Economics 101 Multiple Choice Questions for Final Examination Miller

PLEASE DO NOT WRITE ON THIS EXAMINATION FORM.

1. Which of the following statements is correct?
a. Real GDP is the total market value of the final goos an
services prouce in !merica for sale in a "ear value in the prices of 1##$.
%. &our %u"ing stock in the stock market is an example of investment sen!in"
c. Potential Real GDP is alwa"s greater than E#$ili%ri$m Real GDP
. 'ocial securit" an welfare are examples of spening on in&rastr$ct$re.
e. !ll of the a%ove
$. (he perio of the %$siness c'cle in which real GDP is increasin" is calle the)
a. expansion %. peak c. recession . trough e. stagflation
*. !ssume that+ in the population+ #, million people worke for pa" last week+ , million people
i not work for pa" %ut ha %een seeking a -o%+ , million people i not work for pa" an ha
not %een seeking a -o% for the past several months+ an ., million were uner age 1/. (he
$nemlo'ment rate+ given these num%ers+ is)
a. ,0 %. 10 c. 100 . $00 e. .,0
.. ! t"pe of $nemlo'ment in which workers are in2%etween -o%s or are searching for new an
%etter -o%s is calle 3333333 unemplo"ment)
a. frictional %. c"clical c. structural . turnover
,. Consier three consumer goos) 100 of 4oo !+ 100 of 4oo 5+ an 100 of 4oo C. 6n the
%ase "ear+ 4oo ! sol at a price of 71+ 4oo 5 sol at a price of 71+ an 4oo C sol at a price
of 71. 6n the current "ear+ 4oo ! sol at a price of 7*+ 4oo 5 sol at a price of 7,+ an 4oo
C sol at a price of 710. (he (ons$mer Price In!e) *(PI+ for the current "ear is)
a. 100 %. *00 c. ,00 . /00 e. 1000
/. Which of the following is a ,loser, &rom $ne)ecte! in&lation?
a. workers with C89!s c. people who own (reasur" 5ills
%. the mile class . people who own homes an have fixe2rate mortgages
:. 6f the nominal interest rate on a checking account is $0 an the inflation rate is *0 this "ear+
the real interest rate is)
a. ,0 %. $0 c. $;*0 . <10 e. *0
1. Which of the following woul cause the !eman! curve for automo%iles to s-i&t to t-e le&t?
a. an increase in the price of the automo%iles
%. an increase in the interest rate pai to %orrow mone" to pa" for the automo%ile
c. an increase in %u"ers= incomes
. an increase in the cost of prouction of automo%iles
Please T$rn Over
>age $
#. 'uppose it is announce that inustr" anal"sts are preicting that !ecrease! oil supplies from
6ra? will cause gasoline prices to rise+ %eginning next month. In t-e c$rrent .ee/+ the
announcement woul)
a. shift the suppl" of gasoline right c. shift the eman for gasoline left
%. shift the eman for gasoline right . have no effect on the eman or suppl" of gasoline

10. @!t the price of 7,00+ tickets for the 'uper 5owl are expensive. &et+ the are long lines of
people who wish to %u" them. Man" people who esire tickets will not %e a%le to fin them.@
From this ?uote+ we know that the rice of 'uper 5owl tickets must %e)
a. %elow e?uili%rium %. a%ove e?uili%rium c. e?ual to e?uili%rium
11. !ssume that the market for computers %egins in e?uili%rium. (hen+ there is a !ecrease in a
rice o& Penti$m rocessors $se! in t-e ro!$ction o& com$ters. When the new e?uili%rium
is reache+
a. the price an ?uantit" of computers will %oth have risen
%. the price an ?uantit" of computers will %oth have fallen
c. the price of computers will have risen an the ?uantit" will have fallen
. the price of computers will have fallen an the ?uantit" will have risen
1$. !ssume that the market for the stock of Microsoft %egins in e?uili%rium. (hen+ %ot- %$'ers
an! sellers e)ect t-at t-e ne. Lin$) *a cometitor o& Microso&t Win!o.s+ .ill %e a lar"e
s$ccess0 re!$in" Microso&t sales. When the new e?uili%rium is reache+
a. the price an ?uantit" of the stock will %oth have risen
%. the price an ?uantit" of the stock will %oth have fallen
c. the ?uantit" of the stock will fall an the price will rise
. the ?uantit" of the stock will fall %ut the effect on price cannot %e etermine
e. the price of the stock will fall %ut the effect on ?uantit" cannot %e etermine
1*. !ssume that the market for Mexican pesos %egin in e?uili%rium. (hen+ t-e Me)ican
econom' e)eriences a severe recession. 5ecause of the recession+ the Mexican companies
lower their prices. !s a result of the recession an lower prices in Mexico)
a. the ollar epreciates an the peso appreciates c. the ollar an the peso %oth appreciate
%. the ollar appreciates an the peso epreciates . the ollar an the peso %oth epreciate
1.. Which of the following is an example of ,ort&olio investment@?
a. !n !merican places funs in a savings account in Canaa
%. (ok"o 5ank of Aapan %u"s Bnion 5ank of the Bnite 'tates
c. 'aturn Corp. Cowne %" 4eneral MotorsD %uils a new factor" in (ennessee
. !n !merican puts 710+000 into a mone" market fun
e. !ll of the a%ove
(ontin$e!
>age *
PLEASE DO NOT WRITE ON THIS EXAMINATION FORM
1,. Which of the following woul cause the a""re"ate !eman! curve to s-i&t to t-e ri"-t?
a. an increase in purchases %" the feeral government
%. an increase in real interest rates
c. an appreciation of the !merican ollar
. a ecrease in the mone" suppl"
1/. !ssume that an econom" %egins in macroeconomic e?uili%rium. (hen+ ta)es are
si"ni&icantl' !ecrease!. !s a result of this change)
a. there is expansion an inflation in the B' c. there is stagflation in the B'
%. there is recession an eflation in the B' . there is expansion an eflation in the B'
1:. A lar"e increase in oil rices+ such as the ones occurring in 1#:* an 1#:#+ will cause
a. inflation an expansion c. inflation an recession
%. recession an isinflation . expansion an eflation
11. !ssume that prouction in the Bnite 'tates is value at 710+000. Eational income is
therefore 710+000. 8f their income+ workers pa" 71+000 in taxes+ save 7,00+ spen 71+000 on
consumer goos+ an spen 7,00 on imports. 5usinesses spen 71+000 in new investment
spening. !n+ foreigners spen 7,00 on exports. 6n orer to avoi an" pro%lems of inflation or
unemplo"ment+ t-e "overnment s-o$l! -ave a %$!"et !e&icit or s$rl$s o&1
a. 0 %. 7,00 surplus c. 7,00 eficit . 71+000 eficit e. 7$+000 eficit
1#. From 1##0 to 1##,+ the B.'. econom" was in a recessionar' "a. !ccoring to the
classical economists+ which of the following shoul have occurre?
a. wages shoul have fallen which woul cause more workers to %e hire
%. prices shoul have fallen which woul increase consumer spening
c. interest rates shoul have fallen which woul increase consumer an investment spening
. all of the a%ove shoul have occurre
$0. Which of the following statements is;are true a%out the classical #$antit' t-eor' o& mone'?
a. (he e?uation of exchange is MF G >Q
%. (he classical economists assume that F woul rise when real interest rates rise
c. (he classical economists conclue that increases in the mone" suppl" cause increases
in real 4H> an nothing else
. all of the a%ove
Please T$rn Over
>age .
$1. !ssume that the Bnite 'tates an 4reat 5ritain are %oth on the Gol! Stan!ar!. (here is
inflation in the Bnite 'tates %ut not in 4reat 5ritain. !s a result of the inflation in the Bnite
'tates+
a. 4ol woul leave the Bnite 'tates an go to 4reat 5ritain
%. 4ol woul leave 4reat 5ritain an go to the Bnite 'tates
c. (he !merican ollar woul epreciate
. (he !merican mone" suppl" woul increase
$$. !t an income of 7100+000+ 6 spent 7#0+000 on consumer goos. When m" income rose to
7$00+000+ 6 spent 71/0+000 on consumer goos. M" mar"inal roensit' to cons$me is)
a. 0.# %. 0.1 c. 0.: . 1 e. 7:0+000
$*. National Disosa%le
Income Ta)es Income (ons$mtion Investment Government
7100 7100 0 7 ,0 7 $, 7100
$00 100 100 1$, $, 100
*00 100 $00 $00 $, 100
.00 100 *00 $:, $, 100
,00 100 .00 *,0 $, 100
/00 100 ,00 .$, $, 100
:00 100 /00 ,00 $, 100
100 100 :00 ,:, $, 100
Bsing these num%ers+ t-e e#$ili%ri$m real GDP *e#$al to National Income+ is)
a. *00 %. .00 c. ,00 . /00 e. :00
$.. Which of the following woul cause cons$mtion to rise?
a. the 4H> Heflator rises
%. a greater proportion of the population is %etween age $0 an *0
c. transitor" income increases
. income is taken from poor people an given to rich people
$,. Which of the following woul cause %$siness investment sen!in" to rise?
a. an increase in real interest rates from ,0 to 10
%. a ecrease in the corporate profits tax rate from .10 to *.0
c. a reuction of the investment tax creit from 100 to $0
. sales falling in relation to capacit" from #00 to /00
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>age ,
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$/. !ssume that net exports increase %" 71 %illion. E?uili%rium Ieal 4H> will rise %" more
than 71 %illion. Explain wh". Ci.e.+ .-' is t-ere a m$ltilier3D.
a. an increase in net exports appreciates the ollar causing a further increase in net exports
%. an increase in net exports causes an increase in tax revenues which increases
government spening
c. an increase in net exports increases income causing an increase in inuce consumption
. an increase in net exports causes an increase in the mone" suppl"
$:. (he largest trans&er in the feeral %uget is)
a. efense %. eucation c. social securit" . welfare e. police
$1. (he largest ta) collecte at the &e!eral "overnment level is the)
a. income tax %. sales tax c. propert" tax . social securit" tax
$#. ! person ha an income of 7$0+000 last "ear an pai 710+000 in tax. (his "ear+ the person
ha an income of 7100+000 an pai 7*0+000 in tax. (he personJs mar"inal ta) rate is)
a. $,0 %. *00 c. ,00 . 1000
*0. (he tax in ?uestion $# is)
a. progressive %. regressive c. proportional
*1. !ssume that E?uili%rium 4H> is 7.+000 %illion. >otential 4H> is 7,+000 %illion. (he
marginal propensit" to consume is .;, C0.1D. 5" how much an in what irection shoul
"overnment $rc-ases %e change?
a. increase %" 71+000 %illion c. increase %" 7100 %illion
%. ecrease %" 71+000 %illion . increase %" 7$00 %illion
*$. Bsing the num%ers in ?uestion *1+ %" how much shoul ta)es %e change?
a. increase %" 71+000 %illion c. ecrease %" 7$00 %illion
%. ecrease %" 71+000 %illion . ecrease %" 7$,0 %illion
**. !ssume that E?uili%rium Ieal 4H> is 7$0+000 while >otential Ieal 4H> is 71,+000. (he
marginal propensit" to consume is #;10. !ssume that government ecies to lo.er ta)es %"
71+000. (o pa" for this+ it lo.ers "overnment $rc-ases %" 71+000. !s a result of these two
changes+ what is the new E?uili%rium Ieal 4H>?
a. 71#+000 %. 7$0+000 c. 7$1+000 . 71.+000 e. 71+000
PLEASE T2RN O4ER
>age /
*.. Which of the following statements is true a%out t-e national !e%t?
a. 6n total+ it is higher now than it has ever %een
%. Most of it is owe %" the feeral government to foreigners
c. 6t means that a tremenous %uren is %eing passe to our chilren
. 5ecause of it+ the Bnite 'tates is on the verge of %ankruptc"
e. !ll of the a%ove
*,. 6f the o&&icial &e!eral %$!"et shows a !e&icit of 7$00 %illion while the str$ct$ral %$!"et is
has a s$rl$s of 7$00 %illion+ it can %e conclue that)
a. the intent of fiscal polic" is ver" expansionar"
%. there is h"perinflation
c. the unemplo"ment rate is well a%ove the natural rate
. state an local governments have large surpluses
e. off2%uget spening is counte in the official eficit %ut not in the structural eficit
*/. (he P-illis c$rve escri%es the relationship %etween)
a. the feeral %uget eficit an the trae eficit
%. savings an investment
c. the unemplo"ment rate an the inflation rate
. marginal tax rates an tax revenues
*:. 'everal a-ustments have %een suggeste to the official %uget eficit to %e a%le to measure
the effects of the %uget eficit on the econom". For which of the following woul the a-uste
eficit %e lar"er than the official %uget eficit?
a. state an local %uget surpluses nee to %e ae to the official %uget eficit
%. the effects of unemplo"ment nee to %e taken out of the official %uget eficit
c. the effects of inflation nee to %e taken out of the official %uget eficit
. off2%uget spening nees to %e ae to the official %uget eficit
*1. Which of the following is inclue in M56?
a. gol c. checka%le eposits e. stock
%. creit cars . mone" market mutual funs
*#. Which of the following is true a%out t-e Fe!eral Reserve S'stem ?
a. its seven 5oar mem%ers are appointe %" the >resient of the Bnite 'tates
%. its main polic"2making %o" is calle the C58
c. it insures checking accounts against %ank failure
. it accepts eposits from iniviuals an makes loans for mortgages
e. !ll of the a%ove
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>age :
PLEASE DO NOT WRITE ON THIS EXAMINATION FORM.
.0. !ssume that the Fe! increases t-e monetar' %ase %" 71 %illion when the reserve
re?uirement is 1;:. !s a result+ the mone" suppl" will)
a. increase %" 71 %illion c. increase %" 7: %illion
%. ecrease %" 71 %illion . increase %" 71.* million
.1. 6f the Fe! .is-es to !ecrease *ti"-ten+ t-e mone' s$l'+ it shoul)
a. %u" (reasur" securities in the open market
%. raise the iscount rate
c. lower the reserve re?uirements
. raise marginal tax rates
.$. (he !eman! &or mone' will &all if)
a. Ieal 4H> rises c. the 4H> Heflator rises
%. real interest rates rise . people expect eflation soon
.*. !n increase in t-e mone' s$l' causes)
a. interest rates to fall+ investment spening to rise+ an aggregate eman to rise
%. interest rates to rise+ investment spening to rise+ an aggregate eman to rise
c. interest rates to rise+ investment spening to fall+ an aggregate eman to fall
. interest rates to fall+ investment spening to fall+ an aggregate eman to fall
... 6f iniviuals &orecast &$t$re rices %' e)aminin" t-e rates o& in&lation o& t-e resent
an! recent ast0 the" are using)
a. aaptive expectations c. inflationar" expectations
%. rational expectations . structural expectations
.,. 6f t-e act$al $nemlo'ment rate is %elo. t-e nat$ral rate o& $nemlo'ment+ it woul %e
expecte that)
a. the rate of inflation woul increase c. the >hillips curve woul shift to the left
%. wages woul fall . the natural rate of unemplo"ment woul fall
./. !ccoring to the monetarist acceleration theor"+ in t-e lon"5r$n+
a. the actual unemplo"ment rate will %e %elow the natural rate of unemplo"ment
%. the actual unemplo"ment rate will %e e?ual to the natural rate of unemplo"ment
c. the actual inflation rate will %e e?ual to the natural inflation rate
. the %uget eficit will %e e?ual to Kero
e. the mone" suppl" will %e growing at a constant rate per "ear
PLEASE T2RN O4ER
>age 1
.:. !ccoring to the monetarists+ in the lon"5r$n+ the P-illis ($rve is)
a. vertical c. ownwar2sloping
%. horiKontal . upwar2sloping
.1. Which of the following statements is true a%out s$l'5si!e economics?
a. (he main change mae %" the tax laws of 1#11 an 1#1/ was to
increase marginal tax rates in orer to %alance the %uget
%. (he 9affer Curve sa"s that+ if marginal tax rates fall+ tax
revenues will rise+ an the %uget eficit will ecrease
c. 6f the tax laws of 1#11 an 1#1/ ha ha their intene effect+ consumption woul have
risen+ causing an increase in %oth real 4H> an in the price level
. !ll of the a%ove
.#. (hose who oose a (onstit$tional amen!ment to re#$ire a %alance! &e!eral %$!"et
woul make which of the following arguments)
a. Heficits are %a %ecause the" can cause crowing out
%. 'uch an amenment coul force the government to unertake
policies that woul increase a recessionar" gap
c. Heficits can cause inflation %" increasing aggregate eman
. 5uget eficits can cause an increase in the trae eficit %" appreciating the ollar
,0. 6f the mone" suppl" is) (he interest rate is)
7100 %illion 100
1$0 %illion 10
1.0 %illion /0
1/0 %illion .0
1$0 %illion $0
6f the interest rate is) 6nvestment spening is)
100 710 %illion
10 $0 %illion
/0 *0 %illion
.0 .0 %illion
$0 ,0 %illion
!ssume that e?uili%rium 4H> is 7.00 %illion+ potential 4H> is 7,00 %illion+ the marginal
propensit" to consume is #;10+ the interest rate is 10+ investment spening is 7$0 %illion+ the
mone" suppl" is 71$0 %illion+ an the reserve re?uirement is 1;10. 7' -o. m$c- an! in .-at
!irection s-o$l! t-e Fe! c-an"e t-e monetar' %ase3
a. increase it %" 7$0 %illion . increase it %" 7$ %illion
%. ecrease it %" 7100 %illion e. ecrease it %" 710 %illion
c. increase it %" 7#0 %illion
END OF EXAMINATION
Ans.ers
1. ! $. ! *. ! .. ! ,. H /. C :. H 1. 5 #. 5 10. !
11. H 1$. E 1*. ! 1.. ! 1,. ! 1/. ! 1:. C 11. 5 1#. H $0. !
$1. ! $$. C $*. 5 $.. 5 $,. 5 $/. C $:. C $1. ! $#. ! *0. 5
*1. H *$. H **+ ! *.. ! *,. C */. C *:. H *1. C *#. ! .0. C
.1. 5 .$. 5 .*. ! ... ! .,. ! ./. 5 .:. ! .1. 5 .#. 5 ,0. H
Economics 101 Final Examination Eame33333333333333333333
(his course has involve a macroeconomic histor" of the $0
th
centur". (his centur" has seen
ma-or economic pro%lems+ incluing inflation+ recessions an a 4reat Hepression+ slow
economic growth+ %uget eficits+ an trae eficits.
1. 9et us consier first the pro%lem of inflation. (he Bnite 'tates has experience persistent
in&lation *in&lationar' "as+ !$rin" t-e 689:s an! eseciall' t-ro$"-o$t t-e 68;:s. 5ut
there has %een some inflation ever" "ear since 1#,..
a. 6nflation is measure %" %oth the (ons$mer Price In!e) *(PI+ an GDP De&lator.
Explain how each of these is calculate? What arguments have %een mae to support the
assertion that t-e (ons$mer Price In!e) overstates t-e rise in t-e cost o& livin"?
%. (hen+ e)lain .-' in&lation is a ro%lem for the Bnite 'tates. 6n particular+ consier
the effects of unexpecte inflation on the !istri%$tion o& .ealt- *.-o "ains an! .-o
loses3+ an its effects on t-e "ro.t- o& real GDP over time.
c. Explain the ca$ses of the inflation of the 1#/0s an of the 1#:0s. Eame as man" causes
as "ou can. 6llustrate "our answer using the aggregate eman+ aggregate suppl"+
potential real 4H> "ra-. 5e sure to inclue in "our answer the causes of the
sta"&lation of the 1#:0s.
. Explain wh" the inflation rates were reuce so ramaticall" in the 1#10s an 1##0s.
W-at &iscal an! monetar' olicies .ere $se! to re!$ce t-e in&lation rates3 !gain+
illustrate "our answer using the aggregate eman+ aggregate suppl"+ potential real 4H>
"ra-. * <: oints &or =$estion 6+
$. 'econ+ let us consier t-e ro%lem o& recessions an! !eression. (here was a 4reat
Hepression in the 1#*0s. !n since 1#/1+ there have %een four main recessions.
a. E)lain -o. t-e $nemlo'ment rate is meas$re!. What criticisms can %e mae of
the official unemplo"ment rate measure?
%. E)lain .-' recessions an! recessionar' "as are ro%lems for the Bnite 'tates.
C5e sure to efine each term.D (hat is+ what are the %a effects that result from them?
c. Explain the ca$ses of the 4reat Hepression of the 1#*0s an the ca$ses of the
recessions since Worl War 66. Eame as man" causes as "ou can. 6llustrate "our
answer using the aggregate eman+ aggregate suppl"+ potential real 4H> "ra-.
. Explain wh" the 4reat Hepression an these recessions eventuall" ene. First+ what
arguments are given %" Classical economists that these woul en automaticall"+ if the
government -ust i nothing. 'econ+ what fiscal an monetar" policies have %een
use to en the recessions? !gain+ illustrate "our answer using the aggregate eman+
aggregate suppl"+ potential real 4H> "ra-. *<: oints &or =$estion <+
*. (hir+ after 1#:*+ the Bnite 'tates experience a ro%lem o& ver' slo. economic "ro.t-.
Especiall"+ prouctivit" grew slower than in the past an slowl" in comparison to
other countries.
a. Low o we measure economic "ro.t-? Low o we measure ro!$ctivit'?
% %. What are the ro%lems t-at -ave res$lte! from the slow perio of economic growth?
c. What monetar" an fiscal policies were unertaken to increase economic growth? (o
what extent were the" successful? *6: oints &or =$estion >+
>age $
.. Fourth+ from 1#11 to 1##1+ the Bnite 'tates ha ver' -i"- %$!"et !e&icits.
a. De&ine ,%$!"et !e&icit, an! ,national !e%t,+ highlighting the ifference.
%. Low is the official %uget eficit measure? (o properl" measure the effects of these
%uget eficits on the econom"+ .-at c-an"es are nee!e! to the official %uget eficit
calculation? WH?3 When these changes are mae+ what oes the ata show a%out the
a-uste %uget eficits?
c. What are the effects of %uget eficits on the !merican econom"? Consier wa"s %"
which %$!"et !e&icits ma' %e "oo! for the !merican econom" an wa"s %" which
%$!"et !e&icits ma' %e -arm&$l to the !merican econom".
. Is t-e national !e%t o& over @A B trillion an economic ro%lem for the Bnite 'tates?
Explain wh" or wh" not. *6A oints &or =$estion C+
,. 'ince the earl" 1#10s+ the Bnite 'tates has also experience -i"- tra!e !e&icits.
a. Hefine Dtra!e !e&icitE. Low is it measure?
%. Explain the three s"stems for international economic relations that existe in the $0
th

centur") t-e Gol! Stan!ar!0 t-e 7retton Woo!s S'stem0 an! t-e s'stem o& &loatin"
e)c-an"e rates.
c. 8ne of the main changes in the worl in the $0
th
centur" was t-e "ro.t- o&
international tra!e. First+ explain wh" this occurre? (hen+ state wh" this has
contri%ute to economic growth?
!. 5ase on the material covere in the course+ e)lain .-' t-e tra!e !e&icits o& t-e 68F:s
an! 688:s ma' -ave occ$rre!. Consier as man" reasons as "ou can. * 6A oints &or
=$estion A+
/. (his course has explore ifferent economic philosophies as to how the !merican econom"
operates an what shoul %e one to correct economic pro%lems. (he course has consiere
the (lassical0 Ge'nesian0 Monetarist0 an! S$l'5Si!e -iloso-ies0 the philosophies that
have %een most important in the $0
th
centur".
!t the time of the examination+ 'o$ .ill %e "iven a sit$ation. (he information "ou will %e
given will inclue real 4H>+ the growth of real 4H>+ potential real 4H>+ real interest rates+
consumer spening+ %usiness investment spening+ government spening+ tax revenues+ the
mone" suppl"+ the inflation rate+ an the unemplo"ment rate+ an the natural rate of
unemplo"ment.
a. 4iven the situation+ what woul a (lassical economist recommen %e one?
E)lain .-'.
e. 4iven this situation+ what woul a Ge'nesian economist recommen %e one?
E)lain .-'.
f. 4iven this situation+ what woul a Monetarist economist recommen %e one?
E)lain .-'.
g. 4iven this situation+ what woul a S$l'5si!e economist recommen %e one?
E)lain .-'.
6n "our answer to these ?uestions+ s-o. t-e !i&&erences %et.een t-ese vie.s of the
!merican econom". *<: oints &or =$estion 9+