ECON 222 Practice third exam Spring 2010

7. In which of the following situations is the percentage change in real GDP always positive? A. Depression B. Inflation C. Recession D. Growth recession 8. In the absence of external shocks or government policy an economy would: A. Still experience business cycle fluctuations because of internal market forces. B. Not experience business cycle fluctuations. C. Not be able to expand production and output. D. Still experience business cycle fluctuations because of factors such as wars and tax policy. 9. The aggregate demand curve is downward-sloping because, other things being equal: A. People buy fewer goods and services at lower average incomes. B. People buy more goods and services at lower average prices. C. A higher average price level will induce producers to offer more output than otherwise. D. People buy more goods and services at higher average prices. 10. Assume you have $1,000 in a savings account at the beginning of the year and the price level is equal to 100. If the price level is equal to 115 at the end of the year, the real value of your savings is closest to: A. $870. B. $885. C. $1,115. D. $1,150. 11. Ceteris paribus, if average prices in the U.S. economy fall, then the: A. Real-balances effect will lead to a lower quantity of output demanded. B. Foreign-trade effect will lead to a lower quantity of output demanded. C. Interest-rate effect will lead to a higher quantity of output demanded. D. Cost effect will lead to a higher quantity of output demanded. 12. Which of the following is not associated with the aggregate supply curve? A. Factors of production B. The interest-rate effect C. The profit effect D. The cost effect 13. Alternating periods of economic growth and contraction are: A. The result of government intervention according to Keynes. B. The result of recurrent shifts of aggregate demand and aggregate supply. C. Indicative of an unstable economy and require government intervention according to classical economists. D. Not typical of the U.S. economy. 14. Ceteris paribus, the price level will decrease if the aggregate: A. Supply curve shifts to the left. B. Demand curve shifts to the left. C. Demand curve shifts to the right. D. Supply and demand curves both shift to the right. 15. Which of the following economic perspectives focuses on the need for government to use spending and taxes to shift aggregate demand and thus correct problems of unemployment and inflation? A. Supply-side B. Keynesian C. Classical D. Monetarists 16. Assume the economy is initially in equilibrium on AD1 and 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 P3 in 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 17. Assume the economy is initially in equilibrium on AD2 and AS2. 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 P3 in 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 18. Macro equilibrium is established at which level of real output, given AD1 and AS2 in Figure 8.3? A. $100 billion B. $200 billion C. $300 billion D. $400 billion 19. Macro equilibrium is established at which price level, givenAD1 and AS1 in Figure 8.3? A. P1 B. P2 C. P3 D. P4 20. Given AD2 and AS1, the equilibrium price level in Figure 8.3 is: A. P1. B. P2. C. P3. D. P4. 21. Given AD1 and AS1, if the average price level in Figure 8.3 were at P3: A. A surplus would exist initially. B. The aggregate quantity demanded would exceed the aggregate quantity supplied. C. The average price level would rise. D. The equilibrium price level would be P3. 22. Given AD1 and AS1 in Figure 8.3, the Classical approach to achieving full employment at an output of $300 billion would be to: A. Increase taxes and increase government spending to shift AD1 to AD2. B. Increase the growth of the money supply to shift AD1 to AD2. C. Do nothing and wait for "natural" market forces to achieve full employment. D. Use all available supply-side options. 23. Given AD1 and AS1 in Figure 8.3, the Keynesian approach to achieving a higher level of output would be to: A. Impose price controls. B. Increase the growth of the money supply to shift AS1 to AS2. C. Do nothing. D. Employ an expansionary fiscal policy. 24. A supply-side policy approach in Figure 8.3, given AD1 and AS1, to achieve both lower prices and more output would be to: A. Increase the growth of the money supply. B. Reduce marginal tax rates and government regulation in an effort to move AS1 to AS2. C. Wait until natural market forces establish full employment. D. Increase aggregate spending. Choose the letter below that best represents the type of shift that would occur in each situation in the United States. 25. Between 1930 and 1935, millions of U.S. farm families lost their farms, and less output was produced by the remaining farms. (See Figure 8.6) A. A B. B C. C D. D 26. During the Great Depression most other countries suffered similarly long and deep losses of output and employment, which in turn meant fewer purchases of U.S. goods and services. (See Figure 8.6) A. A B. B C. C D. D 27. During World War II, the U.S. government spent huge amounts of money to fund the war effort, ceteris paribus. (See Figure 8.6) A. A B. B C. C D. D 28. When the economy overheated, the U.S. government cooled it down with higher taxes, spending reductions, and less money. (See Figure 8.6) A. A B. B C. C D. D 29. In 2001 interest rates dropped to 40-year lows, which decreased the cost of borrowing for consumers. (See Figure 8.6) A. A B. B C. C D. D 30. During the late 1990s, productivity in many U.S. industries increased because of technological advances. (See Figure 8.6) A. A B. B C. C D. D 31. The value of the dollar plummeted in international currency markets, causing foreigners to buy more American goods. (See Figure 8.6) A. A. B. B. C. C. D. D. 32. Aggregate demand is the total quantity of output: A. Demanded if the economy is in equilibrium. B. Demanded at alternative price levels in a given time period. C. Producers are willing and able to supply at alternative price levels. D. Consumers actually buy. 33. If consumption is $340 and saving is $20, then disposable income is: A. $340. B. $360. C. $320. D. Cannot be determined from the information given. 34. Given that C = $500 + 0.8YD, if the level of disposable income is $1,000, the level of saving is: A. $300. B. -$300. C. $500. D. -$1,300. 35. 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. 36. The marginal propensity to consume can be found by dividing: A. Total consumption by total saving. B. Total consumption by the number of people consuming. C. The change in total consumption by the change in disposable income. D. Disposable income by total consumption. 37. The MPC + MPS must always equal: A. The slope of the consumption function. B. 1. C. The APC. D. Zero. 38. If the MPC is 0.8 and the APC is 0.9, then the MPS equals: A. 0.1. B. 0.2. C. 0.8. D. 1.7. 39. If, in the aggregate, consumers spend 75 cents out of every extra dollar received, then the: A. APC is 1.25. B. APC is 0.75. C. MPC is 0.75. D. MPS is 0.75. 40. Which of the following is not a determinant of autonomous consumption? A. The income level B. Taxes C. The availability of credit D. The price level 41. Which of the following statements is not true about the consumption function? A. The equation is written as C = a + bYD B. It indicates the rate of consumer spending that will take place at various income levels C. It indicates that consumption is inversely related to disposable income D. It shows how consumption is influenced by disposable income 42. Suppose a consumption function is given as C = $500 + 0.75YD. The marginal propensity to consume is: A. 200. B. 0.75. C. 0.25. D. -0.75. 43. Suppose a consumption function is given as C = $150 + 0.75YD. The marginal propensity to save is: A. 150. B. 0.75. C. 0.25. D. -0.75. 44. An increase in the income-dependent portion of the consumption function would correspond to a: A. Shift of the consumption function upward. B. Shift of the consumption function downward. C. Movement along the consumption function to the right. D. Movement along the consumption