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University of North Dakota – MACRO ECONO 202  Practice Exam 2 Spring 2017 1)If actual unemployment is at its natural rate: A) inflation is very low

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University of North Dakota – MACRO

ECONO 202

 Practice Exam 2 Spring 2017

1)If actual unemployment is at its natural rate: A) inflation is very low.

1. 2. there is deflation.
   3. the unemployment rate is zero.
   4. interest rates are rising.

 

 

2. Which of the following statements does NOT describe a problem in measuring the consumer price index (CPI)?
   1. The CPI measures only private goods and services.
   2. The CPI uses a fixed market basket of goods determined by surveys that are three to five years old.
   3. Approximately 10% of the original market basket must be replaced each year by products that are improved or modified.
   4. The CPI quickly includes new products in its baskets.

 

 

3. _____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services.
   1. The consumer price index
   2. The producer price index
   3. Personal consumption expenditure
   4. The GDP deflator

 

 

4. For your purchasing power to stay the same, your wages must: A) increase faster than the rate of inflation.
   2. increase at the same rate as inflation.
   3. decrease as the rate of inflation increases.
   4. increase more slowly than the rate of inflation.

 

 

Use the following to answer question 5:

 

Population	500
Number employed	300
Number unemployed	50

 

 

 

5. (Table) According to the table, what is the labor force of this economy?
   1. 50
   2. 300
   3. 350 D) 500

 

 

6. Suppose the Bureau of Labor Statistics collects the data presented in the following table:

Year    Cost of Basket

1. 2010. $200
   2011. $230
   2012. $250

If 2010 is the base year, then the consumer price index for 2012 is: A) 100.

1. 2. 114.
   3. 115. D) 125.

 

 

7. Last year the consumer price index (CPI) was 115 and this year's CPI is 125. The rate of inflation is:

A)	8.7%.
B)	8%.
C)	9.2%.
D)	10.8%.

 

 

8. Which of the following statements describes a difference between the consumer price index (CPI) and the producer price index (PPI)?
   1. Only the CPI is associated with the problem of quality changes.
   2. Only the PPI is associated with the problem of deleted products.
   3. Only the PPI measures net revenues received by firms.
   4. Only the PPI has a fixed market basket.

 

 

9. The current consumer price index is: A) a cost-of-goods index.
   2. a true cost-of-living measure.
   3. based on a changing bundle of goods and services from one period to the next.
   4. calculated by dividing the market basket's cost in the base period by its cost in the current period.

 

 

Use the following to answer question 10:

 

Population	500
Number employed	300
Number unemployed	50

 

 

 

10. (Table) According to the table, what is the unemployment rate of this economy?

A)	10%
B)	14.3%
C)	16.67%
D)	25%

 

 

11. Cyclical unemployment occurs when: A) workers are fired.
    2. workers quit their job to raise a family.
    3. the economy slows down and workers are laid off.
    4. workers retire earlier than age 66.

 

 

12. Which statement about the Weekly Jobs Report is NOT true? A) It is released by the Department of Labor.
    2. It contains an estimate of the total number of people receiving unemployment benefits.
    3. It is used as a way to estimate trends in layoffs.
    4. It is used as a way to estimate trends in hiring.

 

 

Use the following to answer question 13:

 

	2012	2013	2014
Nominal GDP (billions of $)	7,280		8,000
Real GDP (billions of $)	7,280	7,425
GDP deflator		103.6	106.1

 

 

 

13. (Table) According to the table, real GDP for 2014 is approximately: A) $7,540 billion.
    2. $7,894 billion.
    3. $8,106 billion. D) $8,488 billion.

 

 

14. In the United States, the Census Bureau computes the unemployment rate from: A) data on applications for unemployment compensation.
    2. data reported to it by firms when employees leave.
    3. the Current Population Survey.
    4. tax records.

 

 

15. An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______. (Round the percentage to one decimal place; for example, 0.0436 is 4.4%.)

A)	6.5%
B)	21.0%
C)	5.5%
D)	21.1%

 

 

16. Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% in the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%:
    1. creditors gain at debtors' expense.
    2. people on a fixed income see the purchasing power of their incomes rising.
    3. debtors gain at  creditors' expense.
    4. there's a redistribution of income from creditors to debtors.

 

 

Use the following to answer question 17:

 

	2012	2013	2014
Nominal GDP (billions of $)	$2,291		$8,511
Real GDP (billions of $)	$4,500	$5,865
GDP Deflator
		86.1	112.7

 

 

 

17. (Table) According to the table, real GDP for 2014 is approximately: A) $6,552 billion.
    2. $7,052 billion.
    3. $7,552 billion. D) $8,052 billion.

 

 

18. Retirees and creditors:
    1. benefit from inflation because they are paid in cheaper dollars.
    2. benefit from inflation because interest rates rise.
    3. are hurt by inflation because their purchasing power drops.
    4. are hurt by inflation because taxes fall.

 

 

19. A passive job search:
    1. entails merely talking to friends about jobs.
    2. means doing things like sending off résumés.
    3. entails the scheduling of job interviews.
    4. includes contacting a private employment agency.

 

 

20. Which of the following statements is NOT correct?
    1. Discouraged workers have stopped actively seeking work.
    2. Discouraged workers are not classified as unemployed.
    3. Discouraged workers are considered underemployed.
    4. Discouraged workers are considered part of the leisure class, not part of the labor force.

 

 

21. If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing: A) inflation.
    2. disinflation.
    3. deflation.
    4. hyperinflation.

 

 

22. Prices from about ________ goods and services are collected each month by Bureau of Labor Statistics data collectors to be used in calculating the consumer price index.
    1. 800
    2. 8,000
    3. 80,000 D) 800,000

 

 

23. Roughly half of unemployment normally consists of: A) people who lost their job.
    2. people who were job leavers.
    3. people reentering the job market.
    4. people who are new to the job market.

 

 

24. Since the invention of automatic teller machines, many bank tellers have lost their job. This is an example of ______ unemployment.
    1. structural
    2. frictional
    3. cyclical
    4. statistical

 

 

25. GDP is $10 trillion in 2001. The GDP deflator is 100 in 2000 and is 110 in 2001. What is real GDP? A) $10 trillion
    2. $11.1 trillion
    3. $9.09 trillion
    4. $110 trillion

 

 

26. According to Malthus, what part of the economy might increase at a rate such that the data would show an increase from 1,000 to 2,000 to 4,000 to 16,000?
    1. population
    2. food
    3. GDP
    4. inflation

 

 

27. If the growth rate in an economy is 2%, its GDP will double in about:

A)	70 years.
B)	140 years.
C)	35 years.
D)	28 years.

 

 

28. If technology is held constant, an increase in capital concurrent with a decrease in labor input causes output to:
    1. rise, fall, or stay the same.
    2. rise.
    3. fall.
    4. stay the same.

 

 

29. The classical form of the production function states that:
    1. Output = f(L / K)
    2. Output = f(N, K)
    3. Output = f(L, K)
    4. Output = f(N / K)

 

 

30. Which of the following technologies most strongly affected the growth in U.S.

productivity in recent decades?

1. 1. railroads
   2. microcomputers
   3. ticker tape
   4. petrochemicals

 

 

31. If the growth rate in an economy is 3.5%, then its GDP will double in about:

A)	3.5 years.
B)	20 years.
C)	70 years.
D)	245 years.

 

 

32. The World Bank defines extreme poverty as a person living on less than: A) $1.25 per day.
    2. $2 per day.
    3. $16 per day
    4. $5,763 per year.

 

 

33. Unanticipated _____ is detrimental to economic growth.
    1. inflation but not deflation
    2. inflation or deflation
    3. deflation but not inflation
    4. Neither inflation nor deflation is detrimental to economic growth.

 

 

34. In his essay on population, Malthus argued that any improvement in the standard of living would lead to:
    1. an increase in the population that would outstrip the growth in food supply.
    2. a decrease in the population that would lead to utopia.
    3. an increase in the population matched by an increase in the food supply.
    4. a decrease in the population matched by a decrease in the food supply.

 

 

35. Which is NOT a characteristic of a stable financial system?
    1. stable prices
    2. flourishing credit markets
    3. ease of making financial transactions
    4. unanticipated high inflation

 

 

36. Increases in ___________ often lead to economic growth.
    1. technology
    2. public goods
    3. money supply
    4. government regulations

 

 

37. A production function of the sort that says output per worker equals A * f(L / L, K / L, H / L, N / L) tells us all of the following EXCEPT that ____________ will lead to a better standard of living.
    1. increases in capital
    2. more people
    3. more human capital
    4. more natural resources

 

 

38. Which of the following institutions is the best example of public capital?
    1. accounting network of a public utility
    2. shopping mall
    3. Department of Motor Vehicles
    4. highway system

 

 

39. Rocky Gap Furniture employs 10 workers working eight hours each to produce 100 rocking chairs. What is the productivity of these workers?
    1. 2.5 chairs per hour
    2. 1.25 chairs per hour
    3. 100 chairs
    4. 50 chairs

 

 

40. Joseph's Schumpeter's idea that waves of innovations lead to business cycles is called: A) creative destruction.
    2. innovative destruction.
    3. the theory of technological business cycle.
    4. the upward spiral.

 

 

41. Land and natural resources include:
    1. the mental and physical talents of people.
    2. human capital.
    3. manufactured products that are used to produce other goods and services.
    4. water and minerals that come from the earth.

 

 

42. Economic growth is most commonly measured by: A) GDP.
    2. GDP per capita.
    3. Genuine Progress Indicator per capita.
    4. real GDP per capita.

 

 

43. When the government records a deed showing that ownership of a piece of property has passed from one party to another, it is acting in its role to promote economic growth by: A) ensuring a stable legal system.
    2. providing physical and human capital.
    3. ensuring a stable and secure financial system.
    4. promoting free and competitive markets.

 

 

44. Every year in India:
    1. about a million people get out of poverty.
    2. tens of millions of people get out of poverty.
    3. tens of millions people fall into poverty.
    4. about a million people fall into poverty.

 

 

45. Which of the following statements is FALSE?
    1. Economic growth leads to lower poverty rates.
    2. Economic growth always leads to a more equitable distribution of income.
    3. Economic growth leads to longer life expectancies.
    4. Economic growth leads to increased consumption of goods and services.

 

 

46. Which of the following factors is NOT generally viewed by economists as critical to economic growth?
    1. strong and fair legal system
    2. stable monetary system
    3. access to large amounts of natural resources
    4. economic freedom

 

 

47. Which of the following changes will NOT result in economic growth according to the production function?
    1. improvements in the productivity of labor
    2. increases in consumption spending
    3. increases in capital
    4. improvements in technology

 

 

48. As a rule, the more capital employed with workers, the ________ their productivity and the ________ their earnings.
    1. lower; higher
    2. lower; lower
    3. higher; higher
    4. higher; lower

 

 

49. The Rule of 70 states that the number of years required for a value to double in size is: A) 70.
    2. 70 times the growth rate.
    3. 70 divided by the growth rate. D) the growth rate divided by 70.

 

 

50. Which of the following items is NOT an example of investment in human capital?
    1. policy of universal education
    2. on-the-job training
    3. acquisition of obsolete skills
    4. apprenticeship

 

 

51. If AE = $7,600 and Y = $8,000, businesses will produce: A) more, raising both employment and income.
    2. less, lowering both employment and income.
    3. more, raising employment and lowering income.
    4. less, lowering employment and raising income.

 

 

52. During the millennium scare of 2000, Rufus reduced his monthly spending by $1,000 and buried his money in the backyard. If the marginal propensity to consume is 0.75, by how much did national income fall?
    1. $1,000
    2. 0
    3. $4,000
    4. It actually increased $4,000.

 

 

53. If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.
    1. $800
    2. $1,000
    3. $5,000 D) $8,000

 

 

54. Investment spending:
    1. tends to be volatile.
    2. is the largest component of total spending.
    3. is not sensitive to interest rates.
    4. is limited to the stock and bond markets.

 

 

55. One implication of a straight line aggregate expenditure curve is that: A) the marginal propensity to consume is constant.
    2. the average propensity to consume is constant.
    3. the average propensity to save is constant.
    4. All of the answers are correct.

 

 

Use the following to answer question 56:

 

(Table)

Disposable Income	Consumption
$1,000	$1,200
$1,200	$1,300
$1,400	$1,400
$1,600	$1,500
$1,800	$1,600

 

 

 

56. (Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?

A)	0.5
B)	−0.5
C)	1.5
D)	−1.5

 

 

57. If income is $5,000 per month and consumption spending is $4,500 per month, what is the average propensity to consume?
    1. 0.9
    2. 1.11
    3. 500
    4. −500

 

 

58. According to Keynesian analysis, if households intend to save more, they will: A) ultimately spend more.
    2. cause jobs to increase because investment will increase.
    3. ultimately cause job losses.
    4. cause the GDP to increase because inflation will decrease.

 

 

59. In the simple Keynesian model, if desired investment is greater than desired saving: A) the multiplier effect will move the economy to a lower income level.
    2. income and output will rise.
    3. interest rates will fall.
    4. actual savings will fall as the economy moves to a lower output level.

 

 

60. Which of the following is FALSE regarding the Keynesian model?
    1. Aggregate expenditures can be expressed as C + I + G + (X – M).
    2. GDP can be measured as the sum of all spending.
    3. The four main types of spending are consumer, investment, government, and net exports.
    4. Aggregate spending is always less than aggregate income.

 

 

61. If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output.
    1. $750
    2. $1,000
    3. $4,000 D) $7,500

 

 

62. In the simple Keynesian model of the private economy, which of the following is assumed?
    1. The consumer price index can rise or fall.
    2. Households and firms are savers.
    3. The aggregate price level can change.
    4. There is considerable slack in the economy.

 

 

Use the following to answer question 63:

 

Income	Consumption
$0	$250
$500	$700
$1,000	$1,150
$1,500	$1,600
$2,000	$2,050
$2,500	$2,500

 

 

 

63. (Table) The table shows data on consumption at various levels of income. The value of the marginal propensity to save is: A) 0.1.
    2. 0.25.
    3. 0.75.
    4. 0.9.

 

 

64. In Keynesian macroeconomic equilibrium: A) AE = I and C = S.
    2. AE = S and C = I.
    3. AE = Y and C = S.
    4. AE = Y and S = I.

 

 

65. In the simple Keynesian model, the only two things you can do with your income are: A) pay taxes and spend it.
    2. spend it and save it.
    3. spend it and invest it.
    4. save it and give it.

 

 

66. Which of the following is true of macroeconomic equilibrium in the simple Keynesian model?
    1. AE = Y
    2. Y = C – S
    3. AE + C = I
    4. I = S + C

 

 

67. Which of the following statements is CORRECT?
    1. Keynesian economics is unrelated to the events of the Great Depression.
    2. Classical economics approaches the economy as three separate but interrelated sectors, while Keynesian economics looks at the economy as a whole.
    3. Keynesian economics was developed by the Scholastic School at Salamanca in the late medieval period.
    4. The classical school of economics was developed during the classical age of Greece.

 

 

68. The increase in aggregate spending needed to bring an economy to full employment is called:
    1. goal-oriented spending.
    2. the inflationary gap.
    3. gap closure spending.
    4. the recessionary gap.

 

 

Use the following to answer question 69:

 

Income	Consumption
$0	$500
$1,000	$1,250
$2,000	$2,000
$3,000	$2,750
$4,000	$3,500

 

 

 

69. (Table) The table shows data on consumption at various levels of income. The value of the APS at equilibrium is:
    1. −0.25.
    2. 0.
    3. 0.083. D) 0.125.

 

 

70. Keynes believed that saving is a function of: A) the interest rate.
    2. income.
    3. GDP.
    4. the price of money.

 

 

71. Classical economists claim that ______ is the primary determinant of saving, and

Keynes claimed that ______ is the primary determinant of saving.

1. 1. the interest rate; income
   2. income; the interest rate
   3. taxes; government spending
   4. GDP; disposable income

 

 

72. If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is: A) 0.2.
    2. 0.25.
    3. 0.75.
    4. There is not enough information to answer this question.

 

 

Use the following to answer question 73:

 

Income	Consumption
$0	$250
$500	$700
$1,000	$1,150
$1,500	$1,600
$2,000	$2,050
$2,500	$2,500

 

 

 

73. (Table) The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is: A) 0.25.
    2. 0.75.
    3. 0.8. D) 0.9.

 

 

74. Which country has changed from being a high-saving country to a low-saving one?
    1. China
    2. Germany
    3. India
    4. Japan

 

 

75. If you spend $35,000 and your income is $60,000, what is your average propensity to save? A) 0.7
    2. 0.3
    3. 0.58 D) 0.42

 

 

76. (Figure: Aggregate Demand Shift)

 

 

 

The shift in aggregate demand depicted may be due to a(n): A) increase in consumer confidence.

1. 2. decrease in interest rates.
   3. increase in income taxes.
   4. increase in exports.

 

 

77. The proportion of additional income that consumers spend is known as the: A) marginal propensity to save.
    2. marginal propensity to consume.
    3. average propensity to save.
    4. average propensity to consume.

 

 

78. In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in:
    1. increased inflation.
    2. increased output.
    3. both increased output and increased inflation.
    4. neither increased output nor increased inflation.

 

 

79. Demand-pull inflation is caused by:
    1. increases in wages pulling up prices.
    2. increases in aggregate demand.
    3. decreases in aggregate supply.
    4. consumers demanding better quality, which increases costs.

 

 

80. When the price of a product falls, causing consumers to purchase more of that product and less of other products, it is the: A) income effect.
    2. substitution effect.
    3. wealth effect.
    4. interest rate effect.

 

 

81. If the U.S. aggregate price level rises: A) U.S. imports rise.
    2. the aggregate demand curve shifts to the left.
    3. the aggregate demand curve shifts to the right.
    4. business investment increases.

 

 

82. If an economy is on the vertical portion of the aggregate supply curve, then it: A) is overheating.
    2. is at full employment.
    3. has high unemployment.
    4. is in a severe recession.

 

 

83. ______ are components of consumer spending that affect aggregate demand.
    1. Expected rates of return on investment
    2. Taxes
    3. Exchange rate changes
    4. Government spending programs

 

 

84. _____ occurs when a negative supply shock hits the economy, shifting the short-run aggregate supply curve leftward. A) Demand-pull inflation
    2. Demand-push inflation
    3. Cost-push inflation
    4. Cost-pull inflation

 

 

85. The output of all the goods and services demanded in an economy at various price levels is called:
    1. the quantity-price locus.
    2. aggregate demand.
    3. economic production.
    4. the price-output curve.

 

 

Use the following to answer question 86:

 

Figure: Predicting Aggregate Demand Shifts

 

 

 

 

 

86. (Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD₂ to AD₁?
    1. a tax cut
    2. an increase in interest rates
    3. an increase in government purchases
    4. an improvement of consumer expectations about the future

 

 

87. The curve that shows how much GDP is demanded at various price levels is called: A) the aggregate expenditures schedule.
    2. the consumption line.
    3. aggregate demand.
    4. aggregate supply.

 

 

88. A rising aggregate price level _______ an economy's interest rates and therefore _____ output demanded. A) increases; increases
    2. increases; reduces
    3. reduces; increases
    4. reduces; reduces

 

 

89. What would cause the price level to decrease and employment to increase?
    1. a shift to the left of the AD curve
    2. a shift to the right of the AD curve
    3. a shift to the left of the SRAS curve
    4. a shift to the right of the SRAS curve

 

 

90. Decreased interest rates will shift the aggregate demand curve to the _____ and _____ output demanded. A) left; decrease
    2. left; increase
    3. right; increase
    4. right; decrease

 

 

Use the following to answer question 91:

 

Figure: Determining SRAS Shifts

 

 

 

 

 

91. (Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS₀ to _____ and the price level will become _____.
    1. SRAS₁; P₀
    2. SRAS₁; P₁
    3. SRAS₂; P₁ D) SRAS₂; P₂

 

 

92. Who recognized the need to develop tools to analyze the macroeconomy as a whole?
    1. Adam Smith
    2. Karl Marx
    3. John Maynard Keynes
    4. Milton Friedman

 

 

93. If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will: A) shift to the left.
    2. shift to the right.
    3. not change.
    4. become vertical.

 

 

94. Cost-push inflation occurs because of a shift to the: A) right of the short-run aggregate supply curve.
    2. left of the short-run aggregate supply curve.
    3. right of the aggregate demand curve.
    4. left of the aggregate demand curve.

 

 

95. (Figure: Understanding Aggregate Graphs) 

 

 

 

This economy is currently at point a. This figure depicts an economy: A) in neither short-run nor long-run equilibrium.

1. 2. in short-run equilibrium only.
   3. in both short-run and long-run equilibrium
   4. in long-run equilibrium only.

 

 

96. Which of the following statements regarding the short-run aggregate supply curve is

TRUE?

1. 1. The short-run aggregate supply curve shifts to the left when tax rates on businesses are lowered.
   2. The short-run aggregate supply curve shifts to the right when the costs of capital rise.
   3. The short-run aggregate supply curve shifts to the left when business expectations become more positive.
   4. The short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations.

 

 

97. Economic growth is shown as a:
    1. shift to the left in the long-run aggregate supply curve.
    2. movement up along the short-run aggregate supply curve.
    3. shift to the right in the long-run aggregate supply curve.
    4. shift to the left in the short-run aggregate supply curve.

 

 

Use the following to answer question 98:

 

Figure: Interpreting Aggregate Shifts

 

 

 

 

 

98. (Figure: Interpreting Aggregate Shifts) The graph shows: A) a decrease in aggregate quantity supplied.
    2. an increase in aggregate quantity supplied.
    3. a decrease in aggregate demand.
    4. an increase in aggregate demand.

 

 

99. Suppose the government raises income taxes, so consumers have less take-home pay.

This policy action will cause a(n):

1. 1. increase in aggregate demand.
   2. decrease in aggregate demand.
   3. increase in short-run aggregate supply.
   4. decrease in short-run aggregate supply.

 

 

100. Output definitely increases if aggregate demand ______ and aggregate supply ______.
     1. increases; increases
     2. rises; falls
     3. falls; rises
     4. decreases; decreases