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ECO 100 MACRO REVIEW MC.pdf


Department
Economics
Course Code
ECO102H1
Professor
James Pesando

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ECONOMICS 100
MACROECONOMICS REVIEW
SPRING 2013
Almost all of the following questions have appeared on final exams.
Trade sometimes appears as a question in the Macro portion of the exam, so
there are some questions on that topic here too. Answers are provided on the
last page.
As suggested in the preamble to the Micro Review, you might consider trying these questions,
without peeking at answers, in 70 minutes.
1. Consider the aggregate expenditure (AE) model with a stable price level.
Suppose that an economy is in equilibrium initially. If interest rates
increase, then:
a. the government will automatically increase its expenditures, which
will lead to an increase in real GDP
b. the aggregate expenditure function will shift upward and real GDP
will rise
c. the aggregate expenditure function will shift downward and real
GDP will fall
d. consumption expenditures will rise and investment expenditures will
fall, thereby leaving real GDP unchanged
e. investment expenditures will fall, but this will induce a rise in
consumption expenditures so that the overall fall in income is less
than the initial fall in investment.
2. Which of the following will cause the aggregate demand (AD) curve to shift
to the right in the current period?
a. a permanent increase in interest rates (at a given price level)
b. an increase in government transfer payments to residents
c. an increase in taxes
d. a decrease in government spending on goods
e. a decrease in the money supply.

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3. The impact of monetary policy on real output (or real GDP) will be greater,
the:
a. flatter the demand for money (or LP = Liquidity Preference) curve
and the investment demand (or MEI = Marginal Efficiency of
Investment) curve
b. steeper the demand for money (or LP) curve and the investment
demand (or MEI) curve
c. flatter the demand for money (or LP) curve and the steeper the
investment demand (or MEI) curve
d. steeper the demand for money (or LP) curve and the flatter the
investment demand (or MEI) curve
e. steeper the demand for money curve (or LP) and the flatter the
aggregate expenditure curve.
4. Consider the Keynesian constant price model with a money market. A tax
cut in Canada, with a flexible foreign exchange rate, will cause:
a. a decrease in the interest rate, which will lead to an increase in the
Canadian price of the U.S. dollar (i.e. decrease in US price of
Canadian Dollar)
b. a decrease in the interest rate, which will lead to an decrease in the
Canadian price of the U.S. dollar (i.e. increase in US price of
Canadian Dollar)
c. an increase in the interest rate, which will lead to an increase in the
Canadian price of the U.S. dollar (i.e. decrease in US price of
Canadian Dollar)
d. an increase in the interest rate, which will lead to a decrease in the
Canadian price of the U.S. dollar (i.e. increase in US price of
Canadian Dollar)
e. no change in the interest rate.
5. We observe an increase in the price level and a decrease in real GDP.
Which of the following is a possible explanation?
a. the demand for investment goods (or MEI) has increased
b. aggregate expenditure has decreased
c. the price of raw materials has increased
d. the stock of capital has increased
e. the money supply has increased.

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6. A household can:
a. only consume or pay taxes out of disposable income
b. only consume, save, or pay taxes out of disposable income
c. only consume or save out of disposable income
d. only consume out of disposable income
e. do none of the above.
7. When the Canadian dollar value of foreign exchange rises (i.e., the
Canadian dollar falls relative to the value of foreign currencies), all else
constant:
a. the demand for Canadian exports will rise
b. the demand for Canadian exports will fall
c. the demand for Canadian exports will be unaffected
d. the Bank of Canada is obligated by law to buy dollars
e. the Bank of Canada is obligated by law to sell dollars.
8. If real GDP is not at its equilibrium value:
a. government intervention is necessary to make sure that real GDP
changes in the correct direction
b. real GDP will change until it reaches an equilibrium level at the
capacity output level of the economy
c. there must be excessive inflation in the economy
d. there must be excessive unemployment in the economy
e. there will always be a tendency for GDP to change until planned
expenditures equal real GDP.
9. If the marginal propensity to consume out of real GDP is 0.75, and the
marginal propensity to import is 0.10, then the marginal propensity to
spend on domestic output out of real GDP is:
a. 0.50
b. 0.65
c. 0.15
d. 0.45
e. 0.85
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