ECON 232 SPRING 2011 MIDTERM
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Which of the following calculations will yield the correct measure of real GDP?
A) multiply nominal GDP by the GDP deflator.
B) divide nominal GDP by the consumer price index.
C) divide the GDP deflator by the consumer price index.
D) divide nominal GDP by the GDP deflator.
E) none of the above
1)
2) Suppose nominal GDP in 2009 does not change (compared its previous level in 2008). Given this
information, we know with certainty that:
A) real GDP increased during 2009
B) more information is needed to answer this question
C) both the GDP deflator and real GDP fell during 2009
D) the GDP deflator increased during 2009
E) consumer price index increased during 2009
2)
3) Let the consumption function be represented by the following equation: C = c0 + c1 YD. For this
equation, we assume that c1 is
3)
A) larger than c0.
B) negative.
C) equal to one.
D) larger than one.
E) none of the above.
4) Which of the following represents total saving for an economy?
A) the sum of taxes and government spending.
B) the sum of private saving and public saving.
C) the sum of private saving and fixed investment.
D) the excess of taxes over government spending
E) none of the above.
4)
5) Which of the following events will cause a reduction in equilibrium output?
A) an increase in taxes.
B) an increase in the marginal propensity to save.
C) a reduction in the investments.
D) all of the above.
E) none of the above.
5)
6) If C = 2000 + .9YD, what increase in government spending must occur for equilibrium output to
6)
increase by 1000?
A) 100.
B) 200.
C) 500.
D) 1000.
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E) 10000.
7) When a closed economy is in equilibrium, we know with certainty that:
A) I = S
B) I = S + (T-G)
C) G = T and S = I
D) I = S + (G-T)
E) both (b) and (c) are correct
7)
8) Based on our understanding of the model presented in Chapter 3, a reduction in investment will
cause: (in the short run)
A) a reduction in the marginal propensity to save
B) an increase in the multiplier
C) a reduction in the multiplier
D) a reduction in output
E) both (a) and (c)
8)
9) Suppose business confidence decreases causing a reduction in investment. Based on our
understanding of the model presented in Chapter 3, we know with certainty that a reduction in
investment will cause (in the short run):
A) an increase in the multiplier
B) a reduction in the marginal propensity to save
C) a reduction in the multiplier
D) a reduction in consumption as the economy adjusts to this decrease in investment
E) both (b) and (d) are correct
9)
10) Which of the following is a characteristic of bonds?
A) can be used for transactions.
B) pay zero nominal interest.
C) are sold for a price that varies inversely with the interest rate.
D) all of the above.
E) none of the above.
10)
11) The money demand curve will shift to the right when which of the following occurs?
A) an increase in income.
B) an increase in the money supply.
C) a reduction in the interest rate.
D) all of the above.
E) none of the above.
11)
12) Which of the following is a component of money?
A) income.
B) stocks.
C) bonds.
D) saving.
E) none of the above.
12)
13) The interest rate will increase as a result of which of the following events?
A) an open market purchase of bonds by the central bank.
B) an increase in income.
C) an increase in taxes.
D) all of the above.
E) none of the above.
13)
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14) Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest
rate.
Given this information, we know that the bond's price must be:
A) $869.56.
B) $1150.
C) $950.
D) $850.
E) none of the above.
14)
15) We would expect which of the following to occur when the central bank conducts an open market
sale of bonds?
A) a reduction in the money multiplier
B) a reduction in the monetary base (H)
C) an increase in H
D) an increase in the money multiplier
E) both C and D
15)
16) An increase in the reserve ratio, , will cause:
A) a reduction in H
B) an increase in the money multiplier
C) an increase in the monetary base (H)
D) a reduction in the money multiplier
E) none of the above
16)
17) For each interest rate, the LM curve illustrates the level of output where:
A) inventory investment equals zero.
B) the goods market is in equilibrium.
C) money supply equals money demand.
D) all of the above.
E) none of the above.
17)
18) During 2008 in the United States, consumer confidence fell significantly. Which of the following
will occur as a result of this reduction in consumer confidence?
A) the LM curve will shift up.
B) the LM curve will shift down.
C) the IS curve will shift rightward, and the LM curve will shift up.
D) the IS curve will shift leftward.
E) the IS curve will shift rightward.
18)
19) Suppose the demand for money is NOT very sensitive to the interest rate. Given this information,
we know that:
A) neither the IS nor the LM curve will be affected.
B) the IS curve should be relatively flat.
C) the LM curve should be relatively flat.
D) the IS curve should be relatively steep.
E) the LM curve should be relatively steep.
19)
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20) For this question, assume that investment spending depends only on output and no longer depends
on the interest rate. Given this information, an increase in government spending (in the short run)
A) may cause investment to increase or to decrease.
B) will cause investment to decrease.
C) will have no effect on output.
D) will cause an increase in output and have no effect on the interest rate.
E) will cause investment to increase.
20)
21) Suppose there is a simultaneous central bank sale of bonds and tax increase. We know with
certainty that this combination of policies must cause: (in the short run)
A) a reduction in Y
B) an increase in output (Y)
C) an increase in the interest rate (i)
D) a reduction in i
E) an increase in investments
21)
22) Which of the following individuals would be considered unemployed?
A) an individual who works full-time in a family business, but is not paid.
B) an individual who works only part-time.
C) an individual who is not working and is not looking for work.
D) all of the above.
E) none of the above.
22)
23) The reservation wage is
A) the lowest wage at workers are willing to work.
B) the wage that an employer must pay workers to reduce turnover to a reasonable level.
C) the wage offer that will end a labor-strike.
D) the wage that ensures a laid-off individual will wait for re-hire, rather than find another job.
E) none of the above.
23)
24) In the wage-setting relation, the nominal wage tends to decrease when
A) unemployment benefits decrease.
B) the minimum wage increases.
C) the unemployment rate decreases.
D) the price level increases.
E) all of the above.
24)
25) The natural level of output is the level of output that occurs when
A) the unemployment rate is zero.
B) the economy is operating at the unemployment rate consistent with both the wage-setting
and price-setting equations.
C) the goods market and financial markets are in equilibrium.
D) there are no discouraged workers in the economy.
E) the markup (µ) is zero.
25)
26) When the unemployment rate is low, we would expect that:
A) the probability of losing a job is high
B) the probability an unemployed individual will find another job is low
C) the probability of losing a job is low
D) the separation rate will increase
E) the cost of finding skilled workers is low.
26)
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27) With the real wage on the vertical axis and employment (N) on the horizontal axis, we know that:
A) the PS curve is upward sloping
B) the WS curve is downward sloping
C) the PS curve is downward sloping
D) the WS curve is upward sloping
E) none of the above
27)
28) Suppose that increased international trade makes product markets more competitive in Turkey
Given this information, we would expect to observe which of the following?
A) a downward shift in the PS curve
B) an upward shift in the WS curve
C) an upward shift in the PS curve
D) a downward shift in the WS curve
E) none of the above
28)
29) Based on the aggregate supply relation, an increase in current output will cause:
A) an increase in the expected price level and an upward shift of the AS curve.
B) a change in the expected price level this year.
C) an increase in the current price level.
D) a shift of the aggregate supply curve.
E) an increase in the markup over labor costs.
29)
30) Based on your understanding of the AS/AD model, which of the following is an INCORRECT
statement about the short-run adjustment process for the macroeconomy?
A) a reduction in employment leads to lower prices.
B) an increase in output above the natural level leads to higher nominal wages.
C) output in excess of the natural level leads to lower prices.
D) an increase in demand increases output.
E) none of the above
30)
31) Suppose a central bank implements a monetary contraction. Which of the following would we
expect to occur in the medium run?
A) an increase in the interest rate.
B) a decrease in the nominal wage.
C) a decline in output.
D) all of the above.
E) none of the above.
31)
32) 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 price level.
B) the nominal wage.
C) the interest rate.
D) all of the above.
E) none of the above.
32)
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33) 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 medium run, have NO effect on which of the following?
A) the interest rate.
B) the price level.
C) employment.
D) all of the above.
E) none of the above.
33)
34) Which of the following events will cause an increase in the aggregate price level?
A) a reduction in Pe
34)
B) an increase in the unemployment benefits
C) an increase in the unemployment rate
D) a reduction in the markup
E) none of the above
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Answer Key
Testname: ECON 232-SPRING 2011-MIDTERM
1) D
2) B
3) E
4) B
5) D
6) A
7) B
8) D
9) D
10) C
11) A
12) E
13) B
14) A
15) B
16) D
17) C
18) D
19) E
20) E
21) A
22) E
23) A
24) A
25) B
26) C
27) D
28) C
29) C
30) C
31) B
32) D
33) C
34) B
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