Macroeconomics exam 2

Question 1

In 1950, GDP was $300B and the GDP deflator was 13.7. In 1951, GDP was $347B and the GDP deflator was 14.7. Real GDP for 1951, adjusted to the 1950 price level, would be.

Answer 1

$323B

Question 1

The phase of the business cycle when Real GDP is increasing is called

Answer 1

Expansion

Question 2

On a simple circular flow diagram

Answer 2

Households provide resources

Question 3

Suppose an economy has consumption=200, savings=40, government spending=20, investment=20, exports=30, and imports equal to 20. How much are expenditures in this economy

Answer 3

250

Question 4

Suppose an economy has consumption=200, savings=400, government spending=20, investment=20, exports=40, and imports equal to 20. How much are taxes in this economy?

Answer 4

20

Question 5

For GDP purposes what would be investment spending? (give ex.)

Answer 5

Max buys a new display case for her jewelry store.

Question 6

Which of the following statements is false

Answer 6

Government purchases is the largest component of GDP

Question 7

Nominal GDP may increase if

Answer 7

There is an increase in the price level, if there is an increase in production, and even if Real GDP decreases

Question 8

An investment will be made

Answer 8

If the expected rate of return is greater than the interest rate

Question 9

A decrease in aggregate demand could be caused by

Answer 9

an increase in tax rates

Question 10

A decrease in short-run aggregate supply could be cause by

Answer 10

An increase in wage rates

Question 11

An adverse supply shock would cause

Answer 11

SRAS to decrease, leading to a higher price level

Question 12

Decreases in AD tend to cause

Answer 12

the price level to decrease, real GDP to decrease & unemployment to increase

Question 13

Increases in SRAS tend to cause

Answer 13

Real GDP to increase

Question 14

Hawkins National Laboratory can invest in new machinery which costs $500,000 and will generate additional annual profits of $40,000. The rate of return

Answer 14

8%

Question 15

If businesses become more optimistic about future returns

Answer 15

Investment spending will increase and aggregate demand will increase

Question 16

Net exports will increase if

Answer 16

the exchange rate for the dollar depreciates

Question 17

According to classical economic theory, if the desire to save increases

Answer 17

The resulting decrease in consumption will be offset by an increase in investment

Question 18

The ideal quantity of total output in the economy

Answer 18

Is called the Natural Real GDP

Question 19

According to Say’s Law

Answer 19

Supply creates it’s own demand; this means that the act of production leads to equivalent income to resource owners

Question 20

According to classical economic theory

Answer 20

A market economy will automatically adjust to Natural Real GDP, supply creates it’s own demand, and flexible interest rates assure that any consumer savings will be exactly offset by business investment.

Question 21

If Real GDP is greater than Natural Real GDP

Answer 21

the economy is in an inflationary gap and the shortage of labor will cause wage rates to rise

Question 22

If Real GDP is less than Natural Real GDP

Answer 22

The economy is in a recessionary gap

Question 23

According to classical economonic theory, a market economy will automatically close an inflationary gap by

Answer 23

The shortage of labor will cause wage rates to rise, the increase in age rates will shift the SRAS curve to the left, and the SRAS curve will shift to the left until Real GDP equals Natural Real GDP.

Question 24

According to classical economic theory

Answer 24

The LRAS curve is vertical at Natural Real GDP

Question 25

The Smoot-Hawley Tariff

Answer 25

Increased the average tariff rate on dutiable goods to almost 60 percent

Question 26

After the stock market crash of 1929, the Dow Jones Industrial Average

Answer 26

Had decreased almost 50% from its peak