1) The output gap is zero when
(a) Actual real GDP > Natural real GDP
(b) Actual real GDP ? Natural real GDP
(c) Actual real GDP < Natural real GDP
(d) Natural real GDP ? 0.
2) Total expenditures on final product are
(a) C ? I ? G ? IM.
(b) C ? S ? T ? EX.
(c) C ? I ? S ? EX.
(d) C ? I ? G ? EX - IM.
3) The leakage and injections approach implies that the government surplus is equal to
(a) private saving less private investment plus net exports.
(b) private investment less private saving plus net exports.
(c) private investment plus private saving plus net exports.
(d) None of the above
4) In national income accounting, (S ? T) is
(a) the portion of total income not consumed.
(b) net national product.
(c) the government deficit.
(d) the final output firms absorb as investment.
5) Suppose that in our economy: G ? 1100, T ? 900, S ? 140, and NX ? -90. How much of our final product is used for investment?
(a) 110
(b) 200
(c) 230
(d) 50
(e) 30
6) A change in nominal GDP sums up changes in
(a) prices alone.
(b) physical production alone.
(c) physical production and hours of production time.
(d) physical production and prices.
7) In the consumption function, when disposable income is zero, consumption is
(a) Ca.
(b) -cT.
(c) +cT.
(d) -Ca.
8) Which element of total planned expenditure is not included in "autonomous planned spending?"
(a) cY
(b) -cT
(c) NX
(d) Ip
(e) Ca
9) The multiplier is defined as the ratio of a change in income to the
(a) marginal propensity to save.
(b) marginal propensity to consume.
(c) change in the marginal propensity to consume causing it.
(d) change in the marginal propensity to save causing it.
(e) change in planned autonomous spending causing it.
10) Should autonomous consumption rise by one dollar, the effect of this on equilibrium income can be offset if autonomous taxes are
(a) raised by one dollar.
(b) lowered by one dollar.
(c) raised by c dollars.
(d) lowered by c dollars.
(e) raised by (1/c) dollars.
11) According to the first reading item (1-1) in contrast to the unconditional advocacy of full employment in the first two decades of the postwar era, after 1970 the goal changed to
(a) zero inflation
(b) full employment until the inflation rate goes up
(c) full employment until the inflation rate goes down
(d) steady inflation neither going up nor going down
12) Which of the following statements is true about Irish politicians?
(a) When they brag about their policies they refer to GNP
(b) When they brag about their policies they refer to GDP
(c) When they want regional subsidies from the EU they refer to GDP
(d) None of the above
13) In the consumption function C ? Ca ? c(Y - T), induced consumption is
(a) Ca ? c(Y - T)
(b) Ca ? cY
(c) cY
(d) c(Y - T)
14) In equilibrium,
(a) income ? planned expenditures.
(b) unintended inventory investment is zero.
(c) Ep (planned expenditures) crosses the 45-degree income line.
(d) all of the above.
15) If the interest rate were to fall, we expect that
(a) the supply of money will fall.
(b) the supply of money will rise.
(c) autonomous planned spending will rise.
(d) the demand for money will fall.
16) The "velocity" of money is
(a) the ratio of real GDP to the real money supply.
(b) the real money supply divided by the real GDP.
(c) the money supply divided by the price level.
(d) the money supply multiplied by the price level.
17) Along a downward-sloping money demand schedule, as the interest rate falls
(a) the quantity of money demanded falls.
(b) the quantity of money demanded rises.
(c) real income rises.
(d) real income falls.
18) When the demand for money becomes less responsive to changes in income, the LM curve becomes ________ and it also shifts to the _______.
(a) flatter, left
(b) flatter, right
(c) steeper, left
(d) steeper, right
19) If a given fiscal policy is fully accommodated by monetary policy, then
(a) GDP will remain constant.
(b) the interest rate will remain constant.
(c) GDP and the interest rate will move in the same direction.
(d) GDP and the interest rate will move in the opposite direction.
20) An increase in the real money supply will have its maximum effect on the equilibrium level of GDP when the
(a) LM curve is vertical.
(b) LM curve is horizontal.
(c) IS curve is vertical.
(d) IS curve is negatively sloped.
21) The article advocating "Green NNP" argues that
(a) GDP must be adjusted downwards for the depletion of natural resources
(b) GDP must be adjusted downwards for the depreciation of physical assets
(c) NNP must be adjusted downwards for the depreciation of physical assets
(d) A and B
(e) A and C
22) An article reports that two million men have dropped out of the labor force since 1995. As a counterpart of this:
(a) More men are receiving disability payments
(b) More men are in prison
(c) More men are discouraged workers
(d) A and B
(e) A, B and C
23) The U.S. saving rate was almost zero in 2005-07. At the same time
(a) Household net worth fell
(b) Household net worth rose
(c) Saving fell as owners of stock paid capital gains taxes
(d) Consumption fell as owners of stock paid capital gains taxes
(e) B and C
(f) B and D
24) Complete "crowding-out" describes the situation in the economy when
(a) fiscal policy is effective in changing output.
(b) the shift in the LM curve by monetary policy is "impotent."
(c) the shift in the IS curve by fiscal policy is "impotent."
(d) fiscal policy crowds out monetary policy.
25) The three ways of reducing a government budget deficit are to
(a) decrease government spending, reduce consumption, increase the tax rate.
(b) increase government spending, decrease real income, reduce the tax rate.
(c) decrease government spending, increase real income, reduce the tax rate.
(d) decrease government spending, increase real income, increase the tax rate.
26) Domestic Income is equal to
(a) GDP-Indirect Business Taxes
(b) GDP-Indirect Business Taxes-depreciation
(c) GDP-Indirect Business Taxes-depreciation-Social security contributions -corporate taxes
(d) none of the above
27) In the IS-LM Model, a reduction in government purchases of goods and services (G) tends to
(a) raise equilibrium investment
(b) crowd out investment
(c) reduce equilibrium output
(d) A and C
28) Which of the following concerns may limit the amount by which the Fed reduces interest rates to deal with the sub-prime mortgage crisis
(a) Fear of higher inflation
(b) Fear of higher unemployment
(c) Moral hazard
(d) Fear of falling household wealth
(e) A and C
(f) B and D
29) When the Economist argues that it's "a good time for a squeeze", how does it support its position?
(a) Profits have been high for years so companies have lots of cash
(b) American consumers are debt-laden and are being battered by falling house prices
(c) Emerging markets (less developed countries) have large foreign exchange reserves
(d) A and C
(e) B and C
30) According to the Business Week article "Our Hidden Savings" which of the following is not true?
(a) Over the past decade U. S. stock prices went up far more than in Europe or Japan
(b) Low U. S. saving requires borrowing from foreigners
(c) The U. S. spends less on higher education than in Europe or Japan
(d) The U. S. has a lower national saving rate than Europe or Japan
(e) R&D spending is not counted as part of GDP