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1 ECON 3312 Macroeconomics Practice Exam 3 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Assuming the economy is starting at the natural rate of output and everything else held constant, the effect of in aggregate is a rise in both inflation and output in the short -run, but in the long-run the only effect is a rise in inflation. A) a decrease; supply B) an increase; supply C) an increase; demand D) a decrease; demand 1) 2) When the aggregate demand curve shifts rightward, the price level and the unemployment rate. A) increases; increases B) does not change; does not change C) decreases; increases D) increases; decreases E) decreases; decreases 2) 3) According to the traditional interest-rate channel, expansionary monetary policy lowers the real interest rate, thereby raising expenditure on A) consumer nondurables. B) government expenditure. C) business fixed investment. D) net exports. 3) 4) Adaptive expectations assumes that individuals A) use all available information in predicting the future. B) base predictions on past observations of the variable being forecast. C) can accurately predict the future. D) form their predictions of macroeconomic variables randomly. E) none of the above 4) 5) The long-run aggregate supply curve is a vertical line passing through A) the natural rate of output. B) the natural-rate price level. C) the actual rate of unemployment. D) the expected rate of inflation. 5) 6) The short-run Phillips curve shows between the unemployment rate and the inflation rate and the long-run Phillips curve shows between the unemployment rate and the inflation rate. A) a negative relationship; a positive relationship B) no relationship; no relationship C) a positive relationship; a negative relationship D) a negative relationship; no relationship E) no relationship; a negative relationship 6) 7) If the curve is relatively more unstable than the curve, a money supply target is preferred. A) LM; LM B) IS; IS C) IS; LM D) LM; IS 7) 1

2 8) If the economy is on its short-run Phillips curve at the natural unemployment rate, then in the AS-AD model, real GDP is definitely A) decreasing. B) equal to potential GDP. C) greater than potential GDP. D) increasing. E) less than potential GDP. 8) 9) The rate of output at which the price level has no tendency to rise or fall is called the A) bliss point. B) efficient level of output. C) potential level of income. D) natural rate of output. 9) 10) Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause in real GDP in the short run and in inflation in the short run, everything else held constant. A) no change; a decrease B) a decrease; a decrease C) no change; an increase D) an increase; an increase 10) 11) In the figure above, the natural unemployment rate is A) 6 percent. B) 8 percent. C) 4 percent. D) 0 percent. E) 2 percent. 11) 12) Which of the following changes aggregate supply and shifts the AS curve? i. a change in the price of a major resource ii. increases in the amount of capital iii. a change in the money income of consumers A) iii only B) i, ii, and iii C) ii only D) i only E) i and ii 13) An increase in potential GDP aggregate supply and. A) decreases; shifts the AS curve rightward B) increases; shifts the AS curve leftward C) decreases; shifts the AS curve leftward D) increases; shifts the AS curve rightward E) has no effect on; does not shift the AS curve 12) 13) 2

3 14) The long-run Phillips curve shows the relationship between A) real GDP and the natural unemployment rate. B) real GDP and potential GDP. C) the inflation rate and the unemployment rate. D) the nominal interest rate and real interest rate. E) the inflation rate and the natural unemployment rate. 14) 15) The short-run Phillips curve is another way of looking at A) aggregate demand. B) potential GDP. C) Okunʹs law as applied to aggregate demand. D) the natural rate of unemployment. E) short-run aggregate supply. 15) 16) The expectations-augmented Phillips curve implies that as expected inflation increases, nominal wages to prevent real wages from. A) fall; rising B) fall; falling C) rise; rising D) rise; falling 16) 17) Everything else held constant, an increase in net taxes will cause the IS curve to shift to the and aggregate demand will. A) left; increase B) right; decrease C) right; increase D) left; decrease 17) Figure ) In Figure 4-6 above, with IS0 shifting to IS1 against the upward-sloping LM curve, at point 1 A) the demand for output is below Y1. B) the demand for output exceeds Y1. C) there is an excess demand for money. D) there is an excess supply of money. 18) 3

4 Figure ) In Figure 4-10 above, preferring the ʺeasy fiscal, tight moneyʺ policy mix at a certain income is why we are at A) point A rather than point C. B) point D rather than point B. C) point B rather than point D. D) point C rather than point A. 19) 20) Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for an increase in government spending. This increase in government spending will, in the short run, cause an increase in A) the nominal wage. B) the price level. C) the interest rate. D) all of the above E) none of the above 20) 21) Moving along the upward sloping AS curve, when the price level increases, the A) real wage rate rises, and there is an increase in the quantity of real GDP supplied. B) nominal wage rate falls, and there is an increase in the quantity of real GDP supplied. C) nominal wage rate rises, and there is a decrease in the quantity of real GDP supplied. D) real wage rate falls, and there is an increase in the quantity of real GDP supplied. E) real wage rate rises, and there is a decrease in the quantity of real GDP supplied. 21) 22) The short-run Phillips curve shows A) potential GDP. B) a tradeoff between real GDP and unemployment. C) the natural unemployment rate. D) the expected inflation rate. E) a tradeoff between the unemployment rate and the inflation rate. 22) 23) Moving along the short-run Phillips curve, a unemployment rate can only be achieved by paying the cost of. A) lower; a lower inflation rate B) lower; a higher inflation rate C) lower; a higher expected inflation rate D) higher; a higher inflation rate E) lower; a lower price level 23) 4

5 24) The curve shown in the figure above is the A) demand for money curve. B) aggregate demand curve. C) aggregate supply curve. D) potential GDP curve. E) Phillips curve. 24) 25) According to the AS-AD model, when real GDP exceeds potential GDP, the unemployment rate is definitely A) greater than the natural unemployment rate. B) rising. C) less than the natural unemployment rate. D) falling. E) equal to the natural unemployment rate. 25) 5

6 Answer Key Testname: ECON3312_EXAM3_REVIEW 1) C 2) D 3) C 4) B 5) A 6) D 7) C 8) B 9) D 10) B 11) A 12) E 13) D 14) E 15) E 16) D 17) D 18) C 19) C 20) D 21) D 22) E 23) B 24) E 25) C 6

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