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Ecn204 second midterm and answers

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ECN 204
Thomas Barbiero

Ryerson University Department of Economics ECN 204 MidtermTwo W12Instructor Prof TBarbiero Duration 50 Minutes Name Student No Choose the BESTanswer and recorded it on both your scanner sheet and test paper Use the following to answer questions 121 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 Page 14 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 consumption500 billion 2 investment50 billion 3 government purchases100 billion and 4 net export20 billion If the fullemployment 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 crowdingout 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 investmentdemand curve is steep E both B and D are correct 7 Builtin stabilizers A intensify the business cycle B reduce the size of the multiplier C increase the governments deficit during a recession D are a part of discretionary fiscal policy E lead to longrun 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 shortrun aggregate supply to the right B the higher price level would eventually lead to a shift of the shortrun 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 correctPage 2
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