Macro Economic Principles Quiz Student: 1. Suppose a bank has $200,000 in deposits and a required reserve ratio of 15 percent. Then required reserves are: A. $3,000. B. $1,333,333. C. $3,000,000. D. $30,000. 2. Deflation is: A. An increase in the average level of prices of goods and services. B. The price of one good in comparison with the price of other goods. C. A decrease in the relative price of all goods and services. D. A decrease in the average level of prices of goods and services. 3. The law of increasing opportunity costs explains: A. How everything becomes more expensive as the economy grows. B. The shape of the production-possibilities curve. C. Inflation. D. All of the above. 4. If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion, then consumption will increase by: A. $2,000 billion. B. $800 billion. C. $1,200 billion. D. $600 billion. 5. Which of the following is a fiscal policy tool used to stimulate the economy? A. Higher interest rates. B. Increased imports. C. Reducing inefficient employment of resources. D. Increased government purchases. 6. In the long run, an increase in aggregate demand will lead to: A. A higher price level and an increase in real GDP. B. A higher price level. C. An increase in real GDP. D. A decrease in real GDP. 7. Money held to buy stocks and bonds in the future represents the: A. Transactions demand for money. B. Interest earning demand for money. C. Bond broker demand for money. D. Speculative demand for money. Page 1
8. A rightward shift in the aggregate supply curve should result in: A. Inflation and a higher unemployment rate. B. Inflation and a lower unemployment rate. C. Deflation and a higher unemployment rate. D. Deflation and a lower unemployment rate. 9. If leakages are greater than injections, then equilibrium output will be: A. Less than full-employment output and a recessionary gap will occur. B. Less than full-employment output and an inflationary gap will occur. C. More than full-employment output and a recessionary gap will occur. D. More than full-employment output and an inflationary gap will occur. 10. A grocery store pays a farmer $0.13 per ear of corn. If it costs the farmer $0.08 in inputs to grow each ear, the value added by the farmer to each ear of corn is: A. $0.05. B. $0.08. C. $0.13. D. $0.21. 11. Which of the following is not a determinant of autonomous consumption? A. Expectations. B. Wealth. C. Credit. D. Disposable income. 12. Unemployment that occurs in the construction industry because the ground is covered in snow and ice is: A. Seasonal unemployment. B. Structural unemployment. C. Frictional unemployment. D. Cyclical unemployment. 13. When unwanted business inventories pile up, which of the following is likely to occur? A. A higher level of unemployment. B. A lower price level. C. A lower level of output. D. All of the above. 14. Suppose the consumption function is C = 100 + 0.85YD. If disposable income is $400, savings is: A. - $40.00. B. $40.00. C. - $15.00. D. $15.00. Page 2
15. If the price index is 104.8 for 2001 and the price index is 107.3 in 2002, a nominal GDP in 2002 of $10,000 billion would mean that the real GDP in 2002 would be closest to: A. $9892.7 billion. B. $10,730 billion. C. $10,107.3 billion. D. $9319.7 billion. 16. The aggregate supply curve is upward-sloping because of the: A. The real-balances effect. B. The foreign-trade effect. C. The interest-rate effect. D. The cost effect. 17. A shift in demand is defined as a change in the: A. Price. B. Quantity demanded because of a change in price. C. Quantity demanded at any given price. D. Equilibrium quantity. 18. Investment goods: A. Both maintain and expand production possibilities. B. Maintain production possibilities but do not expand them. C. Expand production possibilities but do not maintain them. D. Include consumption goods. Table 1.3 shows the hypothetical tradeoff between different combinations of jackets and skirts that might be produced in a year with the limited capacity for Country X, ceteris paribus. Complete the table by calculating the required opportunity costs for jackets and skirts. Then answer the indicated questions. Table 1.3 Production possibilities for jackets and skirts 19. On the basis of your calculations in Table 1.3, in the production range of 2 to 3 jackets the opportunity cost of producing 1 more jacket in terms of skirts is: A. 3.33. B. 7.0. C. 0.67. D. 0.14. Page 3
Table 5.1 National income accounts 20. On the basis of Table 5.1, disposable income is: A. $4,770 billion. B. $5,780 billion. C. $5,695 billion. D. $4,870 billion. Figure 4.1 21. Using Figure 4.1, suppose that point B represents the optimal mix of output for a society. If market forces cause society to produce at point C then: A. There is government failure. B. The forces of supply and demand will return society to point B. C. Points A and D are unattainable with the given resources and technology. D. There is market failure. Page 4
Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Complete Table 10.1 by calculating the spending cycles as the increased investment spending works its way through the economy. Table 10.1 22. In Table 10.1, what is the change in the third cycle of spending resulting from the higher initial investment? A. $50. B. $208. C. $325. D. $585. Figure 8.3 Aggregate supply and demand 23. Assume the economy is initially in equilibrium on AD1and AS1. Which curve would have shifted and in what direction would it have shifted, if a new equilibrium were to occur at an output level of $300 billion and a price level of P3in Figure 8.3? A. Aggregate supply would have shifted to the left. B. Aggregate supply would have shifted to the right. C. Aggregate demand would have shifted to the left. D. Aggregate demand would have shifted to the right. Page 5
Table 6.3 Population and labor force 24. What is the number of unemployed in year 5 in Table 6.3? A. 10 million. B. 105 million. C. 115 million. D. 135 million. Figure 5.2 25. In Figure 5.2, the fact that real GDP is greater than nominal GDP during the 1960-1980 period implies that: A. Average price levels during this period must have been lower than during the base period. B. Per capita GDP must have increased. C. Average price levels must have decreased during this period. D. Production must have decreased during this period. Page 6
Macro Economic Principles Quiz Key 1. (p. 273) D 2. (p. 133) D 3. (p. 8) B 4. (p. 182) C 5. (p. 226) D 6. (p. 173) B 7. (p. 302) D 8. (p. 168) D 9. (p. 216) A 10. (p. 99) A 11. (p. 183) D 12. (p. 122) A 13. (p. 210) D 14. (p. 185) A 15. (p. 100) D 16. (p. 165) D 17. (p. 52) C 18. (p. 32) A 19. (p. 7) B 20. (p. 108) D 21. (p. 71) D 22. (p. 213) B 23. (p. 168) D 24. (p. 117) A 25. (p. 102) A Page 1
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