Macro Practice Quiz 2 (chapters 7-10)

1. 
   output; income
   
2. 
   income; output
   
3. 
   output; domestic output
   
4. 
   income; national income
   

2. Which one of the following is subtracted from personal income to get disposable income?

B. Income stabilizing household transfer payments (aka income security)

3. 
   Public sector salaries
   
4. 
   Personal taxes
   

3. Which is not part of “I” in the GDP calculation?

1. 
   Construction of a brand new office complex
   
2. 
   Private sector salaries
   
3. 
   Depreciation
   
4. 
   Inventory adjustment
   
5. 
   New home construction
   

4. Which is part of “I” in the GDP calculation?

1. 
   Insurance
   
2. 
   Supplies
   
3. 
   Raw materials
   
4. 
   Building an expansion on an existing factory
   
5. 
   Electricity
   

5. What is real GDP in 2001?

CPI in 2001: 107

CPI in 2000: 100

1. 
   $13.05 Trillion
   
2. 
   $12.2 Trillion
   
3. 
   $11.4 Trillion
   
4. 
   $7.18 Trillion
   

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?

1. 
   Net Exports
   
2. 
   Exports
   
3. 
   Sale of a mutual fund
   
4. 
   Wages for government workers
   

Chapter 8

A. -4%

D. -20%
9. The Malthusian Prophecy says all of the following will occur whenever population exceeds the stationary state population level, except:

A. Starvation

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

1. 
   Both are Intensive
   
2. 
   Both are Extensive
   
3. 
   I is Extensive and II is Intensive
   

1. 
   Network Externalities
   
2. 
   Spillover Effects
   
3. 
   Positive Externalities
   

E. Disembodied Technological Change

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
Chapter 9
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

C. Inflation

D. Stagflation
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

2. 
   Short-run over long-run
   
3. 
   Price stickiness over flexible prices
   

B. World War II

D. Stimulus

E. Self-correcting mechanisms
18. Classical theory does not favor:
A. Short-run over long-run

2. 
   Supply over Demand
   
3. 
   Laissez-faire over intervention
   

1. 
   Monopolies dominate product and labor markets
   
2. 
   Potential output is equilibrium
   
3. 
   The loanable funds market will always clear
   
4. 
   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

Answers:
1B

2D

3B

4D

6B

7C

9B

10D

12D

14B

16D

18A

20D

22B

24B