Final Examination Study Guide ECO/372 Version 4

ECO/372 Final Examination Study Guide

This study guide prepares you for the Final Examination you complete in the last week of the course. It contains practice questions which are related to each week!s o"#ecti$es. %ighlight the correct response and then refer to the answer key at the end of this Study Guide to check your answers. &se each week!s questions as a self'test at the start of a new week to reflect on the pre$ious week!s concepts. (hen you come across concepts that you are unfamiliar with refer to the Student Guide for that particular week. Week One: Fundamentals of Macroeconomics Objecti e: E!"lain t#e economic interaction of resources amon$ #ouse#olds% $o ernment% and business& 1. (hich group has ultimate control o$er the &.S. economy) a. *usiness ". %ouseholds c. +ultinationals d. Go$ernment (hen a go$ernment inter$enes in an economy in a way that influences the relationship "etween households and "usinesses it is a. ser$ing as an economic actor ". ser$ing as an economic referee c. ser$ing the pu"lic good d. reducing social welfare "y interfering with the in$isi"le hand

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Objecti e: 'escribe $ross domestic "roduct% inflation rate% unem"lo(ment rate% and interest rate& -. .er capita real output would most likely increase if a. "oth real G/. and population increase ". "oth real G/. and population decrease c. real G/. increases and population decreases d. real G/. decreases and population increases In ,112 &.S. real G/. increased "y -.- percent. *ased on this information we can infer that the &.S. experienced a. a recession in ,112 ". an expansion in ,112 c. a depression in ,112 d. a trough in ,112

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Objecti e: )dentif( sources of #istorical economic data and economic forecasts& 3. The *ureau of Economic 4nalysis is responsi"le for which of the following) a. Setting interest rates ". +anaging the money supply c. 5alculating &.S. gross domestic product d. .aying unemployment "enefits. The Federal will most likely 6666666 the money supply when the economy is experiencing a recession a. increase ". decrease c. sta"ili7e

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Final Examination Study Guide ECO/372 Version 4 d. manage Week *+o: ,$$re$ate 'emand and -u""l( Models Objecti e: ,nal(.e t#e im"act of arious factors on a$$re$ate demand and su""l(& 8. The 4/ cur$e a. will shift as much as the initial shift factor when the multiplier is greater than one ". will shift "y more than initial shift factor when the multiplier is greater than one c. will shift "y less than the initial shift factor due to leakages d. could shift "y more or less than the initial shift factor The paradox of thrift occurs when a. an increase in sa$ing raises output ". an increase in sa$ing reduces output c. sa$ing is unrelated to output d. a decrease in sa$ing reduces output Suppose output exceeds potential output and a contractionary fiscal policy is enacted. 4ccording to the 4S:4/ model in the long run this fiscal policy will produce a. a lower output le$el and a lower price le$el than would otherwise ha$e occurred ". a lower price le$el than would otherwise ha$e occurred c. a lower output le$el than would otherwise ha$e occurred d. neither a lower price le$el nor a lower output le$el than would otherwise ha$e occurred 4ccording to the 4S:4/ model an expansionary monetary policy a. increases interest rates raises in$estment and increases income ". decreases interest rates raises in$estment and increases income c. increases interest rates reduces in$estment and decreases income d. decreases interest rates reduces in$estment and decreases income

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Objecti e: E aluate t#e effecti eness of c#an$es in fiscal "olicies usin$ /e(nesian and Classical models 11. 4ccording to ;eynes the economy could "ecome stuck at a low income le$el if a. declines in aggregate demand and aggregate supply reinforce one another ". declines in aggregate demand are not accompanied "y declines in aggregate supply c. declines in aggregate supply are not accompanied "y declines in aggregate demand d. aggregate demand and aggregate supply are independent of one another The 5lassical economists argued that< a. a market economy will not experience unemployment. ". if unemployment occurs it will cure itself "ecause wages and prices will fall. c. aggregate expenditures may "e too low. d. if inflation occurs it will cure itself "ecause prices wages and interest rates will rise.

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Week *#ree: Monetar( 0olic( Objecti e: ,ssess t#e factors contributin$ to t#e establis#ment of $eneral and s"ecific rates of interest&

Final Examination Study Guide ECO/372 Version 4 1-. (hen the Federal =eser$e targets a higher interest rate this change in policy in$ol$es open market a. purchases of go$ernment securities that reduced reser$es ". purchases of go$ernment securities that increased reser$es c. sales of go$ernment securities that reduced reser$es d. sales of go$ernment securities that increased reser$es (hen the =eser$e sells "onds the a. Federal funds rate increases ". reser$e requirement falls c. discount rate increases d. discount rate decreases

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Objecti e: E!"lain t#e role of t#e Federal 1eser e -(stem in desi$nin$ and im"lementin$ 2&-& monetar( "olicies& 13. (ho "uys and sells in the Federal =eser$e funds market) a. 5ommercial "anks and depository institutions ". >arge financial institutions c. Financial institutions and large corporations d. 4nyone with a computer and an Internet connection can participate The Federal fund is always 6666666 compared to the discount a. higher ". lower c. equal d. compara"le

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Objecti e: ,nal(.e #o+ t#e mone( multi"lier effect facilitates t#e creation of mone(& 18. If the multiplier effect is 0 a ?13 "illion increase in go$ernment expenditures will shift the 4/ cur$e a. to the right "y ?13 "illion ". to the left "y ?13 "illion c. to the right "y ?21 "illion d. to the left "y ?21 "illion Suppose the money multiplier in the &.S. is 0. If the Federal =eser$e wants to expand the money supply "y 211 it should< a. "uy go$ernment securities worth 131. ". "uy go$ernment securities worth 211. c. sell go$ernment securities worth 131. d. sell go$ernment securities worth 211.

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Week Four: Fiscal 0olic(: 0olitics% 'eficits% and 'ebt Objecti e: ,nal(.e t#e influence of deficit% sur"lus% and debt on t#e #ealt# of t#e 2&-& macroeconom(&

Final Examination Study Guide ECO/372 Version 4 19. (hen the go$ernment runs a deficit it will a. "uy "onds to finance the deficit ". sell "onds to finance the deficit c. reduce the money supply to finance the deficit d. raise taxes immediately /eficits may "e desira"le in the short run if they a. help to sta"ili7e the economy when the economy falls "elow potential output ". increase sa$ings necessary for future in$estment and growth c. increase sa$ings necessary for future consumption and demand d. help to sta"ili7e the economy when the economy is a"o$e potential output The structural deficit a. rises as the economy expands and falls when it contracts ". falls as the economy expands and rises when it contracts c. changes as actual income changes regardless of potential income d. does not change when income changes "ut changes only when potential income changes Go$ernment de"t is defined as a. a shortfall of incoming re$enue under outgoing payment ". a shortfall of outgoing payments under incoming re$enue c. accumulated deficits minus accumulated surpluses d. accumulated deficits plus accumulated surpluses

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Week Fi e: )nternational *rade and Finance Objecti e: ,nal(.e t#e effects of international trade on t#e 2&-& macroeconom(& ,-. 4ccording to comparati$e ad$antage speciali7ation means that a country is producing the goods a. that it wants to consume ". for which it has a relati$ely high opportunity cost c. for which it has a relati$ely low opportunity cost d. that it can produce at 7ero cost Glo"ali7ation represents a. a return to isolationism ". the opposite of isolationism c. the economic complement of political isolationism d. the political complement of economic isolationism If the &.S. wants to strengthen the $alue of the dollar it should use a. contractionary fiscal policy ". expansionary fiscal policy c. contractionary monetary policy d. expansionary monetary policy (hich of the following would most likely cause an increase in the supply of dollars) a. 4n expansionary fiscal policy that raised &.S. income and increased &.S. imports ". 4n expansionary fiscal policy that raised &.S. income and reduced &.S. imports c. 4 contractionary fiscal policy that reduced &.S. income and lowered &.S. imports d. 4 contractionary fiscal policy that reduced &.S. income and increased &.S. imports

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Objecti e: E!"lain #o+ forei$n e!c#an$e rates are determined&

Final Examination Study Guide ECO/372 Version 4 ,8. Suppose a "asket of goods costs 21 111 pesos in +exico. If at the existing exchange rate it costs less than 21 111 pesos to "uy the same "asket of goods in the &.S. then purchasing power parity implies that the a. dollar is o$er$alue ". peso is under$alue c. dollar should cost fewer pesos d. dollar should cost more pesos If a "asket of goods costs ?11 in the &.S. and 111 111 ru"les in =ussia then purchasing power parity will exist if the exchange rate "etween the ru"le and the dollar is a. 1 111 ru"les per dollar ". 11 111 ru"les per dollar c. 1.11 dollars per ru"le d. 1.1 dollars per ru"le

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Objecti e: ,nal(.e t#e im"act of trade restrictions% tariffs% and 3uotas on t#e 2&-& macroeconom(& ,9. 4 quota differs from a tariff in that quotas a. limit the $olume of imports more than tariffs ". do not increase the price of imports as much as tariffs c. do not generate tax re$enues unlike tariffs d. reduce consumer welfare more than tariffs Threats to put tariffs on a nation in an attempt to get that nation to reduce its restrictions on trade are called< a. strategic trade policies ". trade ad#ustment assistance programs c. learning "y doing d. inertia and cachet

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