# Macroeconomic Exam

ECN 282

Final Exam Spring 2016

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 1. The marginal propensity to consume is equal to: A) the proportion of consumer spending as a function of aggregate disposable income. B) the change in saving divided by the change in aggregate disposable income. C) the ratio of the change in consumer spending to the change in aggregate disposable income. D) the change in saving divided by the change in consumer spending. 2. The MPS plus the MPC must equal: A) zero. B) one. C) income. D) saving. 3. If the MPS = 0.1, then the value of the multiplier equals: A) 1. B) 5. C) 9. D) 10. 4. If the multiplier equals 4, then the marginal propensity to save must be equal to: A) 1/4. B) 1/2. C) 3/4. D) the marginal propensity to consume. 5. Suppose that the marginal propensity to consume is 0.8, and investment spending increases by \$100 billion. The increase in aggregate demand is: A) \$100 billion, the same amount as investment spending. B) \$125 billion, composed of \$100 billion in investment spending and \$25 billion in consumption. C) \$80 billion, composed of \$100 billion in investment spending and a decrease in consumption of \$20 billion. D) \$500 billion, composed of \$100 billion in investment spending and \$400 billion in consumption.

 6. The marginal propensity to save is: A) savings divided by aggregate income. B) the fraction of an additional dollar of disposable income that is saved. C) 1 + MPC. D) savings divided by aggregate income or 1 + MPC.

 7. If disposable income increases by \$5 billion and consumer spending increases by \$4 billion, the marginal propensity to consume is equal to: A) 20. B) 0.8. C) 1.25. D) 9.

 8. The spending multiplier is equal to: A) MPC / MPS. B) 1 / (1 – MPS). C) MPC + MPS. D) 1 / (1 – MPC). 9. Suppose that a financial crisis decreases investment spending by \$100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, by how much will real GDP change? A) \$500 billion decrease B) \$200 billion decrease C) \$800 billion decrease D) \$400 billion increase 10. Suppose the government increases spending by \$100 billion as a stimulus package. If the MPC is 0.6, then equilibrium income will: A) decrease by \$250 billion. B) increase by \$250 billion. C) increase by \$600 billion. D) decrease by \$400 billion. 11. According to the National Bureau of Economic Research, the U.S. economy is going through a severe recession. Most households are trying to save more of their income than before. This increase in private spending will lead to: A) an increase in aggregate income, as more saving means more funds for business investment. B) a fall in aggregate income, as more saving means people will spend less. C) no change in aggregate income, because there is no saving multiplier. D) an increase in aggregate income, as an increase in saving will make people wealthier. 12. A key statistic to measure economic growth is: A) the size of the government’s budget. B) real GDP per capita. C) life expectancy. D) the Dow Jones stock market index. 13. The standard of living in a country can be best measured by: A) nominal GDP per capita. B) real GDP per capita. C) the productivity growth rate. D) the business cycles. 14. To find the approximate number of years it takes the economy to double, one would: A) divide its growth rate by 70. B) divide 70 by its growth rate. C) divide its growth rate by 100. D) multiply its growth rate by 20.

 15. Long-run economic growth depends almost entirely on: A) labor productivity growth. B) population growth. C) agricultural production growth. D) the number of hours worked. 16. Productivity is equal to: A) real GDP divided by the number of workers. B) real GDP divided by the population. C) the number of workers per machine. D) the total output produced. 17. The term human capital describes: A) improvement made possible by better machines and the equipment available. B) improvement in the technology available to the work force. C) improvement in a worker’s skills made possible by education, training and knowledge. D) improvement in the robotics technology that can substitute for a human worker. 18. Which of the following will NOT increase the productivity of labor? A) technological improvements B) an increase in the capital stock C) improvements in education D) an increase in the size of the labor force 19. For developed countries, which of the following would be considered the most important driver in productivity growth? A) the level of educational attainment B) the amount of physical capital C) technological progress D) the abundance of natural resources 20. An example of physical capital would be: A) a truck a company purchases for work. B) a worker who physically learns to work on a truck his company buys. C) a truck a worker buys for personal use like hunting, going to work, or going to the beach. D) a truck a company purchases for work, a worker who physically learns to work on a truck his company buys, or a truck a worker buys for personal use like hunting, going to work, or going to the beach. 21. Workers now are more productive than in the past because workers today: A) have more natural resources to use. B) work four-day weeks. C) are better educated and so have more human capital. D) are physically larger than their parents. 22. According to the text, productivity is driven by all of the following EXCEPT: A) physical capital. B) human capital. C) technological progress. D) natural resources. 23. Investment in human capital shifts the aggregate production function: A) downward. B) leftward. C) upward. D) rightward. 24. All of the following are sources of federal tax revenue EXCEPT: A) the personal income tax. B) sales taxes. C) social insurance taxes. D) the corporate profits tax. 25. The federal government’s largest source of tax revenue is: A) property taxes. B) personal income and corporate profit taxes. C) sales taxes. D) social insurance taxes. 26 Government payments to households for which no good or service is provided in return are called: A) transfer payments. B) government purchases. C) consumption expenditures. D) investment expenditures. 27. In the basic equation of national income accounting, the government directly controls _____ and influences ______. A) G; C and I B) T; G and C C) C; X and M D) I; G and T 28. A change in taxes or a change in government transfers affects consumption through a change in: A) autonomous consumption. B) the marginal propensity to save. C) disposable income. D) government spending. 29. Which of the following is NOT a method of fiscal policy? A) changing tax rates B) government transfers C) government purchases of goods and services D) changes in the money supply 30. Suppose the economy is in a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to: A) decrease government purchases. B) decrease taxes. C) decrease government transfers. D) increase real interest rates. 31. If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____. A) increase government purchases; AD; left. B) increase transfer payments; AS; right. C) increase tax rates; AD; right. D) increase government purchases; AD; right. 32. Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to: A) lower tax rates. B) decrease government purchases. C) increase the investment tax credit. D) lower the real interest rate.

Use the following to answer questions 33-34:

Figure: Short-Run Equilibrium

 33. (Figure: Short-Run Equilibrium) The accompanying graph shows the current short-run equilibrium in the economy. Appropriate fiscal policy action in this situation would be: A) a decrease in transfer payments. B) an increase in government purchases. C) a decrease in tax rates. D) an increase in the investment tax credit. 34. (Figure: Short-Run Equilibrium) The accompanying graph reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to: A) P2 – P1. B) Y1 – YP. C) P2 – P0. D) P1 – P0. 35. If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is: A) a decrease in government transfers. B) an increase in government spending. C) a decrease in government spending. D) an increase in the money supply to decrease interest rates. 36. Which of the following is an expansionary fiscal policy? A) an increase in the money supply that decreases interest rates B) an increase in taxes that reduces the budget deficit and decreases consumption C) a decrease in government spending on the space program D) an increase in unemployment benefits Ans: D 37. A reduction in government transfers ________, therefore shifting the aggregate demand curve to the ________. A) increases labor costs to companies, increasing investment; left B) decreases government purchases of goods and services, decreasing consumption; right C) increases the marginal propensity to save, decreasing consumption; right D) decreases disposable income and consumption; left 38. A cut in taxes ________, therefore shifting the aggregate demand curve to the ________. A) decreases government transfers and consumption; right B) increases disposable income and consumption; right C) decreases the marginal propensity to save, increasing consumption; left D) increases corporate profits and investment; left

Use the following to answer question 72:

 98. A current account surplus exists when: A) the balance on the current account is positive. B) net exports are negative. C) spending flowing out of the country for goods and services exceeds spending flowing into the country for its goods and services. D) imports exceed exports. 99. A current account deficit exists when: A) the balance on current account is negative. B) spending flowing out of the country for goods and services is less than spending flowing into the country for its goods and services. C) net exports are positive. D) an economy buys less from foreigners than it sells to them.

 100. The difference between a country’s exports and its imports of goods and services is known as the: A) trade balance. B) balance of payments on goods and services. C) balance of payments on current account. D) balance of exchange.