EC1320 3 Sample Exam 1 Spring ,201 4
(This exam is one given in EC13203 on February 12, 2013 )
I. Multiple Choice (60 points). For each of the following questions, encircle the answer you believe to be
correct or most nearly correct. If you change your mind, cross one out and encircle another.
1. Of the following situations, the one most likely to be dealt with in macroeconomics as opposed to
A. Pepsi sales rise in response to a successful advertising campaign.
B. A rise in oil prices pushes up both inflation and unemployment.
C. Ford overtakes General Motors as the number one seller of small trucks.
D. Massachusetts doubles its cigarette tax in an effort to discourage smoking.
E. A frost in Brazil pushes up the price of coffee.
2. In terms of the production possibility frontier, an increase in unemployment would be shown as:
A. a movement from within the frontier (one with unemployment) out to the frontier.
B. a movement from point A on the frontier to point U inside the frontier.
C. a decision to have more butter at the expense of fewer guns.
D. A decision to have more guns at the expense of less butter.
E. A shift outward (to a new curve) in the production possibility frontier.
3. The purchase price of a "final" good or service is equal to:
A. the value added at the last stage of production.
B. the total wages and salaries paid out at all stages of production.
C. the value added minus purchases from other firms.
D. the total value added at all stages of its production.
E. the value added at the last stage minus value added at previous stages of production.
4. By potential output we mean that level of GDP at which:
A. the inflation rate would be zero.
B. there is no unemployment.
C. output cannot be increased, even in the short run.
D. workers have jobs which best match their true potential.
E. the inflation rate would tend neither to rise nor fall.
5. If nominal GDP were rising at about 2% per year and the GDP deflator were rising at 3% per year, we could say
that real GDP was:
A. rising at about 2% per year.
B. falling at about 3% per year.
C. falling at about 1% per year.
D. rising at about 5% per year.
E. rising at about 1% per year.
6. If real GDP increases by 5.0% and the GDP deflator rises by 2.0%, then nominal GDP will:
A. rise by 5.0%.
B. rise by 6.9%.
C. rise by 3.0%.
D. rise by 7.1%.
E. fall by 3.0%. 2
7. The Employment Act of 1946:
A. was repealed under President Reagan in 1981.
B. defined potential output in terms of the natural unemployment rate.
C. made it a responsibility of government to promote maximum employment, production, and
D. established quantitative goals for the unemployment and inflation rates.
E. ordered the Fed to reduce the rate of growth of the money supply to no more than 5% per year.
8. If a firm has total sales of $50 million, from which it pays out $20 million in wages and salaries and $20 million
in purchases from other firms, and has profit of $10 million, then its value added is equal to:
A. $20 million.
B. $30 million.
C. $40 million.
D. $60 million.
E. $10 million.
9. If the GDP deflator is 1.00 for 1992 and 1.10 for 1999, and if nominal GDP is $5000 billion for
1992 and $6600 billion for 1999, then real GDP for 1999, in terms of 1992 prices, is:
A. $6600 billion.
B. $6000 billion.
C. $7260 billion.
D. $5500 billion.
E. $5000 billion.
10. Using the numbers in question 8 above, real GDP increased over the period 1992 to 1999 by approximately:
11. If output had been growing at a steady rate of $20 billion per year and now its growth rate speeds up to
$30 billion per year, then according to the acceleration principle, we would expect investment spending:
A. to double.
B. to rise by 30%.
C. to rise by 50%.
D. to remain at is current level.
E. to rise by 10%.
12. An economy's capital stock will decline if:
A. government expenditures are greater than tax collections.
B. depreciation is greater than net investment.
C. depreciation is greater than gross investment.
D. consumption exceeds investment.
E. net investment is zero.
13. Reasons given in your text for the decline in the U.S. savings rate over the past 30 years include:
A. a decline in wealth as measured by value of housing and common stocks.
B. welfare reform as enacted in the 1990s.
C. the end of the cold war.
D. the expansion of social security and other income support programs.
E. the rise in the labor force participation rate of women. 3
Questions 14-18 are based on the following data, all given in billions of dollars, with all terms as used in class.
Assume the extreme Keynesian model with rigid prices and wages, no depreciation, no imports or exports, and no
business savings. Assume that Q* is equal to $1100 billion.
Q DI C I G
600 400 380 100 160
700 500 460 100 160
800 600 540 100 160
900 700 620 100 160
1000 800 700 100 160
1100 900 780 100 160
14. The marginal propensity to consume (out of disposable income) is:
A. .70 B. .60 C. .40 D. .80 E. .50
15. The equilibrium level of output is:
A. $1100 billion.
B. $700 billion.
C. $800 billion.
D. $900 billion.
E. $1000 billion.
16. An increase in investment of $40 billion, other things remaining the same, will raise the equilibrium level of
A. $120 billion.
B. $80 billion.
C. $100 billion.
D. $200 billion.
E. $40 billion.
17. The value of the expenditure multiplier in the above system is:
A. 1.0 B. 2.0 C. 2.5 D. 4.0 E. 5.0
18. Starting from the initial equilibrium (that of question 15), if we were to increase government spending by
100 billion and also increase taxes by 100 billion, then the equilibrium level of output would:
A. rise by 100 billion.
B. rise by 200 billion.
C. rise by 20 billion.
D. stay where it is, since the tax increase just offsets the spending increase.
E. fall by 100 billion.
19. Investment spending, according to your text:
A. will tend to increase if the central bank increases interest rates.
B. is somewhat more predicable than is consumption spending.
C. is extremely volatile and hard to predict.
D. is relatively stable from year to year.
E. is determined primarily by the level of disposable income. 4
20. An example of a transfer payment, as the term is used in macroeconomics is:
A. the salary of a postal worker.
B. a bonus paid by a firm to induce a key employee to relocate from Atlanta to Dallas.
C. a check to Allied Van Lines for moving household furniture.
D. a dividend check from IBM corporation.
E. an unemployment check to a person who has been laid off from work.
21. One example of a leading indicator of economic activity, as the term is used