Mercer University
Econ 151: Principles of Macroeconomics
Final Exam: Sample
1. When an economy is temporarily operating at an output that is beyond its full-employment rate,
a. excess supply in resource markets will eventually lead to lower resource prices, which will
decrease costs and direct the economy toward full employment.
b. excess demand in resource markets will lead to higher resource prices, which will increase
costs and direct the economy toward full employment.
c. lower wages and prices will quickly restore full employment.
d. only restrictive fiscal policy will direct the economy back to full employment.
ANS: B
2. Which of the following is a correct statement?
a. Fiscal policy is the use of tax and spending policies by Congress and the president.
b. Fiscal policy involves the control of the money supply by the Federal Reserve Bank.
c. Monetary policy involves the control of the money supply by Congress and the president.
d. Monetary policy is the use of tax and spending policies by the Federal Reserve Bank.
ANS: A
3. Controlling the money supply to achieve desired macroeconomic goals is called
a. monetary policy.
b. cyclical policy.
c. fiscal policy.
d. industrial policy.
ANS: A
4. Which of the following helps explain why the aggregate demand curve slopes downward?
a. If the price level increases, the purchasing power of the fixed quantity of money decreases,
causing people to buy less.
b. If the price level increases, the purchasing power of the fixed quantity of money increases,
causing people to buy more.
c. If domestic prices increase, we substitute domestic goods for imported goods.
d. If domestic prices decrease, we substitute imported goods for domestic goods.
ANS: A
5. Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will
a. increase output when product prices increase.
b. keep production levels constant when product prices decrease.
c. keep their product prices constant even if the demand for their good increases.
d. keep their product prices constant even if the demand for their good decreases.
ANS: A
6. The four key markets that coordinate the circular flow of income are
a. goods and services, resources, loanable funds, and foreign exchange.
b. consumption, investment, stock, and government.
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c. government, household goods, bond, and business.
d. financial, corporate, stock, and loanable funds.
ANS: A
7. Other things the same, when the interest rate rises
a. people would want to lend more, making the supply of loanable funds increase.
b. people would want to lend less, making the supply of loanable funds decrease.
c. people would want to lend more, making the quantity of loanable funds supplied increase.
d. people would want to lend less, making the quantity of loanable funds supplied decrease.
ANS: C
8. Which of the following basic economic concepts most clearly provides the foundation for the long-run
aggregate supply curve?
a. the law of demand
b. the production possibilities curve
c. the law of comparative advantage
d. the law of diminishing marginal utility
ANS: B
9. For an economy, aggregate demand equals
a. consumption plus investment plus government purchases plus exports.
b. consumption plus investment plus government purchases plus (exports minus imports).
c. consumption plus investment plus (taxes minus transfers) plus (exports minus imports).
d. consumption plus investment plus government purchases plus (imports minus exports).
ANS: B
10. Which of the following explains why higher prices in the goods and services market will lead to an upward
sloping short-run aggregate supply curve?
a. The higher prices will temporarily improve profit margins because many of the cost
components of firms will be fixed in the short run.
b. The higher prices will reduce the purchasing power of the fixed quantity of money and,
thereby, stimulate additional output.
c. The higher prices will expand the economy's resource base and, thereby, stimulate
additional output.
d. The higher prices will improve technology and, thereby, stimulate additional output.
ANS: A
11. Which of the following is the most accurate statement about nominal and real interest rates?
a. Nominal and real interest rates always move together.
b. Nominal and real interest rates never move together.
c. Nominal and real interest rates often do not move together.
d. Nominal and real interest rates always move in opposite directions.
ANS: C
12. Which of the following events would cause the interest rate to rise?
a. a decrease in the demand for loanable funds
b. an increase in the demand for loanable funds
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c. an increase in the supply for loanable funds
d. a decrease in aggregate demand
ANS: B
13. If the dollar depreciates relative to the Peso, it can be said that
a. Mexican citizens no longer respect the United States.
b. the dollar falls in value within the United States.
c. it takes fewer dollars to buy Pesos.
d. the Peso appreciates relative to the dollar.
ANS: D
14. Which of the following would generate a dollar demand for the euro?
a. American exports to Europe.
b. European demand for U.S. government bonds.
c. American demand for European real estate.
d. All of the above are correct.
ANS: C
15. Who among the following is most likely to favor an appreciation of the U.S. dollar?
a. a German professor visiting Chicago
b. an American farmer who depends on exports
c. an American professor on a tour of Austrian universities
d. Disney World in Orlando, Florida, a popular destination for foreign tourists
ANS: C
16. If net exports are negative, then
a. net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by
Americans are greater than American assets bought by foreigners.
b. net capital outflow is positive (indicating an inflow of capital), so American assets bought
by foreigners are greater than foreign assets bought by Americans.
c. net capital outflow is negative (indicating an outflow of capital), so foreign assets bought
by Americans are greater than American assets bought by foreigners.
d. net capital outflow is negative (indicating an outflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
ANS: D
17. Mary Green takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport,
where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65
each. Which of the following is true?
a. Green would have been better off if she had bought pounds in the United States where
U.S. dollars were cheaper.
b. Green would have been better off if she had bought pounds in the United States where
pounds were less expensive.
c. The pounds were more expensive in London because a currency is always most valued in
its home country.
d. The pounds were more expensive in the United States because they are less available
there.
e. It doesn't matter where she buys the pounds, since she can't use U.S. money anyway once
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she's in England.
ANS: B
18. Which of the following will most likely accompany an unanticipated increase in aggregate demand?
a. an increase in real output
b. an increase in unemployment
c. a decrease in real GDP
d. a decrease in the demand for resources
ANS: A
19. Which of the following factors would increase aggregate demand in the goods and services market?
a. an decrease in stock prices
b. an increase in the real interest rate
c. a decrease in real incomes abroad
d. increased optimism on the part of consumers and businesses
ANS: D
20. Which of the following would be most likely to cause a reduction in current aggregate demand in the United
States?
a. increased fear of a recession
b. an increase in the expected rate of inflation
c. a sharp increase in the value of stocks owned by Americans
d. a rapid increase in the growth of income in Canada, Mexico, and Western Europe
ANS: A
21. Within the framework of the AD/AS model, if consumers and investors become more pessimistic about the
future direction of the economy, this will lead to a(n)
a. increase in aggregate demand.
b. decrease in aggregate demand.
c. increase in long-run aggregate supply (LRAS shifts to the right).
d. reduction in the natural rate of unemployment.
ANS: B
22. How would aggregate demand change if foreign incomes increase and the exchange rate value of the
dollar increases?
a. Neither change would affect aggregate demand.
b. The increase in income would decrease aggregate demand; the increase in the
exchange rate would increase aggregate demand.
c. The increase in income would increase aggregate demand; the increase in the
exchange rate would decrease aggregate demand.
d. Both changes would decrease aggregate demand.
ANS: C
23. Which of the following will most likely increase long-run aggregate supply?
a. an increase in the rate of investment
b. an increase in resource prices
c. an increase in the minimum wage
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d. an increase in the expected inflation rate
ANS: A
24. A supply shock is a surprise occurrence that
a. shifts the long-run aggregate supply curve to the right.
b. either increases or decreases short-run aggregate supply and output.
c. temporarily increases aggregate demand.
d. temporarily reduces aggregate demand.
ANS: B
25. If an economy is growing, but experiences no inflation, this means
a. aggregate demand increased, but aggregate supply did not.
b. aggregate supply increased, but aggregate demand did not.
c. aggregate demand and aggregate supply increased by the same amount.
d. aggregate demand and aggregate supply decreased by the same amount.
ANS: C
26. Which of the following would cause prices to fall and output to rise in the short run?
a. Short-run aggregate supply shifts right.
b. Short-run aggregate supply shifts left.
c. Aggregate demand shifts right.
d. Aggregate demand shifts left.
ANS: A
27. Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices
a. and output are higher than in the original long-run equilibrium.
b. and output are lower than in the original long-run equilibrium.
c. are higher and output is the same as the original long-run equilibrium.
d. are the same and output is lower than in the original long-run equilibrium.
ANS: C
28. When the economy is operating at an output rate below its full-employment level, the
a. actual level of unemployment will exceed the natural rate of unemployment.
b. current rate of output will tend to persist into the future.
c. strong demand for resources will cause resource prices to rise.
d. actual unemployment rate will be less than the natural rate of unemployment.
ANS: A
29. Suppose there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil.
Within the framework of the AD/AS model, how would these two changes influence the U.S. economy?
a. The lower stock prices would increase SRAS, and the higher crude oil prices would reduce
AD; as a result, there would be downward pressure on the general level of prices.
b. The lower stock prices would reduce SRAS, and the higher crude oil prices would increase
AD; as a result, there would be upward pressure on the general level of prices.
c. The lower stock prices would increase AD, and the higher crude oil prices would increase
SRAS; as a result, output would tend to increase.
d. The lower stock prices would reduce AD, and the higher crude oil prices would reduce
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SRAS; as a result, output would tend to decline.
ANS: D
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