Ecn204 second midterm and answers

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22 Apr 2012
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Ryerson University
Department of Economics
ECN 204 MidtermTwo W12
Instructor: Prof. T.Barbiero Duration: 50 Minutes
Name: __________________________ Student No: ______________________________
Choose the BEST answer and recorded it on both your scanner sheet and test paper.
Use the following to answer questions 1-2:
1) The composite index of leading indicators turns downward for three consecutive months; (2)
Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed
in Parliament; (4) The tax cut is passed by Parliament; (5) Consumption spending begins to rise,
aggregate demand increases, and the economy begins to recover.
1.
Refer to the above information. The recognition lag of fiscal policy is reflected in events:
A)
1 and 2.
B)
2 and 3.
C)
3 and 4.
D)
4 and 5.
2.
Refer to the above information. The operational lag of fiscal policy is reflected in events:
A)
1 and 2.
B)
2 and 3.
C)
3 and 4.
D)
4 and 5.
3.
Refer to the above information. The administrative lag of fiscal policy is reflected in
events:
A)
1 and 2.
B)
2 and 3.
C)
3 and 4.
D)
4 and 5.
E)
none of the above.
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4.
Menu costs will:
A)
increase the amount of training of workers.
B)
result in price wars between businesses.
C)
increase the legal minimum wage.
D)
make prices inflexible downward.
E)
Both B and C are correct.
5.
You are given the following information about aggregate demand at the existing price
level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion;
(3) government purchases = $100 billion; and (4) net export = $20 billion. If the
full-employment level of GDP for this economy is $620 billion, then what combination of
actions would be most consistent with the goal of achieving price level stability?
A)
increase government spending and taxes
B)
decrease government spending and taxes
C)
decrease government spending and increase taxes
D)
increase government spending and decrease taxes
6.
The crowding-out effect is likely to be greater when the:
A)
economy is in a serious recession.
B)
government is incurring surpluses, rather than deficits.
C)
economy is at full employment.
D)
investment-demand curve is steep.
E)
both B and D are correct.
7.
Built-in stabilizers:
A)
intensify the business cycle.
B)
reduce the size of the multiplier.
C)
increase the government's deficit during a recession.
D)
are a part of discretionary fiscal policy.
E)
lead to long-run growth.
8.
The government should act quickly to eliminate an inflationary gap because, if it fails to
do so:
A)
the higher prices would lead to a shift of short-run aggregate supply to the right.
B)
the higher price level would eventually lead to a shift of the short-run aggregate
supply to the left, which would push the prices even to a higher level.
C)
the higher prices would shift the aggregate demand curve to the left and reduces the
general price level.
D)
the aggregate demand and aggregate supply curves automatically increase and create
higher general price level.
E)
Both A and C are correct.
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Use the following to answer questions 9-10:
The table shows the consumption schedule for a hypothetical economy. All figures are in billions
of dollars.
9.
Refer to the above table. If taxes were zero, government purchases of goods and services
$10, planned investment $6, and net exports zero, equilibrium real GDP would be:
A)
$620.
B)
$630.
C)
$640.
D)
$650.
E)
$680.
10.
Refer to the above table. If taxes were $5, government purchases of goods and services
$10, planned investment $6, and net exports zero, equilibrium real GDP would be:
A)
$600.
B)
$610.
C)
$620.
D)
$630.
E)
$650.
Use the following to answer questions 11-12:
C = 40 + .8Y
_
Ig = Ig = 40
_
X = X = 20
_
M = M = 30
Real GDP C
$600 $590
610 598
620 606
630 614
640 622
650 630
660 638
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