Economics Exam Questions: Aggregate Supply, Demand, and Investment, Exams of Introduction to Macroeconomics

Download Economics Exam Questions: Aggregate Supply, Demand, and Investment and more Exams Introduction to Macroeconomics in PDF only on Docsity! Econ 2006: Principles of Macroeconomics Department of Economics Virginia Polytechnic Institute and State University Fall 2013 Midterm Exam 28 October 2013 Form B Name: _________________________________ ID#: _________________________ Identify the choice that best completes the statement or answers the question and blacken the circle that corresponds to your answer in the AccuScan separately provided. 1. If all prices, including the nominal wage, rate double in the long run, then aggregate output supplied would: A) double. B) rise. C) fall. D) remain unchanged. 2. The efficient markets hypothesis says that: A) stock markets reflect irrational behavior, and therefore stock prices could be overvalued or undervalued. B) stock prices embody much public information and therefore are not overpriced or underpriced. C) the three stock market indexes will provide consistent information about the stock market. D) financial fluctuations in markets do not affect the macro economy in a noticeable way. 3. The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity. B) the aggregate unemployment rate. C) the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world. D) the aggregate quantity of output demanded by businesses only. Page 1 4. The budget balance is equal to: A) taxes minus government spending. B) taxes plus government spending. C) GDP minus consumption and government spending. D) GDP plus taxes. Use the following to answer question 5: Figure: Aggregate Expenditures and Real GDP 5. (Figure: Aggregate Expenditures and Real GDP) At a real GDP of $9,000 billion: A) planned investment is less than investment. B) planned investment equals investment. C) planned investment is greater than investment. D) there will be no unplanned investment. 6. The current level of productive capacity ________________ investment spending. A) has no impact on B) is positively related to C) is negatively related to Page 2 14. Higher rates of interest tend to _______ the quantity of loanable funds demanded, and lower rates of interest tend to _______ it. A) increase; reduce B) reduce; reduce C) increase; increase D) reduce; increase Use the following to answer question 15: Scenario: Income–Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. 15. (Scenario: Income–Expenditure Equilibrium) How much is planned aggregate spending? A) $7,100 B) $6,400 C) $8,000 D) $700 16. According to the _____, there is a positive relationship between planned investment spending and the expected future growth rate of real GDP. A) paradox of thrift B) life-cycle hypothesis C) multiplier effect D) accelerator principle 17. In the loanable funds market, borrowers are: A) best represented by the supply of loanable funds. B) not affected by changes in the inflation rate. C) best represented by the demand for loanable funds. Page 5 D) negatively impacted by unexpected increases in the inflation rate. 18. If overall inventories rise in a month because of unplanned inventory investment, one can conclude that: A) the economy is slowing down. B) sales were more than had been forecast. C) inventory investment is negative. D) the accelerator principle was contradicted. 19. In order to finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. If another relative offers to lend you the same amount but suggests a lower interest rate, this would mean that you: A) would end up paying more than you did to the initial relative. B) would pay less than you did to the initial relative. C) would pay the same amount as you did to your initial relative. D) are paying more now but less later. 20. Given an annual interest rate of 3%, the present value of a future payment of $2,080 to be paid in one year is: A) $1,904.76. B) $2,000.00. C) $2,019.42. D) $2,080.00. 21. Which of the following is NOT a determinate of consumer spending? A) current disposable income B) expected future disposable income C) wealth D) investment spending Page 6 22. A capital inflow into a country is associated with: A) imports exceeding exports. B) a decreased source of funds available for domestic investment. C) imports equaling exports. D) imports less than exports 23. An autonomous increase in aggregate spending: A) reduces GDP by that amount. B) increases GDP by that amount. C) reduces GDP by more than that amount. D) increases GDP by more than that amount. 24. The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds. A) upward; savers; increasing B) upward; investors; decreasing C) upward; savers; decreasing D) downward; investors; increasing Use the following to answer questions 25-26: Scenario: Open Economy S = I In an open economy the GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. 25. (Scenario: Open Economy S = I) How much is the net capital inflow? A) $1 trillion B) $2 trillion C) $3 trillion D) $4 trillion Page 7 31. You have heard about a new light bulb that is costly to purchase but uses less electricity and thus allows you to save money on your utility bill. Suppose the new light bulb costs $10 today, but next year your electricity bill will be $50 lower. If the interest rate is 10%, what is the net present value of buying this new light bulb and using it for one year? A) $40 B) –$45.45 C) $55 D) $35.45 32. A checking account with $500 is: A) more liquid than a person's new car. B) less liquid than a checking account with $1,000. C) equally liquid as a stock share with a $500 value. D) less liquid than a home with a market value of $250,000. 33. The demand for stocks: A) is largely a guessing game. B) is mostly dependent on their price. C) is mostly a function of buyers' beliefs about their future prices. D) comes from companies who want to borrow money. 34. If investment spending increases, the planned aggregate spending line: A) becomes flatter. B) shifts down. C) becomes steeper. D) shifts up. Page 10 Use the following to answer question 35: Table: Investment Projects 35. (Table: Investment Projects) If the market interest rate is 11%, the amount of investment demanded is: A) $800. B) $1,000. C) $2,000. D) $4,000. Page 11 Use the following to answer question 36: Figure: Aggregate Expenditures I 36. (Figure: Aggregate Expenditures I) Refer to the figure Aggregate Expenditures I. When real GDP is $700 billion, there will be a: A) $125 million increase in unplanned inventory investment. B) $125 million decline in unplanned inventory investment. C) $200 million decline in unplanned inventory investment. D) $200 million increase in unplanned inventory investment. 37. According to the interest rate effect, an increase in the price level causes people to: A) increase their money holdings, which increases interest rates and decreases investment spending. B) decrease their money holdings, which increases interest rates and decreases investment spending. C) to increase their money holdings, which decreases interest rates and decreases investment spending. D) to decrease their money holdings, which decreases interest rates and increases investment spending. Page 12