Macro_Exam_2_sample_test

Circular Flow Diagram

• Firms in the circular flow diagram:

  • Supply goods and services: They provide what households demand in product markets (Choice A).

  • Demand resources: These firms require resources that households provide in factor markets (Choice D).

Consumption Expenditure Example

• Which is a consumption expenditure?

  • Correct answer: Purchase of a ticket to a New Orleans Saints game (Choice C).

Government Purchase Exclusions in GDP Accounting

• Transfer payments are excluded from government purchases in GDP because:

  • Nothing is produced: There is no good or service produced in return for the payment (Choice D).

Exports and Imports Effect on GDP

• Exports and imports interaction:

  • Exports increase GDP, while imports decrease GDP (Choice A).

GDP Equation

• Correct GDP equation:

  • GDP = C + I + G + X (Choice B).

Adjusted GDP Over Time

• When GDP is adjusted for price changes over time, it is known as:

  • Real GDP (Choice A).

Unemployment Questions

Unemployment Definition

• Who is considered unemployed?

  • Correct answer: Edna, who lost her job and is actively searching for new employment (Choice D).

Labor Force Participation Rate Calculation

• In a country with a labor force of 4,000 (3,000 employed):

  • Labor force participation rate: 75% (Choice C).

Types of Unemployment

• Fred lost his job due to technology upgrades, resulting in:

  • Structural unemployment (Choice D).

Cyclical Unemployment Concern in 2008

• Workers laid off due to economic slowdown:

  • Cyclically unemployed (Choice A).

Natural Rate of Unemployment

• The level of unemployment equal to frictional and structural rates:

  • Referred to as the natural rate of unemployment (Choice A).

Price Index Questions

Base Year Price Index

• The price index for any designated base year must equal:

  • 100 (Choice A).

Impact of Rising Prices on CPI

• If all prices rise:

  • The CPI will be greater than 100 (Choice B).

Medical Care and CPI

• Medical care makes up 5% of CPI, prices rise faster here:

  • CPI understates inflation for families who prioritize medical care (Choice C).

Economic Growth Measurement

• Economic growth is best measured by increases in:

  • Per capita real Gross Domestic Product (GDP) (Choice C).

Long-Run Aggregate Supply Curve

• The long-run aggregate supply curve is vertical because:

  • The economy has reached its potential real GDP at full employment (Choice A).

Production Possibilities Curve Impacts

• When the production possibilities curve shifts outward:

  • The long-run aggregate supply curve shifts to the right (Choice B).

Real Income and Prices

• If income stays constant and price levels rise:

  • You will buy fewer goods (due to the wealth effect, Choice B).

Factors Increasing Aggregate Demand

• Causes for an increase in aggregate demand include:

  • A decrease in taxes (rightward shift of AD, Choice B).

Classical vs. Keynesian Economics

Classical Economics Assumption

• Classical economics assumes that:

  • Wages and prices are flexible (Choice C).

GDP Determination in Economic Theories

• Real GDP is supply determined in classical economics and demand determined in Keynesian economics:

  • Classical: supply, Keynesian: demand (Choice D).

Short-Run Aggregate Supply Curve

• The short-run aggregate supply curve is positively sloped due to:

  • Some price adjustments taking place in the short run (Choice A).

Full Employment Rate Impact on Output

• The full employment rate of output can be surpassed:

  • Only in the short run (Choice D).

Output Levels and Aggregate Supply

• The level of output at the intersection of supply and demand curves:

  • May be above, below, or equal to full-employment output (Choice B).

Multiplier Effect Calculation

• If MPC = 0.8 and investment increases by $80 billion:

  • Equilibrium real GDP will increase by $400 billion (Choice B).

Wage Impacts on Unemployment Rates

• If the unemployment rate is greater than the natural rate, we expect to see increasing wages:

  • This causes the short-run aggregate supply curve to shift up (Choice D).

Answer Key

1. A

2. C

3. D

4. A

5. B

6. A

7. D

8. B

9. D

10. A

11. A

12. A

13. B

14. C

15. C

16. A

17. B

18. B

19. B

20. C

21. D

22. A

23. D

24. B

25. B

26. A