Macroeconomics Exam 2022

Section I: Multiple-Choice Gymnasiums The following are examples of the kinds of multiple-choice questions found on the exam. 1. 12 10 8 6 4 2 0 0 5 10 15 20 25 30 Parks The graph above shows the production possibilities curve for a small township that is deciding to build parks and gymnasiums. Which of the following combinations of parks and gymnasiums is unattainable given the township’s available resources? (A) 5 parks and 6 gymnasiums (B) 5 parks and 8 gymnasiums (C) 10 parks and 6 gymnasiums (D) 15 parks and 4 gymnasiums (E) 20 parks and 4 gymnasiums 2. Which of the following changes would result in an indeterminate change in the equilibrium price in a perfectly competitive market? (A) An increase in demand and a decrease in supply (B) An increase in demand and an increase in supply (C) A decrease in demand and an increase in supply (D) A decrease in demand with no change in supply (E) A decrease in supply with no change in demand 3. Which of the following is accounted for in the calculation of a country’s gross domestic product? (A) Sales of stocks and bonds (B) Changes in inventories (C) Changes in product quality (D) The underground economy (E) Nonmarket activities 4. The population of Country X is 250,000, and the labor force is 200,000 people. If 175,000 people are employed, what is the unemployment rate? (A) 10% (B) 12.5% (C) 20% (D) 80% (E) 87.5% 5. Which of the following will happen if the government raises both taxes and spending by $100 million and the marginal propensity to consume is 0.8? (A) Real GDP will decrease by a maximum of $500. (B) Real GDP will decrease by a maximum of $400. (C) Real GDP will increase by a maximum of $100. (D) Real GDP will increase by a maximum of $400. (E) Real GDP will increase by a maximum of $500. 6. Which of the following would lead to an increase in nominal interest rates? (A) An expansionary monetary policy accompanied by an increase in the demand for money (B) An expansionary monetary policy accompanied by a decrease in the demand for money (C) An expansionary monetary policy conducted without any change in the demand for money (D) A contractionary monetary policy accompanied by an increase in the demand for money (E) A contractionary monetary policy accompanied by a decrease in the demand for money Price Level LRAS SRAS H AD YF 7. Real GDP A country’s economy is in equilibrium at point H. Which of the following policies would be most effective to reduce the price level in the short run? (A) Increasing the minimum wage (B) Increasing government expenditures (C) Increasing interest on reserves (D) Decreasing the required reserve ratio (E) Decreasing income tax rates 8. Country H’s current domestic output is lower than its potential domestic output. Assume that the central bank now decreases its administered interest rates. What will be the short-run effects of the central bank’s action on cyclical unemployment and real income? (A) Cyclical unemployment will increase, and real income will increase. (B) Cyclical unemployment will increase, and real income will decrease. (C) Cyclical unemployment will remain the same, and real income will increase. (D) Cyclical unemployment will remain the same, and real income will decrease. (E) Cyclical unemployment will decrease, and real income will increase. 9. An increase in the demand for loanable funds could be best explained by which of the following? (A) A decrease in investment spending. (B) An increase in the government’s budget surplus. (C) An increase in firms’ optimism about the future performance of the country’s economy. (D) Domestic investors seeking higher returns by investing in foreign financial assets. (E) An increase in political instability in the country. 10. If both contractionary monetary policy and contractionary fiscal policy are carried out, what will most likely happen to interest rates and real gross domestic product (GDP) in the short run? (A) Both interest rates and real GDP will increase. (B) Both interest rates and real GDP will decrease. (C) Interest rates will decrease, and real GDP will stay the same. (D) Interest rates will increase, and real GDP will decrease. (E) Real GDP will decrease, and the change in interest rates will be indeterminate. 11. If an economy is currently in a recessionary gap, which of the following changes would result in an increase in real GDP in the short run and a decrease in the price level in the long run? (A) The government begins running a budget surplus. (B) There is an increase in real interest rates. (C) The government increases income tax rates. (D) There is an increase in the prices of the economy’s productive resources. (E) There is an increase in the productivity of the economy’s resources. 12. If the government offers a tax credit to businesses, what will be the most likely effects of this action? (A) A decrease in consumption spending, an increase in aggregate demand, and an increase in real output (B) An increase in consumption spending, a decrease in aggregate demand, and a decrease in real output (C) An increase in investment spending, an increase in the capital stock, and an increase in real output (D) A decrease in investment spending, a decrease in the capital stock, and an increase in real output (E) A decrease in government spending, a decrease in aggregate demand, and a decrease in real output 13. If an economy experiences an improvement in technology, what will happen to its production possibilities curve (PPC) and its long-run aggregate supply (LRAS) curve? (A) Both curves shift inward. (B) Both curves shift outward. (C) The PPC shifts inward, and the LRAS curve stays the same. (D) The PPC shifts outward, and the LRAS curve shifts inward. (E) The PPC stays the same, and the LRAS curve shifts outward. 10 SRPC 8 LRPC 6 4 2 0 0 1 2 3 4 5 Unemployment Rate 6 7 14. The diagram above shows the short-run Phillips curve (SRPC) and the long-run Phillips curve (LRPC) for an economy. If the rate of inflation is currently 6%, what is the current unemployment rate? (A) The current unemployment rate is 1%. (B) The current unemployment rate is 2%. (C) The current unemployment rate is 3%. (D) The current unemployment rate is 4%. (E) The current unemployment rate is 5%. 15. If the United States budget deficit increases, what will most likely happen to the United States dollar in the foreign exchange market? (A) It will appreciate because interest rates will increase. (B) It will depreciate because interest rates will decrease. (C) It will appreciate because interest rates will decrease. (D) It will depreciate because interest rates will increase. (E) It will not change because changes in the government budget have no effect on the exchange rate.