ECON 2002.01 Study Guide - Final Guide: Output Gap, Aggregate Demand, Aggregate Supply

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Published on 28 Sep 2018
School
Ohio State University
Department
Economics
Course
ECON 2002.01
Professor
Principles of Macroeconomics White Exam Booklet
E2002 Macroeconomics Exam III
Please bubble in the answer on your scantron. There are 30 questions.
1) How might fiscal policy be used to correct a recessionary gap?
A) The exchange rate would be adjusted to encourage imports.
B) The exchange rate would be adjusted to discourage imports.
C) Government spending would be adjusted to increase aggregate demand.
D) Business operations would be regulated by the government to become more efficient.
Answer: C
2) According to Keynes, involuntary unemployment is possible because of
A) the existence of capital markets.
B) long-term labor contracts and the existence of labor unions.
C) government interference in the market economy.
D) inflation.
Answer: B
3) Ignoring the government and foreign sectors, there is an unplanned decrease in inventories of
$200 billion at the current level of real national income of $12 trillion. From this information, we
know that
A) saving equals $200 billion.
B) consumption expenditures equal $12 trillion less saving less $200 billion.
C) planned investment is $200 billion more than planned saving.
D) planned investment is $200 billion less than planned saving.
Answer: C
4) If a shift in aggregate demand only affects real Gross Domestic Product (GDP), then the short-
run aggregate supply (SRAS) curve must be
A) vertical.
B) upward sloping.
C) horizontal.
D) downward sloping.
Answer: C
5) In the classical model, what occurs if a wage of $20/hour results in unemployed workers?
A) The workers will go on strike to demand that more jobs be created.
B) Producers will quickly create more jobs and hire the unemployed workers, so
unemployment is short-lived.
C) The wage rate will drop, more workers will be hired, and the unemployment rate falls.
D) The government will step in and order firms to hire more workers.
Answer: C
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Principles of Macroeconomics White Exam Booklet
E2002 Macroeconomics Exam III
6) The classical model uses the assumption that
A) all wages and prices are flexible.
B) monopoly is widespread in the economy.
C) interest rates are not flexible.
D) economic markets are fragile and have no tendency to move towards an equilibrium.
Answer: A
7) An economy in long-run equilibrium experiences an increase in aggregate demand. According
to the classical model,
A) the price level will rise first, then real GDP will increase.
B) the price level and real GDP will increase at the same time.
C) the price level will increase, but real GDP will not change.
D) the price level will increase, but real GDP will decrease.
Answer: C
8) Suppose we observe rising nominal GDP, a rising price level, and constant unemployment as
a result of an increase in aggregate demand. We would conclude that the aggregate supply curve
is
A) upward sloping.
B) downward sloping.
C) vertical.
D) horizontal.
Answer: C
9) When total planned real expenditures change due to the changes in net exports, this is known
as the
A) interest rate effect.
B) real-balance effect.
C) open economy effect.
D) aggregate balances effect.
Answer: C
10) Suppose that real GDP is initially $13 trillion and the government attempts to increase real
GDP to $14 trillion. The marginal propensity to consume is 0.75, and every $1.00 increase in
real government spending crowds out $0.50 in real planned investment expenditures. How much
increase in real government spending could lead to the desired level of real GDP?
A) $200 billion
B) $250 billion
C) $500 billion
D) $1 trillion
Answer: C
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Principles of Macroeconomics White Exam Booklet
E2002 Macroeconomics Exam III
11) If the price level kept increasing, the short-run aggregate supply (SRAS) curve would get
steeper because
A) all the unemployed would eventually be hired.
B) there are limits to how long workers can work long hours and capital can go without
proper maintenance.
C) the rate at which capacity can be expanded increases indefinitely.
D) the long-run aggregate supply curve is horizontal.
Answer: All counted correct.
12) Which of the following is NOT a reason for the slope of the aggregate demand curve?
A) The substitution effect
B) The real balance effect
C) The interest rate effect
D) The open-economy effect
Answer: A
13) If you feel you are better off because you receive a 20 percent raise even when the price level
also increases by 20 percent, then you are a victim of the
A) real income effect.
B) money income effect.
C) money illusion.
D) real purchasing power effect.
Answer: C
14) Holding nominal money balances constant, a decrease in the price level
A) causes the real value of the money balances to increase, in turn increasing total
planned real expenditures.
B) causes the real value of the money balances to decrease, in turn decreasing total
planned real expenditures.
C) causes the real value of the money balances to increase, thereby increasing the interest
rate.
D) generates a reduction in the value of the money balances, leading to higher interest
rates and a decrease in total planned real expenditures.
Answer: A
15) Other things being equal, the economy's aggregate demand curve shows that
A) as the price level falls, total planned expenditures fall as well.
B) a change in the general price level causes the curve to shift.
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Document Summary

Please bubble in the answer on your scantron. Answer: b: ignoring the government and foreign sectors, there is an unplanned decrease in inventories of. billion at the current level of real national income of trillion. Answer: c: if a shift in aggregate demand only affects real gross domestic product (gdp), then the short- run aggregate supply (sras) curve must be. Answer: a: an economy in long-run equilibrium experiences an increase in aggregate demand. Answer: c: suppose we observe rising nominal gdp, a rising price level, and constant unemployment as a result of an increase in aggregate demand. We would conclude that the aggregate supply curve is. Answer: c: when total planned real expenditures change due to the changes in net exports, this is known as the. Answer: c: suppose that real gdp is initially trillion and the government attempts to increase real.

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