ECO 330 ECO330 Final Exam Answers (Indiana Wesleyan University)

ECO 330 ECO330 Final Exam Answers (Indiana Wesleyan University)


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Question 1.1. When the value of one currency falls relative to another currency, the exchange rate for the first currency has (Points : 1.4)



Question 2.2. When the Fed cuts the Federal funds rate, real GDP growth ________ and the inflation rate ________. (Points : 1.4)

       increases; increases
       increases; decreases
       decreases; increases
       decreases; decreases


Question 3.3. To increase the quantity of money in the economy, the Federal Reserve is likely to (Points : 1.4)

       print more money and give it to the banks.
       lower tax rates
       sell government securities in an open market operation.
       buy government securities in an open market operation.


Question 4.4. The series of ups and downs the economy tends to move in is called (Points : 1.4)

       the business cycle.
       a recession.
       a depression.
       economic growth.


Question 5.5. Recessions are commonly defined to occur (Points : 1.4)

       whenever unemployment increases.
       when growth in real GDP decreases for two consecutive quarters.
       when growth in real GDP is negative for two consecutive quarters.
       when the unemployment rate exceeds 6 percent.


Question 6.6. The working-age population is defined as the number of (Points : 1.4)

       people over the age of 16 who are not in jail, hospital, or other institution.
       people who have a job.
       people working full-time jobs who are over the age of 16.
       people looking for work.


Question 7.7. The labor force is defined as the number of (Points : 1.4)

       people 16 and over.
       unemployed people.
       people with jobs, both part-time and full-time.
       people who are employed and unemployed.


Question 8.8. Which of the following best fits the definition of unemployed? (Points : 1.4)

       retired and not working
       working less than a full work week
       not working but looking for a job
       not working and not looking for work


Question 9.9. The unemployment rate equals (Points : 1.4)

       (number of people employed/working age population) × 100.
       (number of people unemployed/labor force) × 100.
       (labor force/working age population) × 100.
       (number of people employed/number of people age 16 and over) × 100.


Question 10.10. This type of unemployment reflects the normal amount of unemployed workers who possess skills that will enable them to find another job. (Points : 1.4)

       cyclical unemployment
       frictional unemployment
       structural unemployment
       None of the above answers is correct.


Question 11.11. An example of "investment" in computing real GDP using the expenditure approach is the purchase of (Points : 1.4)

       a new set of tools by an auto mechanic, for use in repairing cars.

       100 shares of  IBM stock.

       a 100 year old house by a married couple.

       computer chips by Dell to put in their personal computers.





Question 12.12. In the above figure, what is the full-employment real wage rate and quantity of hours per year? (Points : 1.4)

       $40 and 60 billion hours per year
       $50 and 100 billion hours per year
       $35 and 100 billion hours per year
       $50 and 40 billion hours per year


Question 13.13. At the full-employment equilibrium in the labor market, (Points : 1.4)

       there is no unemployment.
       there are no job vacancies.
       there is neither a shortage nor a surplus of labor.
       the money wage rate equals the real wage rate.


Question 14.14. The term "capital," as used in macroeconomics, refers to (Points : 1.4)

       the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.
       financial wealth.
       the sum of investment and government purchases of goods.


Question 15.15. A nation's investment must be financed by (Points : 1.4)

       national saving only.
       the government's budget deficit.
       borrowing from the rest of the world only.
       national saving plus borrowing from the rest of the world.


Question 16.16. People know that the inflation rate will increase from 3 percent to 5 percent. As a result (Points : 1.4)

       the nominal interest rate falls by 2 percentage points.
       the nominal interest rate is constant.
       the nominal interest rate rises by 2 percentage points.
       the real interest rate rises by 2 percentage points.


Question 17.17. Saving by households (Points : 1.4)

       decreases when the real interest rate rises.
       increases when the real interest rate rises.
       increases when the real interest rate falls.
       is unaffected by the real interest rate.


Question 18.18. Which of the following changes while moving along the aggregate demand curve? (Points : 1.4)

       future incomes of households
       the price level
       the amount of money in the economy
       future profits from investment projects


Question 19.19. Which of the following events will increase long-run aggregate supply? (Points : 1.4)

       an increase in the interest rate
       an increase in resource prices
       a decrease in expected profit
       an advance in technology


Question 20.20. The aggregate demand curve shows (Points : 1.4)

       total expenditures at different levels of national income.
       the quantity of real GDP demanded at different price levels.
       that real income is directly (positively) related to the price level.
       All of the above answers are correct.


Question 21.21. Inflation occurs over time as a result of (Points : 1.4)

       long-run aggregate supply increasing faster than aggregate demand.
       long-run aggregate supply increasing faster than short-run aggregate supply.
       decreases in aggregate demand.
       aggregate demand increasing faster than long-run aggregate supply.


Question 22.22. The marginal propensity to consume is the ________. (Points : 1.4)

       fraction of total disposable income consumed
       fraction of GDP consumed
       fraction of a change in disposable income that is consumed.
       total amount of disposable income consumed


Question 23.23. The multiplier effect (Points : 1.4)

       generates instability in autonomous expenditure.
       promotes stability of the general price level.
       magnifies small changes in spending into larger changes in real GDP.
       increases the MPC.


Question 24.24. Demand-pull inflation starts with (Points : 1.4)

       an increase in aggregate demand.
       a decrease in aggregate demand.
       an increase in short-run aggregate supply.
       a decrease in short-run aggregate supply.


Question 25.25. Fiscal policy involves (Points : 1.4)

       the use of interest rates to influence the level of GDP.
       the use of tax and spending policies by the government.
       decreasing the role of the Federal Reserve in the everyday life of the economy.
       the use of tax and money policies by government to influence the level of interest rates.


Question 26.26. By definition, a government budget deficit is the situation that occurs when the (Points : 1.4)

       government outlays exceed what it receives in taxes.
       government miscalculated how much it will receive in taxes.
       government spends money on things which do not produce revenue, such as schools.
       economy goes into a recession.


Question 27.27. Taxes and government expenditures that, without need for additional government action, change in response to changes in the level of economic activity are examples of (Points : 1.4)

       discretionary fiscal variables.
       automatic fiscal policy.
       built-in monetary stabilizers.
       cyclically balanced budgets.


Question 28.28. Federal Reserve monetary policy goals include (Points : 1.4)

       ensuring banks can meet their profit maximization objectives.
       discount rate stability
       zero percent unemployment in the domestic economy.
       price level stability


Question 29.29. In the short run, the Federal Reserve faces a tradeoff between (Points : 1.4)

       economic growth and employment.
       inflation and price stability.
       inflation and unemployment.
       real GDP growth and potential GDP growth.


Question 30.30. The difference between actual reserves and required reserves is (Points : 1.4)

       net worth.
       excess reserves.
       illegal reserves.
       borrowings from the Fed.


Question 31.31. If the Fed wants to raise the federal funds rate it will (Points : 1.4)

       buy government securities in order to increase the quantity of reserves.
       sell government securities in order to decrease the quantity of reserves.
       buy government securities in order to decrease the quantity of reserves.
       sell government securities in order to increase the quantity of reserves.


Question 32.32. The fundamental force that generates international trade is (Points : 1.4)

       absolute advantage.
       law of increasing costs.
       law of diminishing returns.
       comparative advantage.


Question 33.33. A tariff is a (Points : 1.4)

       tax on an exported good or service.
       tax on an imported good or service.
       subsidy on an exported good.
       subsidy on an imported good.


Question 34.34. Who benefits from an import quota on a good? (Points : 1.4)

       Domestic consumers of the good
       Foreign governments
       Domestic producers of the good
       Foreign producers of the good


Question 35.35. The exchange rate is the (Points : 1.4)

       opportunity cost of pursuing a nation's comparative advantage.
       price of one country's currency expressed in terms of another country's currency.
       ratio between imports and exports.
       interest rate that is charged on risk-free international capital flow.


Question 36.36. In 2011, Ozzie purchased a 2008 Ford Escort from his neighbor for his son, purchased a 2007 "one owner" Camry from Larchmont Toyota for his wife, bought a 2011 new Ford for himself, and sold his 2000 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2011? (Points : 1.4)

       all four transactions

       all three purchases but not the sale

       the purchase of the Ford and the Caravan

       only the purchase of the 2011 Ford





Question 37.37. In the above figure, flow B represents households' ________. (Points : 1.4)

       consumption expenditures




Net taxes


Personal consumption





Government expenditure


Gross investment




Question 38.38. Using the information in the table above, calculate gross domestic product. (Points : 1.4)



Question 39.39. The ________ is the total number of people aged 16 years and older (and not in jail, hospital or institutional care) while the ________ is the number of people employed and the unemployed. (Points : 1.4)

       labor force; working-age population
       labor force participation rate; labor force
       working-age population; labor force
       working-age population; labor force participation rate


Question 40.40. If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is (Points : 1.4)

       6.6 percent.

       10 percent.

       9.1 percent.

       7.1 percent.





Question 41.41. In the above figure, line ABC is called (Points : 1.4)

       the 45-degree line.
       the consumption function.
       the saving function.
       aggregate supply.


Question 42.42. In the above figure, autonomous consumption equals (Points : 1.4)

       $4 trillion.
       $12 trillion.
       -$4 trillion.


Question 43.43. In the list of assets below, which is the most liquid? (Points : 1.4)

       $500 worth of Ford Motors common stock
       $500 worth of Ford Motors bonds
       a $500 traveler's check
       a one-ounce gold coin


Question 44.44. Reserves are ________. (Points : 1.4)

       gold in a bank's vault plus its gold at Federal Reserve banks
       cash in a bank's vault plus its deposits at Federal Reserve banks
       cash in a bank's vault plus its gold at Federal Reserve banks
       cash in a bank's vault plus the cash carried by its customers


Question 45.45. Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is currently holding $200,000 in reserves, the excess reserves are equal to (Points : 1.4)



Question 46.46. The opportunity cost of holding money balances rather than other assets is (Points : 1.4)

       the nominal interest rate.
       the price level.
       forgone consumption.
       forgone liquidity.


Question 47.47. Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double? (Points : 1.4)

       1 year
       2 years
       10 years
       49 years


Question 48.48. Labor productivity increases with (Points : 1.4)

       increases in consumption expenditure.
       increases in depreciation.
       increases in capital.
       All of the above answers are correct.


Question 49.49. In the macroeconomic short run, (Points : 1.4)

       actual real GDP may be less than or more than potential GDP.
       the unemployment rate is zero.
       by definition, the economy is always moving away from full employment.
       actual real GDP always equals potential GDP.


Question 50.50. The aggregate demand curve shows that, if other factors are held constant, a (Points : 1.4)

       higher price level results in a decrease in the quantity of real GDP demanded.
       higher price level results in an increase in the quantity of real GDP demanded.
       higher price level results in a lower interest rate.
       lower price level results in inflationary conditions.

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