Miami Dade College
ECO 2013.009 Principles of Macroeconomics – Summer B 2016
Practice Test #3
1.
The recurrent ups and downs in the level of economic activity extending over several
years are referred to as:
A.
B.
C.
D.
Economic phases
Business startups
Business cycles
Noncyclical fluctuations
2.
Refer to the diagram above. The phases of the business cycle from points A to D are,
respectively:
A.
B.
C.
D.
3.
Peak, recession, expansion, trough
Trough, recovery, expansion, peak
Expansion, recession, trough, peak
Peak, recession, trough, expansion
A peak in the business cycle:
A.
B.
C.
D.
Occurs when the unemployment rate is its greatest
Occurs when the inflation rate is its lowest
Is a temporary maximum point
Is a temporary minimum point
1
4.
In the expansion phase of a business cycle:
A.
B.
C.
D.
5.
Which of the following groups declares the start and end of recessions in the U.S.?
A.
B.
C.
D.
6.
The Business Cycle Monitoring Committee of the Federal Reserve System
The Business Cycle Tracking Agency of the Department of Commerce
The Business Cycle Dating Committee of the National Bureau of Economic Research
The Committee on Business Cycles of the Council of Economic Advisers
The Great Recession that started in 2007 was triggered by shocks in which of the
following economic sectors?
A.
B.
C.
D.
7.
The inflation rate decreases, but productive capacity increases
The inflation rate and productive capacity decrease
Employment increases, but output decreases
Employment and output increase
Gold market and stock market
International trade and foreign exchange markets
Real estate and financial markets
Consumer and government spending
Which statement is correct?
A. All sectors of the economy are affected to similar degrees by business fluctuations
B. Real output and employment generally show little variance over the business cycle
C. The production of nondurable consumer goods is more stable than the production of
durable consumer goods over the business cycle
D. Recessions have not been severe because economists and statisticians have been able
to predict their occurrence and intensity with high accuracy
8.
The unemployed are those people who:
A.
B.
C.
D.
Do not have jobs
Are not employed but are seeking work
Are not working
Are not in the workforce
2
9.
Full-time homemakers and retirees are classified in the BLS data as:
A.
B.
C.
D.
10.
If the total population is 200 million, the labor force is 100 million, and 92 million
workers are employed, then the unemployment rate would be:
A.
B.
C.
D.
11.
4 percent
6 percent
8 percent
10 percent
The unemployment rate in an economy is 6%. The total population of the economy is 290
million, and the size of the civilian labor force is 150 million. The number of unemployed
workers in this economy is:
A.
B.
C.
D.
12.
Employed
Unemployed
Part of the labor force
Not in the labor force
6 million
9 million
12 million
24 million
The total adult population of an economy is 175 million, the number of employed is 122
million, and the number of unemployed is 17 million. The percent of adults who are not in
the labor force is:
A.
B.
C.
D.
25.3 percent
20.6 percent
30.3 percent
13.9 percent
3
13.
Official unemployment rate statistics may:
A. Overstate the amount of unemployment by including part-time workers in the
calculations
B. Understate the amount of unemployment by excluding part-time workers in the
calculations
C. Overstate the amount of unemployment because of the presence of "discouraged"
workers who are not actively seeking employment
D. Understate the amount of unemployment because of the presence of "discouraged"
workers who are not actively seeking employment
14.
The best example of a "frictionally unemployed" worker is one who:
A.
B.
C.
D.
15.
A worker who loses a job at a call center because the company moved the call center
operations to another country is an example of:
A.
B.
C.
D.
16.
Frictional unemployment
Structural unemployment
Cyclical unemployment
Disguised unemployment
"Full employment" refers to the situation when there is:
A.
B.
C.
D.
17.
Reduces productivity by causing friction in a business
Is laid off during a recessionary period in the economy
Is in the process of voluntarily switching jobs
Is discouraged and not actively seeking work
100% employment of the labor force
0% unemployment rate
No frictional or structural unemployment
No cyclical unemployment
The GDP gap measures the amount by which:
A.
B.
C.
D.
Nominal GDP exceeds real GDP
Actual GDP exceeds equilibrium GDP
Potential GDP exceeds actual GDP
Actual GDP exceeds national income
4
18.
Inflation is a rise in:
A.
B.
C.
D.
19.
If the Consumer Price Index for a certain year is 120, this means that the average price of
consumer items in that year was:
A.
B.
C.
D.
20.
4.0 percent
4.2 percent
-4.0 percent
-4.2 percent
Core inflation refers to the inflation picture after stripping away the:
A.
B.
C.
D.
22.
20% higher than the average price in the base period 1982-84
About $120 per basket of consumer goods and services
120% higher than the average price in the base period 1982-84
20% higher than the average price of the preceding year
If the Consumer Price Index was 125 in one year and 120 in the following year, then the
rate of inflation is approximately:
A.
B.
C.
D.
21.
The general level of prices over time
The standard of living over time
Unemployment over time
Real GDP over time
Capital goods prices
Food and energy prices
Government-regulated prices
Service-sector prices
For a given amount of nominal income, the real income will:
A.
B.
C.
D.
Fall if the price level rises
Fall if the price level falls
Be unaffected if the price level falls
Rise as the price level rises
5
23.
If the average level of nominal income in a nation is $44,000 and the price level index is
175, the average real income would be about:
A.
B.
C.
D.
24.
In Year 1, the price level was 120 and the average nominal income was $30,000. In Year
2, the price level was 125 and the average nominal level of income was $32,000. What
happened to real income from Year 1 to Year 2?
A.
B.
C.
D.
25.
"Subsidizes" those who receive fixed money incomes
"Taxes" those who receive fixed money incomes
"Penalizes" those who borrow money
"Benefits" those who save money
Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If
unanticipated inflation occurs in the economy, then:
A.
B.
C.
D.
27.
It fell by $400
It rose by $400
It rose by $600
It rose by $2,000
Unanticipated inflation arbitrarily:
A.
B.
C.
D.
26.
$18,857
$25,143
$44,000
$77,000
Both lenders and borrowers benefit
Both lenders and borrowers are hurt
Borrowers are hurt, but lenders benefit
Lenders are hurt, but borrowers benefit
You are given the following information about the economy: the nominal interest rate = 8
percent; the real rate of interest = 6 percent. The inflation premium is:
A.
B.
C.
D.
2 percent
6 percent
8 percent
14 percent
6
28.
The amount of consumption in an economy correlates:
A.
B.
C.
D.
Inversely with the level of disposable income
Directly with the level of disposable income
Directly with the level of saving
Directly with the rate of interest
29.
Refer to the consumption schedule above. At income level 3, the amount of consumption
is represented by the line segment:
A.
B.
C.
D.
FG
FH
FD
GH
7
30.
Refer to the consumption schedule above. At income level 1, the amount of saving is:
A.
B.
C.
D.
31.
Positive
Negative
Zero
Not measurable
The slope of the consumption schedule between two points on the schedule is:
A. The ratio of the change in consumption to the change in disposable income between
those two points
B. The ratio of the change in disposable income over the change in consumption between
those two points
C. Equivalent to one plus the marginal propensity to save
D. Equivalent to the average propensity to consume
32.
The fraction, or percentage, of total income which is consumed is called the:
A.
B.
C.
D.
Break-even income
Consumption schedule
Marginal propensity to consume
Average propensity to consume
8
33.
If disposable income is $900 billion when the average propensity to consume is 0.9, it can
be concluded that:
A.
B.
C.
D.
34.
The MPC can be defined as the:
A.
B.
C.
D.
35.
Slope of the consumption schedule is .75
Average propensity to consume is .75
Marginal propensity to save is .20
Marginal propensity to consume is .6
If the consumption schedule is a straight line, it can be concluded that the:
A.
B.
C.
D.
37.
Change in consumption divided by the change in income
Change in income divided by the change in consumption
Ratio of income to saving
Ratio of saving to consumption
Assume that an increase in a household's disposable income from $40,000 to $48,000
leads to an increase in consumption from $35,000 to $41,000, then the:
A.
B.
C.
D.
36.
The marginal propensity to consume is also 0.9
The marginal propensity to save is 0.1
Consumption is $900 billion
Saving is $90 billion
APC is necessarily constant
MPC is zero
MPC is constant at various levels of income
APC is equal to the MPC
If disposable income increases from $912 to $927 billion and MPC = 0.6, then
consumption will increase by:
A.
B.
C.
D.
$6 billion
$9 billion
$54 billion
$56 billion
9
38.
The relationship between the MPS and the MPC is such that:
A.
B.
C.
D.
39.
Dissaving occurs when:
A.
B.
C.
D.
40.
Income is greater than saving
Income is less than consumption
Saving is greater than consumption
Saving is greater than the interest rate
If the slope of the consumption schedule is 0.75, then the slope of the saving schedule is:
A.
B.
C.
D.
41.
MPC - MPS = 1
MPS/MPC = 1
1 - MPC = MPS
MPC - 1 = MPS
0.25
0.75
1.25
Cannot be determined from the data
The table shows a consumption schedule.
Refer to the data above. The marginal propensity to consume is:
A.
B.
C.
D.
.80
.75
.60
.40
10
42.
The graph above shows the relationship between consumption and income. The ratio
LM/PL would be a measure of the:
A.
B.
C.
D.
43.
An increase in household wealth that creates a wealth effect would shift the:
A.
B.
C.
D.
44.
Marginal propensity to consume
Marginal propensity to save
Average propensity to consume
Average propensity to save
Consumption schedule and the saving schedule upward
Consumption schedule and the saving schedule downward
Consumption schedule upward and the saving schedule downward
Consumption schedule downward and the saving schedule upward
A lower real interest rate typically induces consumers to:
A.
B.
C.
D.
Save more
Buy fewer imported goods
Purchase more goods that are bought using credit
Purchase fewer goods that are bought without using credit
11
45.
Refer to the above figures with consumption schedules in figure (A) and saving schedules
in figure (B), which correspond to each other across different levels of disposable income.
If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure
(B) line:
A.
B.
C.
D.
B2 will shift to B3
B1 will shift to B2
B2 will shift to B1
B3 will shift to B2
46.
Refer to the above figures with consumption schedules in figure (A) and saving schedules
in figure (B), which correspond to each other across different levels of disposable income.
If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure
(B) line:
A.
B.
C.
D.
B2 will shift to B3
B1 will shift to B2
B2 will shift to B1
B3 will shift to B2
12
47.
Two basic determinants of investment spending are:
A.
B.
C.
D.
48.
An investment demand curve shows the varying amounts of investment that would be
undertaken at various levels of:
A.
B.
C.
D.
49.
The investment demand curve will shift to the right
The investment demand curve will shift to the left
There will be a movement upward along the investment demand curve
There will be a movement downward along the investment demand curve
Suppose that new computer software for accounting and analysis at a business has a useful
life of only one year and costs $200,000 before it needs to be upgraded to a new version.
The revenue generated by this software is expected to be $250,000. The expected rate of
return from this new computer software is:
A.
B.
C.
D.
51.
The average price in the economy
Consumer spending
Personal saving
The real interest rate
If the real interest rate increases:
A.
B.
C.
D.
50.
Consumer spending and government spending
Expected returns and real interest rates
General price level and the level of output
Domestic trade and international trade
11 percent
20 percent
25 percent
80 percent
Assume there are no investment projects that will produce an expected rate of return of 8
percent or more. There are, however, $2 billion worth of investment projects with an
expected rate of return at 7 percent, an additional $2 billion for every drop of the interest
rate by 1 percent. If the real interest rate is 3 percent in this economy, the cumulative
amount of investment at the 3 percent or higher rate of return is:
A.
B.
C.
D.
$10 billion
$8 billion
$6 billion
$4 billion
13
52.
According to the cumulative investment table above, if the real interest rate falls from
20% to 16%, then:
A.
B.
C.
D.
$180 billion of additional investments will be undertaken
$330 billion of total investments will be undertaken
$30 billion of additional investments will be undertaken
$440 billion of total investments will be undertaken
53.
Refer to the graph above. Which of the following would shift the investment demand
curve from ID2 to ID3?
A.
B.
C.
D.
54.
Greater inventories of capital goods
Higher business taxes on capital goods
A more rapid rate of technological progress
Lower expected rates of return on investment in capital goods
The multiplier effect relates:
A.
B.
C.
D.
Changes in the price level to changes in real GDP
Changes in the interest rate to changes in investment
Changes in disposable income to changes in consumption
Changes in spending to changes in real GDP
14
55.
In a closed private economy, income is $50 billion and consumption is $40 billion. When
income rises by 10 percent, consumption rises by 9 percent. The MPS over the relevant
income range is:
A.
B.
C.
D.
56.
If, in an economy, a $200 billion increase in consumption spending creates $200 billion of
new income in the first round of the multiplier process and $160 billion in the second
round, the marginal propensity to consume and the multiplier are, respectively:
A.
B.
C.
D.
57.
0.11 and the multiplier is 9.09
0.28 and the multiplier is 3.57
0.62 and the multiplier is 1.61
0.72 and the multiplier is 3.57
0.8 and 5.0
0.4 and 2.5
0.4 and 1.67
0.2 and 1.25
Answer the following question based on the table below which illustrates the multiplier
process resulting from an autonomous increase in investment by $5.
Refer to the above table. The marginal propensity to consume is:
A.
B.
C.
D.
58.
0.5
0.75
0.8
0.9
An increase in spending of $25 billion increases real GDP from $600 billion to $700
billion. The marginal propensity to consume must be:
A.
B.
C.
D.
0.25 and the multiplier is 4
0.50 and the multiplier is 2
0.75 and the multiplier is 4
0.80 and the multiplier is 5
15
59.
One basic assumption of the aggregate expenditures model is that:
A.
B.
C.
D.
60.
In a private closed economy, the two components of aggregate expenditures are:
A.
B.
C.
D.
61.
Consumption and government spending
Consumption and net exports
Consumption, investment, and net exports
Consumption and investment
In the aggregate expenditures model, the consumption schedule is shown to be:
A.
B.
C.
D.
62.
The economy is operating at full employment
There is inflation in the economy
There is no public sector in the economy
The average price level in the economy is fixed
Directly related to real interest rates
Inversely related to real interest rates
Directly related to real income GDP
Inversely related to real income GDP
The investment schedule shows the:
A. Inverse relationship between the expected rate of return and the quantity of investment
demanded
B. Positive relationship between the expected rate of return and the quantity of investment
demanded
C. Amounts business firms collectively intend to invest at each possible level of GDP
D. Rate of interest that business firms must pay when they make investments in capital
goods
63.
A rightward shift of the investment demand curve will:
A.
B.
C.
D.
Shift the investment schedule downward
Shift the investment schedule upward
Decrease the quantity of investment
Decrease the real rate of interest
16
64.
In a private closed economy, the equilibrium condition for the economy is:
A.
B.
C.
D.
65.
AE = C + Ig = GDP
AE = G + Ig = GDP
AE = C + Ig + G = GDP
C + Ig + G + NX = GDP
The data below are for a private (no government) closed economy. All figures are in
billions of dollars.
Refer to the table above. If planned investment is $25 billion, the equilibrium level of
GDP will be:
A.
B.
C.
D.
$600 billion
$620 billion
$640 billion
$660 billion
17
66.
All figures below are in billions of dollars.
Refer to the table above. If gross investment is $12 billion, the equilibrium level of GDP
will be:
A.
B.
C.
D.
$260 billion
$270 billion
$280 billion
$290 billion
18
67.
Refer to the graph above for a private closed economy. In this economy, investment is:
A.
B.
C.
D.
$50 billion
$100 billion
$150 billion
$200 billion
19
68.
Refer to the graph above for a private closed economy. The equilibrium level of GDP in
this economy is:
A.
B.
C.
D.
69.
$150 billion
$250 billion
$350 billion
$450 billion
The table shows a private closed economy. All figures are in billions of dollars.
Refer to the table above. If the real rate of interest is 2%, then the equilibrium level of
GDP will be:
A.
B.
C.
D.
$800 billion
$1000 billion
$1200 billion
$1400 billion
20
70.
The table shows a private closed economy. All figures are in billions of dollars.
Refer to the table above. An increase in the real interest rate from 2% to 6% will:
A.
B.
C.
D.
71.
Planned investment is $20 billion and saving is $15 billion when GDP in the economy is
$180 billion. The economy is:
A.
B.
C.
D.
72.
At the equilibrium level of GDP
In disequilibrium and its GDP will increase
In disequilibrium and its GDP will decrease
Having a GDP level that is greater than its aggregate expenditures
If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then
equilibrium GDP will increase by:
A.
B.
C.
D.
73.
Decrease the equilibrium level of GDP by $200 billion
Decrease the equilibrium level of GDP by $300 billion
Decrease the equilibrium level of GDP by $400 billion
Increase the equilibrium level of GDP by $400 billion
$3.75 billion
$6.7 billion
$8.75 billion
$20 billion
The marginal propensity to save is 0.2. Equilibrium GDP will decrease by $50 billion if
aggregate expenditures schedule decrease by:
A.
B.
C.
D.
$10 billion
$15 billion
$16 billion
$40 billion
21
74.
Other things being equal, a decrease in an economy's exports will:
A.
B.
C.
D.
75.
Increase domestic aggregate expenditures and the equilibrium level of GDP
Decrease domestic aggregate expenditures and the equilibrium level of GDP
Have no effect on domestic GDP because imports will offset the change in exports
Increase the amount of imports consumed by the private sector
The table shows a private open economy. All figures are in billions of dollars.
Refer to the above table. The equilibrium real GDP is:
A.
B.
C.
D.
76.
$550
$600
$650
$700
Which of the following statements is correct?
A. An increase in exports will tend to increase, and an increase in imports will tend to
decrease, the equilibrium GDP
B. An increase in exports and an increase in imports will both tend to increase the
equilibrium GDP
C. An increase in exports and an increase in imports will both tend to decrease the
equilibrium GDP
D. An increase in exports will tend to decrease, and an increase in imports will tend to
increase, the equilibrium GDP
22
77.
All figures in the table below are in billions.
Refer to the above data. If exports increased by $15 billion at each level of GDP, all other
factors constant, then the equilibrium level of GDP would be:
A.
B.
C.
D.
78.
Which event would most likely decrease an economy's exports?
A.
B.
C.
D.
79.
A decline in the tariff on products imported from abroad
An increase the prosperity of trading partners for this economy
An appreciation of the nation's currency relative to foreign currencies
A depreciation of the nation's currency relative to foreign currencies
In the aggregate expenditures model of the economy, a downward shift in aggregate
expenditures can be caused by a:
A.
B.
C.
D.
80.
$550 billion
$600 billion
$650 billion
$700 billion
Decrease in government spending or an increase in taxes
Decrease in taxes or an increase in government spending
Decrease in interest rates or a decrease in taxes
Decrease in saving or an increase in government spending
If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75,
then the saving schedule will shift:
A.
B.
C.
D.
Upward by $10 billion
Upward by $25 billion
Downward by $10 billion
Downward by $25 billion
23
81.
All figures in the table below are in billions of dollars.
Refer to the above data. Gross investment is $8 billion, net exports are $4 billion, and
government collects a lump-sum tax of $30 billion and spends $30 billion. Assume all
taxes are personal taxes and that government spending does not entail shifts in the
consumption and investment schedules. The equilibrium GDP will be:
A.
B.
C.
D.
$280 billion
$290 billion
$300 billion
$310 billion
82.
In the above graph it is assumed that investment, net exports, and government
expenditures:
A.
B.
C.
D.
Are all increasing
Vary directly with GDP
Vary inversely with GDP
Are independent of GDP
24
83.
Refer to the above graph. If this economy was an open economy without a government
sector, the level of GDP would be:
A.
B.
C.
D.
84.
$100 billion
$200 billion
$300 billion
$400 billion
The table shows a consumption schedule. All figures are in billions of dollars.
Refer to the above information. If planned investment was $20 billion, government
purchases of goods and services were $20 billion, and taxes and net exports were zero,
then the equilibrium level of GDP would be:
A.
B.
C.
D.
$600 billion
$640 billion
$680 billion
$720 billion
25
85.
Injections into the income-expenditure stream include:
A.
B.
C.
D.
86.
If the marginal propensity to consume is .80 and both taxes and government purchases
increase by $50 billion, GDP will:
A.
B.
C.
D.
87.
Assumed to be equal to the potential GDP level
Not necessarily equal to the full-employment GDP
Always above the potential GDP level
Always less than the full-employment GDP level
In a recessionary expenditure gap, the equilibrium level of real GDP is:
A.
B.
C.
D.
89.
Increase by $50 billion
Decrease by $50 billion
Increase by $10 billion
Decrease by $10 billion
In the aggregate expenditures model, the equilibrium GDP is:
A.
B.
C.
D.
88.
Transfer payments and imports
Government purchases and exports
Taxes and imports
Taxes and transfer payments
Less than planned aggregate expenditures
Greater than planned aggregate expenditures
Greater than full-employment GDP
Less than full-employment GDP
In an inflationary expenditure gap, the equilibrium level of real GDP is:
A.
B.
C.
D.
Greater than planned investment
Equal to full-employment GDP
Greater than full-employment GDP
Less than full-employment GDP
26
90.
If the MPC in an economy is 0.8, government could close a recessionary expenditure gap
of $100 billion by cutting taxes by:
A.
B.
C.
D.
$80 billion
$100 billion
$125 billion
$200 billion
27
ECO 2013.009 Principles of Macroeconomics – Summer B 2016
Practice Test #3 – Answer Key
1. C
2. D
3. C
4. D
5. C
6. C
7. C
8. B
9. D
10. C
11. B
12. B
13. D
14. C
15. B
16. D
17. C
18. A
19. A
20. C
21. B
22. A
23. B
24. C
25. B
26. D
27. A
28. B
29. D
30. B
31. A
32. D
33. D
34. A
35. A
36. C
37. B
28
38. C
39. B
40. A
41. C
42. A
43. C
44. C
45. C
46. C
47. B
48. D
49. C
50. C
51. A
52. C
53. C
54. D
55. B
56. A
57. B
58. C
59. D
60. D
61. C
62. C
63. B
64. A
65. C
66. C
67. B
68. D
69. C
70. C
71. B
72. D
73. A
74. B
75. B
76. A
77. C
29
78. C
79. A
80. C
81. D
82. D
83. C
84. C
85. B
86. A
87. B
88. D
89. C
90. C
30