02 Jun Question 1) Use Table 10.2. The following is the output of a two product
Question
1) Use Table 10.2. The following is the output of a two product economy.
Table 10.2
Year 1 Prices Year 2 Prices
10 bicycle $400/bicycle $440/bicycle
50 snowboards $150/snowboards $200/snowboards
Using Year 1 as the base year, the price index in this economy in Year 2 is
175
110
125
157
2) WHICH OF THE FOLLOWING WOULD BENEFIT FINANCIALLY FROM UNANTICIPATED INFLATION?
A) A BORROWER WITH AN ADJUSTABLE RATE MORTGAGE
B) A FIRM WHOSE WORKERS ARE COVERED BY A COLA AGREEMENT
C) A BANK THAT HAS MADE LOANS AT FIXED NOMINAL INTEREST RATE
D) A BORROWER WHOSE LOAN HAS A FIXED NOMINAL INTEREST RATE
3) IF YOUR NOMINAL INCOME RISES AT 5% AND INFLATION HAS RISEN AT 2% YOUR PURCHASING POWER HAS
A) STAYED THE SAME
B) INCREASED
C) ERODED
D) FALLEN, BUT WILL INCREASE DUE TO INDEXING
4) IF YOUR INCOME GOES UP BY $1,000 PER WEEK, AND YOUR CONSUMPTION GOES UP BY $800 PER WEEK, YOU HAVE A MARGINAL PROPENSITY TO CONSUME OF
A) 0.2
B) 1.0
C) 1.2
D) 0.8
5) DISCRETIONARY FISCAL POLICY IS SUBJECT TO TIME LAGS IN IMPLEMENTATION
A) TRUE
B) FALSE
6) ALL OF THE FOLLOWING WOULD CAUSE THE DEMAND FOR INVESTMENT TO SHIFT EXCEPT
A) A CHANGE IN BUSINESS TAXES
B) A CHANGE IN THE REAL INTEREST RATE
C) A CHANGE IN PRODUCTIVE TECHNOLOGY
D) A CHANGE IN PRODUCER EXPECTATIONS OF FUTURE PROFIT
7) IN THE KEYNESIAN MODEL, CONSUMPTION
A) AND SAVING ARE POSITIVELY RELATED TO THE REAL INTEREST RATE
B) IS POSITIVELY RELATED TO INCOME BUT SAVING IS NOT SYSTEMATICALLY RELATED TO EITHER INCOME OR INTEREST RATES
C) AND SAVING ARE POSITIVELY RELATED TO INCOME
D) IS POSITIVELY RELATED TO INCOME AND SAVING IS NEGATIVELY RELATED TO THE STOCK MARKET
8) IF THE MARGINAL PROPENSITY TO CONSUME IS .75 AND INVESTMENT SPENDING INCREASES BY $100 BILLION, THEN REAL NATIONAL INCOME WILL INCREASE BY
A) $400 BILLION
B) $100 BILLION
C) $75 BILLION
D) $250 BILLION
9) IF THE MARGINAL PROPENSITY TO CONSUME IS 0.75 AND THE FISCAL POLICY GOAL IS TO INCREASE REAL NATIONAL INCOME BY $100, THEN
A) GOVERNMENT SPENDING NEEDS TO INCREASE BY $25 BILLION
B) SAVING NEEDS TO INCREASE BY $100 BILLION
C) GOVERNMENT SPENDING NEEDS TO INCREASE BY $100 BILLION
D) SAVING NEEDS TO INCREASE BY $25 BILLION
10) IF THE MARGINAL PROPENSITY TO CONSUME IS .75, THE VALUE OF THE MULTIPLIER IS 3
A) TRUE
B) FALSE
11) THE DISTRIBUTION OF MONEY MIRRORS THE DISTRIBUTION OF WEALTH
A) TRUE
B) FALSE
12) WHAT CHARACTERISTIC DEFINES SOMETHING AS MONEY?
A) ASSETS LEGISLATED BY THE GOVERNMENT TO BE OF VALUE
B) A MEDIUM OF EXCHANGE UNIVERSALLY ACCEPTED IN AN ECONOMY
C) AN ASSET THAT EARNS INTEREST
D) NOTES YOU CAN DEPOSIT IN A SAVINGS ACCOUNT
13) THE ONLY WAY THE MONEY SUPPLY EXPANDS IN WHEN THE FEDERAL RESERVE PRINTS MORE MONEY
A) TRUE
B) FALSE
14) FOR SOMETHING TO SERVE AS MONEY, IT MUST BE
A) BACKED BY THE AUTHORITY OF THE GOVERNMENT
B) LIGHT, DURABLE, AND COMMON
C) CONVERTIBLE TO GOLD
D) GENERALLY ACCEPTED BY BUYERS AND SELLERS
15) THE FEDERAL RESERVE CONTROLS THE MONEY SUPPLY BY
A) SETTING THE PRICE LEVEL WITH A SYSTEM OF PRICE CONTROLS
B) DETERMINING HOW MUCH CURRENCY TO PRINT
C) TELLING BANKS HOW MUCH THEY CAN ACCEPT IN THE WAY OF DEPOSITS
D) CHANGING THE AMOUNT OF RESERVES IN THE BANKING SYSTEM
16) THE PROFIT MOTIVE EXPLAINS THE UPWARD SLOPE OF AGGREGATE SUPPLY
A) TRUE
B) FALSE
17) IF THE AMOUNT OF GOODS SUPPLIED BY FIRMS EXCEED PLANNED SPENDING THEN
A) INVENTORIES ACCUMULATE AND FIRMS REDUCE PRICES
B) INVENTORIES ACCUMULATE AND FIRMS RAISE PRICES
C) INVENTORIES ARE DEPLETED AND FIRMS RAISE PRICES
D) INVENTORIES ARE DEPLETED AND FIRMS REDUCE PRICES
18) ALL OF THE FOLLOWING ARE COMPONENTS OF AGGREGATE DEMAND EXCEPT
A) GOVERNMENT PURCHASES
B) CONSUMPTION SPENDING
C) THE LEVEL OF TECHNOLOGY
D) INVESTMENT SPENDING
19) THE AGGREGATE DEMAND CURVE DEPICTS
A) AN INVERSE RELATIONSHIP BETWEEN CHANGES IN THE PRICE LEVEL AND CHANGES IN NOMINAL GDP
B) A DIRECT RELATIONSHIP BETWEEN CHANGES IN THE PRICE LEVEL AND CHANGES IN REAL GDP
C) A DIRECT RELATIONSHIP BETWEEN CHANGES IN THE PRICE LEVEL AND CHANGES IN THE UNEMPLOYMENT RATE
D) AN INVERSE RELATIONSHIP BETWEEN CHANGES IN THE PRICE LEVEL AND CHANGES IN REAL GDP
20) THE VALUE ON THE AXES OF THE AGGREGATE SUPPLY DIAGRAM ARE
A) REAL GDP PER YEAR AND PRICE LEVEL
B) REAL GDP AND INTEREST RATES
C) REAL GDP AND NOMINAL GDP
D) NOMINAL GDP AND THE PRICE LEVEL
21) BECAUSE INDIVIDUAL DEMAND CURVES SLOPE DOWN, THE AGGREAGE DEMAND CURVES SLOPES UP
A) TRUE
B) FALSE
22) WHICH OF THE FOLLOWING WOULD LIKELY RESULT IN A SHIFT OF THE AD CURVE TO THE RIGHT?
A) WORSENING ECONOMIC CONDITIONS IN OTHER COUNTRIES
B) TAX DECREASES
C) DECREASES IN JOB SECURITY
D) TAX INCREASES
23) A DECLINE IN CONSUMER CONFIDENCE WILL INCREASE AGGREGATE SUPPLY
A) TRUE
B) FALSE
24) A DECREASE IN THE EXCHANGE RATE VALUE OF THE DOLLAR WILL
A) LOWER THE NOMINAL PRICE OF IMPORTED GOODS
B) NOT AFFECTED THE BUSINESS SECTOR
C) NOT AFFECTED THE HOUSEHOLD SECTOR
D) RAISE THE NOMINAL PRICE OF IMPORTED GOODS
25) THE EFFECT OF AN INCREASE IN AGGREGATE SUPPLY IS TO LOWER THE PRICE LEVEL AND TO DECREASE REAL OUTPUT
A) TRUE
B) FALSE
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