Question;Economics 201 (Principles of Macroeconomics)Instructions: Please complete all questions on this quiz. Each of the multiple choicequestions is worth 2 point (60 points total). There are four short answer questions. Eachone of them is worth 10 points (40 points total). There are 30 multiple choice questions and4 short answer questions.Multiple Choice Questions (60 points).1) Calculate the government purchases multiplier if the marginal propensity to consume equals0.75, the tax rate is 0.2, and the marginal propensity to import equals 0.3.A) 1.43B) 1.6C) 3.33D) 42) Suppose President Obama is successful in passing a $10 billion tax increase. Assume thattaxes are fixed, the economy is closed, and the marginal propensity to consume is 0.8. Whathappens to equilibrium GDP?A) There is a $50 billion increase in equilibrium GDP.B) There is a $50 billion decrease in equilibrium GDP.C) There is a $40 billion increase in equilibrium GDP.D) There is a $40 billion decrease in equilibrium GDP.3) Suppose that Congress allocates $5 billion to the "Cash for Clunkers" program. It also raisestaxes by $5 billion to keep the deficit from growing. If the marginal propensity to consume is0.8, what is the effect on equilibrium GDP?A) GDP does not change.B) GDP increases by $25 billion.C) GDP increases by $4 billion.D) GDP increases by $5 billion.4) Which of the following best describes supply-side economics?A) Labor productivity affects aggregate supply.B) Education affects labor productivity which affects aggregate supply.C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply.D) Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and,therefore, aggregate supply.5) Which of the following is a reason why we should consider the federal national debt aproblem?A) The federal government is in danger of defaulting on its debt.B) If the debt drives up interest rates, crowding out will occur.C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur.D) If the debt was incurred to finance research and development, crowding out will occur.6) An economic expansion tends to cause the federal budget deficit to ________ because taxrevenues ________ and government spending on transfer payments ________.A) increase, rise, fallsB) increase, fall, risesC) decrease, rise, fallsD) decrease, fall, rises7) The aggregate demand curve will shift to the left ________ the initial decrease in governmentpurchases.A) by less thanB) by more thanC) by the same amount asD) sometimes by more than and other times by less than8) The curve showing the short-run relationship between the unemployment rate and the inflationrate is calledA) the monetary policy curve.B) the Phillips curve.C) the Sargent curve.D) the unemployment curve.Figure 16-19) Refer to Figure 16-1. What should the Federal Reserve do if it wants to move from point A topoint B in the short-run Phillips curve depicted in the figure above?A) buy treasury billsB) sell treasury billsC) lower the discount rateD) increase the money supplyE) lower taxes10) According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, anincrease in the inflation rate might result in which of the following?A) an increase in the unemployment rate to 3.4%B) a decrease in the unemployment rate to 3.0%C) a decrease in the demand for labor in the economyD) a return to the original inflation rate of 1.3%11) What is the natural rate of unemployment?A) the unemployment rate that exists when the economy is at potential GDPB) the unemployment rate that exists when the economy is at a trough in a business cycleC) an unemployment rate of 0%D) any unemployment rate that is above the inflation rate12) In the long run, the Phillips curve is a ________ at ________.A) horizontal line, 0% inflationB) negatively sloped line, the intersection of aggregate demand and short-run aggregate supplyC) vertical line, the natural rate of unemploymentD) vertical line, the expected rate of inflation13) Employees at the university have negotiated a 5 percent increase in wages for the next year,based on their inflation expectations. If inflation is actually 6 percent over the next year, whichof the following will occur?A) Unemployment of university employees will rise.B) Real wages for university employees will fall.C) Inflation will be 5 percent the following year.D) The increase in inflation is expected.14) Matt's real wage in 2010 is $26.80. If the price level is 104, what is Matt's nominal wage?A) $30.80B) $27.87C) $26.80D) $25.7715) An economy that has interactions in trade or finance with other economies is referred to asA) an open economy.B) a closed economy.C) a trade-balanced economy.D) a net foreign investment economy.16) Suppose China decides to sell a vast majority of their large holdings of U.S. Treasury bonds.If you are thinking of refinancing your house, how would China's action affect your decision torefinance?A) You would want to refinance as soon as possible as interest rates should rise.B) You would want to wait to refinance as interest rates should rise.C) You would want to wait to refinance as interest rates should fall.D) China's actions should not affect your decision to refinance in any way.17) The current account does not include which of the following?A) net exports.B) net investment income.C) net transfers.D) U.S. holdings of foreign assets18) Which of the following would increase net exports in the United States?A) The United States purchases 500 silver necklaces from Mexico.B) The government of Mexico purchases 500 Ford F-150 pickup trucks from the United States.C) A Mexican citizen purchases 25 shares of stock in Ford Motor Company.D) The U.S. government donates $5 million to Mexico to help victims of drought in Mexico.19) Which of the following is not included in the balance of the financial account of the UnitedStates?A) a purchase of Toyota stock by FordB) a purchase of GE stock by a firm in ChinaC) a purchase of U.S. car manufacturing plant by ToyotaD) a purchase of a German brewery by the U.S. company, BudweiserE) a purchase of German financial services by Chase Manhattan bank20) Suppose the U.S. Congress is successful in enacting tariffs large enough to eliminate thecurrent account deficit. What would happen to the level of domestic investment?A) It would not change.B) It would rise and exceed national saving.C) It would rise to a level equal to net foreign investment.D) It would fall to a level equal to national saving.21) Fluctuating exchange rates can alter a multinational firm's profits and losses. The U.S.corporation, Motorola, produces cell phones and sells cell phones in Mexico. If the dollardepreciates against the peso, then Motorola's revenues from these operations should ________and its costs from these operations should ________.A) rise, fallB) rise, riseC) fall, fallD) fall, rise22) You decide to work in Japan for the next 10 years, accumulate some savings, then move backto the United States and convert your savings from yen to dollars. At the time of your move,economists predict that consumers in the United States have reignited their love of Japaneseproducts, especially hybrid cars, and expect that this strong preference for Japanese products willcontinue for the next decade. How should this influence your decision to work and save inJapan?A) You should be discouraged as the growing U.S. preference for Japanese goods shouldincrease the value of the yen to the dollar and decrease the value of your savings when convertedto dollars.B) You should be discouraged as the growing U.S. preference for Japanese goods shoulddecrease the value of the yen to the dollar and decrease the value of your savings when convertedto dollars.C) You should be encouraged as the growing U.S. preference for Japanese goods should decreasethe value of the yen to the dollar and raise the value of your savings when converted to dollars.D) You should be encouraged as the growing U.S. preference for Japanese goods should increasethe value of the yen to the dollar and raise the value of your savings when converted to dollars.23) What factors are not important in determining exchange rate fluctuations in the long run?A) relative price levels across countriesB) relative rates of productivity growth across countriesC) preferences for domestic and foreign goods across countriesD) speculating in currency markets24) Which of the following is most important in explaining exchange rate fluctuations in theshort run?A) relative price levels across countriesB) preferences for domestic and foreign goodsC) interest ratesD) relative rates of productivity growth across countries25) A Big Mac costs $3.60 in the United States and 8.00 reals in Brazil. If the exchange rate is 2reals per dollar, what is the dollar cost of a Big Mac in Brazil?A) $1.80B) $2.22C) $4.00D) $7.2026) Which of the following explains why purchasing power parity does not completely explainlong-run fluctuations in exchange rates?A) Some goods and services produced in any country are not traded internationally.B) Consumer preferences for goods and services across countries are very similar.C) Most countries do not impose barriers to trade.D) Most countries have free markets with little, if any, government regulation.Answer: A27) If inflation in Russia is higher than it is in the United States,A) the purchasing power of the ruble in buying Russian goods will rise relative to the dollar.B) the value of the dollar will rise in the long run.C) the value of the ruble will rise in the long run.D) Both A and C are correct.28) China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan has been________ at the pegged exchange rate, the Chinese government ________ its reserves of dollarsas the government purchased more ________ to maintain the pegged exchange rate.A) undervalued, increased, dollarsB) undervalued, decreased, yuanC) overvalued, decreased, yuanD) overvalued, increased, yuan29) A currency pegged at a value below the market equilibrium exchange rate isA) overvalued.B) undervalued.C) achieving purchasing power parity.D) None of the above are correct.Figure 18-830) Refer to Figure 18-8. The graph above depicts supply and demand for British pounds duringa trading day, where the quantity is millions of pounds. In order to support a fixed exchange rateof $2.00 per pound, the U.S. central bank mustA) buy 0.6 million pounds per trading day.B) sell 0.6 million pounds per trading day.C) buy 1.2 million pounds per trading day.D) sell 1.2 million pounds per trading day.Short Answer Questions1) (10 pts) Assume a country is required by law to balance the budget every year. Supposeaggregate demand falls, causing a recession and a budget deficit. To balance the budget, whatwould the government need to do with the level of government spending and taxes? How wouldthese changes in government spending and taxes affect aggregate demand and the economy?2) (10 pts) Assuming a fixed amount of taxes and a closed economy, calculate the value of thegovernment purchases multiplier, the tax multiplier, and the balanced budget multiplier if themarginal propensity to consume equals 0.5.3) (10 pts) How would you expect the Fed to respond to a negative supply shock in theeconomy?4) (10 pts) What are the three main exchange rate systems, and how do they operate?
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