ECN202
Exam2a
1. The fact that Congress is dysfunctional means___.
a. The recognition lag for fiscal policy is longer
b. The recognition lag for monetary policy is longer
c. The decision lag for fiscal policy is longer
d. The decision lag for monetary policy is longer
2. Based on the differences between Classical and Keynesian economists, which of the following would be the true statement?
a. The increased military spending is likely to increase the price level more in the Keynesian model
b. Decrease in consumer confidence is likely to increase the output level more in the Keynesian model
c. The increased military spending is likely to increase the output level more in the Keynesian model
d. Decrease in consumer confidence is likely to decrease the output level more in the Classical model
120.00
3. The dashed line represents which component of
aggregate demand?
Components of GDP
100.00
80.00
a.
b.
c.
d.
e.
Consumption
Investment
Government
Exports
Imports
60.00
40.00
20.00
0.00
1960
1970
1980
1990
2000
2010
4. "Construction teams still work around the clock in China's largest city...In a telling shift, however, construction workers are
putting up fewer of the office and apartment buildings that had sprouted like weeds in the boom years...Instead they are working
on municipal projects...part of China's enormous spending program aimed at preventing the economy from weakening too
seriously." It is clear from this statement that the Chinese policy officials believe in ____.
a. Crowding out
b. Quantity Theory of Money
c. Keynesian economics
d. Hume’s Law
5. Here is the headline: “Ramen Noodle Sales Predict a Recession.” Here are the details: “In Thailand, ramen noodles have even
been used as an indicator of overall economic health. The Mama Noodles Index tracks sales of a popular brand of ramen instant
noodles. Because the demand for inferior goods increases when incomes go down, an increase in ramen sales could signal a
downturn in incomes and an ongoing recession.” Using noodle sales as a leading indicator is an example of ___.
a. econometric forecasting
b. barometric forecasting
c. time-series forecasting
d. consensus forecasting
6. There are many parallels between what happened in the periods of time prior to the Great Depression and prior to the Great
Recession. Which of the following would not be one of those parallels?
a. Increasing concentration of wealth
b. High rate of technological change
c. Rise in manufacturing sector
d. Increasing indebtedness of private sector
e. High rates of immigration
7. The New Deal is the name given to the set of programs created by Roosevelt to deal with the Great Depression. Which of the
following was not part of the New Deal?
a. creation of the deposit insurance to increase people’s confidence in banks
b. passage of the Glass-Steagall Act that forced a separation of commercial and investment banks
c. passage of Social Security Act that provided elderly with supplemental retirement income
d. adoption of the gold standard
8. We can be confident that when the Great Depression hit in 1930 the Federal Reserve wanted to help the economy, but they
were also very worried about expanding the money supply and possibly creating inflation because they had seen the disastrous
consequences of such a policy in the 1920s. Which country is the 'poster child' for hyperinflation in the 1920s?
a.
Canada
b. UK
c. Japan
d. France
e. Germany
9. In 2009 there was a partisan debate over the economic stimulus plan, which sounded, at least in some respects, similar to the
debate of the early 1930s. One similarity is that both debates were ideological, with conservatives arguing for lower taxes and a
smaller government and liberals asking for bigger government. The Classical economists aversion to government spending
increase is clear in their view of the AS-AD model. Conservatives believe the only way to increase income would be to ____
a. shift the AD curve in
b. shift the AS curve out
c. shift the AS curve in
d. shift the AD curve out
10. Let's put ourselves back in the world of the Classical economists, a world many
Republican politicians and policy makers seem to be living in in 2012. In this world the
US capital market, which is "captured" by this graph, plays a key role. What will
happen in the US if the Republican’s austerity package is passed and the US
government budget deficit decreases?
a. The S curve will shift inwards and this will drive up the interest rate
b. The S curve will shift outwards and this will drive down the interest rat
c. The I curve will shift inwards and this will drive down the interest rate
d. The I curve will shift outwards and this will drive up the interest rate
11. Which of the following was a theme in Eisenhower’s farewell speech?
a. Rise of prison-industrial complex
b. Focusing too much on short-term rather than long-term issues
c. Media bias
d. Rise of super wealthy 1% and their distortion of public policy
12. What was Krugman thinking of when he wrote “Cross of rubber?” What was the economic theory that was behind his
concern?
a. The multiplier
b. Elasticity
c. Fiscal policy
d. Quantity Theory of Money
13. If in the late 1970s the US was on the gold standard, then which of the
following would be a correct statement of what we would expect to see in the
US based on the graph to the right?
a. The US was running a trade deficit and this would result in an inflow of
gold and a decrease in the money supply
b. The US was running a trade surplus and this would result in an inflow
of gold and an increase in the money supply
c. The US was running a trade deficit and this would result in an outflow
of gold and a decrease in the money supply
d. The US was running a trade surplus and this would result in an outflow
of gold and a decrease in the money supply
14. Imagine Greece in early 2012 with an economy in the midst of what looks like the beginning of a modern day depression something akin to the Great Depression in the US. If the Greeks follow the example of Americans back in the 1930s, then we can
expect them to pull money out of the banking system, which reduces velocity. Assume you want the growth rate in the economy
to be 3 percent and you expect inflation to be 1 percent and velocity to fall by 3 percent. What should you do with the money
supply to reach your target growth rate for the economy?
a. -1 percent
b. 1 percent
c. 2 percent
d. 7 percent
15. Which of the following was a fiscal policy mentioned in the article “China outlines ambitious stimulus plan?”
a. Lowering interest rates to stimulate the housing market
b. Encouraging families to increase their savings
c. Reduce spending on the social safety net
d. Raise spending on infrastructure
16. As the financial crisis was spreading around the world in 2008 and 2009 there were repeated calls for governments to
intervene and employ both monetary and fiscal policies to turn the countries' economies around. It is not a surprise that policy
makers turned to the ideas of Keynes because his multiplier concept provided the theoretical basis for fiscal policies. If I were
gauging the success of a $100 billion stimulus package on the size of the multiplier effect, the economic multiplier would be
bigger if we calculated it for ____.
a. England
b. London
c. US
d. Providence
17. Based on these exchange rates, if I were interested in
the cheapest price, which would I buy?
a. a $1,000 computer
b. a 800€ computer
c. a 700£ computer
d. a 80,000¥ computer
Exchange rate
 $1.47 buys a British pound (£)
 $1.05 buys one Euro (€)
 $.008 buys one Japanese yen (¥)
 $.078 buys a Mexican peso
18. Which of the following would be a policy designed to move the Phillips curve inward?
a. expansionary monetary policy
b. a job retraining program
c. raising personal income taxes
d. increasing the money supply
19. Some of the policy proposals of Ron Paul, a Republican candidate for president in 2012, can be traced back to ideas
contained in the Classical Model that dominated economic thinking and policy making in the 1920s. One thing he believes in is
the Quantity Theory, which has him seeing serious inflation in the US in the near future. If Ron Paul wanted to show you the
cause of his prediction of inflation, he would point you to ____.
a. a table of GDP growth rates
b. a table of money supply figures
c. a table of unemployment rates
d. a table of interest rates
20. Which of the following was not identified as an impact of student debt in the article “Ripple effects of student debt?”
a. Decreased likelihood of new business formation
b. Reduced home ownership
c. Reduce likelihood of graduates choosing public service as a career
d. Increase in students’ choice of business as a major
21. Would you expect a temporary tax cut to have a larger impact on consumption, investment, or import spending?
a. consumption
b. import
c. investment
d. it would make no difference
a.
b.
c.
d.
22. Which scatter diagram best represents the relationship between the inflation rate and the unemployment rate you would
expect based on the Phillips Curve?
a. A
b. B
c. C
d. D
23. There was a lot of confidence among macropolicy makers in the 1960s including Arthur Okun, President Johnson's economic
advisor who said "When recessions were a regular feature of the economic environment, they were often viewed as inevitable...
[they] are now generally considered fundamentally preventable, like airplane crashes and hurricanes." If the economy were
headed into an expansion that was too rapid and likely to produce inflation then you would expect to hear Keynesians propose
which of the following expansionary fiscal policies.
a. a decrease in the social security tax rate
b. an decrease in interest rates
c. a decrease in federal spending on defense
d. an increase in the government's "Star Wars" spending
e. a temporary tax cut aimed at middle income households
24. John F. Kennedy made macroeconomic policy a centerpiece of his presidential campaign in 1960. Which of the following
was the policy proposed by Kennedy?
a. increase in government spending
b. decrease in taxes
c. increase in taxes
d. decrease in government spending
e. reduction in interest rates
25. Which of the following would be the best explanation
of the rise in the savings rate in 2008?
a.
b.
c.
d.
A rise in interest rates
A decline in interest rates
The aging of the baby boomers
Increased economic uncertainty
26. Based on what we know about aggregate demand, which of the following components of consumption demand is likely to be
most volatile over the business cycle?
a. household spending on services
b. household spending on nondurables
c. household spending on imports
d. household spending on durables
27. When forecasting it is useful to decompose changes
in macro variable. Which of the components of change
would we gain insight into from the data in the above
graph?
a.
b.
c.
d.
cyclical
seasonal
trend
intertemporal
28. Which diagram would best represent a situation that would show up as a movement down along the Phillips curve - lower
inflation and higher unemployment?
a. A
b. B
c. C
d. D
e. E
UK
Italy
price of ounce of gold
10 £
30 €
price of shirt in terms of currency
15 £
15 €
29. Above we have a table that contains the gold price of two currencies and the domestic prices of shirts in the two countries.
Based on the information in this table, what would happen if the Italian government decided to raise the € price of gold to 20 €s
an ounce?
a. the price of shirts in terms of gold would fall in Italy and we would expect an outflow of gold from Italy
b. the price of shirts in terms of gold would fall in Italy and we would expect an inflow of gold to Italy
c. the price of shirts in terms of gold would rise in Italy and we would expect an outflow of gold from Italy
d. the price of shirts in terms of gold would rise in Italy and we would expect an inflow of gold to Italy