2002 Great Plains Economics Challenge
Exam 2: Macroeconomics

1.      Supply-side economics stresses
    a.       an “easy” money policy.
    b.      the stimulation of incentives to work, save, invest, and undertake entrepreneurial risk.
    c.       the stimulation of consumption spending by households.
    d.      the need for expansionary fiscal policy.
    e.       the need for increased governmental involvement in the economy.

2.      Which of these events would likely reduce consumer spending?
a.       a reduction in personal income tax rates
b.      a general expectation that the rate of inflation will soon begin to rise
c.       a general decrease in interest rates
d.      a decrease in stock prices
e.       a reduction in the rate of unemployment

3.      Which of the following would not be included in this year’s GDP figure?
a.       Kansas farmers sell a million bushels of wheat to South Africa
b.      a barber purchases a cash register for use in his shop
c.       a school district constructs a new high school
d.      a museum purchases a Rembrandt painting for its collection
e.       you pay $50 for two tickets to a *NSYNC concert.

4.      Generally the federal government finances a budget deficit by
a.       reducing the national debt.
b.      increasing the money supply.
c.       issuing common stock.
d.      selling bonds.
e.       borrowing from other countries.

5.      A $600 weekly salary in a year when the Consumer Price Index (CPI) was 300 would be the same as what salary in the CPI base year?
a.       $200
b.      $300
c.       $900
d.      $1800
e.       $20

6.      The buying and selling of stocks and bonds
a.       involves net additions to the nation’s productive capacity.
b.      is the major form of economic investment in the U.S.
c.       transfers ownership of the securities but does not directly influence the size of the nation’s capital stock.
d.      determines the overall level of economic activity
e.       all of the above

7.      Which of the following is not a component of aggregate demand?
a.       taxes paid by households and businesses
b.      government spending at all levels (federal, state, and local)
c.       consumption expenditures by households
d.      net exports (exports minus imports)
e.       investment in real capital by businesses

8.      Which of the following statements is false?
a.       If the economy is operating at full employment, a reduction in taxes may lead to inflation.
b.      If the economy is experiencing unemployment, increased government spending may help combat the problem.
c.       Deficit spending is desirable only when the economy is experiencing demand-pull inflation.
d.      If we attempt to balance the government’s budget during a period or rising unemployment, we will likely make the unemployment problem worse.
e.       Increasing government spending by $10 billion will have a greater impact on the level of equilibrium output than decreasing taxes by the same amount ($10 billion).

9.      Which of the following would lead to a decrease in aggregate demand?
a.       an increase in government spending
b.      a decrease in labor productivity
c.       an increase in personal income taxes
d.      an increase in society’s total wealth
e.       technological advancements

10.  If people believe the economy is strong, they are likely to
a.       begin saving because they have more money than they need to spend.
b.      begin saving because they fear the good times will not last.
c.       spend money and use credit because they fear that inflation will soon be high.
d.      spend money and use credit because they are more secure and confident about their economic situation.
e.       pay off past debts and avoid new debt.

11.  Which of the following would tend to slow the growth of productivity in an economy?
a.       greater capital investment
b.      higher rate of saving
c.       higher rate of technical progress
d.      greater amount of business regulation
e.       lower rate of taxation

12.  If the Federal Reserve wishes to increase interest rates it generally would do what with respect to government securities and the discount rate?

13.  The debt of the federal government (the public debt) has surpassed five trillion dollars. Who holds the majority of the “I.O.U.s” (the Treasury bonds, bills, and notes) of the U.S. government?
a.       individuals, banks, and companies in foreign countries
b.      foreign governments
c.       the World Bank
d.      Federal Reserve banks
e.       individuals, banks, and companies in the United States

14.  Under which of the following conditions would you prefer to be a borrower?

15.  In the long run, inflation is caused by
a.       banks that have market power and refuse to lend money.
b.      governments that raise taxes so high it increases the cost of doing business and, hence, raises prices.
c.       central banks that print too much money.
d.      increases in the price of inputs, such as labor and oil.
e.       insufficient demand for goods and services.

Answer Key