Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Consider two economies: A and B. Both the countries have access to the same aggregate production function and have
the same population and same efficiency units of labor, but have different technologies. Technology in economy B is more
advanced than the technology in economy A.

1) Refer to the scenario above. If the size of population is same in both the countries, at the 1)
steady-state equilibrium:
A) the capital stock will be the same in both countries.
B) the GDP per capita of country A will be higher than that of country B.
C) the GDP per capita will be the same in both countries.
D) the GDP per capita of country B will be higher than that of country A.

2) The rate of return that households expect on their savings is determined by: 2)
A) tax rates. B) government expenditure.
C) interest rates. D) exchange rates.

3) Which of the following statements is true? 3)

A) Life expectancy around the world was much lower 70 years ago than it is today.
B) Life expectancy around the world was much higher 70 years ago than it is today.
C) Global drug innovation helped lower the life expectancy rate around the world.
D) There is no gap between the life expectancy rates in rich and poor nations today.

The following table shows the GDP per capita of country X for three years.

Year GDP per capita ($)

2005 $1,500
2006 $1,745
2007 $2,050

4) Refer to the table above. At what rate did the country grow between 2006 and 2007? 4)
A) 17.47% B) 19.24% C) 15.55% D) 13.63%

5) When institutions do not protect private property rights, do not uphold contracts, interfere with 5)
the working of markets and instead erect significant barriers into businesses and occupations,
they are referred to as:
A) exclusive economic institutions. B) transitive economic institutions.
C) extractive economic institutions. D) inclusive economic institutions.

6) Which of the following statements is true? 6)

A) The government plays absolutely no role in economies characterized by market
economies.
B) Competition among firms is likely to be higher in market economies than in communist
economies.
C) The government plays absolutely no role in economies characterized by communism.
D) Competition among firms is likely to be higher in communist economies than in market
economies.

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 7) Consider two countries-country A and B. Both economies are exactly similar in all aspects 7)
except for one. There are well-defined property rights in country A, while there are no property
rights in country B. Given this information, which of the following statements is likely to be
true?
A) Economy A is likely to grow faster than economy B.
B) Economy B is likely to grow faster than economy A.
C) Both economies are likely to grow at the same rate.
D) None of the countries is likely to experience any growth in GDP.

8) Which of the following statements is true? 8)

A) The level of innovation is likely to be similar in an economy with inclusive institutions
and an economy with extractive institutions.
B) The number of entrepreneurs is likely to be lower in an economy with extractive
institutions than an economy with inclusive institutions.
C) The number of entrepreneurs is likely to be higher in an economy with extractive
institutions than an economy with inclusive institutions.
D) The level of innovation is likely to be similar in a command economy and a market
economy.

9) The pattern of colonialization adopted by European countries was: 9)

A) basically profit driven. B) basically welfare driven.
C) based on communal grounds. D) pro-natives in all nations.

10) What will happen to the demand curve for workers in cotton farms if the price of cotton falls, 10)
assuming all else equal?
A) There will be a rightward shift in the demand curve for these workers.
B) There will be a leftward shift in the demand curve for these workers.
C) There will be a downward movement along the demand curve for these workers.
D) There will be an upward movement along the demand curve for these workers.

11) Which of the following groups of people will be considered as unemployed? 11)
A) Workers who experienced a wage cut due to recession
B) Agricultural workers who are unemployed and have been looking for jobs for the last
four weeks
C) Employees working in public sector undertakings
D) Housewives raising kids at home and not looking for jobs

12) Which of the following is a part of the potential work force of a country? 12)
A) People on active duty in the military.
B) Children aged 15 and lower
C) Institutionalized people
D) Civilian non-institutionalized people aged 16 years and above

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 13) Which of the following statements is true? 13)
A) At the equilibrium wage rate, quantity supplied of labor exceeds the quantity demanded
of labor.
B) At wages below the equilibrium wage rate, quantity supplied of labor exceeds the
quantity demanded of labor.
C) At wages above the equilibrium wage rate, quantity supplied of labor exceeds the
quantity demanded of labor.
D) At the equilibrium wage rate, quantity demanded of labor exceeds the quantity supplied
of labor.

14) Which of the following statements correctly differentiates between unemployed workers and 14)
discouraged workers?
A) Unemployed workers do not have a paid job, while discouraged workers have a paid job.
B) The unemployment benefits received by unemployed workers are not capped, while the
unemployment benefits received by discouraged workers are capped at a maximum.
C) Unemployed workers are counted in the labor force, but discouraged workers are
excluded from the labor force.
D) Unemployed workers refer to the skilled workers who have been laid off, while
discouraged workers refer to the unskilled workers who have lost their jobs.

The following figure shows the labor demand curve, LD 1, and labor supply curve, LS 1, in a market. A month later, the
labor demand curve shifts to LD 2.

15) Refer to the figure above. If there is downward wage rigidity in the market, what is the wage 15)
rate at which wages will be held, everything else remaining unchanged?
A) $30 B) $25 C) $10 D) $15

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16) The number of adults not in the work force of a country equals 6 million and the number of 16)
individuals employed is 5 million. If there are 12 million potential adult workers in the economy,
what is the current unemployment rate in this country?
A) 16.67 percent B) 12.45 percent C) 21 percent D) 30.55 percent

17) The labor supply curve is: 17)

A) upward sloping. B) downward sloping.
C) vertical. D) horizontal.

18) Which of the following statements is true? 18)

A) The wages expected by potential workers are independent of their educational
qualifications.
B) The wages expected by potential workers are independent of their work experience.
C) All people seeking paid jobs are eventually employed.
D) Some people seeking paid jobs may not be able to find employment.

19) If there are 48 million people in a country's labor force, and the number of potential adult 19)
workers in the country is 80 million, the labor force participation rate in the economy is:
A) 60 percent. B) 48 percent. C) 80 percent. D) 90 percent.

20) Minimum wages: 20)

A) can reduce wage rigidity.
B) benefit all workers.
C) can increase unemployment.
D) are usually set below equilibrium wages.

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The following figure shows two credit demand curves, CD 1 and CD2, and two credit supply curves, CS 1 and CS 2.

21) Refer to the figure above. What is the equilibrium quantity of credit when the credit demand 21)
curve is CD1 and the credit supply curve is CS 1?
A) $30 B) $40 C) $50 D) $20

22) The statement of assets and liabilities of an entity is referred to as: 22)
A) an asset-liability sheet. B) a balance sheet.
C) the balance of payments. D) a profit and loss statement.

23) Claims that economic agents have against banks are known as: 23)
A) liabilities. B) assets. C) capital. D) deposits.

24) If an individual borrows $200 at an annual rate of interest of 10%, what is the total amount that 24)
he will have to repay after one year?
A) $200 B) $220 C) $210 D) $20

25) Assuming all else equal, if a household is pessimistic about future income, it is likely to cause 25)
a(n):
A) downward movement along the current credit supply curve of the household.
B) shift in the current credit supply curve of the household to the left.
C) shift in the current credit supply curve of the household to the right.
D) upward movement along the current credit supply curve of the household.

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26) Which of the following statements is true? 26)
A) An increase in the real interest rate might discourage savings.
B) In an economy which has a positive inflation rate, the real wage rate is always greater
than the nominal wage rate.
C) An increase in the nominal wage rate leads to a decrease in the real wage rate if the price
level is stable.
D) An increase in the real interest rate always encourages higher savings.

27) Cash equivalents are: 27)

A) the amount of deposits held by the public in a particular bank.
B) a part of a bank's liability.
C) assets that do not attract interest, and hence generate no additional revenue.
D) riskless, liquid assets that banks can immediately access.

28) All else equal, a decrease in government borrowing is likely to cause a(n): 28)
A) leftward shift of the credit demand curve.
B) downward movement along the credit demand curve.
C) rightward shift of the credit demand curve.
D) upward movement along the credit demand curve.

29) Assuming all else equal, if a household is optimistic about future income, it is likely to cause: 29)
A) the current credit supply curve of the household to shift to the left.
B) the current credit supply curve of the household to shift to the right.
C) an upward movement along the current credit supply curve of the household.
D) a downward movement along the current credit supply curve of the household.

30) The opportunity cost of current consumption is: 30)

A) the inflation rate. B) the real interest rate.
C) real wage rate. D) nominal wage rate.

31) The two key objectives of the Fed are: 31)

A) low and predictable levels of inflation, and zero unemployment.
B) zero inflation, and zero unemployment.
C) low and predictable levels of inflation, and maximum levels of employment.
D) low and predictable levels of inflation, and interest rates above 10%.

32) Investments that a bank makes are known as: 32)

A) assets. B) capital. C) liabilities. D) deposits.

33) One of the impacts of maturity transformation is that: 33)

A) relatively liquid assets become relatively illiquid.
B) relatively illiquid assets become relatively liquid.
C) it decreases the rate of inflation.
D) it increases the rate of inflation.

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 34) A researcher finds that for an economy, the nominal GDP in the year 2012 equals the nominal 34)
GDP in the year 2013. He also finds that the output of the economy has been the same over the
two years. A situation like this is possible only if:
A) the annual interest rate in the economy is negative.
B) the annual inflation rate in the economy is zero percent.
C) the annual inflation rate in the economy is negative.
D) the annual interest rate in the economy is zero percent.

35) Which of the following statements is NOT a function of the Fed? 35)
A) It oversees interbank payment systems.
B) It ensures that commercial banks report their assets and liabilities with accuracy.
C) It regulates the various stock markets in the economy.
D) It monitors the stockholders' equity of commercial banks.

36) Which of the following statements correctly highlights a difference between real GDP and 36)
nominal GDP?
A) Real GDP strips out the effect of changing prices on the value of goods and services
produced, while nominal GDP does not.
B) Real GDP does not take into account the value of goods produced and also services
provided, while nominal GDP takes these into account.
C) Real GDP includes the value of goods and services produced by foreign firms, while
nominal GDP does not.
D) Real GDP includes the value of goods and services produced by domestic firms in foreign
countries, while nominal GDP does not.

37) Which of the following changes will cause a downward movement along the demand curve for 37)
reserves?
A) A decrease in the federal funds rate B) An increase in deposits held by banks
C) An increase in the federal funds rate D) A decrease in deposits held by banks

38) If the realized real interest rate in an economy is 6%, the nominal interest rate is 8%, and the 38)
expected inflation rate is 8%, then the realized inflation rate in the economy is:
A) 8%. B) 6%. C) 4%. D) 2%.

39) Which of the following equations is correct? 39)

A) Realized real interest rate = nominal interest rate - realized inflation rate
B) Realized real interest rate = realized inflation rate
C) Realized real interest rate = nominal interest rate - realized nominal interest rate
D) Realized real interest rate = nominal interest rate + realized inflation rate

Consider an economy that produces only cell phones. In the year 2012, the economy manufactures 275 cell phones, and
each cell phone sells at $200. In the year 2013, the economy manufactures 280 cell phones but the price of each cell phone
falls to $180.

40) Refer to the scenario above. Using 2012 as the base year, what is the real GDP of the economy in 40)
2012?
A) $55,000 B) $57,500 C) $45,000 D) $75,000

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41) Assuming all else equal, if a bank expects a bank run in the future: 41)
A) its demand curve for reserves will shift to the left.
B) there will be a downward movement along its demand curve for reserves.
C) its demand curve for reserves will shift to the right.
D) there will be an upward movement along its demand curve for reserves.

42) Which of the following is likely to happen to the demand curve for reserves if the federal funds 42)
rate increases?
A) The demand curve for reserves will shift to the left.
B) There will be a downward movement along the demand curve for reserves.
C) There will be an upward movement along the demand curve for reserves.
D) The demand curve for reserves will shift to the right.

43) If the growth rate of nominal GDP and the rate of inflation in an economy are 4% and 1% 43)
respectively, the growth rate of real GDP in the economy must be:
A) 4%. B) 5%. C) 1%. D) 3%.

44) In the United States, money supply is most commonly referred to as ________. 44)
A) M1 B) M2 C) M3 D) M4

45) If there is a change in the federal funds rate from a target rate due to a decrease in the demand 45)
for reserves, the Fed can maintain the target by:
A) causing a downward movement along the supply of reserves curve.
B) causing the supply curve of reserves to shift to the right.
C) causing the supply curve of reserves to shift to the left.
D) causing an upward movement along the supply of reserves curve.

46) Frictional unemployment exists because: 46)

A) firms and workers have imperfect information about each other and the state of the
economy.
B) job markets are heavily regulated by the government..
C) firms do not make an attempt to advertise the vacancies they have.
D) unemployment benefits are capped in most economies.

47) Which of the following statements is true? 47)

A) There always exists some amount of unemployment in an economy.
B) The unemployment in an economy normally increases at times of expansion and
decreases at times of contraction.
C) The unemployment rate in an economy is constant over the long run.
D) In almost every economy, each job opening is instantly filled by a qualified worker.

48) Which of the following equations is correct? 48)

A) Growth Rate of Nominal GDP = Inflation/Growth Rate of Interest Rates
B) Growth Rate of Nominal GDP = Inflation - Growth Rate of real GDP
C) Growth Rate of Nominal GDP = Inflation + Growth Rate of real GDP
D) Growth Rate of Nominal GDP = Growth Rate of Interest Rates/Inflation

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49) Which of the following statements is true of the federal funds market? 49)
A) The interbank lending system works more efficiently in periods of financial panic than in
periods of financial stability.
B) No banks are refused loans in the federal funds market.
C) In the federal funds market, banks with a shortage of reserves borrow funds, while banks
with an excess of reserves lends them out.
D) Although the federal funds market aims to provide liquidity to needy banks, it is not very
popular as overnight loans are logistically inefficient for large banks.

50) Hyperinflationary episodes are always related to extremely rapid growth of: 50)
A) real GDP. B) interest rates.
C) money demand. D) money supply.

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Answer Key
Testname: FALL2016MACRO2

1) D
2) C
3) A
4) A
5) C
6) B
7) A
8) B
9) A
10) B
11) B
12) D
13) C
14) C
15) B
16) A
17) A
18) D
19) A
20) C
21) A
22) B
23) A
24) B
25) C
26) A
27) D
28) A
29) A
30) B
31) C
32) A
33) A
34) B
35) C
36) A
37) A
38) D
39) A
40) A
41) C
42) C
43) D
44) B
45) C
46) A
47) A
48) C
49) C

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Answer Key
Testname: FALL2016MACRO2

50) D

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