econ home work
repunzel
StudyGuide1.docxExam
The second exam includes 30 to 40 multiple choice questions from Chapters 31, 32, and 33. As stated in the syllabus, the exam accounts for 20 percent of your grade.
You have 60 minutes to complete the exam. Although time is limited, I strongly suggest that you read the questions and all choices very carefully.
How to study?
Start with lecture outlines. Then, go over the sections in the textbook listed here, focusing on parts discussed in class. Also, see below for some practice problems.
Chapter 31
Consumption and investment schedules
Equilibrium GDP
Changes in equilibrium GDP and multiplier
Adding international trade
Adding public sector
Chapter 32
Aggregate demand
Changes in aggregate demand
Aggregate supply
Changes in aggregate supply
Equilibrium in ADAS model
Changes in equilibrium
Chapter 33
Fiscal policy and ADAS model
Recent and projected US fiscal policy
Problems, criticisms, and complications
US public debt
Practice
Chapter 31
In Chapter 31, focus on calculations regarding the determination of equilibrium output.
In the aggregate expenditures model, it is assumed that investment spending A. changes in response to income. B. changes in response to marginal propensity to consume. C. changes in response to interest rate. D. None of the above.
Total spending in a private open economy is determined by the sum of expenditures by A. consumers and business firms. B. consumers, business firms, and government. C. consumers, business firms, and foreign buyers. D. consumers, business firms, government, and foreign buyers.
Suppose that in a private closed economy a = 50, b = 0.6, c = 70, d = 8, and the interest rate is 5 percent. What is the level of investment spending?
A. 70. B. 50. C. 40. D. 30.
What is the equilibrium output for the private closed economy?
A. 200. B. 225. C. 250. D. 300.
Suppose that the private closed economy starts trading with the world. Suppose further that imports exceed exports by $10. What is the equilibrium output for the private open economy?
A. 275.
B. 225. C. 175. D.150.
What is the multiplier?
A. 4.
B. 2.5. C. 1. D. 0.4.
Here is another example.
Suppose that a = 100, b = 0.5, c = 45, d = 7, and the interest rate is 5 percent. Suppose further that the economy is running a trade surplus of $15. Finally, government runs a balanced budget: spending of $30 is financed by taxes of $30 levied on income.
What is the equilibrium output for the mixed open economy?
Y = a + b*(Y – T) + Ig + Xn + G
Y = 100 + 0.5*(Y – 30) + 45 – 7*5 + 15 + 30
Y – 0.5*Y = 100 – 15 + 10 + 15 + 30
0.5*Y = 140
Ye = $280
Suppose that government expenditures increase from $30 to $50. To finance higher spending, taxes also rise to $50.
What is the new equilibrium output for the mixed open economy?
Y = a + b*(Y – T) + Ig + Xn + G
Y = 100 + 0.5*(Y – 50) + 45 – 7*5 + 15 + 50
Y – 0.5*Y = 100 – 25 + 10 + 15 + 50
0.5*Y = 150
Ye = $300
Note that although G and T increase by the same amount, from $30 to $50, the economy actually expands: Ye rises from $280 to $300. Explain why.
Chapter 32
In Chapter 32, focus on factors that shift aggregate demand and aggregate supply curves and the resulting impact on prices and output.
In the above diagram, the aggregate demand curve is illustrated by
A. 1. B. 2. C. 3. D. 4.
In the above diagram, the short-run aggregate supply curve is illustrated by
A. 1. B. 2. C. 3. D. 4.
In the above diagram, the long-run aggregate supply curve is illustrated by
A. 1. B. 2. C. 3. D. 4.
Which of the following would not shift the aggregate demand curve?
A. A fall in interest rates carried out by the central bank.
B. Depreciation of domestic currency.
C. A decrease in price level.
D. An increase in personal income taxes paid to the government.
All else equal, if national incomes of our trading partners were to rise, the
A. aggregate demand curve would shift to the right.
B. aggregate supply curve would shift to the right.
C. aggregate demand curve would shift to the left.
D. aggregate supply curve would shift to the left.
All else equal, falling interest rates will A. raise investment spending and shift the AD curve to the left. B. raise investment spending and shift the AD curve to the right. C. reduce investment spending and shift the AD curve to the left. D. reduce investment spending and shift the AD curve to the right.
All else equal, rising productivity will A. shift the AD curve to the left. B. shift the AS curve to the left. C. shift the AS curve to the right. D. increase price level.
All else equal, if domestic currency depreciates at the same time as oil prices rise, the equilibrium
A. output will definitely rise. B. output will definitely fall. C. price level will definitely rise. D. price level will definitely fall.
Chapter 33
In Chapter 33, focus on fiscal policy effects in the ADAS model and timing-related issues facing the government.
If the economy is suffering from weak growth and high unemployment, appropriate fiscal policy actions include
A. increased government spending, increased taxation, or a combination. B. increased government spending, decreased taxation, or a combination. C. decreased government spending, increased taxation, or a combination. D. decreased government spending, decreased taxation, or a combination.
Fiscal policy actions that are useful in controlling price increases in an overheated economy include A. a decrease in government spending. B. a decrease in taxes. C. a depreciation of dollar. D. an increase in interest rates.
The amount by which tax collections exceed government expenditures in a given year is equal to the
A. public debt. B. budget deficit. C. budget surplus. D. GDP gap.
Public debt is the total amount that
A. state and local governments owe to the federal government. B. American taxpayers owe to foreigners. C. the federal government owes to American taxpayers. D. the federal government owes to the holders of US Treasury securities.
(1) A tax cut is passed by Congress and signed into law by the President.
(2) Economists reach agreement that the US economy is in a recession.
(3) Consumption rises, aggregate demand increases as a result, and the economy begins to recover.
(4) The index of leading economic indicators turns downward, suggesting a recession.
Referring to above information, the operational lag of fiscal policy occurs between
A. 1 and 3. B. 2 and 3. C. 2 and 1. D. 4 and 2.
Referring to above information, the recognition lag of fiscal policy occurs between
A. 1 and 3. B. 2 and 3. C. 2 and 1. D. 4 and 2.
Referring to above information, the administrative lag of fiscal policy occurs between
A. 1 and 3. B. 2 and 3. C. 2 and 1. D. 4 and 2.
Key
Chapter 31: C C D A C B
Chapter 32: D B A C A B C C
