BADM 606 Principles of Macroeconomics Final Exam Summer II 2001 Dr. Silver. Name. You are to answer all of the following questions.

Transcription

1 BADM 606 Principles of Macroeconomics Final Exam Summer II 2001 Dr. Silver Name You are to answer all of the following questions.

2 Section 1 Multiple Choice. Answer ALL of the following. 1. An increase in product price will cause: a. the demand curve to shift to the left. b. the supply curve to shift to the right. c. quantity demanded to increase. d. quantity supplied to decrease. e. quantity demanded to decrease. 2. An 'increase in demand' means that: a. the demand curve has shifted to the left. b. price has declined and consumers therefore want to purchase more of the product. c. the demand curve has shifted to the right. d. given supply, the price of the product can be expected to decline. 3. If real GDP increases and the price index has increased: a. money GDP must have fallen. b. money GDP must have increased. c. money GDP may have either increased or decreased. d. the percentage increase in money GDP must have been less than the percentage increase in the price level. 4. The value of American imports are: a. included in GDP because they reflect spending by Americans. b. not included in GDP because they do not entail spending by Americans. c. not included in GDP because they do not entail productive activity in the United States. d. included in GDP because they do not entail productive activity in the United States. 5. The United States' economy is generally considered to be at 'full employment' when: a. 100 percent of the labor force is employed. b. about 4 to 6 percent of the labor force is unemployed. c. about 90 percent of the labor force is employed. d. At least 90 percent of the total population is employed. e. 10 to 20 percent of the labor force is unemployed. 6. The official unemployment rate is: a. the percentage of the total population which is not working. b. the percentage of the civilian labor force which is unemployed. c. the ratio of unemployed to employed workers. d. those people over 16 years of age who are not currently seeking employment. 7. The consumer price index was 298 in 1983 and 311 in Therefore, the rate of inflation in 1984 was about: a. 13 percent. b. 2.8 percent. c. 4.4 percent. d. 6 percent.

3 8. Which of the following will NOT cause the demand curve for a product to shift? a. a growing expectation that the product will be in short supply. b. the expectation of a recession. c. a change in the price of the product. d. a sharp increase in the amount of liquid assets held by households. 9. The investment-demand curve suggests: a. a direct relationship between the rate of interest and the level of investment spending. b. that an increase in business taxes will tend to stimulate investment spending. c. an inverse relationship between the real rate of interest and the level of investment spending. d. that the amount invested will not be affected by changes in the real interest rate. 10. In Keynesian economics the size of the MPC is assumed to be: a. less than zero. b. greater than one. c. greater than zero, but less than one. d. none of the above. 11. Generally speaking, the increase in income which results from an increase in investment spending would be greater the: a. smaller the marginal propensity to consume. b. larger the marginal propensity to save. c. smaller the average propensity to consume. d. smaller the marginal propensity to save. 12. Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion and that consumption is the only component of aggregate expenditures that depends upon the level of GDP. If the MPC is 5/8, what change in aggregate expenditures is needed to achieve full employment? a. an increase of $15 billion b. an increase of $40 billion c. an increase of $10 billion d. an increase of $25 billion e. a decrease of $12 billion 13. If the government increases its spending during recession in order to assist the economy in recovery, the funds for such expenditures must come from some source. According to Keynesian theory, which of the following sources would tend to be the most expansionary? a. additional taxes upon corporate profits b. borrowing from the public c. creating new money d. additional taxes upon personal incomes 3

4 14. If the government increases its spending during recession in order to assist the economy in recovery, the funds for such expenditures must come from some source. According to monetarist theory, which of the following sources would tend to be the most expansionary? a. additional taxes upon corporate profits b. borrowing from the public c. creating new money d. additional taxes upon personal incomes 15. Supply-side economists argue that the primary effect of tax cuts is to: a. shift the aggregate supply curve leftward. b. shift the aggregate demand curve leftward. c. shift the aggregate supply curve rightward. d. lower real GDP and increase the price level. 16. The 'crowding-out effect' suggests that: a. consumer and investment spending always vary inversely. b. it is very difficult to have excessive aggregate c. spending in our economy. d. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. 17. According to rational expectations theory: a. workers cannot anticipate the inflationary effects of expansionary public policies. b. workers can perfectly predict inflation with the result that the Phillips Curve is vertical. c. workers only adapt their wage demands to inflation after a considerable time lag. d. the Phillips Curve is quite flat so that a large reduction in employment can be achieved with little inflation. 18. The major component of the money supply (M1) is: a. coins. b. paper money in circulation. c. checkable deposits. d. gold certificates. 19. If the money GNP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes: a. will be $1800 billion. b. will be $600 billion. c. will be $200 billion. d. cannot be determined from the information given. 4

5 20. In the U.S. economy the money supply is controlled by the: a. Congress. b. Senate Committee on Banking and Finance. c. Federal Reserve System. d. U.S. Treasury. e. President. 21. The money supply is 'backed': a. dollar-for-dollar with gold bullion. b. dollar-for-dollar with gold and silver. c. by government bonds. d. by the government's ability to control the supply of money and therefore to keep its value relatively stable. 22. Checkable deposits are classified as money because: a. they earn interest income for the depositor. b. they are ultimately the obligations of the Treasury. c. banks hold currency equal to the value of their outstanding deposits. d. they can be readily used in the making of purchases and payment of debts. 23. The opportunity cost of holding money: a. varies inversely with the level of economic activity. b. varies directly with the interest rate. c. varies inversely with the interest rate. d. is zero because money is not an economic resource. 24. When a bank loan is repaid the supply of money: a. may either increase or decrease. b. is increased. c. is decreased. d. is constant, but its composition will have changed. 25. A tight money policy may be offset by: a. an increase in the rate of velocity of money. b. a decline in the velocity of money. c. a budget surplus. d. a deterioration in the profit expectations of businessmen. 26. A contraction of the money supply tends to: a. lower both the interest rate and aggregate expenditures. b. lower the interest rate, but increase aggregate expenditures. c. increase the interest rate and aggregate expenditures. d. increase the interest rate, but decrease aggregate expenditures. 5

6 27. Assuming the reserve requirement is 20 percent and commercial banks have no excess reserves initially, the commercial banking system could increase the money supply by a maximum of $1,000,000 if the Federal Reserve Banks would: a. buy $250,000 of securities from commercial banks. b. sell $1,000,000 of securities to commercial banks. c. buy $1,000,000 of securities from commercial banks. d. buy $200,000 of securities from commercial banks. e. sell $200,000 of securities to commercial banks. 28. Which of the following best describes the Keynesian cause-effect chain of an easy money policy? a. An increase in the money supply will lower the interest rate, increase investment spending, and increase GDP. b. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease GDP. c. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP. d. A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP. 29. The Federal Reserve System regulates the money supply primarily by: a. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply. b. altering the reserves of commercial banks, largely through sales and purchases of government bonds. c. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. d. controlling the production of coins at the United States mint. 30. Which of the following is NOT a tool of monetary policy? a. changes in the discount rate. b. changes in tax rates. c. changes in reserve requirements. d. open market operations. 31. Monetarists advocate that the: a. money supply should be increased during inflation and reduced during recession. b. money supply should be reduced during inflation and increased during recession. c. money supply should be increased by a constant rate year after year. d. functional finance approach to fiscal policy be adopted. 6

7 32. Keynesians take the position that: a. monetary policy is more important than fiscal policy. b. monetary policy and fiscal policy are equally important. c. fiscal policy is more important than monetary policy. d. monetary policy is more important than fiscal policy during recession, but the opposite holds true during inflation. 33. According to the monetarists, the transmission mechanism for changes in the money supply is such that a change in the money supply changes: a. the nominal GDP. b. the interest rate which in turn changes the nominal GDP. c. investment spending which in turn changes the nominal GDP. d. the velocity of money which in turn changes the nominal GDP. 34. Assume that France and Britain have floating exchange rates. Other things being unchanged, if economic growth is more rapid in France than in Britain: a. the French franc will appreciate, or strengthen. b. The British pound will depreciate, or weaken. c. the French franc will depreciate. d. gold bullion will flow out of France. 35. Assume that France and Britain have a fixed exchange rate. Other things being unchanged, if economic growth is more rapid in France than in Britain: a. the franc will appreciate, or strengthen. b. the pound will depreciate, or weaken. c. the franc will depreciate. d. gold bullion will flow out of France. 36. Assume the United States is experiencing a 12 percent rate of unemployment with stable prices and is incurring a trade surplus. The use of appropriate fiscal and monetary policies to reduce unemployment: a. would increase the trade surplus b. would decrease the trade surplus. c. would have no impact upon the trade surplus. d. would cause the dollar to appreciate in value. 37. Suppose the United States increases its budget deficit to increase growth of real GDP. This policy will lead to a. lower interest rates, a depreciation of the US dollar and improvement in the balance of payments. b. higher interest rates, a depreciation of the dollar, and a worsening of the balance of payments. c. higher interest rates, appreciation of the dollar, and a worsening of the balance of payments. d. lower interest rates, appreciation of the dollar, and an improvement in the balance of payments. 7

8 38. One of the principal advantages of a flexible exchange rate system is that it a. allows economic improvement in one country to help promote growth in another country. b. insulates one country from expansionary and contractionary macroeconomic policies of other countries. c. facilitates the rapid adjustment of monetary disequilibria via gold flows. d. increases macroeconomic coordination among trading partners. 8

9 BADM 606 Exam I - Part II Dr. Silver Answer the following two problems. 1. Growth Rates. The table below shows nominal GDP (Y) data for the U.S. for 1980 and Also shown are data for the GDP deflator (P) and the population (N). Calculate annual growth rates for GDP and population and the average inflation rate for the 14 years. Then calculate real GDP growth and per-capita, real GDP growth annually for that period. Year Nominal GDP (in $billions) GDP deflator (1987 = 100) Population (in millions) a. Growth rate of Nominal GDP = b. Inflation rate = c. Growth rate of population = d. Growth rate of real GDP = e. Growth rate of real GDP per capita = 9

10 2. Keynesian Model. Given Y = C + I + G + X, all variables in $ billion. C = (Y T), T =.2Y. X = Y, and I = G = 1000, Find equilibrium Y, as well as the following: a. the Keynesian multiplier b. the budget surplus or deficit c. the trade surplus or deficit d. the effect on equilibrium of a $100 billion increase in G e. the recessionary or inflationary gap, if full-employment level of Y is 7500 (specify which type of gap by circling the correct one). C. Money multiplier problem Currency holdings by the public are 200 billion, bank reserves are 100 billion. Bank reserves are 10 percent of deposits. a. Deposits at banks are b. The money supply is c. The monetary base is d. The money multiplier is e. If the Fed buys 10 billion in Treasury securities, the money supply will be changed by 10