Key Macroeconomic Concepts
1 The consumption function measures the additional
consumption due to increased income as a percentage of that increase in income
a True
b False
2 At relatively high levels of disposable income:
a APC is negative and APS is positive
b APC is low and APS is high
c APC is high and APS is low
d MPC is high and MPS is low
3 From the data given below, this individual’s marginal
propensity to consume is:
Disposable Income Savings
$16,000 $500
$18,000 $800
a 015
b 030
c 085
d not calculable without additional data
4 The level of consumption increases as:
a the amount of non liquid assets held increases
b credit availability is reduced
c consumers expect the rate of inflation to increase
d the level of disposable income decreases
5 The level of investment is determined by:
a the business firm’s sales outlook
b expectations concerning the size and apportionment of the
federal budget
c the expected rate of profit
d consumer expectations
e both a and c
f all of the above
6 Investment will be high when:
a the capacity utilization rate is high and interest rates
are low
b the capacity utilization rate is low and interest rates
are high
c the capacity utilization rate is high and interest rates
are high
d none of the above
7 The marginal efficiency of capital is a term Keynes used
to describe:
a the interest rate on investment opportunities
b the expected rate of profit
c the return on stock market investments
d none of the above
8 Firms will most likely borrow money for investment when
a interest rates are low
b interest rates are high
c interest rate is higher than the expected profit rate
d the expected profit rate is higher than the interest
rate
9 A sales tax on basic food items is an example of a(n):
a direct tax
b nominally progressive tax
c indirect tax
d nominally regressive tax
e both a and b
f both c and d
10 An individual’s taxable income rises from $20,000 to
$30,000 per year, and the taxes paid amount rises from $5,000 to $8,500 This
individual’s marginal tax rate is:
a 1167%
b 2833%
c 35%
d not calculable without additional information
11 Gross domestic product (GDP) equals :
a GNP minus depreciation
b national income plus indirect business taxes and
subsidies
c national income plus depreciation
d GNP plus net exports
e GNP adjusted for factor income from abroad
12 The largest sector of GDP is consumer spending
a True
b False
Please answer questions 13 – 14 based on the following
information:
The following are items from the national accounts (given in
$billions) of
Country X for 2000:
Consumption $3,000
Investment 1,100
Government spending 1,200
Exports 400
Imports 450
Depreciation 580
Factor income received from rest of world 230
Payments of factor income to rest of world 220
Indirect business taxes and subsidies 440
13 GDP for the year 2000 in Country X is:
a $5,200
b $5,250
c $5,300
d $5,700
14 Net national product and national income for 2000 are,
respectively:
a $4,230; 3,030
b $4,680; 4,240
c $5,120; 4,680
d $5,700; 5,030
15 If GDP triples, the GDP deflator stays the same, and our
population
doubles, our real per capita GDP:
a rises by 33 1/3%
b rises by 50%
c rises by 66 2/3%
d stays the same
16 GDP rises from $2 trillion to $3 trillion and prices
rose by 50% over this period Then:
a real GDP rose by 50%
b real GDP rose by 25%
c real GDP fell by 50%
d real GDP stayed the same
17 GDP for a country in 1990, the base year, is $500
billion In 1998, GDP is $750 billion and the GDP deflator is 130 Which of the
following statements is TRUE?
a Real GDP rose by $154 billion
b Real GDP fell by $77 billion
c Real GDP rose by $100 billion
d Real GDP rose by 154%
e Real GDP fell by 20%
18 GDP calculations will include:
a all individual investments in stocks and bonds
b an estimate of the total value of all underground economy
transactions
c total savings by US households
d money spent on additions and improvements to existing
structures
19 Net domestic product is usually preferred to GDP by
economists because net national product
a includes depreciation
b excludes depreciation
c includes indirect business taxes
d excludes indirect business taxes
20 At full employment cyclical unemployment is zero
a True
b False
21 If inflation turns out to be much higher than expected,
the real interest rate will be __________ than the expected interest rate
a lower
b higher
c the same
d lower or higher, depending on other factors
22 Inflation occurs when aggregate demand exceeds the value
of what the economy can produce at full employment
a Cost-push
b Demand-pull
c Psychologically-induced
d Hyper-
23 Which of the following statements is FALSE?
a A rising price level pushes up interest rates
b A price increase in the domestic economy relative to
trading partners reduces exports and raises imports
c A decrease in the price level increases the quantity of
real money
d An increase in the price level leads to an increase in
investment
e All of the above statements are TRUE
24 A decrease in the quantity of real money held by
individuals due to a rise in the general price level is termed the:
a real balance effect
b interest rate effect
c foreign purchase effect
25 If equilibrium GDP is $500 billion greater than
full-employment GDP and there is an inflationary gap of $100 billion, then the
multiplier is:
a 0
b 1
c 5
d 6
e not calculable without additional data
26 In 1996 the budget deficit is $200 billion; in 1997 the
budget deficit falls to $100 billion If the national debt at the beginning of
1996 is $1 trillion, at the end of 1997 it is:
a $700 billion
b $900 billion
c $11 trillion
d $12 trillion
e $13 trillion
27 There is a deflationary gap when
a equilibrium GDP is equal to full employment GDP
b equilibrium GDP is smaller than full employment GDP
c equilibrium GDP is larger than full employment GDP
d none of these occur
28 The speculative demand for money is the least responsive
to fluctuations in interest rates
a True
b False
29 A reduction in taxes of $200 billion, with a MPC of
075, results in a:
a $150 billion increase in equilibrium GDP
b $400 billion decrease in equilibrium GDP
c $600 billion increase in equilibrium GDP
d $800 billion increase in equilibrium GDP
30 Which of the following will be an effect of the Fed
selling open market securities?
a Business investment will be discouraged
b Household savings will be discouraged
c Households consumption will be encouraged
d The money supply will increase
31 The Depository Institutions Deregulation and Monetary
Control Act:
a made all depository institutions subject to the Fed’s
legal reserve requirements
b authorized all depository institutions to issue checking
deposits
c penalized nonmembers of the Federal Reserve system by
reducing check-clearing and borrowing services
d reduced the Fed’s control over the money supply
e both a and b
f all of the above
32 The opportunity cost of holding money varies:
a inversely with the interest rate
b directly with credit availability
c inversely with the price level
d inversely with the level of income
e all of the above
33 When the Fed purchases securities on the open market:
a it drives up the price of US government securities
b it raises interest rates
c it reduces the money supply
d both a and b
e all of the above
34 If banks are subject to a reserve requirement of 10%, an
open-market purchase of $2 billion by the Federal Reserve (assuming demand deposits
are the only form of money) will tend to:
a increase the money supply by $18 billion
b increase the money supply by $20 billion
c decrease the money supply by $2 billion
d decrease the money supply by $18 billion
35 Labor productivity is measured by:
a the ratio of capital to labor
b real output per worker hour
c real output per capita
d the ratio of worker hours to real GDP
36 The most important reason for our slow rate of economic
growth over the last three decades (of those listed below) is
a lagging business sales
b foreign imports
c our low savings rate
d high tax rates
37 When one nation has an absolute advantage over another:
a it will not benefit from trade with that nation
b both nations will tend towards self sufficiency
c it can produce all goods with fewer units of resources
than the other nation
d it can produce one good using fewer units of resource
than the other nation
38 When the dollar is devalued in international currency
markets:
a foreign goods become more expensive on domestic markets
and the US trade deficit is reduced
b foreign goods become cheaper and the US standard of
living is improved
c foreign goods become more expensive and the US trade
deficit is increased
d US exports become more expensive and the trade deficit
is reduced
39 If the United States were to devote all its resources to
producing washing machines, it could turn out 45 billion a year; if it devoted
all its resources to producing cars, it could turn out 15 billion a year Our
domestic exchange equation is:
a 3 cars = 1 washing machine
b 5 washing machines = 1 car
c 3 washing machines = 1 car
d 1/3 of a washing machine = 1 car
40 Using the data in question #39 above, if the United
States were to trade its cars for another country’s washing machines, it would
not trade one car unless it received ___________ washing machines
a one
b between one and three
c more than three
d more than five