
Introduction to Macroeconomics BUS 103 BUS103 Final Exam with Answers
BUS 103 BUS/103 BUS103 FINAL EXAM (Introduction to Macroeconomics)
SECTION A
- Which of the following statement is not true? Other things remaining the same,
- (a) A fall in the price level increases both exports and imports.
- (b) A rise in the price level decreases the real value of money.
- (c) A fall in the price level increases the quantity of real wealth.
- (d) A rise in the price level increases saving.
- Which of the following statement is true? Other things remaining the same,
- (a) A fall in the price level increases both exports and imports.
- (b) A rise in the price level increases the real value of money.
- (c) A fall in the price level increases the quantity of real wealth.
- (d) A rise in the price level decreases saving.
3. Find an incorrect statement.
4. Find an incorrect statement.
- (a) The short run aggregate supply (SAS) curve slopes upward.
- (b) With an inflationary gap, money wage rate begins to fall and the SAS curve shifts rightward.
- (c) A leftward shift in the short run aggregate supply (SAS) curve causes stagflation.
- (d) In the long run, the quantity of real GDP is equal to potential GDP.
- (a) The short run aggregate supply (SAS) curve slopes upward.
- (b) With an inflationary gap, money wage rate begins to rise and the SAS curve shifts leftward.
- (c) A leftward shift in the short run aggregate supply (SAS) curve causes stagflation.
- (d) In the long run, the quantity of real GDP is greater than potential GDP.
- With the given money wage rate, as the price level falls below the equilibrium price level, the quantity of real GDP supplied _______ and the real GDP is _______ than the potential GDP. The missing words are:
- (a) increases; smaller
- (b) decreases; greater
- (c) increases; greater
- (d) decreases; smaller
- With the given money wage rate, as the price level rises above the equilibrium price level, the quantity of real GDP supplied _______ and real GDP _______ potential GDP. The missing words are:
7. Find
a correct statement.
8. Find
a correct statement.
- (a) decreases; exceeds
- (b) decreases; does not exceed
- (c) increases; does not exceed
- (d) increases; exceeds
- (a) If real GDP is below equilibrium GDP, firms start to decrease production.
- (b) A smaller increase in aggregate demand than the increase in the long-run aggregate supply (LAS)
brings inflation. - (c) A rise in the money wage rate shifts the SAS curve leftward.
- (d) Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.
- (a) If real GDP is below equilibrium GDP, firms start to decrease production.
- (b) A larger increase in aggregate demand than the increase in the long-run aggregate supply (LAS)
brings inflation. - (c) A rise in the money wage rate shifts the SAS curve rightward.
- (d) Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.
- Which of the following would lead to an increase in aggregate demand?
- (a) A decrease in government expenditure
- (b) An increase in exports
- (c) A rise in interest rate
- (d) A fall in consumption expenditure
- Which of the following would lead to an increase in aggregate demand?
- (a) A fall in interest rate
- (b) An decrease in exports
- (c) A decrease in government expenditure
- (d) A fall in consumption expenditure
- Suppose an increase in real GDP by $50 billion results in an increase in disposable income by $40 billion. This leads to an increase of consumption by $30 billion. What are the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)?
- (a) 0.60, 0.40
- (b) 0.75, 0.25
- (c) 0.80, 0.20
- (d) 0.33, 0.67
- Suppose an increase in real GDP by $30 billion results in an increase in disposable income by $25 billion. This leads to an increase of consumption by $20.5 billion. What are the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)?
- (a) 0.85, 0.15
- (b) 0.82, 0.18
- (c) 0.68, 0.32
- (d) 0.37, 0.63
- Which of the following is autonomous expenditure (not influenced by real GDP)?
- (a) Consumption (C) and Government expenditure (G)
- (b) Consumption (C) and Imports (M)
- (c) Investment (I) and Government expenditure (G)
- (d) Exports (X) and Imports (M)
- Which of the following is induced expenditure which is influenced by real GDP?
- (a) Consumption (C) and Government expenditure (G)
- (b) Consumption (C) and Imports (M)
- (c) Investment (I) and Government expenditure (G)
- (d) Exports (X) and Imports (M)
- Assume that there are no changes in income tax rates and imports. What is the size of multiplier if the marginal propensity to save (MPS) is 0.25?
(a) 5 (b) 4 (c) 3 (d) 2 - Assume that there are no changes in income tax rates and imports. What is the size of multiplier if the marginal propensity to consume (MPC) is 0.75?
(a) 5 (b) 4 (c) 3 (d) 2 - Suppose that government expenditure increases by $0.5 billion and the slope of aggregate expenditure (AE) curve is 0.75. What would be the change in real GDP?
- (a) An increase by $2 billion
- (b) An increase by $4 billion
- (c) A decrease by $4 billion
- (d) A decrease by $2 billion
- Suppose that government expenditure decreases by $1.5 billion and the slope of aggregate expenditure (AE) curve is 0.75. What would be the change in real GDP?
- (a) An increase by $2 billion
- (b) An increase by $6 billion
- (c) A decrease by $4 billion
- (d) A decrease by $6 billion
- Which of the following is the effect of an increase in investment?
- (a) In the short run, the AE curve shifts upward and the AD curve shifts rightward.
- (b) The SAS curve will shift leftward and the real GDP exceeds potential GDP in the long run.
- (c) There will be recessionary gap created in the short run.
- (d) The multiplier is positive in the long run.
- Which of the following is the effect of a decrease in government expenditure?
- (a) In the short run, the AE curve shifts downward and the AD curve shifts leftward.
- (b) The SAS curve will shift leftward and the real GDP exceeds potential GDP in the long run.
- (c) There will be recessionary gap created in the short run.
- (d) The multiplier is positive in the long run.
- Which of the following factors would not lead to demand-pull inflation?
- (a) An increase in government expenditure
- (b) An increase in the quantity of money
- (c) An increase in exports
- (d) An increase in tax
- Which of the following factors would not lead to demand-pull inflation?
- (a) An increase in government expenditure
- (b) An increase in the quantity of money
- (c) An decrease in exports
- (d) An decrease in tax
- A rise in the prices of crude oil would shift the short-run supply (SAS) curve ________ and this would cause _______ inflation. Find the missing words.
- (a) leftward; demand-pull
- (b) rightward; demand-pull
- (c) leftward; cost-push
- (d) rightward; cost-push
- A rise in the prices of raw materials would shift the short-run supply (SAS) curve ________ and this would cause _______ inflation. Find the missing words.
- (a) leftward; demand-pull
- (b) rightward; demand-pull
- (c) leftward; cost-push
- (d) rightward; cost-push
- The real business cycle theory says that a decrease in productivity would lead to a _____in labour demand and result in a _____ in real wage rate. The missing words are:
- (a) decrease; fall
- (b) increase; fall
- (c) decrease; rise
- (d) increase; rise
- The real business cycle theory says that an increase in productivity would lead to ______ in labour demand and result in a _____ in real wage rate. The missing words are:
- (a) decrease; fall
- (b) increase; fall
- (c) decrease; rise
- (d) increase; rise
- Which of the following factors would not lead to cost-push inflation?
- (a) An increase in money wage rate
- (b) An increase in imports
- (c) A rise in price of raw materials
- (d) A rise in oil price
- Which of the following factors would not lead to cost-push inflation?
- (a) An increase in money wage rate
- (b) An increase in exports
- (c) A rise in price of raw materials
- (d) A rise in oil price
- A rapid growth of trade surplus in a country would cause _______ inflation in the country as the real GDP would be _______ than the potential GDP in the short run. Find the missing words.
- (a) cost-push; greater
- (b) cost-push; smaller
- (c) demand-pull; greater
- (d) demand-pull; smaller
- An investment boom in a country and growing world demand for the country’s products would cause _______ inflation in the country as the real GDP would be _______ than the potential GDP in the short run. Find the missing words.
- (a) cost-push; greater
- (b) cost-push; smaller
- (c) demand-pull; greater
- (d) demand-pull; smaller
- Which of the following is not a component of fiscal policy?
- (a) Autonomous tax multiplier
- (b) Balanced budget multiplier
- (c) Government expenditure multiplier
- (d) Money supply multiplier
- Which of the following is not a component of fiscal policy?
- (a) Interest rate multiplier
- (b) Balanced budget multiplier
- (c) Government expenditure multiplier
- (d) Autonomous tax multiplier
33. Find an incorrect statement about fiscal policy instrument?
- (a) The size of government expenditure multiplier is greater than the autonomous tax multiplier.
- (b) A decrease in government expenditure decreases equilibrium expenditure.
- (c) An increase in autonomous taxes decreases aggregate expenditure.
- (d) If both government expenditure and taxes decrease by a same amount, equilibrium expenditure
increases.
- Find a correct statement about fiscal policy instrument?
(a) The size of government expenditure multiplier is greater than the autonomous tax multiplier.
(b) An increase in government expenditure decreases equilibrium expenditure.
(c) A decrease in autonomous taxes decreases aggregate expenditure.
(d) If both government expenditure and taxes decrease by a same amount, equilibrium expenditure
increases. - Which of the following statement is not true?
- (a) A increase in tax on interest income would increase saving
- (b) A decrease in tax on interest income would increase the supply curve of loanable funds
- (c) A increase in tax on interest income would shift the supply curve of loanable funds leftward
- (d) A tax on consumption would raise prices paid for consumption goods
- Which of the following statement is not true?
- (a) An increase in tax on interest income would decrease saving
- (b) A decrease in tax on interest income would decrease the supply curve of loanable funds
- (c) An increase in tax on interest income would shift the supply curve of loanable funds leftward
- (d) A tax on consumption would raise prices paid for consumption goods
- A presence of automatic stabiliser ______ induced taxes on incomes and ______ transfer payments when the economy is in recession. The missing words are:
- (a) raises; decrease
- (b) lowers; increase
- (c) raises; increase
- (d) lowers; decrease
- A presence of automatic stabiliser ______ induced taxes on incomes and ______ transfer payments when the economy is in expansion. The missing words are:
- (a) raises; decrease
- (b) lowers; increase
- (c) raises; increase
- (d) lowers; decrease
- The supply side effects of a decrease in income tax would be:
- (a) Increase in aggregate supply but decrease in potential GDP
- (b) Decrease in aggregate supply but no change in potential GDP
- (c) Increase in both aggregate supply and potential GDP
- (d) Decrease in both aggregate supply and potential GDP
- The supply side effects of an increase in income tax would be:
- (a) Increase in aggregate supply but decrease in potential GDP
- (b) Decrease in aggregate supply but no change in potential GDP
- (c) Increase in both aggregate supply and potential GDP
- (d) Decrease in both labour supply and potential GDP
- Which of the following is a monetary policy instrument that RBA can directly control or closely target?
- (a) The exchange rate
- (b) The monetary base
- (c) The short-term interest rate
- (d) All of the above
- Which of the following is not a monetary policy instrument that RBA can directly control or closely target?
- (a) Tax rate on interest income
- (b) The monetary base
- (c) The short-term interest rate
- (d) The exchange rate
- The open market purchase ______ money supply and ______ interest rate. The missing words are:
- (a) decrease; lowers
- (b) increases; lowers
- (c) decreases; raises
- (d) increases; raises
- The open market sale ______ money supply and ______ interest rate. The missing words are:
- (a) decrease; lowers
- (b) increases; lowers
- (c) decreases; raises
- (d) increases; raises
- When the RBA lowers the cash rate, which of the following is not true?
- (a) The quantity of money and the supply of loanable funds decrease.
- (b) The exchange rate and the long-term real interest rate fall.
- (c) Consumption expenditure, investment, and net exports increase.
- (d) The real GDP increase and price level rises.
- When the RBA lowers the cash rate, which of the following is true?
- (a) The quantity of money and the supply of loanable funds decrease.
- (b) The exchange rate and the long-term real interest rate rise.
- (c) Consumption expenditure, investment, and net exports decrease.
- (d) The real GDP increase and price level rises.
- If the RBA raises the cash rate, which of the following is true?
- (a) Aggregate demand increases
- (b) Real GDP increases
- (c) Unemployment increases
- (d) Price level rises
- If the RBA raises the cash rate, which of the following is not true?
- (a) Aggregate demand increases
- (b) Real GDP decreases
- (c) Unemployment increases
- (d) Price level falls
- Suppose in Australia that the neutral real cash rate is 2 per cent a year, the actual inflation rate is 1.5 per cent while the target inflation rate is 2.5 per cent a year, and the output gap is -1.5 per cent. Using the Taylor rule, what should be the cash rate for Australia?
- (a) 3.00 per cent
- (b) 2.75 per cent
- (c) 2.50 per cent
- (d) 2.25 per cent
- Suppose that, in Australia, the neutral real cash rate is 2 per cent a year, and the actual inflation rate is 1 per cent while the target inflation rate is 2 per cent a year. The output gap is -2 per cent. Using the Taylor rule, what should be the cash rate for Australia?
- (a) 1.50 per cent
- (b) 1.75 per cent
- (c) 2.00 per cent
- (d) 2.50 per cent