# Introduction to Macroeconomics BUS 103 BUS103 Final Exam with Answers

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BUS 103 BUS/103 BUS103 FINAL EXAM (Introduction to Macroeconomics)

SECTION A

1. Which of the following statement is not true? Other things remaining the same,
1. (a)  A fall in the price level increases both exports and imports.
2. (b)  A rise in the price level decreases the real value of money.
3. (c)  A fall in the price level increases the quantity of real wealth.
4. (d)  A rise in the price level increases saving.
2. Which of the following statement is true? Other things remaining the same,
1. (a)  A fall in the price level increases both exports and imports.
2. (b)  A rise in the price level increases the real value of money.
3. (c)  A fall in the price level increases the quantity of real wealth.
4. (d)  A rise in the price level decreases saving.

3. Find an incorrect statement.

4. Find an incorrect statement.

1. (a)  The short run aggregate supply (SAS) curve slopes upward.
2. (b)  With an inflationary gap, money wage rate begins to fall and the SAS curve shifts rightward.
3. (c)  A leftward shift in the short run aggregate supply (SAS) curve causes stagflation.
4. (d)  In the long run, the quantity of real GDP is equal to potential GDP.
1. (a)  The short run aggregate supply (SAS) curve slopes upward.
2. (b)  With an inflationary gap, money wage rate begins to rise and the SAS curve shifts leftward.
3. (c)  A leftward shift in the short run aggregate supply (SAS) curve causes stagflation.
4. (d)  In the long run, the quantity of real GDP is greater than potential GDP.
1. 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:
1. (a)  increases; smaller
2. (b)  decreases; greater
3. (c)  increases; greater
4. (d)  decreases; smaller
2. 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.

1. (a)  decreases; exceeds
2. (b)  decreases; does not exceed
3. (c)  increases; does not exceed
4. (d)  increases; exceeds
1. (a)  If real GDP is below equilibrium GDP, firms start to decrease production.
2. (b)  A smaller increase in aggregate demand than the increase in the long-run aggregate supply (LAS)
brings inflation.
3. (c)  A rise in the money wage rate shifts the SAS curve leftward.
4. (d)  Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.
1. (a)  If real GDP is below equilibrium GDP, firms start to decrease production.
2. (b)  A larger increase in aggregate demand than the increase in the long-run aggregate supply (LAS)
brings inflation.
3. (c)  A rise in the money wage rate shifts the SAS curve rightward.
4. (d)  Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.
1. Which of the following would lead to an increase in aggregate demand?
1. (a)  A decrease in government expenditure
2. (b)  An increase in exports
3. (c)  A rise in interest rate
4. (d)  A fall in consumption expenditure
2. Which of the following would lead to an increase in aggregate demand?
1. (a)  A fall in interest rate
2. (b)  An decrease in exports
3. (c)  A decrease in government expenditure
4. (d)  A fall in consumption expenditure
3. 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)?
1. (a)  0.60, 0.40
2. (b)  0.75, 0.25
3. (c)  0.80, 0.20
4. (d)  0.33, 0.67
4. 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)?
1. (a)  0.85, 0.15
2. (b)  0.82, 0.18
3. (c)  0.68, 0.32
4. (d)  0.37, 0.63
1. Which of the following is autonomous expenditure (not influenced by real GDP)?
1. (a)  Consumption (C) and Government expenditure (G)
2. (b)  Consumption (C) and Imports (M)
3. (c)  Investment (I) and Government expenditure (G)
4. (d)  Exports (X) and Imports (M)
2. Which of the following is induced expenditure which is influenced by real GDP?
1. (a)  Consumption (C) and Government expenditure (G)
2. (b)  Consumption (C) and Imports (M)
3. (c)  Investment (I) and Government expenditure (G)
4. (d)  Exports (X) and Imports (M)
3. 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
4. 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
5. 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?
1. (a)  An increase by \$2 billion
2. (b)  An increase by \$4 billion
3. (c)  A decrease by \$4 billion
4. (d)  A decrease by \$2 billion
6. 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?
1. (a)  An increase by \$2 billion
2. (b)  An increase by \$6 billion
3. (c)  A decrease by \$4 billion
4. (d)  A decrease by \$6 billion
7. Which of the following is the effect of an increase in investment?
1. (a)  In the short run, the AE curve shifts upward and the AD curve shifts rightward.
2. (b)  The SAS curve will shift leftward and the real GDP exceeds potential GDP in the long run.
3. (c)  There will be recessionary gap created in the short run.
4. (d)  The multiplier is positive in the long run.
1. Which of the following is the effect of a decrease in government expenditure?
1. (a)  In the short run, the AE curve shifts downward and the AD curve shifts leftward.
2. (b)  The SAS curve will shift leftward and the real GDP exceeds potential GDP in the long run.
3. (c)  There will be recessionary gap created in the short run.
4. (d)  The multiplier is positive in the long run.
2. Which of the following factors would not lead to demand-pull inflation?
1. (a)  An increase in government expenditure
2. (b)  An increase in the quantity of money
3. (c)  An increase in exports
4. (d)  An increase in tax
3. Which of the following factors would not lead to demand-pull inflation?
1. (a)  An increase in government expenditure
2. (b)  An increase in the quantity of money
3. (c)  An decrease in exports
4. (d)  An decrease in tax
4. 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.
1. (a)  leftward; demand-pull
2. (b)  rightward; demand-pull
3. (c)  leftward; cost-push
4. (d)  rightward; cost-push
5. 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.
1. (a)  leftward; demand-pull
2. (b)  rightward; demand-pull
3. (c)  leftward; cost-push
4. (d)  rightward; cost-push
6. 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:
1. (a)  decrease; fall
2. (b)  increase; fall
3. (c)  decrease; rise
4. (d)  increase; rise
7. 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:
1. (a)  decrease; fall
2. (b)  increase; fall
3. (c)  decrease; rise
4. (d)  increase; rise

1. Which of the following factors would not lead to cost-push inflation?
1. (a)  An increase in money wage rate
2. (b)  An increase in imports
3. (c)  A rise in price of raw materials
4. (d)  A rise in oil price
2. Which of the following factors would not lead to cost-push inflation?
1. (a)  An increase in money wage rate
2. (b)  An increase in exports
3. (c)  A rise in price of raw materials
4. (d)  A rise in oil price
3. 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.
1. (a)  cost-push; greater
2. (b)  cost-push; smaller
3. (c)  demand-pull; greater
4. (d)  demand-pull; smaller
4. 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.
1. (a)  cost-push; greater
2. (b)  cost-push; smaller
3. (c)  demand-pull; greater
4. (d)  demand-pull; smaller
5. Which of the following is not a component of fiscal policy?
1. (a)  Autonomous tax multiplier
2. (b)  Balanced budget multiplier
3. (c)  Government expenditure multiplier
4. (d)  Money supply multiplier
6. Which of the following is not a component of fiscal policy?
1. (a)  Interest rate multiplier
2. (b)  Balanced budget multiplier
3. (c)  Government expenditure multiplier
4. (d)  Autonomous tax multiplier

33. Find an incorrect statement about fiscal policy instrument?

1. (a)  The size of government expenditure multiplier is greater than the autonomous tax multiplier.
2. (b)  A decrease in government expenditure decreases equilibrium expenditure.
3. (c)  An increase in autonomous taxes decreases aggregate expenditure.
4. (d)  If both government expenditure and taxes decrease by a same amount, equilibrium expenditure
increases.
1. 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.
2. Which of the following statement is not true?
1. (a)  A increase in tax on interest income would increase saving
2. (b)  A decrease in tax on interest income would increase the supply curve of loanable funds
3. (c)  A increase in tax on interest income would shift the supply curve of loanable funds leftward
4. (d)  A tax on consumption would raise prices paid for consumption goods
3. Which of the following statement is not true?
1. (a)  An increase in tax on interest income would decrease saving
2. (b)  A decrease in tax on interest income would decrease the supply curve of loanable funds
3. (c)  An increase in tax on interest income would shift the supply curve of loanable funds leftward
4. (d)  A tax on consumption would raise prices paid for consumption goods
4. A presence of automatic stabiliser ______ induced taxes on incomes and ______ transfer payments when the economy is in recession. The missing words are:
1. (a)  raises; decrease
2. (b)  lowers; increase
3. (c)  raises; increase
4. (d)  lowers; decrease
5. A presence of automatic stabiliser ______ induced taxes on incomes and ______ transfer payments when the economy is in expansion. The missing words are:
1. (a)  raises; decrease
2. (b)  lowers; increase
3. (c)  raises; increase
4. (d)  lowers; decrease
6. The supply side effects of a decrease in income tax would be:
1. (a)  Increase in aggregate supply but decrease in potential GDP
2. (b)  Decrease in aggregate supply but no change in potential GDP
3. (c)  Increase in both aggregate supply and potential GDP
4. (d)  Decrease in both aggregate supply and potential GDP
7. The supply side effects of an increase in income tax would be:
1. (a)  Increase in aggregate supply but decrease in potential GDP
2. (b)  Decrease in aggregate supply but no change in potential GDP
3. (c)  Increase in both aggregate supply and potential GDP
4. (d)  Decrease in both labour supply and potential GDP

1. Which of the following is a monetary policy instrument that RBA can directly control or closely target?
1. (a)  The exchange rate
2. (b)  The monetary base
3. (c)  The short-term interest rate
4. (d)  All of the above
2. Which of the following is not a monetary policy instrument that RBA can directly control or closely target?
1. (a)  Tax rate on interest income
2. (b)  The monetary base
3. (c)  The short-term interest rate
4. (d)  The exchange rate
3. The open market purchase ______ money supply and ______ interest rate. The missing words are:
1. (a)  decrease; lowers
2. (b)  increases; lowers
3. (c)  decreases; raises
4. (d)  increases; raises
4. The open market sale ______ money supply and ______ interest rate. The missing words are:
1. (a)  decrease; lowers
2. (b)  increases; lowers
3. (c)  decreases; raises
4. (d)  increases; raises
5. When the RBA lowers the cash rate, which of the following is not true?
1. (a)  The quantity of money and the supply of loanable funds decrease.
2. (b)  The exchange rate and the long-term real interest rate fall.
3. (c)  Consumption expenditure, investment, and net exports increase.
4. (d)  The real GDP increase and price level rises.
6. When the RBA lowers the cash rate, which of the following is true?
1. (a)  The quantity of money and the supply of loanable funds decrease.
2. (b)  The exchange rate and the long-term real interest rate rise.
3. (c)  Consumption expenditure, investment, and net exports decrease.
4. (d)  The real GDP increase and price level rises.
7. If the RBA raises the cash rate, which of the following is true?
1. (a)  Aggregate demand increases
2. (b)  Real GDP increases
3. (c)  Unemployment increases
4. (d)  Price level rises
1. If the RBA raises the cash rate, which of the following is not true?
1. (a)  Aggregate demand increases
2. (b)  Real GDP decreases
3. (c)  Unemployment increases
4. (d)  Price level falls
2. 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?
1. (a)  3.00 per cent
2. (b)  2.75 per cent
3. (c)  2.50 per cent
4. (d)  2.25 per cent
3. 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?
1. (a)  1.50 per cent
2. (b)  1.75 per cent
3. (c)  2.00 per cent
4. (d)  2.50 per cent

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