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A series of multiple-choice questions covering key concepts in macroeconomics. It provides a comprehensive assessment of understanding related to aggregate demand, aggregate supply, economic growth, fiscal policy, and the keynesian model. The questions are designed to test knowledge of fundamental principles and their application to real-world scenarios.
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The answers for this practice exam are on the last page of the exam.
d. decreases in the cost of production and an increase in short-run aggregate supply.
A laissez-faire policy with respect to the macroeconomy is associated with the: a. Keynesian view that the economy is self-correcting. b. Classical view that the economy cannot automatically move to equilibrium at full employment. c. Keynesian view that the economy will not automatically move to equilibrium at full employment. d. Classical view that the economy is self-correcting.
Which of the following is not an assumption of the Classical model? a. Flexible prices and wages b. Say’s Law is true c. Unemployment does not occur d. Flexible interest rates equate the quantity of saving and investment
When total production in the economy is less than total expenditures: a. people are not willing and able to buy all output, inventories increase, and firms decrease production and employment. b. people are willing and able to buy all output, inventories decrease, and firms increase production and employment. c. an inflationary gap will emerge and output will decrease. d. a recessionary gap will emerge and output will increase. Use the graph below to respond to the next two items. Price LRAS Level SRAS B A C AD 0 QE QN Real GDP
c. the greatest macroeconomic concern during a recession is inflation. d. whatever is produced will be purchased.
b. $450 billion c. $100 billion d. $75 billion
An example of automatic (nondiscretionary) fiscal policy is: a. Congress approving a government spending increase in order to stimulate aggregate demand when the economy is in a recession. b. lower interest rates leading to increases in private consumption and investment spending. c. the President issuing an executive order limiting the ability of people to become U.S. citizens. d. an increase in the dollar amount of payments to people receiving unemployment benefits during an economic downturn.
Expansionary fiscal policy may not be an effective tool for increasing aggregate demand if: a. increases in government spending crowd out private sector (investment) activity. b. investors are very sensitive to changes in interest rates. c. there are no time lags associated with fiscal policy. d. businesses are very optimistic with respect to future economic conditions. Use the graph below to respond to the next item. Price LRAS Level SRAS AD 0 QE QN Real GDP
A fiscal policy solution to the situation illustrated in the graph above might be: a. the President lowering taxes so households have more disposable income to spend. b. banks lowering interest rates to encourage borrowing and spending. c. Congress approving an increase in government spending to stimulate aggregate demand. d. Senators agreeing to raise taxes in an effort to reduce the national debt.
Which of the following is an example of supply-side fiscal policy?
If the tax rate on $20,000 of taxable income is 12%, then the tax liability on the first $20,000 of taxable income will be: a. $1,200 for this progressive income tax structure. b. $1,200 for this proportional income structure. c. $2, 400 for this progressive income tax structure. d. $2,400 for this proportional income tax structure. Answers to Principles of Macroeconomics: Practice Exam 2
c 11. b 21. a 31. c
d 12. b 22. b 32. d
a 13. a 23. c 33. d
b 14. d 24. b 34. a
d 15. c 25. d 35. c
a 16. b 26. d 36. c
d 17. a 27. a 37. a
c 18. c 28. b 38. a
a 19. a 29. a 39. c
d 20. b 30. d 40. c 2