Macro Practice Quiz 2 (chapters 7-10)
1. Adding up all wages, rent, interest, and profits is called the __________ approach, while adding up all the sources of spending is called the ___________ approach to national economic accounting.
output; domestic output
income; national income
2. Which one of the following is subtracted from personal income to get disposable income?
A. Private sector salaries
B. Income stabilizing household transfer payments (aka income security)
Public sector salaries
3. Which is not part of “I” in the GDP calculation?
Construction of a brand new office complex
Private sector salaries
New home construction
4. Which is part of “I” in the GDP calculation?
Building an expansion on an existing factory
5. What is real GDP in 2001?
NGDP in 2001: $12.2 Trillion
CPI in 2001: 107
CPI in 2000: 100
6. Which is in G (government spending) in the GDP calculation:
A. Welfare payments
B. Infrastructure projects
C. Social security payments
D. Unemployment benefits
E. Pensions for government workers
7. Which is omitted from GDP?
Sale of a mutual fund
Wages for government workers
8. If per capita output increases by 12 percent (from $10,000 to $11,200) and output grows by 8 percent (from $10 trillion to $10.8 trillion), the population growth rate must be:
9. The Malthusian Prophecy says all of the following will occur whenever population exceeds the stationary state population level, except:
B. Learning by doing
C. Over-fishing and over-farming
D. Resource wars
E. An inevitable (unavoidable) return to the stationary state
10. Which describes New Growth Theory?
A. Declining returns to scale
B. Malthusian Prophecy
C. Subsistence output = equilibrium output
D. Spillover effects
11. Evaluate these two sources of growth:
I. While the number of factories is constant, their productivity has increased dramatically over the past two decades;
II. More factories and machines have been built
Both are Intensive
Both are Extensive
I is Extensive and II is Intensive
D. I is Intensive and II is Extensive
12. Which is NOT emphasized by New Growth Theory:
D. Diminishing Productivity of Inputs
E. Disembodied Technological Change
13. Classical Growth Theory does not say equilibrium:
A. includes surplus output above the PCI needed for the average person to survive
B. wage is subsistence wage
C. occurs at the stationary state
D. can occur after resource wars and land overuse diminish the population
E. is at the subsistence output level
14. Classical Theory says that at the economy’s naturally occurring equilibrium GDP, the economy will have:
A. A recession
B. Potential/full-employment output
15. The Keynesian response to the “abstinence theory of interest” involves the principle that borrowers and lenders
A. are motivated by a variety of factors other than the interest rate
B. always ignore the interest rate in make borrowing and lending decision
C. borrow and lend strictly according to the interest rate
D. follow only the interest rate in make borrowing and lending decision
16. Classical economists emphasize:
A. Demand over Supply
Short-run over long-run
Price stickiness over flexible prices
D. Laissez-Faire over intervention
17. Keynesian Policy is not associated with:
A. Franklin Roosevelt
B. World War II
C. The New Deal
E. Self-correcting mechanisms
18. Classical theory does not favor:
A. Short-run over long-run
Supply over Demand
Laissez-faire over intervention
D. Deficit reduction over growth as the immediate priority
19. Assumptions of Keynesian theory include
Monopolies dominate product and labor markets
Potential output is equilibrium
The loanable funds market will always clear
The economy is very competitive
20. .GDP=$8 Trillion and GDP*= $10 Trillion. If MPC=.8, GDP will ultimately be restored when all rounds of spending are complete if:
A. Government spending increases by $500 Billion.
B. Government Spending decreases by $400 Billion
C. Imports decrease $500 Billion
D. Exports increase $400 Billion
21. .B. If government expenditures increased by $10 Billion and the MPC was 2/3, the equilibrium level of income would eventually
A. increase by $10 Billion.
B. increase by $30 Billion.
C. increase by $7.5 Billion.
D. increase by $6.67 Billion.
22. .B. MPE=0.6. A decrease of taxes by $10 Billion would eventually.
A. not affect income.
B. increase income by more than $10 Billion.
C. increase income by less than $10 Billion.
D. increase income by $10 Billion.
23. Imports fall by $30 Billion dollars. MPE = 0.55. What is the change in GDP?
A. $66.67 Billion
B. -$66.67 Billion
C. $30 Billion
D. -$30 Billion
24. The government seeks to close a $900 billion dollar inflationary gap. MPE = 0.65. What should be the change in government spending?
A. $315 Billion
B. -$315 Billion
C. $900 Billion
D. -$900 Billion
25. For a 540 billion dollar tax increase in an economy with an MPE = .6, what is the change in GDP?
A. -$810 billion
B. $810 billion
C. -$324 billion
D. $324 billion
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