INTRODUCTION TO MACROECONOMICS

FINAL EXAM
SAMPLE QUESTIONS

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) An economic growth model explains
A) how changes in the money supply affect real interest rates.
B) changes in real GDP per capita in the long run.
C) changes in government tax policies over time.
D) the growth rate of the price level over time.

1)

2) When an economy faces diminishing returns,

A) the slope of the per-worker production function becomes flatter as capital per hour
worked increases.
B) the per-worker production function shifts to the left.
C) the per-worker production function shifts to the right.
D) the slope of the per-worker production function becomes steeper as capital per hour
worked increases.

2)

Figure 22-1

3) Refer to Figure 22-1. Using the per-worker production function in the figure above, the largest
changes in an economy's standard of living would be achieved by a movement from
A) B to C to D.
B) C to B to A.
C) A to B to C.
D) D to C to B.

3)

4) If the per-worker production function shifts down,

A) the per-worker production function becomes steeper.
B) positive technological change has occurred in the economy.
C) an economy can increase its real GDP per hour worked without changing the level of
capital per hour worked.
D) it now takes more capital per hour worked to get the same amount of real GDP per hour
worked.

4)

Figure 22-1

5) Refer to Figure 22-1. Diminishing marginal returns is illustrated in the per-worker production
function in the figure above by a movement from
A) A to C.
B) C to D.
C) B to C.
D) D to C.

5)

6) The key idea of the aggregate expenditure model is that in any particular year, the level of GDP
is determined mainly by
A) export spending.
B) government spending.
C) investment spending.
D) the level of aggregate expenditure.

6)

7) If inventories decline by more than analysts predict they will decline, this implies that
A) there is no relationship between actual investment spending and planned investment
spending.
B) actual investment spending was greater than planned investment spending.
C) actual investment spending was less than planned investment spending.
D) actual investment spending was equal to than planned investment spending.

7)

8) ________ in taxes will decrease consumption spending, and ________ in transfer payments will
increase consumption spending.
A) An increase; a decrease
B) An increase; an increase
C) A decrease; a decrease
D) A decrease; an increase

8)

9) ________ is defined as the value of a household's assets minus the value of its liabilities.
A) Personal household consumption
B) Household income
C) Planned household investment
D) Household wealth

9)

Table 23-2
Consumption
(dollars)
$1,200
2,100
3,000

Disposable Income
(dollars)
$3,000
4,000
5,000

10) Refer to Table 23-2. Given the consumption schedule in the table above, the marginal
propensity to consume is
A) 0.1.
B) 0.3.
C) 0.6.
D) 0.9.

10)

11) ________ describes the relationship between consumption spending and disposable income.
A) The liquidity trap
B) Household wealth
C) The consumption function
D) The paradox of thrift

11)

12) If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of
the consumption function is
A) 1.20.
B) 0.80.
C) 0.70.
D) 0.10.

12)

13) The marginal propensity to save is defined as

A) saving divided by disposable income.
B) the change in saving divided by the change in disposable income.
C) disposable income divided by saving.
D) the change in disposable income divided by the change in saving.

13)

14) If firms find that consumers are purchasing more than expected, which of the following would
you expect?
A) Aggregate expenditure will likely be greater than GDP.
B) The economy will adjust to macroeconomic equilibrium as inventories rise, and
production and employment fall.
C) The economy will adjust to macroeconomic equilibrium as inventories fall, and
production and employment fall.
D) Aggregate expenditure will likely be less than GDP.

14)

15) Household spending on goods and services is known as

A) government purchases.
B) net exports.
C) consumption spending.
D) planned investment spending.

15)

Figure 23-1

16) Refer to Figure 23-1. According to the figure above, at what point is aggregate expenditure
greater than GDP?
A) J
B) K
C) L
D) none of the above

16)

Figure 23-2

17) Refer to Figure 23-2. If the U.S. economy is currently at point N, which of the following could
cause it to move to point K?
A) Government expenditures increase.
B) The firm's cash flow rises as profits rise.
C) Household wealth rises.
D) Households expect future income to decline.

17)

18) Which of the following will cause a direct increase in consumption spending?
A) an increase in government spending
B) a decrease in net export spending
C) an increase in planned investment
D) an increase in disposable income

18)

19) When aggregate expenditure = GDP,

A) net exports equal zero.
C) saving equals zero.

19)
B) the federal budget is balanced.
D) macroeconomic equilibrium occurs.

20) On the 45-degree line diagram, for points that lie below the 45-degree line,
A) planned aggregate expenditure is less than GDP.
B) planned aggregate expenditure is equal to GDP.
C) planned aggregate expenditure is less than aggregate income.
D) planned aggregate expenditure is greater than GDP.

20)

Figure 23-4

21) Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing
GDP1 which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous
spending change for the economy to move to potential GDP?
A) -$18 billion
B) -$2 billion
C) $2 billion

21)

D) $18 billion

22) Which of the following is a true statement about the multiplier?

A) The multiplier rises as the MPC rises.
B) The multiplier effect does not occur when autonomous expenditure decreases.
C) The smaller the MPC, the larger the multiplier.
D) The multiplier is a value between zero and one.

22)

23) An increase in the price level results in a(n) ________ in the quantity of real GDP demanded
because ________.
A) increase; a higher price level reduces consumption, investment, and net exports.
B) decrease; a higher price level increases consumption, investment, and net exports.
C) decrease; a higher price level reduces consumption, investment, and net exports.
D) increase; a higher price level increases consumption, investment, and net exports.

23)

24) An increase in the price level will

A) move the economy up along a stationary aggregate demand curve.
B) move the economy down along a stationary aggregate demand curve.
C) shift the aggregate demand curve to the right.
D) shift the aggregate demand curve to the left.

24)

Figure 24-2

25) Refer to Figure 24-2. Ceteris paribus, an increase in the labor force would be represented by a
movement from
A) SRAS1 to SRAS2.
B) SRAS2 to SRAS1.
C) point A to point B.

25)

D) point B to point A.

26) When the price level in the United States falls relative to the price level of other countries,
________ will fall, ________ will rise, and ________ will rise.
A) exports; imports; net exports
B) imports; exports; net exports
C) net exports; imports; exports
D) net exports; exports; imports

26)

27) Long-run macroeconomic equilibrium occurs when

A) aggregate demand equals short-run aggregate supply and they intersect at a point on the
long-run supply curve.
B) structural and frictional unemployment equals zero.
C) output is above potential GDP.
D) aggregate demand equals short-run aggregate supply.

27)

28) Because of diminishing returns, an economy can continue to increase real GDP per hour worked
only if
A) the per-worker production function shifts downward.
B) there is technological change.
C) there continue to be decreases in capital per hour worked.
D) there are decreases in human capital.

28)

29) An unplanned increase in inventories results from

A) a decrease in planned investment.
B) actual investment that is less than planned investment.
C) an increase in planned investment.
D) actual investment that is greater than planned investment.

29)

30) The level of aggregate supply in the long-run is not affected by

A) changes in the number of workers.
B) changes in the price level.
C) changes in the capital stock.
D) changes in technology.

30)

Figure 26-2

31) Refer to Figure 24-3. Suppose the economy is at point C. If government spending decreases in
the economy, where will the eventual long-run equilibrium be?
A) A
B) B
C) C
D) D

31)

32) What is potential GDP?

A) It is the level of GDP at which inflation is constant.
B) It is the difference between current GDP and maximum GDP.
C) It is the level of real GDP in the long run.
D) It is the level of real GDP in the short run.

32)

Figure 24-3

33) Refer to Figure 24-3. Suppose the economy is at point A. If the economy experiences a supply
shock, where will the eventual short-run equilibrium be?
A) A
B) B
C) C
D) D

33)

34) Refer to Figure 24-3. Which of the points in the above graph are possible long-run equilibria?
A) A and D
B) A and B
C) B and D
D) A and C

34)

Figure 23-3

35) Refer to Figure 23-3. Suppose that investment spending increases by $10 million, shifting up the
aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what
is the change in GDP?
A) $9 million

B) $10 million

C) $90 million

35)

D) $100 million

36) If planned aggregate expenditure is less than total production,

A) the economy is in equilibrium.
B) actual inventories will equal planned inventories.
C) GDP will increase.
D) firms will experience an unplanned increase in inventories.

36)

37) If an increase in investment spending of $50 million results in a $400 million increase in
equilibrium real GDP, then
A) the multiplier is 0.125.
B) the multiplier is 3.5.
C) the multiplier is 8.
D) the multiplier is 50.

37)

38) Inventories refer to

A) goods that have been produced but not yet sold.
B) goods that have been produced and sold in the same year.
C) goods that have been planned but not yet produced.
D) goods which have been presold before they are produced.

38)

39) Suppose there has been an increase in investment. As a result, real GDP will ________ in the
short run, and ________ in the long run.
A) decrease; decrease further
B) increase; increases further
C) increase; decrease to its initial value
D) decrease; increase to its initial level

39)

40) The multiplier is calculated as the

A) change in real GDP/ change in induced spending.
B) change in autonomous expenditure/ change in real GDP.
C) change in nominal GDP/ change in autonomous expenditure.
D) change in real GDP/ change in autonomous expenditure.

40)

10

Answer Key
Testname: FINAL_EXAM_SAMPLE_QUESTIONS

1) B
2) A
3) A
4) D
5) A
6) D
7) C
8) D
9) D
10) D
11) C
12) B
13) B
14) A
15) C
16) A
17) D
18) D
19) D
20) A
21) C
22) A
23) C
24) A
25) A
26) B
27) A
28) B
29) D
30) B
31) A
32) C
33) B
34) D
35) D
36) D
37) C
38) A
39) C
40) D

11