Question

1. If a demand shock causes an economy to operate at a point above potential GDP, then

Select one:

a. the aggregate supply curve will shift to return the economy to the original point of equilibrium

b. the economy will correct itself through rising wages and prices

c. this short-run equilibrium point will become the new long-run equilibrium GDP

d. the economy will correct itself through falling wage rates and prices

e. the shock is said to be a negative demand shock

2. One reason why economists often appear to disagree when asked about the impact of some macroeconomic policies is that

Select one:

a. they do not understand the economy very well

b. economics is a very difficult science, and so there are many incorrect economic projections being made

c. economists rarely disagree; people just think they are disagreeing because they do not understand the language of economics

d. economists often appear to be disagreeing when one is talking about long-run impact while the other is referring to short-run impacts

e. economists are by nature competitive individuals and they often disagree

3. An increase in government spending leads to a(n)

Select one:

a. downward shift of the aggregate expenditure line and a leftward shift of the money demand curve

b. upward shift of the aggregate expenditure line and a rightward shift of the money demand curve

c. downward shift of the aggregate expenditure line and a rightward shift of the money demand curve

d. upward shift of the aggregate expenditure line and a leftward shift of the money demand curve

e. upward shift of the aggregate expenditure line but no shift of the money demand curve

4. Which of the following would increase labor productivity?

Select one:

a. an increase in the physical capital stock per worker

b. an increase in human capital per worker

c. an increase in natural resources per worker

d. a technological improvement

e. All of the above are correct

5. If a firm bakes cookies and sells them for $900 while spending $150 on sugar, $250 on chocolate, $100 on other supplies, $100 on wages and $200 on rent, what is its value added?

Select one:

a. $100

b. $200

c. $300

d. $400

e. $500

6.The official measure of unemployment may underestimate actual unemployment because

Select one:

a. people may lie when reporting they are looking for jobs

b. the treatment of involuntary part-time workers and discouraged workers is misleading

c. the population sample employed by the Labor Department is too small to be representative

d.

some individuals who should be receiving unemployment benefits do not receive them

e.

individuals who are unable to work are not included

7. If domestic households purchased an imported car at $200,000, which of the following could have occurred, all else being the same?

Select one:

a. GDP decreases by $200,000, with a decrease of $200,000 in net exports

b. GDP increases by $200,000, with an increase of $200,000 in net exports

c. GDP remains unchanged

d. The consumption component of GDP increases by $200,000

e. Both c and d

8. Suppose the Federal Reserve wants to decrease the money supply by $100,000. If the required reserve ratio is 0.1, which of the following actions will achieve the Fed’s goal?

Select one:

a. The Fed must purchase $100,000 in bonds

b. The Fed must sell $100,000 in bonds

c. The Fed must purchase $10,000 in bonds

d. The Fed must sell $10,000 in bonds

e. The Fed must sell $90,000 in bonds

Answer 1

Q1 Answer is B.

Due to increase in demand prices and wages will increase and a movement on new demand curve will occur which will bring the equilibrium on potential GDP or long run supply curve.

Q2 Answer is B. Economist disagree because all the time predictions of anyone could not be true. And it depends on behaviour of humans which is difficult to predict. So long run projections are hard to measure correctly.

Q3 Answer is B.

Increase in government spending will increase the income of individuals. And with increased income they will demand more so aggregate demand curve will shift outward and increased income will also increase the demand for money so demand for money will shift rightward.

Q4 Answer is D. Technological change will must increase the labour productivity and other may not increase. Due to new technology labour will be able to produce more.

Q5 Answer is B. 200.

Total sales = 900 but out of this 700 is spend to purchase other materials. So value added is only 200.

Q6 Answer is B.

Q7 Answer is C. GDP will not change because GDP is domestic product and car is imported from other country which is not included in GDP estimation.

Q8 Answer is D. If Fed sell the bonds worth $10000. Money supply will decrease by $100000.

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