Exam
2: Macroeconomics
Answers
1.
The existence of money
enables us to avoid barter. In this capacity, money is functioning as a a.
standard of value.
b.
source of status.
c.
medium of exchange.
d.
store of value.
e.
unit of barter.
2.
In calculating GDP, the
purchase of a new stereo system would be recorded as
a.
a consumption expenditure.
b.
an investment expenditure.
c.
a capital consumption
allowance.
d.
a government expenditure.
e.
personal saving.
3.
Which of the following is
least likely to suffer a reduction in real income during a period of
unanticipated inflation?
a.
an unskilled worker
earning the minimum wage
b.
a widow on a fixed pension
c.
a lawyer in private
practice
d.
a bus driver with a 3-year
contract without a COLA clause
e.
a salesperson with funds
in a long-term, fixed interest savings deposit.
4.
If the federal government
spends more than it collects in tax revenue,
a.
it will have a balanced
budget.
b.
it will incur a budget
deficit, and the public debt will decline.
c.
it will have a surplus
budget.
d.
it will incur a budget
deficit, and the public debt will increase.
e.
the public debt will
decline.
5.
Suppose that you hire a
maid to do work that you have been doing yourself. Because of your decision,
a.
GDP will fall.
b.
GDP will remain unchanged.
c.
GDP will increase.
d.
money GDP will increase,
but real GDP will be unchanged.
e.
real GDP will increase,
but money GDP will be unchanged.
6.
If the U.S. economy
encounters a recession, which industry would likely reduce output by the
smallest proportion?
a.
construction
b.
farm equipment
c.
freezers
d.
medical services
e.
automobiles
7.
If the CPI in 1996 is 220
and is 200 in 1995, the annual inflation rate between the two years is _____
percent.
a.
5
b.
10
c.
20
d.
2
e.
none of the above
8.
Which of the following
would be most likely to reduce the level of investment spending?
a.
an increase in the level
of disposable income
b.
a reduction in the rate of
interest
c.
a pessimistic forecast
regarding future economic conditions
d.
a growing shortage of
production capacity among firms
e.
a reduction in the rate of
unemployment in the economy
9.
Which of the following
would not be included in the “government purchases” component of GDP?
a.
government spending for
military weapons
b.
Social Security payments
by the federal government
c.
government spending for
roads, including major highways
d.
purchases of office
supplies by the federal government
e.
government spending for
space exploration
10.
If the economy were in the
midst of a severe recession, an appropriate policy decision would be to
a.
balance the federal
budget.
b.
deliberately incur a
deficit in the federal budget.
c.
plan for a surplus in the
federal budget.
d.
reduce the money supply in
order to slow spending.
e.
increase taxes.
11.
Banks “create” money
by
a.
printing paper currency.
b.
accepting deposits.
c.
making new loans.
d.
selling securities.
e.
charging interest on
loans.
12.
Assume that the reserve
requirement is 25 percent and that all banks in the system are “loaned-up”
(have no excess reserve). If an individual deposits $1,000 in currency in a
checking account at Bank A, Bank A can expand loans by a maximum of
a.
$1,000.
b.
$750.
c.
$4,000.
d.
$3,000.
e.
$25,000.
13.
Today, the primary
function of the Federal Reserve is to
a.
stabilize the economy by regulating the money supply.
b.
supply the economy with paper currency.
c.
provide a check clearing system.
d.
act as a lender of last resort.
e.
collect taxes from the public.
14.
Which of the following would tend to increase aggregate demand?
a.
a reduction in the overall wealth of society
b.
pessimistic expectations about the future
c.
a reduction in the money supply
d.
a reduction in the
tax rates
e.
a reduction in government spending
15.
Fiscal policy is enacted by the
a.
Federal Reserve System.
b.
Council of Economic Advisors.
c.
Federal Open Market Committee.
d.
Congress and the president together.
e.
commercial banks.
B
A
C
D
C
D
B
C
B
B
C
B
A
D
D