Question Douglas, Spring 2010  Econ 202 Final Exam

Econ 202 Final Exam

Multiple Choice. 2 points each.

1. According to the long-run Phillips curve, in the long run monetary policy influences
a. the unemployment rate but not the inflation rate.
b. both the inflation rate and the unemployment rate.
c. the inflation rate but not the unemployment rate.
d. neither the unemployment rate nor the inflation rate.

Figure 4-9

2. Refer to Figure 4-9. If the price is currently $8, then
a. there is currently a shortage of 10 units, which will make the price rise by $2.
b. there is currently a surplus of 20 units, which will make the price rise by $2. c. there is currently a surplus of 10 units, which will make the price rise by $2. d. there is currently a shortage of 20 units, which will make the price rise by $2.
3. An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.
a. His real and nominal salary have fallen.
b. His real and nominal salary have risen.
c. His real salary has risen and his nominal salary has fallen.
d. His real salary has fallen and his nominal salary has risen.
4. As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,
a. use equity finance.
b. purchase bonds.
c. sell bonds.
d. invest in physical capital.
5. Suppose the basket of goods selected to calculate cost $50 in 2002, $55 in 2004, and $60 in 2006. Using
2004 as the base year, the value of the CPI in 2006 was about
a. 600. b. 109. c. 91.6. d. 83.

6. The Fed can influence unemployment in a. the long run, but not in the short run. b. the short run and in the long run.
c. neither the short nor the long run.
d. the short run, but not in the long run.
7. An increase in the price level and a reduction in output would result from
a. tax rebates.
b. declining government expenditures.
c. natural disasters such as hurricanes, floods, and droughts.
d. a fall in stock prices.
8. According to the blog post by James Hamilton discussed in class, since September 2008 the Fed has provided a tremendous amount of liquidity to mortgage markets, which it has financed primarily by
a. issuing long-term government bonds. b. more than doubling the money supply. c. raising taxes.
d. crediting banks’ excess reserve accounts at the Fed.
9. Which of the following statements is true?
a. The market prices of most resources have increased over the past 50 years because they are being used up.
b. Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers.
c. Productivity is calculated as hours worked divided by output produced.
d. All of the above are correct.
10. Wealth is redistributed from lenders (creditors) to borrowers (debtors) when inflation is
a. unexpectedly low.
b. high, whether it is expected or not.
c. unexpectedly high.
d. low, whether it is expected or not.

Figure 34-6.

11. Refer to Figure 34-6. If the economy is at point b, a policy to restore full employment would be
a. an increase in taxes.
b. an increase in the money supply.
c. a decrease in government purchases.
d. All of the above are correct.

12. Refer to Figure 34-6. Which of the following is correct?
a. An attempt by all households to increase their savings might have caused the shift from
AD1 to AD2.
b. A wave of optimism could move the economy from point a to point b.
c. If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run.
d. All of the above are correct.
13. A change in expected inflation shifts
a. neither the short-run nor the long-run Phillips curve.
b. the long-run Phillips curve, but not the long run Phillips curve.
c. both the short-run and long-run Phillips curve right.
d. the short-run Phillips curve, but not the long run Phillips curve.
14. Suppose that a country imports $75 million of goods and services and exports $100 million of goods and services. What is the value of net exports?
a. $75 million b. -$25 million c. $25 million d. $175 million
15. The quantity of money has no real impact on things people really care about, such as the number of hours of work required to get the money to buy a car. Most economists would agree that this statement is true in
a. neither the long run nor the short run.
b. the long run, but not the short run. c. both the short run and the long run. d. the short run, but not the long run.
16. In which of the following cases was the inflation rate 10 percent over the last year? a. One year ago the price index had a value of 145 and now it has a value of 163. b. One year ago the price index had a value of 120 and now it has a value of 132. c. One year ago the price index had a value of 110 and now it has a value of 120. d. One year ago the price index had a value of 126 and now it has a value of 140.
17. People will want to hold less money if the price level
a. increases or if the interest rate increases. b. increases or if the interest rate decreases. c. decreases or if the interest rate increases. d. decreases or if the interest rate decreases.
18. The efficient markets hypothesis says that
a. stock prices do not follow a random walk.
b. only individual investors can make money in the stock market.
c. stocks prices reflect all publicly available information at all times.
d. All of the above are correct.
19. In the United States, a three-pound can of coffee costs about $5. If the exchange rate is about 0.6 euros per dollar and a three-pound can of coffee in Belgium costs about 4 euros. What is the real exchange rate?
a. 3/4 cans of Belgian coffee per can of U.S. coffee b. 4/5 cans of Belgian coffee per can of U.S. coffee c. 5/4 cans of Belgian coffee per can of U.S. coffee d. 4/3 cans of Belgian coffee per can of U.S. coffee

20. Using the liquidity-preference model, when the Federal Reserve increases the money supply,
a. the aggregate-demand curve shifts to the left.
b. the long-run aggregate-supply curve shifts to the right.
c. the equilibrium interest rate decreases.
d. the quantity of goods and services demanded is unchanged for a given price level.
21. Suppose that we observe a large increase in the price of new cars (a normal good), while the quantity sold increases slightly. Which of the following sets of events most likely caused this to occur?
a. improved technology for producing cars, and higher interest rates for car loans
b. lower steel prices, and increases in consumer incomes
c. higher wages for auto workers, and increases in consumer incomes
d. higher steel prices, and decreases in population
22. Compared to short-term bonds, other things the same, long-term bonds generally have
a. less risk and so they pay higher interest rates.
b. less risk and so they pay lower interest rates.
c. about the same risk and so they pay about the same interest rate.
d. more risk and so they pay higher interest rates.
23. The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
a. the price level is higher than expected making production less profitable.
b. the price level is higher than expected making production more profitable.
c. the price level is higher than expected making production less profitable.
d. the price level is lower than expected making production more profitable.
24. You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?
a. Private and public saving are both positive.
b. Private saving is negative; public saving is positive. c. Both private saving and public saving are negative. d. Private saving is positive; public saving is negative.
25. The monetary base has more than doubled since September 2008. According to the James Hamilton blogpost on
Bernanke’s recent testimony that we discussed in class, this change has resulted in
a. restored banking system stability, at the cost of already accelerating inflation rates.
b. an unstoppable chain of events that will result in hyperinflation (signs of which are already clearly visible in commodity prices).
c. the Fed paying interest on reserves in order to prevent a rapid increase in the money supply. d. high bonuses to bank managers, higher unemployment rates, and accelerating inflation rates.
26. What would happen to the equilibrium price and quantity of coffee if the price of tea (a substitute) falls, and the technology for roasting coffee improves?
a. Price will fall and the effect on quantity is ambiguous. b. Quantity will fall and the effect on price is ambiguous. c. Quantity will rise and the effect on price is ambiguous. d. Price will rise and the effect on quantity is ambiguous.
27. A Big Mac costs 240 yen in Japan and $3 in the U.S.. The exchange rate is 100 yen per dollar. Which of the following changes would definitely move the real exchange rate towards purchasing-power parity?
a. the price of Big Macs in the U.S. rises, and the nominal exchange rate rises b. the price of Big Macs in the U.S. falls, and the nominal exchange rate falls c. the price of Big Macs in the U.S. falls, and the nominal exchange rate rises d. the price of Big Macs in the U.S. rises, and the nominal exchange rate falls