billion increase

Question 45: An initial increase in a bank’s reserves will increase checkable deposits: Answer: by an amount greater than the increase in reserves.

Question 46: Which of the following is NOT a policy tool the Federal Reserve uses to manage the money supply? Answer: Changing income tax rates.

Question 47: The Federal Open Market Committee (FOMC): Answer: All of the above (It determines the target fed funds rate, includes governors and regional bank presidents, and voting members include 7 governors and 5 presidents).

Question 48: In addition to the Federal Reserve Bank, what other economic actors influence the money supply? Answer: Households, firms, and banks.

Question 49: Evidence shows that the quantity equation is correct over the long run, which implies that the growth rate of: Answer: the money supply determines the rate of inflation.

Question 50: Based on the quantity theory of money, if velocity is constant, inflation is likely to occur when: Answer: The money supply grows at a faster rate than real GDP.