MULTIPLE CHOICE SECTION
1. Suppose that domestic prices increase. Which of the followings is most likely to happen?
(a) Net exports would increase
(b) Net exports would decrease
(c) No impact on net exports
(d) Exports will be equal to imports
2. Which of the followings will be most likely to shift the consumption function downward
(a) a stock market boom
(b) a price level decrease
(c) lower disposable income
(d) higher interest rates
3. Suppose that between 2008 and 2009 nominal GDP in the US grew by 3% and that between the same
years in.ation was 3%. The growh rate of real GDP between 2008-9 was:
(a) 6%
(b) 9%
(c) zero
(d) we can not tell
4. Suppose that, in the US, in 2012, disposable income increased by $1 billion and that MPC was 0.9.
This means that (to a good approximation) total consumption increased by
(a) $950 million
(b) $1 billion
(c) $900 million
(d) $100 million
5. The AD curve describes the relationship between
(a) consumption and disposable income
(b) consumption and the price level
(c) the (demand-side) equilibrium level of output and the price level
(d) the (demand-side) equilibrium level of output and the interest rate
6. Economic growth is driven by:
(a) growth in the labor force
(b) growth in the capital stock
(c) growth in productivity of labor
(d) all of the above
7. A recession is a period of time (few months) where:
(a) in.ation is negative
(b) interest rate are equal to zero
(c) total real GDP falls
(d) .rms close due to holidays
8. The unemployment rate is the
(a) share of the population which is not working
(b) share of the labor force seeking jobs that is not working
(c) number of people that can not .nd a job
(d) share of the population that is retired
9. One USD is equal to roughly 90 Japanese Yen. Suppose that the exchange rate goes up to 100 Yen
per Dollar. Which of the followings is more likely to happen:
(a) Government spending (G) will increase
(b) US imports from Japan will decrease
(c) US imports from Japan will increase
(d) Consumption (C) will increase
10. In the US, monetary policy is decided by the Federal Reserve, which, in case of recession tries to
stimulate the economy by
(a) cutting taxes to households and .rms
(b) building new infrastuctures to help production
(c) cutting interest rates and/or printing more dollars
(d) exporting more American products to Europe
SHORT ANSWER SECTION (70 points total)
Please provide very short answers to the following questions
11. . Suppose that in an imaginary country called "Coconut Grove", people consume always
the same basket of goods: 100 coconuts and 25 bananas. The unit prices for these two goods are as
follows
Bananas Coconut
2011 $1 20c
2012 $2 15c
(a) Compute the dollar value of the basket in both years
(b) Using 2011 as your base year, compute the Consumer Price Index (CPI) in 2011 and 2012
(c) What is the CPI in.ation rate between 2011 and 2012?
12. . Consider the following table (numbers are in millions)
real GDP Population
2011 10000 10
2012 11000 12
Compute the growth rate of real GDP per capita between 2011 and 2012.
13. . Consumption is the largest component of aggregate demand in the US economy. Brie.y
explain how the following events might a¤ect its value. HINT: you have to say whether consumption
would increase or decrease, and give a brief economic explanation
(a) An increase in interest rates on checking accounts from 0% (current value) to 1.5%
(b) A higher in.ation rate
(c) A forecast of a sustained boom in real GDP starting in the Fall 2013.
14. . Between 2003 and 2009, US exports to Europe increased. As a result, US net exports
with Europe went from -$110 billion to $-72 billion. Highlight two factors that might have caused this
change and brie.y explain how:
15. . Consider the graph on pg. 12 of Slides Set #4.
Answer to the followings
(a) Brie.y explain why any point to the right of E cannot be an equilibrium.
(b) Suppose the price level goes up. On the same graph given above, draw the new expenditure
schedule and .nd the new equilibrium point.
Compute the level of national income Y for which total spending in the economy is equal to national
income.