Econ
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econ_201_mid_term_winter-2015_1.pdf
ECON 201-01: Introductory Macroeconomics
Mid Term Test
Due in class at 9:00 AM on Wednesday, February 11, 2015 (No exemptions, NONE) Write in pencil in the space provided on a GREEN SCANTRON the one alternative that best answers each question.
1. If the government wants to reduce unemployment, government purchases should be ________ and/or taxes
should be ________.
a. increased; increased
b. increased; decreased
c. decreased; decreased
d. decreased; increased
e. none of the above.
2. When the government sector is included in the income-expenditure model, the equation for aggregate income
is
a. Y = C + I + G.
b. Y = C + S + I.
c. Y = C + S - T.
d. Y = C + I.
e. none of the above.
3. The marginal propensity to consume represents:
a. the change in output caused by a one-unit change in autonomous demand.
b. the change in consumption caused by a one-unit change in disposable income.
c. the ratio of total consumption to disposable income.
d. the level of consumption that occurs if disposable income is zero.
e. total income minus total taxes.
4. The GDP deflator in year 4 is 120 and the GDP deflator in year 5 is 130. The rate of inflation between years 4
and 5 is
a. -10%.
b. 7.7%.
c. 8.33%.
d. 10%.
e. cannot be determined from the available information.
5. Which of the following is a question answered with positive economic analysis?
a. Should the college cut tuition to stimulate enrollment?
b. Should the college provide more financial aid assistance?
c. If the college increased tuition, will class size decline?
d. Should the college offers free parking for students?
e. none of the above.
6. The difference between nominal or "money" GDP and "real" GDP is that
a. real GDP deducts taxes, while money GDP does not.
b. real GDP measures the output of goods and services, while money GDP records financial
transactions.
c. real GDP is adjusted for changes in the price level, while money GDP is not.
d. money GDP considers goods and services, while real GDP considers only goods.
e. real GDP must be measured in units of output, while money GDP is measured in dollars
or other currency units.
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7. Refer to the figure below. Panel C shows a curve which has a slope that is
a. infinite throughout.
b. first positive and then negative.
c. zero throughout.
d. first negative and then positive.
e. none of the above.
8. Given that the consumption function is C = 100 + .8Y and planned investment I is $100 billion, then the
equilibrium level of income is $__________.
a. 100
b. 1,000
c. 600
d. 2,000
e. 500
9. If personal saving is -$10 billion and disposable personal income is $370 billion, then personal consumption
spending
a. is $360 billion.
b. is $380 billion.
c. is $390 billion.
d. cannot be determined from this information.
10. Refer to the table below. The MPS
a. is 0.8.
b. is 0.2.
c. is 0.1
d. is 0.25
e. cannot be determined from the available information.
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11. The branch of economics that examines the functioning of individual industries and the behavior of
individual decision-making units is
a. positive economics.
b. macroeconomics.
c. normative economics.
d. microeconomics.
12. If the MPS is 0.2, the tax multiplier is
a. -1.11.
b. -4.
c. -5.
d. -9.
e. none of the above.
13. A car that is produced in 2010 is not sold until 2011. According to the definition of GDP, in which year's GDP
should it be counted?
a. Half of the sales price will count as part of 2010 GDP and half will count as part of 2011
GDP.
b. 2011
c. 2010
d. The production cost will count as part of 2010 GDP while the sales price will count as part
of 2011 GDP.
e. none of the above
14. An economist wants to understand the relationship between minimum wages and the level of teenage unemployment.
The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The
economist concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this
information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to
increase employment among teenagers.
A graph of the value of the minimum wage on one axis and the level of teenage unemployment on the other
axis is an example of
a. an economic model.
b. inductive reasoning.
c. an economic theory.
d. a variable theory.
e. none of the above.
15. The Bureau of Labor Statistics announced that the unemployment rate fell by one percentage point. This is
best described as
a. an economic model.
b. descriptive economics.
c. a normative statement.
d. Marxist ideology.
e. none of the above.
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16. For an economy that trades goods and services (i.e., the open-economy model), equilibrium is represented by
which of the following?
a. S = I
b. Y = C + I + G
c. Y = C + I + G + (EX - IM)
d. S + T = I + G
e. G - T = EX - IM
17. Refer to the figure below. The slope of the line between Points D and B is
a. -0.67.
b. -1.5.
c. 1.5.
d. 0.67.
e. none of the above.
18. Suppose that you hire a maid to do work that you have been doing yourself. Because of your decision,
a. GDP will remain unchanged.
b. real GDP will increase, but money GDP will be unchanged.
c. money GDP will increase, but real GDP will be unchanged.
d. GDP will fall.
e. GDP will increase.
19. If the economy grows at 10 percent from year 1 to year 2 and real GDP is 300 in year 1, what will real GDP be
in year 2?
a. 10
b. 300
c. 315
d. 330
e. cannot be determined from the available information.
20. Assume that C = 100 + 0.9(Y - T), net taxes are $100 billion, government purchases are $200 billion, and
planned investment is $100 billion. Then an output of $2,000
a. results in a positive change (increase) in unplanned inventory.
b. is above the equilibrium level.
c. equals the equilibrium level of output.
d. is below the equilibrium level.
e. results in no change in unplanned inventory.
21. If the tax multiplier is -9 and taxes are reduced by $100 billion, output
a. falls by $100 billion.
b. increases by $100 billion.
c. increases by $900 billion.
d. falls by $900 billion.
e. none of the above.
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22. Economists define the unemployed as individuals who are
a. working but looking for a different job.
b. not currently working.
c. not currently working but are actively looking for work.
d. working less than their desired amount of time.
e. none of the above.
23. Refer to the data below. If government spending increases by 400, equilibrium output increases by
C = 1,000 + .5Yd
T = 200
G = 400
I = 500
a. 1,600.
b. 800.
c. 2,000.
d. 400.
e. cannot be determined from the available information.
24. As the size of the MPC decreases, the value of the balanced-budget multiplier
a. increases.
b. remains constant.
c. decreases.
d. could either increase or decrease.
e. cannot be determined from the available information.
25. Which of the following events will cause a reduction in equilibrium output?
a. an increase in taxes
b. an increase in the marginal propensity to save
c. a reduction in the marginal propensity to consume
d. all of the above
e. none of the above
26. Gross domestic product measures
a. the value of all output in the economy.
b. the total income of everyone in the economy.
c. the total spending of everyone in the economy.
d. all of the above
27. The term business cycle refers to the
a. short-term ups and downs in the price level.
b. long-term trends in the price level.
c. long-term trends in the level of economic activity.
d. short-term ups and downs in the level of economic activity.
e. none of the above.
28. Refer to the figure below. As firms produce additional units, average costs declines by a smaller and smaller
amount. If output is graphed on the horizontal axis and average costs are graphed on the vertical axis, the
relationship between average costs and output would be like which of the following panels?
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a. A
b. B
c. C
d. D
e. none of the above.
29. Refer to the table below. The equilibrium level of income is
a. $3,600 billion.
b. $3,800 billion.
c. $3400 billion.
d. $2,000 billion.
e. cannot be determined from the available information.
30. If the central bank increases the money supply, it is conducting
a. monetary policy.
b. supply-side policy.
c. fiscal policy.
d. incomes policy.
e. none of the above.
31. A period during which aggregate output rises is known as a(n)
a. hyperinflation.
b. recession.
c. expansion.
d. inflation.
e. none of the above.
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32. The size of the multiplier depends on the
a. level of equilibrium output.
b. level of autonomous investment.
c. point at which consumption intersects the vertical axis.
d. point of intersection of the 45° line and planned aggregate expenditure.
e. marginal propensity to consume.
33. In a business cycle, a trough represents the end of
a. an inflation.
b. a peak
c. an expansion.
d. a recession.
e. none of the above.
34. In a closed economy with no government, which of the following will occur when the economy is in
equilibrium?
a. I = C
b. S = C
c. Y = S
d. C = Y
e. None of the above
35. Disposable income equals:
a. income minus saving.
b. income minus both saving and taxes.
c. the sum of consumption and saving
d. consumption minus taxes.
e. none of the above
36. Refer to the table below. The value for personal income in billions of dollars is
a. 970.
b. 1,000.
c. 1,050.
d. 1,110.
e. cannot be determined from the available information.
37. Refer to the data below. If government spending increases by $100, equilibrium output increases by:
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a. $800.
b. $400.
c. $100.
d. $200.
e. none of the above.
38. Refer to the table below. The unemployment rate equals:
a. 4.4%
b. 5.0%
c. 4.2%
d. 2.8%
e. none of the above.
39. Refer to the figure below. Panel B shows a curve with a slope that is
a. positive and increasing.
b. negative and decreasing.
c. negative and increasing.
d. positive and decreasing.
e. none of the above.
40. Suppose the MPC = .9 and that policymakers want to increase equilibrium output by 1000. Also assume that
policymakers want to change government spending and taxes by the same amount in order to achieve this
desired increase in output. Given this information, policymakers would have to increase simultaneously both
government spending and taxes by
a. 200.
b. 1,000.
c. 100.
d. 50.
e. 500.
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41. The government wants to discourage consumer spending through raising income taxes. This is an example of
a. a fiscal policy.
b. an incomes policy.
c. a supply-side policy.
d. a monetary policy.
e. none of the above.
42. Refer to the table below. The value for gross domestic product in billions of dollars is
a. 485.
b. 680.
c. 685.
d. 710.
e. none of the above.
43. Assume C = 150 + 0.9Y and I = 50. The multiplier is
a. 8.
b. 99.
c. 6.
d. 4.
e. None of the above
44. GDP minus final sales gives a measure of the
a. value of intermediate goods.
b. change in business inventories.
c. non-residential investment.
d. GNP.
e. none of the above.
45. The difference between real GDP and money (or nominal) GDP is that
a. money GDP includes government transfer payments (such as Social Security) while real
GDP does not.
b. real GDP has been adjusted to eliminate the impact of inflation while nominal GDP has
not.
c. money GDP does not take government taxation into account while real GDP does.
d. real GDP does not take government taxation into account while money GDP does.
e. none of the above
46. The formula for the tax multiplier is
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a. -(MPS/MPC).
b. -(MPC/MPS).
c. MPS/MPC.
d. -1/MPS.
e. none of the above.
47. Which of the following is an example of a positive statement?
a. There should be no unemployment in an advanced industrial society.
b. People should pollute as little as possible.
c. Consumption should be distributed fairly in society.
d. Higher prices cause consumers to purchase less.
e. none of the above.
48. The balanced-budget multiplier is
a. 1/(1 - MPC).
b. -△T x (MPC/MPS). c. -(MPC/MPS).
d. 1/MPS.
e. None of the above
49. Assume that in the United States the actual deficit is $300 billion. If the United States were at full
employment, the deficit would be $100 billion. The structural deficit in the United States is
a. $100 billion.
b. $200 billion.
c. $300 billion.
d. $400 billion.
e. none of the above.
50. Refer to the table below. The labor force equals:
a. 14,000.
b. 16,000.
c. 16,500.
d. 13,500.
e. cannot be determined from the available information.
51. If 5 million workers are unemployed and 45 million workers are employed, then the unemployment rate is
a. 5%.
b. 10%.
c. 11.1%.
d. 40%.
e. cannot be determined from the available information.
52. An economist wants to understand the relationship between minimum wages and the level of teenage unemployment.
The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The
economist concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this
information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to
increase employment among teenagers.
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The statement, "the minimum wage is harmful to teenagers and should be reduced or eliminated to increase
employment among teenagers," is an example of
a. descriptive economics.
b. normative economics.
c. Marxist economics.
d. positive economics.
e. none of the above.
53. A government policy that tries to minimize inflation and unemployment can best be described as trying to
achieve economic
a. efficiency.
b. equity.
c. stability.
d. profitability.
e. none of the above.
54. Refer to the table below. The value of disposable income
a. is 505.
b. is 560.
c. is 605.
d. cannot be calculated given the information
55. Suppose a budget deficit initially exists (i.e., G > T). Now suppose there is an equal increase in both
government purchases of goods and services and taxes. Given this information, we know that this policy will
cause
a. a reduction in output.
b. no change in output.
c. no change in the size of the budget deficit.
d. output to increase and the budget deficit to increase.
e. output to increase and the budget deficit to decrease.
56. Refer to the table below. At an output level of $1,500 billion, there is an unplanned inventory
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a. increase of $150 billion.
b. increase of $100 billion.
c. decrease of $200 billion.
d. change of $0.
e. cannot be determined from the available information.
57. Ockham's razor is the principle that states
a. costs which have been incurred cannot be avoided.
b. we must forego something when making a decision.
c. supply creates its own demand.
d. irrelevant detail should not be included in a model.
e. none of the above.
58. If the MPC is 0.8, the tax multiplier is
a. -5.
b. -1.2.
c. -8.
d. -4.
e. cannot be determined from the available information.
59. If the economy's full-employment output is $6 trillion, actual output is $3.5 trillion, and the budget deficit is
$20 billion, the deficit in this case is known as a
a. cyclical deficit.
b. debt deficit.
c. structural deficit.
d. natural employment deficit.
e. none of the above.
60. Which of the following is an example of a normative statement?
a. There should be no unemployment in an advanced industrial society.
b. Equilibrium price implies that quantity demanded equals quantity supplied.
c. The unemployment rate is six percent.
d. Higher prices cause consumers to buy less.
e. none of the above.
61. When the level of government purchases increases by G, the final effect on equilibrium Y is
a. △G. b. 1/MPS.
c. △G/(1 - MPC). d. △T x (MPC/MPS). e. -(MPC/MPS).
62. A decrease in the overall price level is known as
a. inflation.
b. deflation.
c. recession.
d. economic growth.
e. none of the above.
63. The four criteria that are frequently used in judging the outcome of economic policy are
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a. efficiency, equality, profitability, and stability.
b. efficiency, equity, profitability, and stability.
c. efficiency, equality, stability, and economic growth.
d. efficiency, equity, stability, and economic growth.
e. none of the above.
64. Based on the notation used in the text, suppose Y > C + I. Given this information, we know with certainty that
a. S = Y.
b. firms' inventories are rising.
c. C = I.
d. S = I.
e. the economy is operating below the equilibrium level of output.
65. An economist wants to understand the relationship between minimum wages and the level of teenage unemployment.
The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The
economist concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this
information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to
increase employment among teenagers.
The statement that a 1% increase in the minimum wage causes a 0.2% increase in teenage unemployment is
an example of
a. normative economics.
b. positive economics.
c. Marxist economics.
d. descriptive economics.
e. none of the above.
66. GDP is not a perfect measure of social welfare and the society's economic well-being because
a. it does not include all economic activities in the economy.
b. it does not say anything about the distribution of income.
c. GDP accounting rules do not adjust for production that causes negative externalities.
d. all of the above
e. none of the above.
67. Welfare payments are an example of
a. a tax.
b. wages.
c. interest payments.
d. transfer payments.
e. none of the above.
68. Refer to the data below. Suppose government spending decreases by 200, we know that equilibrium output
will decrease by:
C = 1000 + .75YD
I = 850
G = 2500
T = 1000
a. 200.
b. 400.
c. 800.
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d. 1000.
e. none of the above
69. Refer to the figure below. Which of the curves or lines has an infinite slope throughout?
a. A
b. B
c. C
d. D
e. cannot be determined from the available information.
70. Suppose investment falls by $200 and equilibrium output falls by $500. Given this information, we know that:
a. the marginal propensity to consume = 0.75.
b. the marginal propensity to consume = 0.9.
c. the marginal propensity to consume = 0.8.
d. none of the above
71. Suppose the MPC = .9 and that policymakers want to increase equilibrium output by 1000. Given this
information, policymakers would have to reduce taxes by approximately
a. 501.
b. 100.
c. 50.
d. 251.
e. 111.
72. Suppose, as unrealistic as this might be, that disposable income is zero for a country. Given this information,
we know that:
a. consumption must be zero.
b. saving must be zero.
c. saving must be positive.
d. the marginal propensity to consume must be zero.
e. saving is negative.
73. When a government runs a surplus
a. its debt increases.
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b. its debt decreases.
c. it must raise taxes
d. it must cut spending.
e. none of the above.
74. If GDP is $500 billion and depreciation is $40 billion, then net national product
a. is $460 billion.
b. is $500 billion.
c. is $540 billion.
d. cannot be determined from this information.
75. Suppose the economy is in equilibrium. Now suppose there is an increase in planned investment. As the
economy adjusts to this increase in planned investment, we know that
a. saving will fall.
b. the multiplier will increase.
c. saving will increase.
d. the multiplier will decrease.
e. consumption will fall.
76. Positive economics is an approach to economics that
a. seeks to understand behavior and the operation of systems while making judgments
about their usefulness to society.
b. examines the role of government in the economy.
c. applies statistical techniques and data to economic problems.
d. analyzes outcomes of economic behavior, evaluates them as good or bad, and may
prescribe preferred courses of action.
e. none of the above.
77. Which of the following is added to personal income to get national income?
a. personal interest income
b. retained earnings
c. depreciation
d. personal taxes
e. none of the above.
78. Which of the following statements is FALSE?
a. During a recession, output and employment are falling.
b. Business cycles are always symmetric?the length of an expansion is the same as the length
of a contraction.
c. The rate of change in economic activity is used to assess whether an economy is
expanding or contracting.
d. Short-term ups and downs in the economy are known as business cycles.
e. none of the above.
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79. If the economy's full-employment output is $9 trillion, actual output is $9 trillion, and the budget deficit is $20
billion, the deficit in this case is known as a
a. natural employment deficit.
b. cyclical deficit.
c. fiscal deficit.
d. structural deficit.
e. none of the above.
80. Inflation and unemployment
a. are a focus of macroeconomics.
b. are the focus of normative economics.
c. are a focus of positive economics.
d. are a focus of microeconomics.
81. Refer to the table below. The value for national income in billions of dollars is
a. 710.
b. 750.
c. 800.
d. 825.
e. cannot be determined from the available information.
82. Refer to the table below. Personal consumption expenditures in billions of dollars are
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a. 1,400.
b. 1,500.
c. 1,700.
d. 2,300.
e. cannot be determined from the available information.
83. An economist wants to understand the relationship between minimum wages and the level of teenage unemployment.
The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The
economist concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this
information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to
increase employment among teenagers.
The statement that an increase in the minimum wage causes an increase in teenage unemployment is an
example of
a. an economic theory.
b. deductive reasoning.
c. normative economics.
d. descriptive reasoning.
e. none of the above.
84. A government policy that tries to minimize inflation and unemployment can best be described as trying to
achieve economic
a. equity.
b. profitability.
c. growth.
d. stability.
e. none of the above.
85. If the slope of a straight line is 4 and if Y (the variable on the vertical axis) decreases by 20, then X (the
variable on the horizontal axis)
a. increases by 5.
b. decreases by 80.
c. increases by 80.
d. decreases by 5.
e. cannot be determined from the available information.
86. Refer to the table below. The value for gross domestic product in billions of dollars is
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a. 3,800.
b. 4,000.
c. 4,500.
d. 4,600.
e. cannot be determined from the available information.
87. Which of the following would be included in GDP?
a. the value of the services performed by a homemaker
b. the services of a house painter
c. the dollar value of the welfare payments received by a young mother
d. the value of a used car sold by its former owner
e. the value of the firewood you cut yourself
88. Refer to the table below. The economy is at the equilibrium level of output. If government spending decreases
by $100 billion, the new equilibrium level of output is
a. $3,100 billion.
b. $2,400 billion.
c. $1,550 billion.
d. $1,450 billion.
e. none of the above.
89. To isolate the impact of one single factor, economists invoke the assumption of
a. ceteris paribus.
b. inductive reasoning.
c. post hoc, ergo prompter hoc.
d. Ockham's razor.
e. none of the above.
90. The total amount owed by the federal government to the public is the
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a. federal budget deficit.
b. fiscal drag.
c. federal debt.
d. net tax revenue.
e. none of the above.
91. Refer to the data below. The tax multiplier is
a. -10.
b. 5.
c. -5.
d. 1.
e. -1.
92. If government spending is increased by $550 and taxes are increased by $550, the equilibrium level of income
will
a. increase by $550.
b. decrease by $550.
c. not change.
d. increase by $1,100.
e. none of the above.
93. If real GDP in 2006 using 2005 prices is higher than nominal GDP of 2006, then
a. nominal GDP in 2006 equals nominal GDP in 2005.
b. prices in 2006 are higher than prices in 2005.
c. real GDP in 2006 is smaller than real GDP in 2005.
d. prices in 2006 are lower than prices in 2005.
e. none of the above.
94. Which of the following types of government spending is included when calculating GDP?
a. spending at the state level
b. spending at the federal level
c. spending at the municipal level
d. all of the above
e. only A and B
95. Refer to the figure below. Panel D shows a curve which has a slope that is
a. first positive and then negative.
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b. zero throughout.
c. infinite throughout.
d. first negative and then positive.
e. none of the above.
96. Between a trough and a peak, the economy goes through a(n)
a. expansion.
b. hyperinflation.
c. bust.
d. recession.
e. none of the above.
97. Refer to the data below. The government spending multiplier is
a. 8.
b. 6.
c. 2.
d. 4.
e. 10.
98. Refer to the table below. The number of people not in the labor force equals:
a. 74.3.
b. 68.4.
c. 201.9.
d. 5.9.
e. cannot be determined from the available information.
99. Refer to the data below. What is the unplanned inventory change if Y = 900?
a. 0
b. 100
c. -100
d. 50
e. -50
100. If the GDP deflator is less than 100, then
a. prices decreased by more than half between the current and the base years.
b. nominal GDP equals real GDP.
c. nominal GDP is greater than real GDP.
d. nominal GDP is lower than real GDP.
e. none of the above.
